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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549



FORM 10-K/A
(Amendment No. 1)

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2008



SIMON PROPERTY GROUP, INC.
(Exact name of registrant as specified in its charter)

Delaware
(State or other jurisdiction
of incorporation or organization)
  001-14469
(Commission File No.)
  04-6268599
(I.R.S. Employer
Identification No.)

225 West Washington Street
Indianapolis, Indiana 46204
(Address of principal executive offices) (ZIP Code)

(317) 636-1600
(Registrant's telephone number, including area code)

Securities registered pursuant to Section 12 (b) of the Act:

Title of each class
 
Name of each exchange
on which registered
Common stock, $0.0001 par value   New York Stock Exchange
6% Series I Convertible Perpetual Preferred Stock, $0.0001 par value   New York Stock Exchange
83/8% Series J Cumulative Redeemable Preferred Stock, $0.0001 par value   New York Stock Exchange

Securities registered pursuant to Section 12 (g) of the Act: None



            Indicate by check mark if the Registrant is a well-known seasoned issuer (as defined in Rule 405 of the Securities Act). Yes ý    No o

            Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o    No ý

            Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý    No o

            Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o    No o

            Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ý

            Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller company. See the definitions of "large accelerated filer," "accelerated filer," and "smaller reporting company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer ý   Accelerated filer o   Non-accelerated filer o
(Do not check if a smaller reporting company)
  Smaller reporting company o

            Indicate by checkmark whether the Registrant is a shell company (as defined in rule 12-b of the Act). Yes o    No ý

            The aggregate market value of shares of common stock held by non-affiliates of the Registrant was approximately $19,730 million based on the closing sale price on the New York Stock Exchange for such stock on June 30, 2008.

            As of January 31, 2009, Simon Property Group, Inc. had 231,303,288 and 8,000 shares of common stock and Class B common stock outstanding, respectively.



Documents Incorporated By Reference

            Portions of the Registrant's Annual Report to Stockholders are incorporated by reference into Parts I, II and IV; and portions of the Registrant's Proxy Statement in connection with its 2009 Annual Meeting of Stockholders are incorporated by reference in Part III.



EXPLANATORY NOTE

            This Amendment No. 1 on Form 10-K/A (the "Amendment") amends the Annual Report on Form 10-K of Simon Property Group, Inc. ("we", "us", or "our"), for the year ended December 31, 2008, that we originally filed with the Securities and Exchange Commission (the "SEC") on February 26, 2009 (the "Original Filing"). On May 1, 2009, we filed a Quarterly Report on Form 10-Q for the period ended March 31, 2009 (the "Quarterly Report"). The Quarterly Report reflects our adoption of Statement of Financial Accounting Standards No. 160, Noncontrolling Interests in Consolidated Financial Statements, an amendment to ARB 51 (SFAS 160) and the application of EITF Topic D-98, Classification and Measurement of Redeemable Securities (EITF D-98), to certain redeemable securities, as further described in Note 3 to the Condensed Notes to Consolidated Financial Statements included in the Quarterly Report. The Quarterly Report included reclassifications of prior period amounts to conform to the 2009 presentation. We are filing this Amendment to amend Items 6, 7 and 8 in Part II of the Original Filing in their entirety to conform to the 2009 presentation included in the Quarterly Report. In addition, in connection with the filing of this Amendment and pursuant to the rules of the SEC, we are including with this Amendment exhibits consisting of an amended computation of the ratio of earnings to fixed charges and preferred stock dividends, currently dated certifications of our senior executives and a consent from our independent registered public accounting firm. Accordingly, Item 15 of Part IV has also been amended to reflect the filing of these exhibits.

            This Form 10-K/A does not attempt to modify or update any other disclosures set forth in the Original Filing, except as required to reflect the amended information in this Form 10-K/A. Additionally, this amended Form 10-K/A, except for the amended information included in Part II and Part IV, speaks as of the filing date of the Original Filing and does not update or discuss any other developments affecting us subsequent to the date of the Original Filing.

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Simon Property Group, Inc. and Subsidiaries
Form 10-K/A
Year Ended December 31, 2008

Table of Contents

Part II

 
   
  Page No.

Item 6.

 

Selected Financial Data

  4

Item 7.

 

Management's Discussion and Analysis of Financial Condition and Results of Operations

 
5

 

 

 

 

 

Item 8.

 

Financial Statements and Supplemental Data

  26

Part IV

Item 15.

 

Exhibits and Financial Statement Schedules

 
66

Signatures

 
67

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Part II

Item 6.    Selected Financial Data

            The following tables set forth selected financial data. The selected financial data should be read in conjunction with the financial statements and notes thereto and with Management's Discussion and Analysis of Financial Condition and Results of Operations. Other data we believe is important in understanding trends in our business is also included in the tables. Certain information in this table has been retrospectively adjusted based upon the reclassifications discussed in Note 3 to the consolidated financial statements.

 
  As of or for the Year Ended December 31,  
 
  2008   2007   2006   2005   2004(1)  
 
  (in thousands, except per share data)
 

OPERATING DATA:

                               
 

Total consolidated revenue

  $ 3,783,155   $ 3,650,799   $ 3,332,154   $ 3,166,853   $ 2,585,079  
 

Consolidated Income from continuing operations

    599,560     674,605     729,727     503,148     466,791  
 

Net income available to common stockholders

  $ 422,517   $ 436,164   $ 486,145   $ 401,895   $ 300,647  

BASIC EARNINGS PER SHARE:

                               
 

Income from continuing operations

  $ 1.88   $ 2.09   $ 2.20   $ 1.27   $ 1.49  
 

Discontinued operations

        (0.13 )       0.55     (0.04 )
                       
 

Net income attributable to common stockholders

  $ 1.88   $ 1.96   $ 2.20   $ 1.82   $ 1.45  
                       
 

Weighted average shares outstanding

    225,333     222,998     221,024     220,259     207,990  

DILUTED EARNINGS PER SHARE:

                               
 

Income from continuing operations

  $ 1.87   $ 2.08   $ 2.19   $ 1.27   $ 1.48  
 

Discontinued operations

        (0.13 )       0.55     (0.04 )
                       
 

Net income attributable to common stockholders

  $ 1.87   $ 1.95   $ 2.19   $ 1.82   $ 1.44  
                       
 

Diluted weighted average shares outstanding

    225,884     223,777     221,927     221,130     208,857  
 

Dividends per share (2)

  $ 3.60   $ 3.36   $ 3.04   $ 2.80   $ 2.60  

BALANCE SHEET DATA:

                               
 

Cash and cash equivalents

  $ 773,544   $ 501,982   $ 929,360   $ 337,048   $ 520,084  
 

Total assets

    23,422,749     23,442,466     22,003,173     21,068,666     22,018,607  
 

Mortgages and other indebtedness

    18,042,532     17,218,674     15,394,489     14,106,117     14,586,393  
 

Total equity

  $ 3,101,967     3,414,612     4,040,676     4,444,227     4,900,450  

OTHER DATA:

                               
 

Cash flow provided by (used in):

                               
   

Operating activities

  $ 1,634,484   $ 1,559,432   $ 1,316,148   $ 1,195,141   $ 1,100,958  
   

Investing activities

    (1,020,872 )   (2,049,576 )   (607,432 )   (52,434 )   (2,745,697 )
   

Financing activities

  $ (342,050 ) $ 62,766   $ (116,404 ) $ (1,325,743 ) $ 1,629,200  
 

Ratio of Earnings to Fixed Charges and Preferred Stock Dividends

    1.40x     1.44x     1.56x     1.40x     1.51x  
                       
 

Funds from Operations (FFO) (3)

  $ 1,852,331   $ 1,691,887   $ 1,537,223   $ 1,411,368   $ 1,181,924  
                       
 

FFO allocable to Simon Property

  $ 1,477,446   $ 1,342,496   $ 1,215,319   $ 1,110,933   $ 920,196  
                       

Notes

(1)
On October 14, 2004 we acquired the former Chelsea Property Group, Inc. In the accompanying financial statements, Note 2 describes the basis of presentation.

(2)
Represents dividends declared per period.

(3)
FFO is a non-GAAP financial measure that we believe provides useful information to investors. Please refer to Management's Discussion and Analysis of Financial Condition and Results of Operations for a definition and reconciliation of FFO.

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Item 7.    Management's Discussion and Analysis of Financial Condition and Results of Operations

Simon Property Group, Inc. and Subsidiaries

            You should read the following discussion in conjunction with the consolidated financial statements and notes thereto that are included in this Annual Report to Stockholders.

Overview

            Simon Property Group, Inc., or Simon Property, is a Delaware corporation that operates as a self-administered and self-managed real estate investment trust, or REIT, under the Internal Revenue Code. To qualify as a REIT, among other things, a company must distribute at least 90 percent of its taxable income to its stockholders annually. Taxes are paid by stockholders on dividends received and any capital gains distributed. Most states also follow this federal treatment and do not require REITs to pay state income tax. Simon Property Group, L.P., or the Operating Partnership, is our majority-owned partnership subsidiary that owns all of our real estate properties. In this discussion, the terms "we", "us" and "our" refer to Simon Property Group, Inc. and its subsidiaries.

            We own, develop, and manage retail real estate properties in five retail real estate platforms: regional malls, Premium Outlet Centers®, The Mills®, community/lifestyle centers, and international properties. As of December 31, 2008, we owned or held an interest in 324 income producing properties in the United States, which consisted of 164 regional malls, 70 community/lifestyle centers, 16 additional regional malls and four additional community centers acquired as a result of the 2007 acquisition of The Mills Corporation, or the Mills acquisition, 40 Premium Outlet Centers, 16 The Mills, and 14 other shopping centers or outlet centers in 41 states plus Puerto Rico. The Mills acquisition is described below in the "Results of Operations" section. We also own interests in four parcels of land held in the United States for future development. In the United States, we have one new property currently under development aggregating approximately 400,000 square feet which will open during 2009. Internationally, we have ownership interests in 52 European shopping centers (located in France, Italy, and Poland); seven Premium Outlet Centers located in Japan, one Premium Outlet Center located in Mexico, one Premium Outlet Center located in Korea, and one shopping center located in China. Also, through joint venture arrangements we have ownership interests in the following properties under development internationally: a 24% interest in two shopping centers in Italy, a 40% interest in a Premium Outlet Center in Japan, and a 32.5% interests in three additional shopping centers under construction in China.

            We generate the majority of our revenues from leases with retail tenants including:

            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 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:

            We also grow by generating supplemental revenues from the following activities:

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            We focus on high quality real estate across the retail real estate spectrum. We expand or renovate to enhance existing assets' profitability and market share when we believe the investment of our capital meets our risk-reward criteria. We selectively develop new properties in major metropolitan areas that exhibit strong population and economic growth.

            We routinely review and evaluate acquisition opportunities based on their ability to complement our portfolio. Lastly, we are selectively expanding our international presence. 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:

            As more fully discussed in Notes 3 and 10 of the consolidated financial statements, we have retrospectively adopted SFAS 160 and concurrently applied certain provisions of EITF D-98. This resulted in the recording of certain reclassifications related to previously-reported minority interests and limited partner interests, which are now reported and referred to as noncontrolling interests within this discussion and the consolidated financial statements. These reclassifications had no impact on previously reported net income available to common stockholders or earnings per share.

Results Overview

            Diluted earnings per common share decreased $0.08 during 2008, or 4.1%, to $1.87 from $1.95 for 2007. The decrease is primarily due to the $20.3 million loss relating to the redemption of remarketable debt securities, and $21.2 million in impairment charges in 2008, as compared to net gains aggregating $1.7 million related to sales and disposition activity and impairment charges for the comparable period in 2007. Consolidated total revenues increased $132.4 million, or 3.6%, driven by the full year effect of our 2007 openings and expansion activities and the releasing of space at higher rental rates per square foot, or psf. Releasing spreads in the regional mall and Premium Outlet portfolios were strong at $8.02 psf (or 21.3%) and $12.48 psf (or 48.8%), respectively, due to continued demand for higher quality space in our portfolio. Total operating expenses increased $106.9 million, or 5.0%, due to additional depreciation provisions related to the full year of operations for 2007 openings and 2008 new openings, an increase in the provision for bad debts due to the estimated uncollectability of certain tenant receivables, and higher personnel and utility costs attributable to normal inflationary increases. Interest costs remained relatively flat despite an increase in total debt due to lowered variable borrowing costs as a result of a reduced one-month LIBOR rate, the benchmark rate for most of our floating rate debt.

            In the United States, business fundamentals were relatively stable, except for tenant sales psf which were mixed across the portfolio, and were dependent upon asset type, geographic location, and mix of specialty and luxury tenants. Average base rents for the regional mall and domestic Premium Outlet portfolios were relatively stable for 2008. The regional malls average base rent ended the year at $39.49 psf, or an increase of 6.5% over 2007. The domestic Premium Outlets average base rent ended the year at $27.65 psf, or an increase of 7.7%. The stability of the occupancy, rent psf, and releasing rental spread fundamentals contributed to our ability to generate growth in our operating results despite the adverse effects the general economic pressures are creating for our tenants and the consumer.

            Internationally, in 2008, we and our joint venture partners opened three additional centers (one each in Italy, China, and Japan) and expanded two existing Premium Outlet Centers which added an aggregate 1 million square feet of retail space to the international portfolio. Also during 2008, we acquired shares of stock of Liberty

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International, PLC, or Liberty. Liberty operates regional shopping centers and is the owner of other prime retail assets throughout the U.K. Liberty is a U.K. FTSE 100 listed company, with shareholders' funds of £4.7 billion and property investments of £8.6 billion, of which its U.K. regional shopping centers comprise 75%. Assets of the group under control or joint control amount to £11.0 billion. Liberty converted into a U.K. Real Estate Investment Trust (REIT) on January 1, 2007. Our interest in Liberty is less than 5% of their shares and is adjusted to their quoted market price, including a related foreign exchange component.

            Our effective overall borrowing rate for the year ended December 31, 2008, decreased 55 basis points to 5.12% as compared to the year ended December 31, 2007. This was a result of a significant decrease in the base LIBOR rate applicable to a majority of our floating rate debt (0.44% at December 31, 2008, versus 4.60% at December 31, 2007) and also the issuance of new unsecured and secured debt at favorable rates. Our financing activities for the year ended December 31, 2008, included:

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United States Portfolio Data

            The portfolio data discussed in this overview includes the following key operating statistics: occupancy; average base rent per square foot; and comparable sales per square foot for our four domestic platforms. We include acquired properties in this data beginning in the year of acquisition and remove properties sold in the year disposed. We are separately reporting in this section the 16 regional malls we acquired in the 2007 acquisition of The Mills Corporation, or the Mills acquisition. We do not include any properties located outside of the United States in this section. The following table sets forth these key operating statistics for:

 
  2008   %/Basis Points
Change(1)
  2007   %/Basis Points
Change(1)
  2006   %/Basis Point
Change(1)
Regional Malls:                              
Occupancy                              
Consolidated     92.6%   -130 bps     93.9%   +90 bps     93.0%   -30 bps
Unconsolidated     91.9%   -80 bps     92.7%   -80 bps     93.5%   +80 bps
Total Portfolio     92.4%   -110 bps     93.5%   +30 bps     93.2%   +10 bps

Average Base Rent per Square Foot

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 
Consolidated   $ 38.21   5.4%   $ 36.24   4.2%   $ 34.79   2.2%
Unconsolidated   $ 42.03   8.5%   $ 38.73   6.2%   $ 36.47   3.3%
Total Portfolio   $ 39.49   6.5%   $ 37.09   4.8%   $ 35.38   2.6%

Comparable Sales per Square Foot

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 
Consolidated   $ 445   (5.6%)   $ 472   2.2%   $ 462   6.2%
Unconsolidated   $ 523   (1.5%)   $ 530   4.9%   $ 505   5.6%
Total Portfolio   $ 470   (4.3%)   $ 491   3.2%   $ 476   5.8%
Premium Outlet Centers:                              
Occupancy     98.9%   -80 bps     99.7%   +30 bps     99.4%   -20 bps
Average Base Rent per Square Foot   $ 27.65   7.7%   $ 25.67   5.9%   $ 24.23   4.6%
Comparable Sales per Square Foot   $ 513   1.8%   $ 504   7.0%   $ 471   6.1%

The Mills®:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 
Occupancy     94.5%   +40 bps     94.1%        
Average Base Rent per Square Foot   $ 19.51   2.4%   $ 19.06        
Comparable Sales per Square Foot   $ 372   0.1%   $ 372        

Mills Regional Malls:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 
Occupancy     87.4%   -210 bps     89.5%        
Average Base Rent per Square Foot   $ 36.99   3.8%   $ 35.63        
Comparable Sales per Square Foot   $ 418   (5.8%)   $ 444        

Community/Lifestyle Centers:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 
Occupancy                              
Consolidated     89.3%   -360 bps     92.9%   +140 bps     91.5%   +200 bps
Unconsolidated     93.3%   -330 bps     96.6%   +10 bps     96.5%   +40 bps
Total Portfolio     90.7%   -340 bps     94.1%   +90 bps     93.2%   +160 bps

Average Base Rent per Square Foot

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 
Consolidated   $ 13.70   7.6%   $ 12.73   7.0%   $ 11.90   1.7%
Unconsolidated   $ 12.41   4.7%   $ 11.85   1.5%   $ 11.68   8.0%
Total Portfolio   $ 13.25   6.6%   $ 12.43   5.2%   $ 11.82   3.6%

(1)
Percentages may not recalculate due to rounding.

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            Occupancy Levels and Average Base Rent Per Square Foot.    Occupancy and average base rent are based on mall and freestanding Gross Leasable Area, or GLA, owned by us in the regional malls, and all tenants at The Mills, Premium Outlet Centers, and community/lifestyle centers. Our portfolio has maintained relatively stable occupancy and increased the aggregate average base rents despite the current economic climate.

            Comparable Sales Per Square Foot.    Comparable sales include total reported retail tenant sales at owned GLA (for mall and freestanding stores with less than 10,000 square feet) in the regional malls, and all reporting tenants at The Mills and the Premium Outlet Centers and community/lifestyle centers. Retail sales at owned GLA affect revenue and profitability levels because sales determine the amount of minimum rent that can be charged, the percentage rent realized, and the recoverable expenses (common area maintenance, real estate taxes, etc.) that tenants can afford to pay.

International Property Data

            The following are selected key operating statistics for certain of our international properties.

 
  2008   % Change   2007   % Change   2006  

European Shopping Centers

                               

Occupancy

    98.4 %         98.7 %         97.1 %

Comparable sales per square foot

    €411     -2.5 %   €421     7.7 %   €391  

Average rent per square foot

    €30.11     1.8 %   €29.58     12.5 %   €26.29  

International Premium Outlet Centers (1)

                               

Occupancy

    99.9 %         100 %         100 %

Comparable sales per square foot

    ¥92,000     -1.3 %   ¥93,169     4.4 %   ¥89,238  

Average rent per square foot

    ¥4,685     1.3 %   ¥4,626     -0.4 %   ¥4,646  

(1)
Does not include one center in Mexico (Premium Outlets Punta Norte), one center in Korea (Yeoju Premium Outlets), and one shopping center in China.

Critical Accounting Policies

            The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America, 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 and 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 evaluate 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 Consolidated Financial Statements.

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Results of Operations

            In addition to the activity discussed above in "Results Overview", the following acquisitions, property openings, and other activity affected our consolidated results from continuing operations in the comparative periods:

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            In addition to the activities discussed above and in "Results Overview", the following acquisitions, dispositions, and property openings affected our income from unconsolidated entities in the comparative periods:

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            For the purposes of the following comparisons between the years ended December 31, 2008 and 2007 and the years ended December 31, 2007 and 2006, the above transactions are referred to as the property transactions. In the following discussions of our results of operations, "comparable" refers to properties open and operating throughout both the current and prior year.

            In 2008 we had no consolidated property dispositions. During 2007, we disposed of five consolidated properties that had an aggregate book value of $91.6 million for aggregate sales proceeds of $56.4 million, resulting in a net loss on sale of $35.3 million. The loss on sale of these assets has been reported as discontinued operations in the consolidated statements of operations. The operating results of the properties that we sold or disposed during 2007 were not significant to our consolidated results of operations. The following is a list of consolidated property dispositions and the date of disposition for which we have reported the operations or results of sale with discontinued operations:

Property  
Date of Disposition      

Lafayette Square

  December 27, 2007

University Mall

  September 28, 2007

Boardman Plaza

  September 28, 2007

Griffith Park Plaza

  September 20, 2007

Alton Square

  August 2, 2007

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            We sold the following properties in 2006. Due to the limited significance of these properties' operations and result of disposition on our consolidated financial statements, we did not report these properties as discontinued operations.

Property  
Date of Disposition      

Northland Plaza

  December 22, 2006

Trolley Square

  August 3, 2006

Wabash Village

  July 27, 2006

Year Ended December 31, 2008 vs. Year Ended December 31, 2007

            Minimum rents increased $137.2 million in 2008, of which the property transactions accounted for $64.6 million of the increase. Comparable rents increased $72.6 million, or 3.6%. This was primarily due to an increase in minimum rents of $82.1 million and an $8.5 million increase in straight-line rents, offset by a $16.4 million decrease in comparable property activity, primarily attributable to lower amounts of fair market value of in-place lease amortization.

            Overage rents decreased $9.8 million or 8.9%, as a result of a reduction in tenant sales for the period as compared to the prior year.

            Tenant reimbursements increased $42.8 million, due to a $26.9 million increase attributable to the property transactions and a $15.9 million, or 1.6%, increase in the comparable properties due to our ongoing initiative to convert leases to a fixed reimbursement methodology for common area maintenance costs.

            Management fees and other revenues increased $18.7 million principally as a result of the full year of additional management fees derived from managing the properties acquired in the Mills acquisition, and additional leasing and development fees as a result of incremental joint venture property activity.

            Total other income decreased $56.6 million, and was principally the result of the following:

            These decreases were offset by a $3.1 million increase in net other activity.

            Depreciation and amortization expense increased $63.8 million in 2008 primarily due to our acquisition, expansion and renovation activity and the accelerated depreciation of tenant improvements for tenant leases terminated during the period and for properties scheduled for redevelopment.

            Real estate taxes increased $21.3 million from the prior period, $9.0 million of which is related to the property transactions, and $12.3 million from our comparable properties due to the effect of increases resulting from reassessments, higher tax rates, and the effect of expansion and renovation activities.

            Repairs and maintenance decreased $12.3 million due to our cost savings efforts.

            Provision for credit losses increased $14.5 million primarily due to an increase in tenant bankruptcies and tenant delinquencies. This was reflected in total square footage lost to tenant bankruptcies of 1,104,000 during 2008 as compared to only 69,000 square feet in 2007. We anticipate a challenging environment for our tenants continuing into 2009.

            Home and regional office expense increased $8.3 million primarily due to increased personnel costs, primarily the result of the Mills acquisition, and the increased expense from certain incentive compensation plans.

            Other expenses increased $6.1 million due to increased consulting and professional fees, including legal fees and related costs.

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            Interest expense increased $1.3 million despite an $823.9 million increase in consolidated borrowings to fund our development and redevelopment activities, and the full year impact of our borrowings to fund the Mills-related loans, due to a 55 basis point decline in our weighted average borrowing rates. This decrease in weighted average borrowing rates was driven primarily by a decline in the applicable LIBOR rate for a majority of our consolidated floating rate debt instruments, including the Credit Facility.

            We recognized a loss on extinguishment of debt of $20.3 million in the second quarter of 2008 related to the redemption of $200 million in remarketable debt securities. We extinguished the debt because the remarketing reset base rate was above the rate for 30-year U.S. Treasury securities at the date of redemption.

            Income tax expense of taxable REIT subsidiaries increased $14.9 million due primarily to a $19.5 million tax benefit recognized in 2007 related to the impairment charge resulting from of the write-off of our investment in a land joint venture in Phoenix, Arizona.

            Income from unconsolidated entities decreased $5.9 million, due primarily to the impact of the Mills acquisition (net of eliminations). On a net basis, our share of loss from SPG-FCM increased $4.7 million from the prior period due to a full year of SPG-FCM activity in 2008 as compared to only nine months of activity in 2007. The loss was driven by depreciation and amortization expense on asset basis step-ups in purchase accounting.

            In 2008, we recognized an impairment of $21.2 million primarily representing the write-down of a mall property to its estimated net realizable value and the write-off of predevelopment costs for various development opportunities that we no longer plan to pursue. In 2007, we recognized an impairment of $55.1 million related to a land joint venture in Phoenix, Arizona.

            The gain on sale of assets and interests in unconsolidated entities of $92.0 million in 2007 was primarily the result of Simon Ivanhoe selling its interest in certain assets located in Poland.

            Preferred distributions of the Operating Partnership decreased $4.0 million as a result of the conversion or exchange of 1.5 million Series I preferred units to common units or Series I preferred shares.

            In 2007, the loss on sale of discontinued operations of $35.3 million represents the net loss upon disposition of five non-core properties consisting of three regional malls and two community/lifestyle centers.

            Preferred dividends decreased $14.0 million as a result of the conversion of 6.4 million Series I preferred shares into common shares and the redemption of the Series G preferred stock in the fourth quarter of 2007.

Year Ended December 31, 2007 vs. Year Ended December 31, 2006

            Minimum rents increased $133.9 million in 2007, of which the property transactions accounted for $87.0 million of the increase. Total amortization of the fair market value of in-place leases served to decrease minimum rents by $8.8 million due to certain in-place lease adjustments becoming fully amortized. Comparable rents increased $46.8 million, or 2.3%. This was primarily due to the leasing of space at higher rents that resulted in an increase in minimum rents of $54.6 million offset by a $9.2 million decrease in comparable property straight-line rents and fair market value of in-place lease amortization. In addition, rents from carts, kiosks, and other temporary tenants increased comparable rents by $1.4 million.

            Overage rents increased $14.2 million or 14.9%, reflecting increases in tenant sales.

            Tenant reimbursements increased $76.6 million, of which the property transactions accounted for $40.2 million. The remainder of the increase of $36.4 million, or 3.8%, was in comparable properties and was due to inflationary increases in property operating costs and our ongoing initiative of converting our leases to a fixed reimbursement methodology for common area maintenance costs.

            Management fees and other income increased $31.5 million principally as a result of additional management fees derived from the additional properties being managed from the Mills acquisition and additional leasing and development fees as a result of incremental property activity.

            Total other income increased $62.5 million, and was principally the result of the following:

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            Property operating expenses increased $13.3 million, or 3.0%, primarily as a result of the property transactions and inflationary increases.

            Depreciation and amortization expense increased $49.4 million and is primarily a result of the property transactions.

            Real estate taxes increased $13.1 million from the prior period, $10.4 million of which is related to the property transactions, and $2.7 million from our comparable properties due to the effect of increases resulting from reassessments, higher tax rates, and the effect of expansion and renovation activities.

            Repairs and maintenance increased $14.2 million due to increased snow removal costs in 2007 over that of 2006, normal inflationary increases, and the effect of the property transactions.

            Advertising and promotion increased $5.9 million primarily due to the effect of the property transactions.

            Home and Regional office expense increased $7.3 million primarily due to increased personnel costs, primarily the result of the Mills acquisition, and the effect of incentive compensation plans.

            General and administrative expenses increased $2.9 million due to increased executive salaries, principally as a result of additional share-based payment amortization from the vesting of restricted stock grants.

            Interest expense increased $124.0 million due principally to the following:

            Also impacting interest expense was the consolidation of Town Center at Cobb, Gwinnett Place, and Mall of Georgia as a result of our acquisition of additional ownership interests, and the assumption of debt related to the acquisition of Las Americas Premium Outlets.

            Income tax expense of taxable REIT subsidiaries decreased $22.7 million due primarily to a $19.5 million tax benefit recognized related to the impairment charge related to our write-off of our entire investment in Surprise Grand Vista JV I, LLC, which is developing land located in Phoenix, Arizona, along with a reduction in the taxable income for the management company as a result of structural changes made to our wholly-owned captive insurance entities.

            Income from unconsolidated entities decreased $72.7 million, due in part to the impact of the Mills transaction (net of eliminations). On a consolidated net income basis, our share of income from SPG-FCM approximates a net loss of $58.7 million for the year due to additional depreciation and amortization expenses on asset basis step-ups in purchase accounting approximating $102.2 million for the second through fourth quarters of 2007. Also contributing to the decrease is the prior year recognition of $15.6 million in income related to a beneficial interest that we held in 2006 in a regional mall entity. This beneficial interest was terminated in November 2006.

            In 2007, we recognized an impairment of $55.1 million related to our Surprise Grand Vista venture in Phoenix, Arizona. As described above, the charge to earnings resulted in a $19.5 million tax benefit, resulting in a net charge to earnings, before consideration of the limited partners' interest, of $35.6 million.

            We recorded a $92.0 million net gain on the sales of assets and interests in unconsolidated entities in 2007 primarily as a result of the sale of five assets in Poland by Simon Ivanhoe. In 2006, we recorded a gain related to the sale of a beneficial interest of $86.5 million, a $34.4 million gain on the sale of a 10.5% interest in Simon Ivanhoe, and the net gain on the sale of four non-core properties, including one joint venture property, of $12.2 million.

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            Preferred distributions of the Operating Partnership decreased $5.4 million due to the effect of the conversion of preferred units to common units or shares.

            In 2007, the loss on sale of discontinued operations of $35.3 million represents the net loss upon disposition of five non-core properties consisting of three regional malls and two community/lifestyle centers.

            Preferred dividends decreased $22.6 million as a result of the redemption of the Series G preferred stock in the fourth quarter of 2007 and the Series F preferred stock in the fourth quarter of 2006.

Liquidity and Capital Resources

            Because we generate revenues primarily from long-term leases, our financing strategy relies primarily on long-term fixed rate debt. We manage our floating rate debt to be at or below 15-25% of total outstanding indebtedness by negotiating interest rates for each financing or refinancing based on current market conditions. Floating rate debt currently comprises approximately 15% of our total consolidated debt. We also enter into interest rate protection agreements as appropriate to assist in managing our interest rate risk. We derive most of our liquidity from leases that generate positive net cash flow from operations and distributions of capital from unconsolidated entities that totaled $1.9 billion during 2008. In addition, the Credit Facility provides an alternative source of liquidity as our cash needs vary from time to time. Also, we recently declared a dividend for the first quarter of 2009 that will be paid in cash and shares of common stock, with the cash component limited to 10% on an aggregate basis. Paying 90% of the 2009 dividend in shares of common stock allows us to satisfy our REIT taxable income distribution requirement while enhancing financial flexibility and balance sheet strength.

            Our balance of cash and cash equivalents increased $271.6 million during 2008 to $773.5 million as of December 31, 2008. December 31, 2008 and 2007 balances include $29.8 million and $41.3 million, respectively, related to our co-branded gift card programs, which we do not consider available for general working capital purposes.

            On December 31, 2008, we had available borrowing capacity of approximately $2.4 billion under the Credit Facility, net of outstanding borrowings of $1.0 billion and letters of credit of $15.7 million. During 2008, the maximum amount outstanding under the Credit Facility was $2.6 billion and the weighted average amount outstanding was $1.4 billion. The weighted average interest rate was 3.49% for the year ended December 31, 2008. The Credit Facility is scheduled to mature on January 11, 2010, which we can extend for another year at our option.

            We and the Operating Partnership have historically had access to public equity and long term unsecured debt markets and access to private equity from institutional investors at the property level.

            Our business model requires us to regularly access the debt and equity capital markets to raise funds for some of our acquisition activity, development and redevelopment capital, as well as to refinance many of our existing debt maturities. We are currently seeing significant turmoil in the capital markets. This has impacted access to debt and equity capital for many organizations, including ours. As demonstrated by recent financing activities (both secured and unsecured), we were able to successfully access capital in the third and fourth quarters of 2008; however, there is no assurance we will be able to do so on similar terms or conditions in future periods. We believe we have sufficient cash on hand and availability under the Credit Facility to address our debt maturities and capital needs through 2009.

            On February 16, 2007, SPG-FCM, a 50/50 joint venture between an affiliate of the Operating Partnership and funds managed by Farallon Capital Management, L.L.C., or Farallon, entered into a definitive merger agreement to acquire all of the outstanding common stock of Mills for $25.25 per common share in cash. The acquisition of Mills and its interests in the 36 properties that remain at December 31, 2008 was completed in April 2007. As of December 31, 2008, we and Farallon had each funded $650.0 million into SPG-FCM to acquire all of the common stock of Mills. As part of the transaction, the Operating Partnership also made loans to SPG-FCM and Mills primarily at rates of LIBOR plus 270-275 basis points. These funds were used by SPG-FCM and Mills to repay loans and other obligations of Mills, including the redemption of preferred stock, during 2007. As of December 31, 2008, the outstanding balance of our loan to SPG-FCM was $520.7 million, and the average outstanding balance during the twelve month period ended December 31, 2008 of all loans made to SPG-FCM and Mills was approximately $534.1 million. During 2008 and 2007, we recorded approximately $15.3 million and $39.1 million in interest income (net of inter-entity eliminations) related to these loans, respectively. We also recorded fee income, including fee income amortization related to up-front fees on loans made to SPG-FCM and Mills, during 2008 and 2007 of

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approximately $3.1 million and $17.4 million (net of inter-entity eliminations), respectively, for providing refinancing services to Mills' properties and SPG-FCM. The existing loan facility to SPG-FCM bears a rate of LIBOR plus 275 basis points and matures on June 7, 2009, with three available one-year extensions. Fees charged on loans made to SPG-FCM and Mills are amortized on a straight-line basis over the life of the loan.

            The Mills acquisition involved the purchase of all Mills' outstanding shares of common stock and common units for approximately $1.7 billion (at $25.25 per share or unit), the assumption of $954.9 million of preferred stock, the assumption of a proportionate share of property-level mortgage debt, of which SPG-FCM's share approximated $3.8 billion, the assumption of $1.2 billion in unsecured loans provided by us, costs to effect the acquisition, and certain liabilities and contingencies, including an ongoing investigation by the Securities and Exchange Commission, for an aggregate purchase price of approximately $8 billion. SPG-FCM has completed its purchase price allocations for the Mills acquisition using valuations developed with the assistance of a third-party professional appraisal firm.

            In conjunction with the Mills acquisition, we acquired a majority interest in two properties in which we previously held a 50% ownership interest (Town Center at Cobb and Gwinnett Place) and as a result we have consolidated these two properties at the date of acquisition.

            In addition to the loans provided to SPG-FCM, we also provide management services to substantially all of the properties in which SPG-FCM holds an interest.

            Our net cash flow from operating activities and distributions of capital from unconsolidated entities totaled $1.9 billion during 2008. In addition, we received net proceeds from our debt financing and repayment activities in 2008 of $764.8 million. These activities are further discussed below in "Financing and Debt". We also:

            In general, we anticipate that cash generated from operations will be sufficient to meet operating expenses, monthly debt service, recurring capital expenditures, and distributions to stockholders necessary to maintain our REIT qualification on a long-term basis. In addition, we expect to be able to obtain capital for nonrecurring capital expenditures, such as acquisitions, major building renovations and expansions, as well as for scheduled principal maturities on outstanding indebtedness, from:

            We expect to generate positive cash flow from operations in 2009, and we consider these projected cash flows in our sources and uses of cash. These cash flows are principally derived from retail tenants, many of whom are experiencing considerable financial distress. A significant deterioration in projected cash flows from operations could cause us to increase our reliance on available funds from the Credit Facility, curtail planned capital expenditures, or seek other additional sources of financing as discussed above.

            Our unsecured debt currently consists of $10.7 billion of senior unsecured notes of the Operating Partnership and the Credit Facility. The Credit Facility bears interest at LIBOR plus 37.5 basis points and an additional facility fee of 12.5 basis points. The Credit Facility matures January 11, 2010 and may be extended one year at our option.

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            On May 19, 2008, we issued two tranches of senior unsecured notes totaling $1.5 billion at a weighted average fixed interest rate of 5.74% consisting of a $700.0 million tranche with a fixed interest rate of 5.30% due May 30, 2013 and a second $800.0 million tranche with a fixed interest rate of 6.125% due May 30, 2018. We used proceeds from the offering to reduce borrowings on the Credit Facility and for general working capital purposes.

            On June 16, 2008, the Operating Partnership completed the redemption of the $200.0 million outstanding principal amount of its 7% Mandatory Par Put Remarketed Securities, or MOPPRS. The redemption was accounted for as an extinguishment and resulted in a charge in the second quarter of 2008 of approximately $20.3 million.

            On August 28, 2008, the Operating Partnership repaid a $150.0 million unsecured note, which had a fixed rate of 5.38%.

            During the year ended December 31, 2008, we drew amounts from the Credit Facility to fund the redemption of the remarketable debt securities and the repayment of the $150.0 million unsecured note. Other amounts drawn on the Credit Facility during the period were primarily for general working capital purposes. We repaid a total of $2.7 billion on the Credit Facility during the year ended December 31, 2008. The total outstanding balance of the Credit Facility as of December 31, 2008 was $1.0 billion, and the maximum amount outstanding during the year was approximately $2.6 billion. During the year ended December 31, 2008, the weighted average outstanding balance was approximately $1.4 billion. The amount outstanding as of December 31, 2008 includes $446.3 million in Euro and Yen-denominated borrowings. In addition, subsequent to December 31, 2008, we repaid $600 million in unsecured notes, consisting of two $300 million tranches that bore rates of 3.75% and 7.13%, respectively, using proceeds from the Credit Facility.

            Total secured indebtedness was $6.3 billion and $5.3 billion at December 31, 2008 and 2007, respectively. During the twelve-month period ended December 31, 2008, we repaid $274.0 million in mortgage loans, unencumbering five properties.

            On January 15, 2008, we entered into a swap transaction that effectively converted $300.0 million of variable rate debt to fixed rate debt at a rate of 3.21%.

            On March 6, 2008, we borrowed $705 million on a term loan that matures March 5, 2012 and bears a rate of LIBOR plus 70 basis points. On May 27, 2008, the loan was increased to $735 million. This loan is secured by the cash flow distributed from six properties and has additional availability of $115 million through the maturity date.

            On July 30, 2008, we borrowed $190.0 million on a loan secured by Philadelphia Premium Outlets, which matures on July 30, 2014 and bears interest at a variable rate of LIBOR plus 185 basis points. On January 2, 2009, we executed a swap agreement that fixes the interest rate on this loan at 4.19%.

            On September 23, 2008, we borrowed $170.0 million on a term loan that matures September 23, 2013 and bears interest at a rate of LIBOR plus 195 basis points. On November 4, 2008, the loan was increased to $220 million and on December 17, 2008, the loan was increased to its maximum availability of $260 million. This is a cross-collateralized loan that is secured by The Domain, Shops at Arbor Walk, and Palms Crossing. On January 2, 2009, we executed a swap agreement that fixes the interest rate on $200.0 million of this loan at 4.35%.

            Our consolidated debt, adjusted to reflect one fair value derivative outstanding at December 31, 2007 and the effect of fixing variable rate debt with interest rate swaps, and the effective weighted average interest rates for the years then ended consisted of the following (dollars in thousands):

Debt Subject to      
  Adjusted Balance
as of
December 31,
2008
  Effective
Weighted
Average
Interest Rate
  Adjusted Balance
as of
December 31,
2007
  Effective
Weighted
Average
Interest Rate
 

Fixed Rate

  $ 15,424,318     5.76%   $ 14,056,008     5.88%  

Variable Rate

    2,618,214     1.31%     3,162,666     4.73%  
                   

  $ 18,042,532     5.12%   $ 17,218,674     5.67%  
                       

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            As of December 31, 2008, we had interest rate cap protection agreements on $281.8 million of consolidated variable rate debt. We also hold $505.0 million of notional amount variable rate swap agreements that have a weighted average fixed pay rate of 3.29% and a weighted average variable receive rate of 2.75%. As of December 31, 2008, the net effect of these agreements effectively converted $505.0 million of variable rate debt to fixed rate debt.

            Contractual Obligations and Off-balance Sheet Arrangements:    The following table summarizes the material aspects of our future obligations as of December 31, 2008 (dollars in thousands):

 
  2009   2010 to
2011
  2012 to
2014
  After 2014   Total  

Long Term Debt

                               

Consolidated (1)

  $ 1,475,510   $ 5,352,250   $ 6,333,770   $ 4,863,803   $ 18,025,333  
                       

Pro Rata Share Of Long Term Debt:

                               
 

Consolidated (2)

  $ 1,464,866   $ 5,304,346   $ 6,164,777   $ 4,815,638   $ 17,749,627  
 

Joint Ventures (2)

    437,040     1,391,663     2,568,964     2,223,629     6,621,296  
                       

Total Pro Rata Share Of Long Term Debt

    1,901,906     6,696,009     8,733,741     7,039,267     24,370,923  

Consolidated Capital Expenditure Commitments (3)

    133,512     48,987             182,499  

Joint Venture Capital Expenditure Commitments (3)

    8,536     609             9,145  

Consolidated Ground Lease Commitments(4)

    16,530     32,626     49,821     653,052     752,029  
                       

Total

  $ 2,060,484   $ 6,778,231   $ 8,783,562   $ 7,692,319   $ 25,314,596  
                       

(1)
Represents principal maturities only and therefore, excludes net premiums and discounts of $17,199 and all required interest payments. We incurred interest expense during 2008 of $947.1 million, net of capitalized interest of $27.8 million.

(2)
Represents our pro rata share of principal maturities and excludes net premiums and discounts.

(3)
Represents our pro rata share of capital expenditure commitments.

(4)
Represents only the minimum non-cancellable lease period, excluding applicable lease extension and renewal options.

            Capital expenditure commitments presented in the table above represent new developments, redevelopments or renovation/expansions that we have committed to the completion of construction. The timing of these expenditures may vary due to delays in construction or acceleration of the opening date of a particular project. In addition, the amount includes our share of committed costs for joint venture developments.

            Our off-balance sheet arrangements consist primarily of our investments in real estate joint ventures which are common in the real estate industry and are described in Note 7 of the notes to the accompanying financial statements. Joint venture debt is the liability of the joint venture, is typically secured by the joint venture property, and is non-recourse to us. As of December 31, 2008, the Operating Partnership had loan guarantees and other guarantee obligations to support $71.9 million and $6.6 million, respectively, to support our total $6.6 billion share of joint venture mortgage and other indebtedness presented in the table above.

            During 2008, we issued a total of 22,400 shares of Series I 6% Preferred Stock for an equal number of Series I preferred units and we issued 5,151,776 shares of common stock to holders of Series I preferred stock who exercised their conversion rights.

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            Buy-sell provisions are common in real estate partnership agreements. Most of our partners are institutional investors who have a history of direct investment in retail real estate. Our partners in our joint venture properties may initiate these provisions at any time. 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. 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 acquisition of high quality individual properties or portfolios of properties remains an integral component of our growth strategy. Effective January 1, 2008 we acquired an additional 1.8% interest in Oxford Valley Mall and Lincoln Plaza (which gives us a combined ownership interest in each of 64.99%). On September 12, 2008 we acquired an additional 3.2% interest in White Oaks Mall (which gives us an ownership interest of 80.68%). On December 31, 2008 we acquired an additional 5% interest in Gateway Shopping Center for $2.6 million (which gives us 100% interest in the asset).

            Dispositions.    We continue to pursue the sale of properties that no longer meet our strategic criteria or that are not the primary retail venue within their trade area. On December 30, 2008, the joint venture partnership in which we own a 50% interest sold Cincinnati Mills for $8.3 million. No material gain or loss was recorded on this disposition. There were no other dispositions of properties during the year ended December 31, 2008.

            New Domestic Developments.    Given the significant downturn in the economy, we have substantially reduced our development spending. We expect to complete construction on Cincinnati Premium Outlets, a 400,000 square foot upscale manufacturers' outlet center located in Monroe, OH, during the third quarter of 2009. The estimated total cost of this project is $92 million, and the carrying amount of the construction in progress as of December 31, 2008 was $43 million. We expect to fund this project with available cash flow from operations and borrowings from the Credit Facility.

            Strategic Domestic Expansions and Renovations.    In addition to new development, we also incur costs to renovate and/or expand selected properties. Current projects include a 600,000 square foot Phase II expansion at The Domain, a 220,000 square foot expansion of Camarillo Premium Outlets — The Promenade at, and the addition of Nordstrom and small shops at South Shore Plaza. We expect to fund these capital projects with available cash flow from operations and borrowings from the Credit Facility. We expect to invest a total of approximately $300 million (our share) on expansion and renovation activities in 2009.

            The following table summarizes total capital expenditures on consolidated properties on a cash basis:

 
  2008   2007   2006  

New Developments and Other

  $ 327   $ 432   $ 317  

Renovations and Expansions

    432     349     307  

Tenant Allowances

    72     106     52  

Operational Capital Expenditures

    43     130     92  
               

Total

  $ 874   $ 1,017   $ 768  
               

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            International Development Activity.    We typically reinvest net cash flow from our international investments 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 our European investments with Euro-denominated borrowings that act as a natural hedge against local currency fluctuations. This has also been the case with our Premium Outlet Centers in Japan and Mexico where we use Yen and Peso denominated financing, respectively. We expect our share of international development costs for 2009 will be approximately $140 million. We expect international development and redevelopment/expansion activity for 2009 to include:

            Currently, our consolidated net income exposure to changes in the volatility of the Euro, Yen, Peso and other foreign currencies is not material. In addition, since cash flows from international operations are currently being reinvested in other development projects, we do not expect to repatriate foreign denominated earnings in the near term.

            The carrying amount of our total combined investment in Simon Ivanhoe and GCI, as of December 31, 2008, including all related components of other comprehensive income, was $224.2 million. Our investments in Simon Ivanhoe and GCI are accounted for using the equity method of accounting. Currently two European developments are under construction which will add approximately 942,000 square feet of GLA for a total net cost of approximately €221 million, of which our share is approximately €53 million, or $74.8 million based on current Euro:USD exchange rates.

            On October 20, 2005, Ivanhoe Cambridge, Inc., or Ivanhoe, an affiliate of Caisse de dépôt et placement du Québec, effectively acquired our former partner's 39.5% ownership interest in Simon Ivanhoe. On February 13, 2006, we sold a 10.5% interest in this joint venture to Ivanhoe for €45.2 million, or $53.9 million and recorded a gain on the disposition of $34.4 million. This gain is reported in "gain on sales of interests in unconsolidated entities" in the 2006 consolidated statements of operations. We then settled all remaining share purchase commitments from the company's founders, including the early settlement of some commitments by purchasing an additional 25.8% interest for €55.1 million, or $65.5 million. As a result of these transactions, we and Ivanhoe each own a 50% interest in Simon Ivanhoe at December 31, 2007 and 2008.

            As of December 31, 2008, the carrying amount of our 40% joint venture investment in the seven Japanese Premium Outlet Centers including all related components of other comprehensive income was $312.6 million. Currently, Ami Premium Outlets, a 227,000 square foot Premium Outlet Center, is under construction in Ami, Japan. The project's total projected net cost is JPY 15.5 billion, of which our share is approximately JPY 6.2 billion, or $68.5 million based on applicable Yen:USD exchange rates.

            As of December 31, 2008, the carrying amount of our 32.5% joint venture investment in GMI including all related components of other comprehensive income was $53.9 million. Currently, one center is open in Changshu, China and three additional centers are under development. The three centers under development will add approximately 1.5 million square feet of GLA for a total net cost of approximately CNY 1.6 billion, of which our share is approximately CNY 523 million, or $76.8 million based on applicable CNY:USD exchange rates.

            During 2008, we acquired shares of stock of Liberty International, PLC, or Liberty. Liberty operates regional shopping centers and is the owner of other prime retail assets throughout the U.K. Liberty is a U.K. FTSE 100 listed company, with shareholders' funds of £4.7 billion and property investments of £8.6 billion, of which its U.K. regional shopping centers comprise 75%. Assets of the group under control or joint control amount to £11.0 billion. Liberty converted into a U.K. Real Estate Investment Trust (REIT) on January 1, 2007. Our interest in Liberty is less than 5% of their shares and is adjusted to their quoted market price, including a related foreign exchange component.

Distributions and Stock Repurchase Program

            On January 30, 2009, our Board of Directors approved a quarterly common stock dividend of $0.90 per share, to be paid in a combination of cash and shares of our common stock. While our stockholders will have the right to elect to receive their dividend in either cash or common stock, we have announced that the aggregate cash component of the

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dividend will not exceed 10% of the total dividend, or $0.09 per share. If the number of stockholders electing to receive cash would result in our payment of cash in excess of this 10% limitation, we will allocate the cash payment on a pro rata basis among those stockholders making the cash election. We have reserved the right to elect to pay this dividend all in cash. Our Board of Directors reviews and approves dividends on a quarterly basis, and no determination has been made about whether our remaining 2009 dividends will be paid in a similar combination of cash and common stock. Paying all or a portion of the 2009 dividend in a combination of cash and shares of our common stock allows us to satisfy our REIT taxable income distribution requirement under existing IRS revenue procedures, while enhancing our financial flexibility and balance sheet strength.

            Dividends during 2008 aggregated $3.60 per share and dividends during 2007 aggregated $3.36 per share all paid in cash. We must pay a minimum amount of dividends to maintain our status as a REIT. Our dividends typically exceed our consolidated net income generated in any given year primarily because of depreciation, which is a "non-cash" expense. Future dividends and distributions of Simon Property and the Operating Partnership will be determined by the Board of Directors based on actual results of operations, cash available for dividends and limited partner distributions, and what may be required to maintain our status as a REIT.

            Our Board of Directors has authorized the repurchase of up to $1.0 billion of common stock through July 2009. We may repurchase the shares in the open market or in privately negotiated transactions. During 2008, no purchases were made as part of this program. The program had remaining availability of approximately $950.7 million at December 31, 2008.

Forward-Looking Statements

            Certain statements made in this section or elsewhere in this report 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 our 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: the impact of a prolonged recession, our ability to meet debt service requirements, the availability and terms of financing, changes in our credit rating, changes in market rates of interest and foreign exchange rates for foreign currencies, the ability to hedge interest rate risk, risks associated with the acquisition, development and expansion of properties, general risks related to retail real estate, the liquidity of real estate investments, environmental liabilities, changes in market rental rates, trends in the retail industry, relationships with anchor tenants, the inability to collect rent due to the bankruptcy or insolvency of tenants or otherwise, risks relating to joint venture properties, competitive market forces, risks related to international activities, insurance costs and coverage, terrorist activities, and maintenance of our status as a real estate investment trust. We discuss these and other risks and uncertainties under the heading "Risk Factors" in our most recent Annual Report on Form 10-K. We may update that discussion in subsequent Quarterly Reports on Form 10-Q, but otherwise 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.

22


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Non-GAAP Financial Measure — Funds from Operations

            Industry practice is to evaluate real estate properties in part based on funds from operations, or FFO. We consider FFO to be a key measure of our operating performance that is not specifically defined by accounting principles generally accepted in the United States, or GAAP. We believe that FFO is helpful to investors because it is a widely recognized measure of the performance of REITs and provides a relevant basis for comparison among REITs. We also use this measure internally to measure the operating performance of our portfolio.

            We determine FFO based on the definition set forth by the National Association of Real Estate Investment Trusts, or NAREIT, as consolidated net income computed in accordance with GAAP:

            We have adopted NAREIT's clarification of the definition of FFO that requires us to include the effects of nonrecurring items not classified as extraordinary, cumulative effect of accounting changes, or a gain or loss resulting from the sale of previously depreciated operating properties. We include in FFO gains and losses realized from the sale of land, outlot buildings, marketable and non-marketable securities, and investment holdings of non-retail real estate. However, you should understand that our computation of FFO might not be comparable to FFO reported by other REITs and that FFO:

            The following schedule sets forth total FFO before allocation to the limited partners of the Operating Partnership and FFO allocable to us. This schedule also reconciles FFO to consolidated net income, which we believe is the most directly comparable GAAP financial measure for the periods presented.

23


Table of Contents

 
  For the Year Ended December 31,  
 
  2008   2007   2006  
 
  (in thousands)
 

Funds from Operations

  $ 1,852,331   $ 1,691,887   $ 1,537,223  
               

Increase in FFO from prior period

    9.5 %   10.1 %   8.9 %
               

Consolidated Net Income

  $ 599,535   $ 639,236   $ 730,229  

Adjustments to Arrive at FFO:

                   
   

Depreciation and amortization from consolidated properties
and discontinued operations

    954,494     892,488     854,394  
   

Simon's share of depreciation and amortization from unconsolidated
entities

    376,670     315,159     209,428  
   

Gain on sales of assets and interests in unconsolidated entities and
discontinued operations

        (56,792 )   (132,871 )
   

Net income attributable to noncontrolling interest holders in properties

    (11,091 )   (12,903 )   (10,644 )
   

Depreciation and amortization attributable to noncontrolling interest holders in properties

    (8,559 )   (8,646 )   (8,639 )
   

Preferred distributions and dividends

    (58,718 )   (76,655 )   (104,674 )
               

Funds from Operations

  $ 1,852,331   $ 1,691,887   $ 1,537,223  
               
   

FFO Allocable to Simon Property

  $ 1,477,446   $ 1,342,496   $ 1,215,319  

Diluted net income per share to diluted FFO per share reconciliation:

                   

Diluted net income per share

 
$

1.87
 
$

1.95
 
$

2.19
 
   

Depreciation and amortization from consolidated properties and
beneficial interests, and our share of depreciation and amortization
from unconsolidated affiliates, net of noncontrolling interests portion of depreciation and amortization

    4.69     4.27     3.78  
   

Gain on sales of assets and interests in unconsolidated entities and
discontinued operations, net of limited partners' interest

        (0.20 )   (0.47 )
   

Impact of additional dilutive securities for FFO per share

    (0.14 )   (0.12 )   (0.11 )
               

Diluted FFO per share

  $ 6.42   $ 5.90   $ 5.39  
               

Basic weighted average shares outstanding

    225,333     222,998     221,024  

Adjustments for dilution calculation:

                   

Effect of stock options

    551     778     903  

Impact of Series C cumulative preferred 7% convertible units

    75     122     912  

Impact of Series I preferred stock

    10,773     11,065     10,816  

Impact of Series I preferred units

    1,531     2,485     3,230  
               

Diluted weighted average shares outstanding

    238,263     237,448     236,885  

Weighted average limited partnership units outstanding

   
57,175
   
58,036
   
58,543
 
               

Diluted weighted average shares and units outstanding

    295,438     295,484     295,428  
               

24


Table of Contents


Management's Report On Internal Control Over Financial Reporting

            We are responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is defined in Rule 13a-15(f) or 15d-15(f) promulgated under the Securities Exchange Act of 1934 as a process designed by, or under the supervision of, our principal executive and principal financial officers and effected by our Board of Directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that:

            Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

            We assessed the effectiveness of our internal control over financial reporting as of December 31, 2008. In making this assessment, we used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-Integrated Framework.

            Based on that assessment, we believe that, as of December 31, 2008, our internal control over financial reporting is effective based on those criteria.

            Our independent registered public accounting firm has issued an audit report on their assessment of our internal control over financial reporting. Their report appears on page 27 of this Annual Report.

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Table of Contents

Item 8.    Financial Statements and Supplementary Data

Index to Financial Statements

 
   
  Page No.  

Report of Independent Registered Public Accounting Firm

    27  

Consolidated Balance Sheets as of December 31, 2008 and 2007

    29  

Consolidated Statements of Operations for the years ended December 31, 2008, 2007 and 2006

    30  

Consolidated Statements of Cash Flow for the years ended December 31, 2008, 2007 and 2006

    31  

Consolidated Statements of Equity for the years ended December 31, 2008, 2007 and 2006

    32  

Notes to Financial Statements

    33  

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Table of Contents

Report of Independent Registered Public Accounting Firm

The Board of Directors and Stockholders of
Simon Property Group, Inc.:

            We have audited Simon Property Group, Inc. and Subsidiaries' internal control over financial reporting as of December 31, 2008 based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO criteria). Simon Property Group, Inc. and Subsidiaries' management is responsible for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management's Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company's internal control over financial reporting based on our audit.

            We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

            A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.

            Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

            In our opinion, Simon Property Group, Inc. and Subsidiaries maintained, in all material respects, effective internal control over financial reporting as of December 31, 2008, based on the COSO criteria.

            We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of Simon Property Group, Inc. and Subsidiaries as of December 31, 2008 and 2007, and the related consolidated statements of operations and comprehensive income, equity and cash flows for each of the three years in the period ended December 31, 2008 of Simon Property Group, Inc. and Subsidiaries, and our report dated February 25, 2009, except for the retrospective adjustments described in Notes 3 and 10, as to which the date is April 29, 2009, expressed an unqualified opinion thereon.

    /s/ ERNST & YOUNG LLP  

Indianapolis, Indiana
February 25, 2009

 

 

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Table of Contents

Report of Independent Registered Public Accounting Firm

The Board of Directors and Stockholders of
Simon Property Group, Inc.:

            We have audited the accompanying consolidated balance sheets of Simon Property Group, Inc. and Subsidiaries as of December 31, 2008 and 2007, and the related consolidated statements of operations and comprehensive income, equity and cash flows for each of the three years in the period ended December 31, 2008. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.

            We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

            In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Simon Property Group, Inc. and Subsidiaries at December 31, 2008 and 2007, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 2008, in conformity with U.S. generally accepted accounting principles.

            We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Simon Property Group, Inc. and Subsidiaries' internal control over financial reporting as of December 31, 2008, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 25, 2009, expressed an unqualified opinion thereon.

            As discussed in Notes 3 and 10 to the financial statements, Simon Property Group Inc. and Subsidiaries have retrospectively applied certain reclassification adjustments upon adoption of a new accounting pronouncement for noncontrolling interests.

    /s/ ERNST & YOUNG LLP  

Indianapolis, Indiana

 

 
February 25, 2009,
except for the retrospective adjustments
described in Notes 3 and 10, as to which the date is
April 29, 2009

28


Table of Contents

Simon Property Group, Inc. and Subsidiaries
Consolidated Balance Sheets
(Dollars in thousands, except share amounts)

 
  December 31,
2008
  December 31,
2007
 

ASSETS:

             
 

Investment properties, at cost

  $ 25,205,715   $ 24,415,025  
   

Less — accumulated depreciation

    6,184,285     5,312,095  
           

    19,021,430     19,102,930  
 

Cash and cash equivalents

    773,544     501,982  
 

Tenant receivables and accrued revenue, net

    414,856     447,224  
 

Investment in unconsolidated entities, at equity

    1,663,886     1,886,891  
 

Deferred costs and other assets

    1,028,333     955,439  
 

Note receivable from related party

    520,700     548,000  
           
     

Total assets

  $ 23,422,749   $ 23,442,466  
           

LIABILITIES:

             
 

Mortgages and other indebtedness

  $ 18,042,532   $ 17,218,674  
 

Accounts payable, accrued expenses, intangibles, and deferred revenues

    1,086,248     1,251,044  
 

Cash distributions and losses in partnerships and joint ventures, at equity

    380,730     352,798  
 

Other liabilities and accrued dividends

    155,151     155,937  
           
     

Total liabilities

    19,664,661     18,978,453  
           

Commitments and contingencies

             

 

 

 

 

 

 

 

 

Limited partners' preferred interest in the Operating Partnership and noncontrolling redeemable interests in properties

    276,608     349,154  

 

 

 

 

 

 

 

 

Series I 6% convertible perpetual preferred stock, 19,000,000 shares authorized, 7,590,264 and 14,004,936 issued and outstanding, respectively, at liquidation value

    379,513     700,247  

 

 

 

 

 

 

 

 

EQUITY:

             

Stockholders' equity

             
 

Capital stock (750,000,000 total shares authorized, $.0001 par value, 237,996,000 shares of excess common stock, 100,000,000 authorized shares of preferred stock):

             
     

Series J 83/8% cumulative redeemable preferred stock, 1,000,000 shares authorized, 796,948 issued and outstanding, with a liquidation value of $39,847

    46,032     46,361  
     

Common stock, $.0001 par value, 400,004,000 shares authorized, 235,691,040 and 227,719,614 issued and outstanding, respectively

    24     23  
     

Class B common stock, $.0001 par value, 12,000,000 shares authorized, 8,000 issued and outstanding

         
     

Class C common stock, $.0001 par value, 4,000 shares authorized, issued and outstanding at 2007

         
 

Capital in excess of par value

    5,410,147     5,067,718  
 

Accumulated deficit

    (2,491,929 )   (2,096,949 )
 

Accumulated other comprehensive income (loss)

    (165,066 )   18,087  
 

Common stock held in treasury at cost, 4,379,396 and 4,697,332 shares, respectively

    (186,210 )   (213,606 )
           
     

Total stockholders' equity

    2,612,998     2,821,634  

Noncontrolling interests

    488,969     592,978  
           
     

Total equity

    3,101,967     3,414,612  
           
     

Total liabilities and equity

  $ 23,422,749   $ 23,442,466  
           

The accompanying notes are an integral part of these statements.

29


Table of Contents

Simon Property Group, Inc. and Subsidiaries
Consolidated Statements of Operations and Comprehensive Income
(Dollars in thousands, except per share amounts)

 
  For the Twelve Months Ended December 31,  
 
  2008   2007   2006  

REVENUE:

                   
 

Minimum rent

  $ 2,291,919   $ 2,154,713   $ 2,020,856  
 

Overage rent

    100,222     110,003     95,767  
 

Tenant reimbursements

    1,065,957     1,023,164     946,554  
 

Management fees and other revenues

    132,471     113,740     82,288  
 

Other income

    192,586     249,179     186,689  
               
   

Total revenue

    3,783,155     3,650,799     3,332,154  
               

EXPENSES:

                   
 

Property operating

    455,874     454,510     441,203  
 

Depreciation and amortization

    969,477     905,636     856,202  
 

Real estate taxes

    334,657     313,311     300,174  
 

Repairs and maintenance

    107,879     120,224     105,983  
 

Advertising and promotion

    96,783     94,340     88,480  
 

Provision for credit losses

    24,035     9,562     9,500  
 

Home and regional office costs

    144,865     136,610     129,334  
 

General and administrative

    20,987     19,587     16,652  
 

Other

    69,061     62,987     65,277  
               
   

Total operating expenses

    2,223,618     2,116,767     2,012,805  
               

OPERATING INCOME

   
1,559,537
   
1,534,032
   
1,319,349
 

Interest expense

    (947,140 )   (945,852 )   (821,858 )

Loss on extinguishment of debt

    (20,330 )        

Income tax (expense) benefit of taxable REIT subsidiaries

    (3,581 )   11,322     (11,370 )

Income from unconsolidated entities

    32,246     38,120     110,819  

Impairment charge

    (21,172 )   (55,061 )    

Gain on sale of assets and interests in unconsolidated entities

        92,044     132,787  
               

Consolidated income from continuing operations

   
599,560
   
674,605
   
729,727
 

Discontinued operations

   
(25

)
 
(117

)
 
418
 

Loss on sale of discontinued operations

        (35,252 )   84  
               

CONSOLIDATED NET INCOME

    599,535     639,236     730,229  

Net income attributable to noncontrolling interests

    135,899     147,997     166,389  

Preferred dividends

    41,119     55,075     77,695  
               

NET INCOME ATTRIBUTABLE TO COMMON STOCKHOLDERS

  $ 422,517   $ 436,164   $ 486,145  
               

BASIC EARNINGS PER COMMON SHARE:

                   
   

Income from continuing operations

  $ 1.88   $ 2.09   $ 2.20  
   

Discontinued operations

        (0.13 )    
               
   

Net income attributable to common stockholders

  $ 1.88   $ 1.96   $ 2.20  
               

DILUTED EARNINGS PER COMMON SHARE:

                   
   

Income from continuing operations

  $ 1.87   $ 2.08   $ 2.19  
   

Discontinued operations

        (0.13 )    
               
   

Net income attributable to common stockholders

  $ 1.87   $ 1.95   $ 2.19  
               
 

Consolidated Net Income

 
$

599,535
 
$

639,236
 
$

730,229
 
 

Unrealized (loss) gain on interest rate hedge agreements

    (50,973 )   (10,760 )   6,518  
 

Net income (loss) on derivative instruments reclassified from accumulated other comprehensive income into interest expense

    (3,205 )   902     2,263  
 

Currency translation adjustments

    (6,953 )   6,297     1,706  
 

Changes in available-for-sale securities and other

    (168,619 )   2,020     1,404  
               
 

Comprehensive income

    369,785     637,695     742,120  
 

Comprehensive income attributable to noncontrolling interests

    89,302     147,608     168,834  
               
 

Comprehensive income attributable to common stockholders

  $ 280,483   $ 490,087   $ 573,286  
               

The accompanying notes are an integral part of these statements.

30


Table of Contents

Simon Property Group, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(Dollars in thousands)

 
  For the Twelve Months Ended December 31,  
 
  2008   2007   2006  

CASH FLOWS FROM OPERATING ACTIVITIES:

                   
 

Consolidated Net income

  $ 599,535   $ 639,236   $ 730,229  
   

Adjustments to reconcile consolidated net income to net cash provided by operating activities —

                   
     

Depreciation and amortization

    956,827     875,284     812,718  
     

Gain on sale of assets and interests in unconsolidated entities

        (92,044 )   (132,787 )
     

Impairment charge

    21,172     55,061      
     

Loss (gain) on disposal or sale of discontinued operations

        35,252     (84 )
     

Straight-line rent

    (33,672 )   (20,907 )   (17,020 )
     

Equity in income of unconsolidated entities

    (32,246 )   (38,120 )   (110,819 )
     

Distributions of income from unconsolidated entities

    118,665     101,998     94,605  
   

Changes in assets and liabilities —

                   
     

Tenant receivables and accrued revenue, net

    (14,312 )   (40,976 )   (3,799 )
     

Deferred costs and other assets

    (22,698 )   (70,138 )   (126,989 )
     

Accounts payable, accrued expenses, intangibles, deferred revenues and other liabilities

    41,213     114,786     70,094  
               
       

Net cash provided by operating activities

    1,634,484     1,559,432     1,316,148  
               

 

 

 

 

 

 

 

 

 

 

 

CASH FLOWS FROM INVESTING ACTIVITIES:

                   
   

Acquisitions

        (263,098 )   (158,394 )
   

Funding of loans to related parties

    (8,000 )   (2,752,400 )    
   

Repayments on loans to related parties

    35,300     2,204,400      
   

Capital expenditures, net

    (874,286 )   (1,017,472 )   (767,710 )
   

Cash impact from the consolidation and de-consolidation of properties

        6,117     8,762  
   

Net proceeds from sale of partnership interests, other assets and discontinued operations

        56,374     209,039  
   

Investments in unconsolidated entities

    (137,509 )   (687,327 )   (157,309 )
   

Purchase of marketable and non-marketable securities

    (345,594 )   (12,655 )   (5,581 )
   

Distributions of capital from unconsolidated entities and other

    309,217     416,485     263,761  
               
     

Net cash used in investing activities

    (1,020,872 )   (2,049,576 )   (607,432 )
               

 

 

 

 

 

 

 

 

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES:

                   
   

Proceeds from sales of common and preferred stock and other

    11,106     156,710     217,237  
   

Purchase of limited partner units

    (16,009 )   (83,993 )   (16,150 )
   

Preferred stock redemptions

    (1,845 )   (300,468 )   (393,558 )
   

Distributions to noncontrolling interest holders in properties

    (28,251 )   (91,032 )   (37,200 )
   

Contributions from noncontrolling interest holders in properties

    4,005     2,903     2,023  
   

Preferred distributions of the Operating Partnership

    (17,599 )   (21,580 )   (26,979 )
   

Preferred dividends and distributions to stockholders

    (852,446 )   (804,271 )   (749,507 )
   

Distributions to limited partners

    (205,850 )   (194,823 )   (177,673 )
   

Mortgage and other indebtedness proceeds, net of transaction costs

    4,456,975     5,577,083     5,507,735  
   

Mortgage and other indebtedness principal payments

    (3,692,136 )   (4,177,763 )   (4,442,332 )
               
     

Net cash (used in) provided by financing activities

    (342,050 )   62,766     (116,404 )
               

 

 

 

 

 

 

 

 

 

 

 

INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS

    271,562     (427,378 )   592,312  

 

 

 

 

 

 

 

 

 

 

 

CASH AND CASH EQUIVALENTS, beginning of year

    501,982     929,360     337,048  
               

CASH AND CASH EQUIVALENTS, end of year

  $ 773,544   $ 501,982   $ 929,360  
               

The accompanying notes are an integral part of these statements.

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Table of Contents

Simon Property Group, Inc. and Subsidiaries
Consolidated Statements of Equity
(Dollars in thousands)

 
  Preferred Stock   Common Stock   Accumulated
Other
Comprehensive
Income (Loss)
  Capital in Excess
of Par Value
  Accumulated
Deficit
  Common
Stock
Held in
Treasury
  Non-
controlling
interests
  Total
Equity
 

Balance at December 31, 2005

  $ 388,263   $ 23   $ 9,793   $ 4,998,723   $ (1,582,859 ) $ (230,086 ) $ 860,370   $ 4,444,227  
                                   

Conversion of limited partner units (86,800 common shares, Note 10)

                      1,247                 (1,247 )    

Stock options exercised (414,659 common shares)

                      14,906                       14,906  

Series I preferred stock conversion to common stock (283,907 preferred shares to 222,933 common shares)

                      14,195                       14,195  

Series J preferred stock premium amortization

    (329 )                                       (329 )

Series F preferred stock redemption (8,000,000 shares)

    (192,989 )                                       (192,989 )

Series G preferred stock accretion

    587                                         587  

Series K preferred stock issuance (8,000,000 shares)

    200,000                                         200,000  

Series K preferred stock redemption (8,000,000 shares)

    (200,000 )                                       (200,000 )

Stock incentive program (415,098 common shares, net)

                      (36,487 )         36,487            

Common stock retired (70,000 Shares)

                      (2,354 )   (4,051 )               (6,405 )

Amortization of stock incentive

                      23,369                       23,369  

Other

                      608     1,096           (10,501 )   (8,797 )

Adjustment to limited partners' interest from increased ownership in the Operating Partnership

                      (3,951 )               3,951      

Distributions to common shareholders and limited partners, excluding Operating Partnership preferred interests

                            (749,507 )         (177,673 )   (927,180 )

Distributions to other noncontrolling interest partners

                                        (36,049 )   (36,049 )

Other comprehensive income

                9,446                       2,445     11,891  

Net income, excluding $26,979 attributable to preferred interests in the Operating Partnership

                            563,840           139,410     703,250  
                                   

Balance at December 31, 2006

  $ 195,532   $ 23   $ 19,239   $ 5,010,256   $ (1,771,481 ) $ (193,599 ) $ 780,706   $ 4,040,676  
                                   

Conversion of limited partner units (1,692,474 common shares, Note 10)

                      22,781                 (22,781 )    

Stock options exercised (231,025 common shares)

                      7,604                       7,604  

Series I preferred stock conversion to common stock (65,907 preferred shares to 51,987 common shares)

                      3,296                       3,296  

Series I preferred unit conversion to limited partner units

                                        30,320     30,320  

Series J preferred stock premium amortization

    (328 )                                       (328 )

Treasury stock purchase (572,000 Shares)

                                  (49,269 )         (49,269 )

Series G preferred stock accretion

    1,157                                         1,157  

Series G preferred stock redemption (3,000,000 shares)

    (150,000 )                                       (150,000 )

Series L preferred stock issuance (6,000,000 shares)

    150,000                                         150,000  

Series L preferred stock redemption (6,000,000 shares)

    (150,000 )                                       (150,000 )

Stock incentive program (222,725 common shares, net)

                      (29,262 )         29,262            

Common stock retired (23,000 shares)

                      (773 )   (1,518 )               (2,291 )

Amortization of stock incentive

                      26,779                       26,779  

Other

                      571     (10,918 )         (17,996 )   (28,343 )

Adjustment to limited partners' interest from increased ownership in the Operating Partnership

                      26,466                 (26,466 )    

Distributions to common shareholders and limited partners, excluding Operating Partnership preferred interests

                            (804,271 )         (194,823 )   (999,094 )

Distributions to other noncontrolling interest partners

                                        (82,010 )   (82,010 )

Other comprehensive income

                (1,152 )                     (389 )   (1,541 )

Net income, excluding $21,580 attributable to preferred interests in the Operating Partnership

                            491,239           126,417     617,656  
                                   

Balance at December 31, 2007

  $ 46,361   $ 23   $ 18,087   $ 5,067,718   $ (2,096,949 ) $ (213,606 ) $ 592,978   $ 3,414,612  
                                   

Conversion of limited partner units (2,574,608 common shares, Note 10)

          1           31,350                 (31,351 )    

Conversion of Class C stock (4,000 shares)

                                               

Issuance of common shares upon conversion of Class C shares (4,000 common shares)

                                               

Stock options exercised (282,106 common shares)

                      11,886                       11,886  

Series I preferred stock conversion to common stock (6,437,072 preferred shares to 5,151,776 common shares)

                      321,854                       321,854  

Series I preferred unit conversion to limited partner units

                                        74,695     74,695  

Series J preferred stock premium amortization

    (329 )                                       (329 )

Stock incentive program (276,872 common shares, net)

                      (27,396 )         27,396            

Amortization of stock incentive

                      28,640                       28,640  

Other

                      (450 )   (6,170 )         (10,908 )   (17,528 )

Adjustment to limited partners' interest from increased ownership in the Operating Partnership

                      (23,455 )               23,455      

Distributions to common shareholders and limited partners, excluding Operating Partnership preferred interests

                            (852,446 )         (205,850 )   (1,058,296 )

Distributions to other noncontrolling interest partners

                                        (25,753 )   (25,753 )

Other comprehensive income (loss)

                (183,153 )                     (46,597 )   (229,750 )

Net income, excluding $17,599 attributable to preferred interests in the Operating Partnership

                            463,636           118,300     581,936  
                                   

Balance at December 31, 2008

  $ 46,032   $ 24   $ (165,066 ) $ 5,410,147   $ (2,491,929 ) $ (186,210 ) $ 488,969   $ 3,101,967  
                                   

The accompanying notes are an integral part of these statements.

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Simon Property Group, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

(Dollars in thousands, except share and per share amounts and
where indicated as in millions or billions)

1.    Organization

            Simon Property Group, Inc. is a Delaware corporation that operates as a self-administered and self-managed real estate investment trust, or REIT, under the Internal Revenue Code. Simon Property Group, L.P., or the Operating Partnership, is our majority-owned partnership subsidiary that owns all of our real estate properties. In these notes to consolidated financial statements, the terms "we", "us" and "our" refer to Simon Property, the Operating Partnership, and their subsidiaries.

            We own, develop, and manage retail real estate in five retail real estate platforms: regional malls, Premium Outlet Centers®, The Mills®, community/lifestyle centers, and international properties. As of December 31, 2008, we owned or held an interest in 324 income-producing properties in the United States, which consisted of 164 regional malls, 16 additional regional malls and four additional community centers acquired as a result of the 2007 acquisition of The Mills Corporation, or the Mills acquisition, 70 community/lifestyle centers, 16 The Mills, 40 Premium Outlet Centers, and 14 other shopping centers or outlet centers in 41 states and Puerto Rico. We also own interests in four parcels of land held in the United States for future development. Internationally, we have ownership interests in 52 European shopping centers (France, Italy, and Poland); seven Premium Outlet Centers in Japan; one Premium Outlet Center in Mexico; one Premium Outlet Center in Korea; and one shopping center in China. Also, through joint venture arrangements we have ownership interests in the following properties under development internationally: a 24% interest in two shopping centers in Italy, a 40% interest in a Premium Outlet Center in Japan, and a 32.5% interests in three additional shopping centers under construction in China.

            We generate the majority of our revenues from leases with retail tenants including:

            We also grow by generating supplemental revenues from the following activities:

2.    Basis of Presentation and Consolidation

            The accompanying consolidated financial statements include the accounts of all majority-owned subsidiaries, and all significant intercompany amounts have been eliminated.

            We consolidate properties that are wholly owned or properties that we own less than 100% but we control. Control of a property is demonstrated by, among other factors, our ability to:

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Simon Property Group, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

(Dollars in thousands, except share and per share amounts and
where indicated as in millions or billions)

2.    Basis of Presentation and Consolidation (Continued)

            We also consolidate all variable interest entities, or VIE, when we are determined to be the primary beneficiary. Our determination of the primary beneficiary of a VIE considers all relationships between us and the VIE, including management agreements and other contractual arrangements, when determining the party obligated to absorb the majority of the expected losses, as defined in FASB Interpretation No. 46 (revised), Consolidation of Variable Interest Entities (FIN 46(R)). There have been no changes during 2008 in conclusions about whether an entity qualifies as a VIE or whether we are the primary beneficiary of any previously identified VIE. During 2008, we have not provided financial or other support to a previously identified VIE that we were not previously contractually obligated to provide.

            Investments in partnerships and joint ventures represent our noncontrolling ownership interests in properties. We account for these investments using the equity method of accounting. We initially record these investments at cost and we subsequently adjust for net equity in income or loss, which we allocate in accordance with the provisions of the applicable partnership or joint venture agreement, and cash contributions and distributions. The allocation provisions in the partnership or joint venture agreements are not always consistent with the legal ownership interests held by each general or limited partner or joint venture investee primarily due to partner preferences.

            As of December 31, 2008, we consolidated 203 wholly-owned properties and consolidated 18 additional properties that are less than wholly-owned, but which we control or for which we are the primary beneficiary. We account for the remaining 165 properties using the equity method of accounting (joint venture properties). We manage the day-to-day operations of 93 of the 165 joint venture properties but have determined that our partner or partners have substantive participating rights in regards to the assets and operations of these joint venture properties. Additionally, we account for our investment in SPG-FCM Ventures, LLC, or SPG-FCM, which acquired The Mills Corporation and its majority-owned subsidiary, The Mills Limited Partnership, or collectively Mills, in April 2007, using the equity method of accounting. We have determined that SPG-FCM is not a VIE and that Farallon Capital Management, L.L.C., or Farallon, our joint venture partner, has substantive participating rights with respect to the assets and operations of SPG-FCM pursuant to the applicable partnership agreements.

            We allocate net operating results of the Operating Partnership after preferred distributions to third parties and to us based on the partners' respective weighted average ownership interests in the Operating Partnership. Net operating results of the Operating Partnership attributable to third parties are reflected in net income attributable to noncontrolling interests.

            Our weighted average ownership interest in the Operating Partnership was as follows:

 
  For the Year Ended December 31,  
 
  2008   2007   2006  

Weighted average ownership interest

    79.8%     79.4%     79.1%  

            As of December 31, 2008 and 2007, our ownership interest in the Operating Partnership was 80.4% and 79.4%, respectively. We adjust the limited partners' interest in the Operating Partnership at the end of each period to reflect their interest in the Operating Partnership.

            We made certain reclassifications of prior period amounts in the consolidated financial statements to conform to the 2008 presentation. The reclassifications included the retrospective adoption of Statement of Financial Accounting Standard (SFAS) No. 160, "Noncontrolling Interests in Consolidated Financial Statements, an amendment

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Simon Property Group, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

(Dollars in thousands, except share and per share amounts and
where indicated as in millions or billions)

2.    Basis of Presentation and Consolidation (Continued)

to ARB 51" (SFAS 160), and the application of of EITF Topic D-98, "Classification and Measurement of Redeemable Securities" (EITF D-98), to certain redeemable securities, as further described in Note 3. The reclassifications had no impact on previously reported net income available to common stockholders or earnings per share.

3.    Summary of Significant Accounting Policies

            We record investment properties at cost. Investment properties include costs of acquisitions; development, predevelopment, and construction (including allocable salaries and related benefits); tenant allowances and improvements; and interest and real estate taxes incurred related to construction. We capitalize improvements and replacements from repair and maintenance when the repair and maintenance extend the useful life, increase capacity, or improve the efficiency of the asset. All other repair and maintenance items are expensed as incurred. We capitalize interest on projects during periods of construction until the projects are ready for their intended purpose based on interest rates in place during the construction period. The amount of interest capitalized during each year is as follows:

 
  For the Year Ended December 31,  
 
  2008   2007   2006  

Capitalized interest

  $ 27,847   $ 35,793   $ 30,115  

            We record depreciation on buildings and improvements utilizing the straight-line method over an estimated original useful life, which is generally 10 to 40 years. We review depreciable lives of investment properties periodically and we make adjustments when necessary to reflect a shorter economic life. We record depreciation on tenant allowances, tenant inducements and tenant improvements utilizing the straight-line method over the term of the related lease or occupancy term of the tenant, if shorter. We record depreciation on equipment and fixtures utilizing the straight-line method over seven to ten years.

            We review investment properties for impairment on a property-by-property basis whenever events or changes in circumstances indicate that the carrying value of investment properties may not be recoverable. These circumstances include, but are not limited to, declines in cash flows, occupancy and comparable sales per square foot at the property. We recognize an impairment of investment property when the estimated undiscounted operating income before depreciation and amortization 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 its estimated fair value. We may decide to sell properties that are held for use and the sale prices of these properties may differ from their carrying values.

            Certain of our real estate assets contain asbestos. The asbestos is appropriately contained, in accordance with current environmental regulations, and we have no current plans to remove the asbestos. If these properties were demolished, certain environmental regulations are in place which specify the manner in which the asbestos must be handled and disposed. Because the obligation to remove the asbestos has an indeterminable settlement date, we are not able to reasonably estimate the fair value of this asset retirement obligation.

            We allocate the purchase price of acquisitions to the various components of the acquisition based upon the relative value of each component in accordance with SFAS No. 141 "Business Combinations" (SFAS 141). These components typically include buildings, land and intangibles related to in-place leases and we estimate:

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Simon Property Group, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

(Dollars in thousands, except share and per share amounts and
where indicated as in millions or billions)

3.    Summary of Significant Accounting Policies (Continued)

            Amounts allocated to building are depreciated over the estimated remaining life of the acquired building or related improvements. We amortize amounts allocated to tenant improvements, in-place lease assets and other lease-related intangibles over the remaining life of the underlying leases. We also estimate the value of other acquired intangible assets, if any, which are amortized over the remaining life of the underlying related leases or intangibles.

            SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets" (SFAS 144) provides a framework for the evaluation of impairment of long-lived assets, the treatment of assets held for sale or to be otherwise disposed of, and the reporting of discontinued operations. SFAS 144 requires us to reclassify any material operations related to consolidated properties sold during the period to discontinued operations. During 2007, we reported the net loss upon sale on our five consolidated assets sold in "loss on sale of discontinued operations" in the consolidated statements of operations and comprehensive income. The operating results of the assets disposed of in 2007 were not significant to our consolidated results of operations. There were no consolidated assets sold during 2008.

            We consider all highly liquid investments purchased with an original maturity of 90 days or less to be cash and cash equivalents. Cash equivalents are carried at cost, which approximates fair value. Cash equivalents generally consist of commercial paper, bankers acceptances, Eurodollars, repurchase agreements, and money markets. Our gift card programs are administered by banks. We collect gift card funds at the point of sale and then remit those funds to the banks for further processing. As a result, cash and cash equivalents, as of December 31, 2008 and 2007, includes a balance of $29.8 million and $41.3 million, respectively, related to these gift card programs which we do not consider available for general working capital purposes. Financial instruments that potentially subject us to concentrations of credit risk include our cash and cash equivalents and our trade accounts receivable. We place our cash and cash equivalents with institutions with high credit quality. However, at certain times, such cash and cash equivalents may be in excess of FDIC and SIPC insurance limits. See Notes 4, 8, and 10 for disclosures about non-cash investing and financing transactions.

            Marketable securities consist primarily of the investments of our captive insurance subsidiaries, our investment in shares of stock of Liberty International PLC, or Liberty, our deferred compensation plan investments, and certain investments held to fund the debt service requirements of debt previously secured by investment properties that have been sold. Non-marketable securities includes an investment that we acquired in 2008.

            The types of securities included in the investment portfolio of our captive insurance subsidiaries typically include U.S. Treasury or other U.S. government securities as well as corporate debt securities with maturities ranging from 1 to 10 years. These securities are classified as available-for-sale and are valued based upon quoted market prices or using discounted cash flows when quoted market prices are not available. The amortized cost of debt securities, which approximates fair value, held by our captive insurance subsidiaries is adjusted for amortization of premiums and

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Simon Property Group, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

(Dollars in thousands, except share and per share amounts and
where indicated as in millions or billions)

3.    Summary of Significant Accounting Policies (Continued)


accretion of discounts to maturity. Our investment in Liberty is also accounted for as an available-for-sale security. Liberty operates regional shopping centers and is owner of other retail assets throughout the U.K. Liberty is a U.K. FTSE 100 listed company. Liberty converted into a U.K. Real Estate Investment Trust (REIT) on January 1, 2007. Our interest in Liberty is less than 5% of their shares and is adjusted to their quoted market price, including a related foreign exchange component. Changes in the values of these securities are recognized in accumulated other comprehensive income (loss) until the gain or loss is realized and recorded in other income, and includes the effect of changes in foreign exchange rates on foreign currency denominated investments. However, if we determine a decline in value is other than temporary, then we recognize the unrealized loss in earnings to write down the investments to their net realizable value.

            Our insurance subsidiaries are required to maintain statutory minimum capital and surplus as well as maintain a minimum liquidity ratio. Therefore, our access to these securities may be limited. Our deferred compensation plan investments are classified as trading securities and are valued based upon quoted market prices. The investments have a matching liability recorded as the amounts are fully payable to the employees that earned the compensation. Changes in the values of these securities are recognized in earnings, but because of the matching liability the impact to consolidated net income is zero. As of December 31, 2008 and 2007, we have investments of $53.4 million and $55.9 million, respectively, which must be used to fund the debt service requirements of debt related to investment properties sold. These investments are classified as held-to-maturity and are recorded at amortized cost as we have the ability and intent to hold these investments to maturity. During 2008, we made an investment of $70 million in a non-marketable security that we account for under the cost method. To the extent an other-than-temporary decline in fair value is deemed to have occurred, we would adjust this investment to its fair value.

            We hold marketable securities that total $316.7 million and $260.4 million at December 31, 2008 and 2007, respectively, and are considered to have Level 1 fair value inputs. The underlying aggregate unrealized loss on our marketable securities as of December 31, 2008 was $165.3 million. In addition, we have derivative instruments, primarily interest rate swap agreements, with a gross liability balance of $19.4 million and $6.8 million, at December 31, 2008 and 2007, respectively, which are classified as having Level 2 inputs. As defined by SFAS No. 157, "Fair Value Measurements" (SFAS 157), Level 1 fair value inputs are quoted prices for identical items in active, liquid and visible markets such as stock exchanges, and Level 2 fair value inputs include observable information for similar items in active or inactive markets. We appropriately consider counterparty creditworthiness in the valuations.

            In January 2006, an entity controlled by the Simon family assigned to us its right to receive cash flow, capital distributions, and related profits and losses with respect to a portion of its ownership interest in the Mall of America through Mall of America Associates, or MOAA. This beneficial interest was transferred subject to a credit facility repayable from MOAA's distributions from the property. As a result of this assignment, we began recognizing our share of MOAA's income during the first quarter of 2006, including the proportionate share of earnings of MOAA since August 2004 through the first quarter of 2006 of $10.2 million. This income is included with "income from unconsolidated entities" in our consolidated statement of operations. We accounted for our beneficial interests in MOAA under the equity method of accounting. On November 2, 2006, the Simon family entity sold its partnership interest to an affiliate of another partner in MOAA and settled all pending litigation, terminating our beneficial interests. As a result of this sale, we ceased recording income from this property's operations, and recorded a gain of approximately $86.5 million as a result of the receipt of $102.2 million of capital transaction proceeds assigned to us from this arrangement which is included in "gain on sale of assets and interests in unconsolidated entities" in the consolidated statements of operations and comprehensive income.

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Simon Property Group, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

(Dollars in thousands, except share and per share amounts and
where indicated as in millions or billions)

3.    Summary of Significant Accounting Policies (Continued)

            We prepared the accompanying consolidated financial statements in accordance with accounting principles generally accepted in the United States, or GAAP. GAAP requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and revenues and expenses during the reported period. Our actual results could differ from these estimates.

            SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information" (SFAS 131) requires disclosure of certain operating and financial data with respect to separate business activities within an enterprise. Our primary business is the ownership, development, and management of retail real estate. We have aggregated our retail operations, including regional malls, Premium Outlet Centers, The Mills, and community/lifestyle centers, into one reportable segment because they have similar economic characteristics and we provide similar products and services to similar types of tenants. Further, all material operations are within the United States and no customer or tenant comprises more than 10% of consolidated revenues.

            Deferred costs and other assets include the following as of December 31:

 
  2008   2007  

Deferred financing and lease costs, net

  $ 237,619   $ 221,433  

In-place lease intangibles, net

    33,280     66,426  

Acquired above market lease intangibles, net

    32,812     49,741  

Marketable securities of our captive insurance companies

    105,860     116,260  

Goodwill

    20,098     20,098  

Other marketable securities

    210,867     144,188  

Prepaids, notes receivable and other assets, net

    387,797     337,293  
           

  $ 1,028,333   $ 955,439  
           

            Deferred Financing and Lease Costs.    Our deferred costs consist primarily of financing fees we incurred in order to obtain long-term financing and internal and external leasing commissions and related costs. We record amortization of deferred financing costs on a straight-line basis over the terms of the respective loans or agreements. Our deferred leasing costs consist primarily of capitalized salaries and related benefits in connection with lease originations. We record amortization of deferred leasing costs on a straight-line basis over the terms of the related leases. Details of these deferred costs as of December 31 are as follows:

 
  2008   2007  

Deferred financing and lease costs

  $ 444,220   $ 401,153  

Accumulated amortization

    (206,601 )   (179,720 )
           

Deferred financing and lease costs, net

  $ 237,619   $ 221,433  
           

            We report amortization of deferred financing costs, amortization of premiums, and accretion of discounts as part of interest expense. Amortization of deferred leasing costs are a component of depreciation and amortization expense. We amortize debt premiums and discounts, which are included in mortgages and other indebtedness, over the

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Simon Property Group, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

(Dollars in thousands, except share and per share amounts and
where indicated as in millions or billions)

3.    Summary of Significant Accounting Policies (Continued)


remaining terms of the related debt instruments. These debt premiums or discounts arise either at the debt issuance or as part of the purchase price allocation of the fair value of debt assumed in acquisitions. The accompanying statements of operations and comprehensive income includes amortization as follows:

 
  For the Year Ended December 31,  
 
  2008   2007   2006  

Amortization of deferred financing costs

  $ 17,044   $ 15,467   $ 18,716  

Amortization of debt premiums net of discounts

    (14,701 )   (23,000 )   (28,163 )

Amortization of deferred leasing costs

    31,674     26,033     22,259  

            Intangible Assets.    The average life of in-place lease intangibles is approximately 5.5 years and is amortized over the remaining life of the leases of the related property on the straight-line basis and is included with depreciation and amortization in the consolidated statements of operations and comprehensive income. The fair market value of above and below market leases are amortized into revenue over the remaining lease life as a component of reported minimum rents. The weighted average remaining life of these intangibles approximates 2 years. The unamortized amounts of below market leases are included in accounts payable, accrued expenses, intangibles and deferred revenues on the consolidated balance sheets were $94.3 million and $146.7 million as of December 31, 2008 and 2007, respectively. The amount of amortization of above and below market leases, net for the year ended December 31, 2008, 2007, and 2006 was $35.4 million, $44.6 million, and $53.3 million, respectively. If a lease is terminated prior to the original lease termination, any remaining unamortized intangible is charged to the income statement.

            Details of intangible assets as of December 31 are as follows:

 
  2008   2007  

In-place lease intangibles

  $ 160,125   $ 190,151  

Accumulated amortization

    (126,845 )   (123,725 )
           

In-place lease intangibles, net

  $ 33,280   $ 66,426  
           

Acquired above market lease intangibles

  $ 144,224   $ 144,224  

Accumulated amortization

    (111,412 )   (94,483 )
           

Acquired above market lease intangibles, net

  $ 32,812   $ 49,741  
           

            Estimated future amortization, and the increasing (decreasing) effect on minimum rents for our above and below market leases recorded as of December 31, 2008 are as follows:

 
  Below Market
Leases
  Above Market
Leases
  Increase to
Minimum
Rent, Net
 

2009

  $ 33,590   $ (13,388 ) $ 20,202  

2010

    22,702     (6,958 )   15,744  

2011

    17,228     (4,909 )   12,319  

2012

    12,297     (3,703 )   8,594  

2013

    5,105     (2,592 )   2,513  

Thereafter

    3,372     (1,262 )   2,110  
               

  $ 94,294   $ (32,812 ) $ 61,482  
               

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Simon Property Group, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

(Dollars in thousands, except share and per share amounts and
where indicated as in millions or billions)

3.    Summary of Significant Accounting Policies (Continued)

            We account for our derivative financial instruments pursuant to SFAS 133 "Accounting for Derivative Instruments and Hedging Activities," as amended by SFAS 138, "Accounting for Derivative Instruments and Hedging Activities." We use a variety of derivative financial instruments in the normal course of business to manage or hedge the risks associated with our indebtedness and interest payments as described in Note 8 and record all derivatives on our balance sheets at fair value. We require that hedging derivative instruments be highly effective in reducing the risk exposure that they are designated to hedge. We formally designate any instrument that meets these hedging criteria as a hedge at the inception of the derivative contract.

            We adjust our balance sheets on an ongoing basis to reflect the current fair market value of our derivatives. We record changes in the fair value of these derivatives each period in earnings or other comprehensive income, as appropriate. The ineffective portion of the hedge is immediately recognized in earnings to the extent that the change in value of a derivative does not perfectly offset the change in value of the instrument being hedged. The unrealized gains and losses held in accumulated other comprehensive income will be reclassified to earnings over time as the hedged items are recognized in earnings. We have a policy of only entering into contracts with major financial institutions based upon their credit ratings and other factors.

            We use standard market conventions to determine the fair values of derivative instruments, and techniques such as discounted cash flow analysis, option pricing models, and termination cost to determine fair value at each balance sheet date. All methods of assessing fair value result in a general approximation of value and such value may never actually be realized.

            Effective January 1, 2009, we adopted the provisions of SFAS 160, which requires a noncontrolling interest in a subsidiary to be reported as equity and the amount of consolidated net income specifically attributable to the noncontrolling interest to be included within consolidated net income. SFAS 160 also requires consistency in the manner of reporting changes in the parent's ownership interest and requires fair value measurement of any noncontrolling equity investment retained in a deconsolidation. In connection with our retrospective adoption of SFAS 160, we also performed a concurrent review and retrospectively adopted the measurement provisions of EITF D-98. Upon adoption, we adjusted the carrying amounts of noncontrolling redeemable interests held by third parties in certain of our properties to redemption values at each reporting date. Because holders of the noncontrolling redeemable interests in properties can require us to redeem these interests for cash, we have classified these noncontrolling redeemable interests outside of permanent equity upon the adoption of SFAS 160. These adjustments increased the December 31, 2005 carrying value of these noncontrolling redeemable interests by $31.7 million, with a corresponding increase to accumulated deficit in consolidated equity. Subsequent adjustments to the carrying amounts of these noncontrolling redeemable interests in properties, to reflect the change in their redemption value at the end of each reporting period, were recorded to accumulated deficit. Additionally, due to certain cash redemption features that may be deemed outside of our control, we have retained temporary equity classification for certain limited partners' preferred interest in the Operating Partnership upon adoption of SFAS 160.

            Our reassessment of EITF D-98 also resulted in the reclassification of our Series I 6% Convertible Perpetual Preferred Stock (Series I Preferred Stock) from permanent equity to temporary equity due to the possibility that we could be required to redeem the security for cash upon the occurrence of a change in control event, which would include a change in the majority of our directors that occurs over a two year period. The carrying amount of the Series I Preferred Stock is equal to its liquidation value, which is the amount payable upon the occurrence of such event. Lastly, the adoption of SFAS 160 also resulted in the reclassification to equity as noncontrolling nonredeemable

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Simon Property Group, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

(Dollars in thousands, except share and per share amounts and
where indicated as in millions or billions)

3.    Summary of Significant Accounting Policies (Continued)


interests the limited partners' common interests in the Operating Partnership and noncontrolling interests in properties.

            Details of the carrying amount of our noncontrolling interests that have been reclassified to permanent equity are as follows as of December 31:

 
  2008   2007  

Limited partners' common and preferred interest in the Operating Partnership

  $ 639,779   $ 734,229  

Nonredeemable noncontrolling deficit interests in properties, net

    (150,810 )   (141,251 )
           

Total noncontrolling interests reflected in equity

  $ 488,969   $ 592,978  
           

            As a result of these reclassifications, total equity at December 31, 2008 and 2007 increased by $61.8 million and decreased by $148.8 million from the $3.0 billion and $3.6 billion amounts previously reported, respectively.

            Further, as a result of the adoption of SFAS 160, net income attributable to noncontrolling interests (which includes nonredeemable noncontrolling interests in consolidated properties, limited partners' interests in the Operating Partnership and preferred distributions of the Operating Partnership) is now excluded from the determination of consolidated net income. In addition, the individual components of other comprehensive income are now presented in the aggregate, with the portion attributable to noncontrolling interests deducted from comprehensive income attributable to common stockholders. Corresponding changes have also been made to the accompanying consolidated statements of cash flows. Such changes result in a net increase to cash flows provided by operating activities with an offsetting increase to cash flows used in financing activities related to distributions to noncontrolling interest holders in properties.

            A progression of noncontrolling interests for the years ending December 31 is as follows:

 
  2008   2007   2006  

Noncontrolling interests at January 1

  $ 592,978   $ 780,706   $ 860,370  

Net income attributable to noncontrolling interests

    118,300     126,417     139,410  

Distributions to noncontrolling interest holders

    (205,850 )   (194,823 )   (177,673 )

Other Comprehensive income allocable to noncontrolling interests:

                   
 

Unrealized loss on interest rate hedging agreements

    (10,380 )   (2,295 )   1,307  
 

Net (loss) gain on derivative instruments reclassified from accumulated other comprehensive income into interest expense

    (649 )   186     474  
 

Currency translation adjustments

    (1,426 )   1,306     370  
 

Changes in available-for-sale securities and other

    (34,142 )   414     294  
               

    (46,597 )   (389 )   2,445  
               

Adjustment to limited partners' interest from increased ownership in the Operating Partnership

    23,455     (26,466 )   3,951  

Units issued to limited partners

    74,695     30,320      

Units exchanged for shares of common stock

    (31,351 )   (22,781 )   (1,247 )

Other

    (10,908 )   (17,996 )   (10,501 )
               

Total noncontrolling interests as of December 31

  $ 488,969   $ 592,978   $ 780,706  
               

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Simon Property Group, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

(Dollars in thousands, except share and per share amounts and
where indicated as in millions or billions)

3.    Summary of Significant Accounting Policies (Continued)

            The components of our accumulated other comprehensive income (loss) consisted of the following as of December 31:

 
  2008   2007  

Cumulative translation adjustments

  $ (2,524 ) $ 4,429  

Accumulated derivative (losses) gains, net

    (39,100 )   15,078  

Net unrealized (losses) gains on marketable securities, net

    (165,336 )   3,283  
           

    (206,960 )   22,790  

Less: Accumulated other comprehensive income attributable to noncontrolling interest

    (41,894 )   4,703  
           

Total accumulated other comprehensive (loss) income

  $ (165,066 ) $ 18,087  
           

            Included in cumulative translation adjustment is the gain related to the impact of exchange rate fluctuations on foreign currency denominated debt of $46.9 million and $35.4 million at December 31, 2008 and 2007, respectively that hedges the currency exposure related to certain of our foreign investments. The net unrealized losses as of December 31, 2008 of $165.3 million represents the valuation and related currency adjustments for our marketable securities, primarily related to our investment in Liberty. We do not consider the decline in value of any of our marketable securities to be an other-than-temporary decline in value as these market value declines have existed for a short period of time, and we have the ability and intent to hold these securities. Further, as it relates to Liberty, we believe their underlying operating fundamentals remain substantially unchanged.

            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 minimum rents on a straight-line basis over the terms of their respective leases. Substantially all of our retail tenants are also required to pay overage rents based on sales over a stated base amount during the lease year. We recognize overage rents only when each tenant's sales exceed the applicable sales threshold.

            We structure our leases to allow us to recover a significant portion of our property operating, real estate taxes, repairs and maintenance, and advertising and promotion expenses from our tenants. A substantial portion of our leases, other than those for anchor stores, require the tenant to reimburse us for a substantial portion of our operating expenses, including common area maintenance, or CAM, real estate taxes and insurance. This significantly reduces our exposure to increases in costs and operating expenses resulting from inflation. Such property operating expenses typically include utility, insurance, security, janitorial, landscaping, food court and other administrative expenses. We accrue reimbursements from tenants for recoverable portions of all these expenses as revenue in the period the applicable expenditures are incurred. For approximately 75% of our leases in the U.S. regional mall portfolio, we receive a fixed payment from the tenant for the CAM component. We are continually working towards converting the remainder of our leases to the fixed payment methodology. Without the fixed-CAM component, CAM expense reimbursements are based on the tenant's proportionate share of the allocable operating expenses and CAM capital expenditures for the property. We also receive escrow payments for these reimbursements from substantially all our non-fixed CAM tenants and monthly fixed CAM payments throughout the year. We recognize differences between estimated recoveries and the final billed amounts in the subsequent year. These differences were not material in any period presented. Our advertising and promotional costs are expensed as incurred.

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Simon Property Group, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

(Dollars in thousands, except share and per share amounts and
where indicated as in millions or billions)

3.    Summary of Significant Accounting Policies (Continued)

            Management fees and other revenues are generally received from our unconsolidated joint venture properties as well as third parties. Management fee revenue is earned based on a contractual percentage of joint venture property revenue. Development fee revenue is earned on a contractual percentage of hard costs to develop a property. Leasing fee revenue is earned on a contractual per square foot charge based on the square footage of current year leasing activity. We recognize revenue for these services provided when earned based on the underlying activity.

            Insurance premiums written and ceded are recognized on a pro-rata basis over the terms of the policies. Insurance losses are reflected in property operating expenses in the accompanying statements of operations and comprehensive income and include estimates for losses incurred but not reported as well as losses pending settlement. Estimates for losses are based on evaluations by third-party actuaries and management's best estimates. Total insurance reserves for our insurance subsidiaries and other self-insurance programs as of December 31, 2008 and 2007 approximated $116.5 million and $121.4 million, respectively.

            We recognize fee revenues from our co-branded gift card programs when the fees are earned under the related arrangements with the card issuer. Generally, these revenues are recorded at the issuance of the gift card for handling fees.

            We record a provision for credit losses based on our judgment of a tenant's creditworthiness, ability to pay and probability of collection. In addition, we also consider the retail sector in which the tenant operates and our historical collection experience in cases of bankruptcy, if applicable. Accounts are written off when they are deemed to be no longer collectible. Presented below is the activity in the allowance for credit losses and includes the activities related to discontinued operations during the following years:

 
  For the Year Ended December 31,  
 
  2008   2007   2006  

Balance at Beginning of Year

  $ 33,810   $ 32,817   $ 35,239  

Consolidation of previously unconsolidated entities

        495     321  

Provision for Credit Losses

    24,037     9,672     9,730  

Accounts Written Off

    (13,197 )   (9,174 )   (12,473 )
               

Balance at End of Year

  $ 44,650   $ 33,810   $ 32,817  
               

            We and a subsidiary of the Operating Partnership have elected to be taxed as REITs under Sections 856 through 860 of the Internal Revenue Code and applicable Treasury regulations relating to REIT qualification. In order to maintain this REIT status, the regulations require us to distribute at least 90% of our taxable income to stockholders and meet certain other asset and income tests as well as other requirements. We intend to continue to adhere to these requirements and maintain our REIT status and that of the REIT subsidiaries. As REITs, these entities will generally not be liable for federal corporate income taxes as long as they continue to distribute in excess of 100% of their taxable income. Thus, we made no provision for federal income taxes for these entities in the accompanying consolidated financial statements. If Simon Property or the REIT subsidiaries fail to qualify as a REIT, we or that entity will be subject to tax at regular corporate rates for the years in which it failed to qualify. If we lose our REIT status we could not elect to be taxed as a REIT for four years unless our failure to qualify was due to reasonable cause and certain other conditions were satisfied.

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Simon Property Group, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

(Dollars in thousands, except share and per share amounts and
where indicated as in millions or billions)

3.    Summary of Significant Accounting Policies (Continued)

            We have also elected taxable REIT subsidiary, or TRS, status for some of our subsidiaries. This enables us to provide services that would otherwise be considered impermissible for REITs and participate in activities that don't qualify as "rents from real property". For these entities, deferred tax assets and liabilities are established for temporary differences between the financial reporting basis and the tax basis of assets and liabilities at the enacted tax rates expected to be in effect when the temporary differences reverse. A valuation allowance for deferred tax assets is provided if we believe all or some portion of the deferred tax asset may not be realized. An increase or decrease in the valuation allowance that results from the change in circumstances that causes a change in our judgment about the realizability of the related deferred tax asset is included in income.

            As of December 31, 2008 and 2007, we had a net deferred tax asset of $8.9 million and $19.8 million, respectively, related to our TRS subsidiaries. The net deferred tax asset is included in deferred costs and other assets in the accompanying consolidated balance sheets and consists primarily of operating losses and other carryforwards for federal income tax purposes as well as the timing of the deductibility of losses or reserves from insurance subsidiaries. No valuation allowance has been recorded as we believe these amounts will be realized. State income, franchise or other taxes were not significant in any of the periods presented. The income tax benefit in 2007 results primarily from the tax deductibility of a $55.1 million impairment charge.

4.    Real Estate Acquisitions, Disposals, and Impairment

            We acquire properties to generate both current income and long-term appreciation in value. We acquire individual properties or portfolios of other retail real estate companies that meet our investment criteria. We sell properties which no longer meet our strategic criteria. Our consolidated acquisition and disposal activity for the periods presented are highlighted as follows:

            Effective January 1, 2008, we acquired additional interests in three existing consolidated properties of between 1.8% and 5%, for an aggregate $6.2 million in cash. Two of the properties continue to have a noncontrolling interest holder. We now own 100% of the third property.

            As a result of the Mills acquisition which is more fully discussed in Note 7, we consolidated two regional mall properties, Town Center at Cobb and Gwinnett Place. In addition to the Mills acquisition, on March 1, 2007, we acquired the remaining 40% interest in both University Park Mall and University Center located in Mishawaka, Indiana from our partner and as a result, we now own 100% of these properties. On March 28, 2007, we acquired The Maine Outlet, a 112,000 square foot outlet center located in Kittery, Maine, adjacent to our Kittery Premium Outlets property. On August 23, 2007, we acquired Las Americas Premium Outlets, a 560,000 square foot upscale outlet center located in San Diego, California. We also purchased an additional 1% interest in Bangor Mall on July 13, 2007, and an additional 6.5% interest in Montgomery Mall on November 1, 2007. The aggregate purchase price of the consolidated assets acquired during 2007, excluding Town Center and Cobb and Gwinnett Place, was approximately $394.2 million, including the assumption of our share of debt of the properties acquired.

            On November 1, 2006, we acquired the remaining 50% interest in Mall of Georgia, a regional mall property for $252.6 million, including the assumption of our $96.0 million share of debt. As a result, we now own 100% of Mall of Georgia and the property was consolidated as of the acquisition date.

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Simon Property Group, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

(Dollars in thousands, except share and per share amounts and
where indicated as in millions or billions)

4.    Real Estate Acquisitions, Disposals, and Impairment (Continued)

            We had no consolidated property dispositions during the year ended December 31, 2008.

            During the year ended December 31, 2007, we sold five consolidated properties for which we received net proceeds of $56.4 million and recorded our share of a loss on the disposals (net) totaling $35.2 million.

            During the year ended December 31, 2006, we sold three consolidated properties and one property in which we held a 50% interest and accounted for under the equity method. We received net proceeds of $52.7 million and recorded our share of a gain on the dispositions totaling $12.2 million.

            Impairment.    In 2008, we recorded an impairment charge of $21.2 million. This resulted primarily from a $10.5 million reduction in the carrying value of a regional mall to its estimated net realizable value and the write-off of predevelopment costs related to various projects that we no longer plan to pursue development.

5.    Per Share Data

            We determine basic earnings per share based on the weighted average number of shares of common stock outstanding during the period. We determine diluted earnings per share based on the weighted average number of shares of common stock outstanding combined with the incremental weighted average shares that would have been outstanding assuming all dilutive potential common shares were converted into shares at the earliest date possible. The following table sets forth the computation of our basic and diluted earnings per share.

 
  For the Year Ended December 31,  
 
  2008   2007   2006  

Net Income available to Common Stockholders — Basic

  $ 422,517   $ 436,164   $ 486,145  

Effect of dilutive securities:

                   

Impact to General Partner's interest in Operating Partnership from all dilutive securities and options

    209     313     415  
               

Net Income available to Common Stockholders — Diluted

  $ 422,726   $ 436,477   $ 486,560  
               

Weighted Average Shares Outstanding — Basic

    225,332,593     222,998,313     221,024,096  

Effect of stock options

    551,057     778,471     903,255  
               

Weighted Average Shares Outstanding — Diluted

    225,883,650     223,776,784     221,927,351  
               

            For the year ending December 31, 2008, potentially dilutive securities include stock options, convertible preferred stock and common units of limited partnership interest, or Units, in the Operating Partnership which are exchangeable for common stock and certain preferred units of limited partnership interest of the Operating Partnership. The only security that had a dilutive effect for the years ended December 31, 2008, 2007 and 2006 were stock options.

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Simon Property Group, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

(Dollars in thousands, except share and per share amounts and where indicated as in millions or billions)

5.    Per Share Data (Continued)

            We accrue distributions when they are declared. The taxable nature of the dividends declared for each of the years ended as indicated is summarized as follows:

 
  For the Year Ended December 31,  
 
  2008   2007   2006  

Total dividends paid per common share

  $ 3.60   $ 3.36   $ 3.04  
               

Percent taxable as ordinary income

    84.7 %   92.9 %   81.4 %

Percent taxable as long-term capital gains

    1.2 %   7.1 %   18.6 %

Percent nontaxable as return of capital

    14.1 %        
               

    100.0 %   100.0 %   100.0 %
               

6.    Investment Properties

            Investment properties consist of the following as of December 31:

 
  2008   2007  

Land

  $ 2,795,026   $ 2,798,452  

Buildings and improvements

    22,112,944     21,364,915  
           

Total land, buildings and improvements

    24,907,970     24,163,367  

Furniture, fixtures and equipment

    297,745     251,658  
           

Investment properties at cost

    25,205,715     24,415,025  

Less — accumulated depreciation

    6,184,285     5,312,095  
           

Investment properties at cost, net

  $ 19,021,430   $ 19,102,930  
           

Construction in progress included above

  $ 358,254   $ 647,303  
           

7.    Investments in Unconsolidated Entities

            Joint ventures are common in the real estate industry. We use joint ventures, primarily with institutional investors, to finance properties, develop new properties, and diversify our risk in a particular property or portfolio. We held joint venture ownership interests in 103 properties in the U.S. as of December 31, 2008 and December 31, 2007. We also held interests in two joint ventures which owned 52 European shopping centers as of December 31, 2008 and 51 as of December 31, 2007. We also held an interest in seven joint venture properties under operation in Japan, one joint venture property in Mexico, one joint venture property in Korea, and one joint venture property in China. We account for these joint venture properties using the equity method of accounting.

            Substantially all of our joint venture properties are subject to rights of first refusal, buy-sell provisions, or other sale rights for partners which are customary in real estate joint venture agreements and the industry. Our partners in these joint ventures may initiate these provisions at any time (subject to any applicable lock up or similar restrictions), which will result in either the sale of our interest or the use of available cash or borrowings to acquire the joint venture interest.

Acquisition of The Mills Corporation by SPG-FCM

            On February 16, 2007, SPG-FCM, a 50/50 joint venture between an affiliate of the Operating Partnership and funds managed by Farallon Capital Management, L.L.C., or Farallon, entered into a definitive merger agreement to acquire all of the outstanding common stock of Mills for $25.25 per common share in cash. The acquisition of Mills and its interests in the 36 properties that remain at December 31, 2008 was completed in April 2007. As of

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Simon Property Group, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

(Dollars in thousands, except share and per share amounts and where indicated as in millions or billions)

7.    Investments in Unconsolidated Entities (Continued)


December 31, 2008, we and Farallon had each funded $650.0 million into SPG-FCM to acquire all of the common stock of Mills. As part of the transaction, the Operating Partnership also made loans to SPG-FCM and Mills at rates of LIBOR plus 270-275 basis points. These funds were used by SPG-FCM and Mills to repay loans and other obligations of Mills, including the redemption of preferred stock, during 2007. As of December 31, 2008, the outstanding balance of our loan to SPG-FCM was $520.7 million, and the average outstanding balance during the year ended December 31, 2008 of all loans made to SPG-FCM and Mills was approximately $534.1 million. During 2008 and 2007, we recorded approximately $15.3 million and $39.1 million in interest income (net of inter-entity eliminations) related to these loans, respectively. We also recorded fee income, including fee income amortization related to up-front fees on loans made to SPG-FCM and Mills, during 2008 and 2007 of approximately $3.1 million and $17.4 million (net of inter-entity eliminations), respectively, for providing refinancing services to Mills' properties and SPG-FCM. The existing loan facility to SPG-FCM bears a rate of LIBOR plus 275 basis points and matures on June 7, 2009, with three available one-year extensions. Fees charged on loans made to SPG-FCM and Mills are amortized on a straight-line basis over the life of the loan.

            As a result of the change in control of Mills, holders of Mills' Series F convertible cumulative redeemable preferred stock had the right to require the repurchase of their shares for cash equal to the liquidation preference per share plus accrued and unpaid dividends. During the second quarter of 2007, all of the holders of Mills' Series F preferred stock exercised this right, and Mills redeemed this series of preferred stock for approximately $333.2 million, including accrued dividends. Further, as of August 1, 2007, The Mills Corporation was liquidated and the holders of the remaining series' of Mills preferred stock were paid a liquidation preference of approximately $693.0 million, including accrued dividends.

            During the third quarter of 2007, the holders of less than 5,000 common units in the Mills' operating partnership, or Mills Units, received $25.25 in cash, and those holding 5,000 or more Mills Units had the option to exchange for cash of $25.25, or Units of the Operating Partnership based on a fixed exchange ratio of 0.211 Operating Partnership Units for each Mills Unit. That option expired on August 1, 2007. Holders electing to exchange received 66,036 Units in the Operating Partnership for their Mills Units. The remaining Mills Units were exchanged for cash.

            Effective July 1, 2007, we or an affiliate of ours began serving as the manager for substantially all of the properties in which SPG-FCM holds an interest. In conjunction with the Mills acquisition, we acquired a majority interest in two properties in which we previously held a 50% ownership interest (Town Center at Cobb and Gwinnett Place) and as a result we have consolidated these two properties at the date of acquisition. We have reclassified the results of these properties in the Joint Venture Statement of Operations into "Income from consolidated joint venture interests."

            The Mills acquisition involved the purchase of all of Mills' outstanding shares of common stock and common units for approximately $1.7 billion (at $25.25 per share or unit), the assumption of $954.9 million of preferred stock, the assumption of a proportionate share of property-level mortgage debt, of which SPG-FCM's share approximated $3.8 billion, the assumption of $1.2 billion in unsecured loans provided by us, costs to effect the acquisition, and certain liabilities and contingencies, including an ongoing investigation by the Securities and Exchange Commission, for an aggregate purchase price of approximately $8 billion. SPG-FCM has finalized its purchase price allocations for the Mills acquisition. The valuations were developed with the assistance of a third-party professional appraisal firm.

            In addition we sold our interest in Cincinnati Mills and Broward and Westland Malls, which we acquired through the Mills acquisition, and recognized no gain or loss on these dispositions.

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Simon Property Group, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

(Dollars in thousands, except share and per share amounts and where indicated as in millions or billions)

7.    Investments in Unconsolidated Entities (Continued)

            The following joint venture property refinancing activity occurred during the period, some of which resulted in our receiving significant excess refinancing proceeds or making contributions:

            On December 5, 2008, we refinanced Ontario Mills, a joint venture property in which we own a 25% interest, with a $75.0 million, LIBOR plus 296 basis points variable-rate mortgage that matures December 5, 2013. We subsequently entered into a swap agreement that essentially fixes the interest rate at 5.13%. The balances of the previous mortgages were $135.6 million and required a contribution by the partners to retire the loan. Our net share of the contribution was $15.7 million.

            During 2008, we refinanced Fashion Valley Mall, a joint venture property in which we own a 50% interest, with a $200.0 million, LIBOR plus 200 bps variable-rate mortgage that matures October 9, 2013. The balances of the two previous mortgages, which were repaid, were $153.6 million and $29.1 million and bore interest at a fixed rate of 6.49% and 6.58%, respectively. We received our share of the excess refinancing proceeds of approximately $7.1 million on the closing of the new mortgage loan.

            On October 1, 2008, we refinanced Mall of New Hampshire, a joint venture property in which we own a 49.14% interest, with a $136.7 million, 6.23% fixed-rate mortgage that matures October 5, 2015. The balances of the two previous mortgages, which were repaid, were $93.5 million and $7.8 million and bore interest at a fixed rate of 6.96% and 8.53%, respectively. We received our share of the excess refinancing proceeds of approximately $18.7 million on the closing of the new mortgage loan.

            On November 15, 2007, we refinanced Aventura Mall, a joint venture property in which we own a 33.3% interest, with a $430.0 million, 5.905% fixed-rate mortgage that matures on December 11, 2017. The balance of the previous $200.0 million 6.61% fixed-rate mortgage was repaid, and we received our share of the excess refinancing proceeds of approximately $71.4 million.

            On November 1, 2007, we refinanced West Town Mall, a joint venture property in which we own a 50% interest, with a $210.0 million, 6.3375% fixed-rate mortgage that matures on December 1, 2017. The balance of the previous $76.0 million 6.90% fixed-rate mortgage was repaid, and we received our share of the excess refinancing proceeds of approximately $66.4 million.

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Simon Property Group, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

(Dollars in thousands, except share and per share amounts and where indicated as in millions or billions)

7.    Investments in Unconsolidated Entities (Continued)

Summary Financial Information

            A summary of our investments in joint ventures and share of income from such joint ventures follow. We condensed into separate line items major captions of the statements of operations for joint venture interests sold or consolidated. Consolidation occurs when we acquire an additional interest in the joint venture and as a result, gain control of the property or become the primary beneficiary of a VIE. We reclassified these line items into "Income from discontinued joint venture interests" and "Income from consolidated joint venture interests" so that we may present comparative results of operations for those joint venture interests held as of December 31, 2008. Balance sheet information for the joint ventures is as follows:

 
  December 31, 2008   December 31, 2007  

BALANCE SHEETS

             

Assets:

             

Investment properties, at cost

  $ 21,472,490   $ 21,009,416  

Less — accumulated depreciation

    3,892,956     3,217,446  
           

    17,579,534     17,791,970  

Cash and cash equivalents

    805,411     747,575  

Tenant receivables and accrued revenue, net

    428,322     435,093  

Investment in unconsolidated entities, at equity

    230,497     258,633  

Deferred costs and other assets

    594,578     713,180  
           
 

Total assets

  $ 19,638,342   $ 19,946,451  
           

Liabilities and Partners' Equity:

             

Mortgages and other indebtedness

  $ 16,686,701   $ 16,507,076  

Accounts payable, accrued expenses, intangibles, and deferred revenue

    1,070,958     972,699  

Other liabilities

    982,254     825,279  
           
 

Total liabilities

    18,739,913     18,305,054  

Preferred units

    67,450     67,450  

Partners' equity

    830,979     1,573,947  
           
 

Total liabilities and partners' equity

  $ 19,638,342   $ 19,946,451  
           

Our Share of:

             

Total assets

  $ 8,056,873   $ 8,040,987  
           

Partners' equity

  $ 533,929   $ 776,857  

Add: Excess Investment

    749,227     757,236  
           

Our net Investment in Joint Ventures

  $ 1,283,156   $ 1,534,093  
           

Mortgages and other indebtedness

  $ 6,632,419   $ 6,568,403  
           

            "Excess Investment" represents the unamortized difference of our investment over our share of the equity in the underlying net assets of the joint ventures acquired. We amortize excess investment over the life of the related properties, typically no greater than 40 years, and the amortization is included in the reported amount of income from unconsolidated entities.

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Simon Property Group, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

(Dollars in thousands, except share and per share amounts and where indicated as in millions or billions)

7.    Investments in Unconsolidated Entities (Continued)

            As of December 31, 2008, scheduled principal repayments on joint venture properties' mortgages and other indebtedness are as follows:

2009

  $ 1,511,663  

2010

    1,694,633  

2011

    1,630,437  

2012

    2,538,381  

2013

    1,563,591  

Thereafter

    7,724,784  
       

Total principal maturities

    16,663,489  

Net unamortized debt premiums and discounts

    23,212  
       

Total mortgages and other indebtedness

  $ 16,686,701  
       

            This debt becomes due in installments over various terms extending through 2036 with interest rates ranging from 1.00% to 10.61% and a weighted average rate of 4.99% at December 31, 2008.

 
  For the Year Ended December 31,  
 
  2008   2007   2006  

STATEMENTS OF OPERATIONS

                   

Revenue:

                   

Minimum rent

  $ 1,956,129   $ 1,682,671   $ 1,060,896  

Overage rent

    130,549     119,134     89,968  

Tenant reimbursements

    1,005,638     852,312     540,560  

Other income

    199,774     201,075     147,549  
               
 

Total revenue

    3,292,090     2,855,192     1,838,973  

Operating Expenses:

                   

Property operating

    671,268     580,910     366,122  

Depreciation and amortization

    775,887     627,929     318,589  

Real estate taxes

    263,054     220,474     131,359  

Repairs and maintenance

    124,272     113,517     83,331  

Advertising and promotion

    70,425     62,182     42,096  

Provision for credit losses

    24,053     22,448     4,620  

Other

    177,298     162,570     125,976  
               
 

Total operating expenses

    2,106,257     1,790,030     1,072,093  
               

Operating Income

    1,185,833     1,065,162     766,880  

Interest expense

    (969,420 )   (853,307 )   (415,425 )

(Loss) income from unconsolidated entities

    (5,123 )   665     1,204  

Loss on sale of asset

        (6,399 )   (6 )
               

Income from Continuing Operations

    211,290     206,121     352,653  

Income from consolidated joint venture interests

        2,562     14,070  

Income from discontinued joint venture interests

    47     202     736  

Gain on disposal or sale of discontinued operations, net

        198,956     20,375  
               

Net Income

  $ 211,337   $ 407,841   $ 387,834  
               

Third-Party Investors' Share of Net Income

  $ 132,111   $ 232,586   $ 232,499  
               

Our Share of Net Income

    79,226     175,255     155,335  

Amortization of Excess Investment

    (46,980 )   (46,503 )   (49,546 )

Income from Beneficial Interests and Other, net

            15,605  

Write-off of Investment Related to Properties Sold

            (2,846 )

Our Share of Net Gain Related to Properties/Assets Sold

        (90,632 )   (7,729 )
               

Income from Unconsolidated Entities, Net

  $ 32,246   $ 38,120   $ 110,819  
               

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Simon Property Group, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

(Dollars in thousands, except share and per share amounts and where indicated as in millions or billions)

7.    Investments in Unconsolidated Entities (Continued)

2006 Acquisition and Disposition Activity

            On November 1, 2006, we acquired the remaining 50% interest in Mall of Georgia, a regional mall property for $252.6 million, which includes our $96.0 million share of debt. As a result, we now own 100% of Mall of Georgia and the property was consolidated as of the acquisition date. We have reclassified the results of this property in the Joint Venture Statement of Operations into "Income from consolidated joint venture interests."

            Impairment Charge.    On December 28, 2005, we invested $50.0 million of equity for a 40% interest in a joint venture with Toll Brothers, Inc. and Meritage Homes Corp. to purchase a 5,485-acre land parcel in northwest Phoenix from DaimlerChrysler Corporation for $312 million. The principal use of the land upon attaining entitled status is to develop single-family homesites by our partners. As a result of the downturn in the residential market, during the fourth quarter of 2007, we recorded an impairment charge of $55.1 million, $36.5 million net of tax benefit, representing our entire equity investment in this joint venture, including interest capitalized on our invested equity.

International Joint Venture Investments

            European Joint Ventures.    We conduct our international operations in Europe through our two European joint venture investment entities; Simon Ivanhoe S.à.r.l., or Simon Ivanhoe, and Gallerie Commerciali Italia, or GCI. The carrying amount of our total combined investment in these two joint venture investments is $224.2 million and $361.3 million as of December 31, 2008 and 2007, respectively, including all related components of other comprehensive income. The Operating Partnership has a 50% ownership in Simon Ivanhoe and a 49% ownership in GCI as of December 31, 2008.

            On October 20, 2005, Ivanhoe Cambridge, Inc., or Ivanhoe, an affiliate of Caisse de dépôt et placement du Québec, effectively acquired our former partner's 39.5% ownership interest in Simon Ivanhoe. On February 13, 2006, pursuant to the terms of our October 20, 2005 transaction with Ivanhoe, we sold a 10.5% interest in this joint venture to Ivanhoe for €45.2 million, or $53.9 million, and recorded a gain on the disposition of $34.4 million. This gain is reported in "gain (loss) on sales of assets and interests in unconsolidated entities, net" in the 2006 consolidated statement of operations and comprehensive income (loss). We then settled all remaining share purchase commitments from the company's founders, including the early settlement of some commitments by purchasing an additional 25.8% interest in Simon Ivanhoe for €55.1 million, or $65.5 million. As a result of these transactions, we and Ivanhoe each own a 50% interest in Simon Ivanhoe at December 31, 2007 and 2008.

            On July 5, 2007, Simon Ivanhoe completed the sale of five non-core assets in Poland and we presented our share of the gain upon this disposition in "gain (loss) on sale of assets and interests in unconsolidated entities, net" in the consolidated statement of operations and comprehensive income.

            Asian Joint Ventures.    We conduct our international Premium Outlet operations in Japan through joint ventures with Mitsubishi Estate Co., Ltd. and Sojitz Corporation. The carrying amount of our investment in these Premium Outlet joint ventures in Japan is $312.6 million and $273.0 million as of December 31, 2008 and 2007, respectively, including all related components of other comprehensive income. We have a 40% ownership in these Japan Premium Outlet Centers through a joint venture arrangement. During 2007, we also completed construction and opened our first Premium Outlet in Korea. As of December 31, 2008 and 2007 respectively, our investment in our Premium Outlet in Korea, for which we hold a 50% ownership interest, approximated $18.0 million and $23.1 million including all related components of other comprehensive income.

            During 2006, we finalized the formation of joint venture arrangements to develop and operate shopping centers in China. The shopping centers will be anchored by Wal-Mart stores and we own a 32.5% interest in the joint venture entities, and a 32.5% ownership in the management operation overseeing these projects, collectively referred to as Great Mall Investments, Ltd., or GMI. During 2008, we completed construction and opened our first center in China, and have three additional centers under construction and due for completion in 2009. As of December 31, 2008 and

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Notes to Consolidated Financial Statements (Continued)

(Dollars in thousands, except share and per share amounts and where indicated as in millions or billions)

7.    Investments in Unconsolidated Entities (Continued)


2007 respectively, our investment in our centers in China approximated $53.9 million and $33.7 million including all related components of other comprehensive income. Our projected total equity commitment upon completion for all four centers in China is $53.7 million.

8. Indebtedness and Derivative Financial Instruments

            Our mortgages and other indebtedness, excluding the impact of derivative instruments except for our fair value interest rate swaps, consist of the following as of December 31:

 
  2008   2007  

Fixed-Rate Debt:

             

Mortgages and other notes, including $15,312 and $24,845 net premiums, respectively.
Weighted average interest and maturity of 6.11% and 4.1 years at December 31,
2008.

  $ 4,192,430   $ 4,836,761  

Unsecured notes, including $1,887 and $9,680 net premiums, respectively. Weighted
average interest and maturity of 5.69% and 4.7 years at December 31, 2008.

    10,726,887     9,384,680  

7% Mandatory Par Put Remarketed Securities, including $4,568 premiums in 2007
that were redeemed in June 2008.

        204,568  
           

Total Fixed-Rate Debt

    14,919,317     14,426,009  

Variable-Rate Debt:

             

Mortgages and other notes, at face value, respectively. Weighted average interest and
maturity of 2.00% and 3.3 years.

    2,076,927     441,143  

Credit Facility (see below)

    1,046,288     2,351,612  
           

Total Variable-Rate Debt

    3,123,215     2,792,755  

Fair value interest rate swaps

        (90 )
           

Total Mortgages and Other Indebtedness, Net

  $ 18,042,532   $ 17,218,674  
           

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Simon Property Group, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

(Dollars in thousands, except share and per share amounts and where indicated as in millions or billions)

8. Indebtedness and Derivative Financial Instruments (Continued)

            General.    At December 31, 2008, we have pledged 76 properties as collateral to secure related mortgage notes including 7 pools of cross-defaulted and cross-collateralized mortgages encumbering a total of 39 properties. Under these cross-default provisions, a default under any mortgage included in the cross-defaulted package may constitute a default under all such mortgages and may lead to acceleration of the indebtedness due on each property within the collateral package. Of our 76 encumbered properties, indebtedness on 18 of these encumbered properties and our unsecured notes are subject to various financial performance covenants relating to leverage ratios, annual real property appraisal requirements, debt service coverage ratios, minimum net worth ratios, debt-to-market capitalization, and/or minimum equity values. Our mortgages and other indebtedness may be prepaid but are generally subject to payment of a yield-maintenance premium or defeasance. As of December 31, 2008, we are in compliance with all our debt covenants.

            Some of the limited partners guarantee a portion of our consolidated debt through foreclosure guarantees. In total, 53 limited partners provide guarantees of foreclosure of $285.3 million of our consolidated debt at three consolidated properties. In each case, the loans were made by unrelated third party institutional lenders and the guarantees are for the benefit of each lender. In the event of foreclosure of the mortgaged property, the proceeds from the sale of the property are first applied against the amount of the guarantee and also reduce the amount payable under the guarantee. To the extent the sale proceeds from the disposal of the property do not cover the amount of the guarantee, then the limited partner is liable to pay the difference between the sale proceeds and the amount of the guarantee so that the entire amount guaranteed to the lender is satisfied. The debt is non-recourse to us and our affiliates.

Unsecured Debt

            Our unsecured debt currently consists of $10.7 billion of senior unsecured notes issued by the Operating Partnership and $1.0 billion outstanding under the Operating Partnership's $3.5 billion Credit Facility, or the Credit Facility. The Credit Facility bears interest at LIBOR plus 37.5 basis points and an additional facility fee of 12.5 basis points. The Credit Facility is scheduled to mature on January 11, 2010, which we can extend for another year at our option.

            On May 19, 2008, we issued two tranches of senior unsecured notes totaling $1.5 billion at a weighted average fixed interest rate of 5.74% consisting of a $700.0 million tranche with a fixed interest rate of 5.30% due May 30, 2013 and a second $800.0 million tranche with a fixed interest rate of 6.125% due May 30, 2018. We used proceeds from the offering to reduce borrowings on the Credit Facility and for general working capital purposes.

            On June 16, 2008, the Operating Partnership completed redemption of the $200.0 million outstanding principal amount of its 7% Mandatory Par Put Remarketed Securities, or MOPPRS. The redemption was accounted for as an extinguishment and resulted in a charge in the second quarter of 2008 of approximately $20.3 million.

            On August 28, 2008, the Operating Partnership repaid a $150.0 million unsecured note, which had a fixed rate of 5.38%.

            During the year ended December 31, 2008, we drew amounts from the Credit Facility to fund the redemption of the remarketable debt securities and the repayment of the $150.0 million unsecured note. Other amounts drawn on the Credit Facility were primarily for general working capital purposes. We repaid a total of $2.7 billion on the Credit Facility during the year ended December 31, 2008. The total outstanding balance of the Credit Facility as of December 31, 2008 was $1.0 billion, and the maximum amount outstanding during the year was approximately $2.6 billion. During the year ended December 31, 2008, the weighted average outstanding balance of the Credit Facility was approximately $1.4 billion. The amount outstanding as of December 31, 2008 includes $446.3 million in Euro and Yen-denominated borrowings. In addition, subsequent to December 31, 2008, we repaid $600 million in unsecured notes, consisting of two $300 million tranches that bore rates of 3.75% and 7.13%, respectively, using proceeds from the Credit Facility.

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Simon Property Group, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

(Dollars in thousands, except share and per share amounts and where indicated as in millions or billions)

8. Indebtedness and Derivative Financial Instruments (Continued)

Secured Debt

            The balance of fixed and variable rate mortgage notes was $6.3 billion and $5.3 billion as of December 31, 2008 and 2007, respectively. Of the 2008 amount, $5.3 billion is nonrecourse to us. The fixed-rate mortgages generally require monthly payments of principal and/or interest. The interest rates of variable-rate mortgages are typically based on LIBOR. During the twelve-month period ended December 31, 2008, we repaid $274.0 million in mortgage loans, unencumbering five properties.

            On January 15, 2008, we entered into a swap transaction that effectively converted $300.0 million of variable rate debt to fixed rate debt at a net rate of 3.21%.

            On March 6, 2008, we borrowed $705 million on a term loan that matures March 5, 2012 and bears interest at a rate of LIBOR plus 70 basis points. On May 27, 2008, the loan was increased to $735 million. This loan is secured by the cash flow distributed from six properties and has additional availability of $115 million through the maturity date.

            On July 30, 2008, we borrowed $190.0 million on a loan secured by Philadelphia Premium Outlets, which matures on July 30, 2014 and bears interest at a variable rate of LIBOR plus 185 basis points. On January 2, 2009, we executed a swap agreement that fixes the interest rate of this loan at 4.19%.

            On September 23, 2008, we borrowed $170.0 million on a term loan that matures September 23, 2013 and bears interest at a rate of LIBOR plus 195 basis points. On November 4, 2008, the loan was increased to $220 million and on December 17, 2008, the loan was increased to its maximum availability of $260 million. This is a cross- collateralized loan that is secured by The Domain, Shops at Arbor Walk, and Palms Crossing. On January 2, 2009, we executed a swap agreement that fixes the interest rate on $200.0 million of this loan at 4.35%.

Debt Maturity and Other

            Our scheduled principal repayments on indebtedness as of December 31, 2008 are as follows:

2009

  $ 1,475,510  

2010

    2,301,674  

2011

    3,050,576  

2012

    2,938,395  

2013

    2,034,735  

Thereafter

    6,224,443  
       

Total principal maturities

    18,025,333  

Net unamortized debt premium and other

    17,199  
       

Total mortgages and other indebtedness

  $ 18,042,532  
       

            Our cash paid for interest in each period, net of any amounts capitalized, was as follows:

 
  For the Year Ended December 31,  
 
  2008   2007   2006  

Cash paid for interest

  $ 1,001,718   $ 983,219   $ 845,964  

Derivative Financial Instruments

            Our exposure to market risk due to changes in interest rates primarily relates to our long-term debt obligations. We manage exposure to interest rate market risk through our risk management strategy by a combination of interest rate protection agreements to effectively fix or cap a portion of variable rate debt, or in the case of a fair value hedge, effectively convert fixed rate debt to variable rate debt. We are also exposed to foreign currency risk on financings of certain foreign operations. Our intent is to offset gains and losses that occur on the underlying exposures, with gains

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Simon Property Group, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

(Dollars in thousands, except share and per share amounts and where indicated as in millions or billions)

8. Indebtedness and Derivative Financial Instruments (Continued)


and losses on the derivative contracts hedging these exposures. We do not enter into either interest rate protection or foreign currency rate protection agreements for speculative purposes.

            We may enter into treasury lock agreements as part of an anticipated debt issuance. If the anticipated transaction does not occur, the cost is charged to consolidated net income. Upon completion of the debt issuance, the cost of these instruments is recorded as part of accumulated other comprehensive income and is amortized to interest expense over the life of the debt agreement.

            As of December 31, 2008, we reflected the fair value of outstanding consolidated derivatives in other liabilities for $19.4 million. In addition, we recorded the benefits from our treasury lock and interest rate hedge agreements in accumulated other comprehensive loss and the unamortized balance of these agreements is $3.3 million as of December 31, 2008. The net deficit from terminated swap agreements is also recorded in accumulated other comprehensive loss and the unamortized balance is $3.4 million as of December 31, 2008. As of December 31, 2008, our outstanding LIBOR based derivative contracts consisted of:

            Within the next year, we expect to reclassify to earnings approximately $10.9 million of loss of the current balance held in accumulated other comprehensive loss. The amount of ineffectiveness relating to fair value and cash flow hedges recognized in income during the periods presented was not material.

            Our joint ventures may also enter into interest rate swaps or caps, which are recorded at fair value on the joint ventures' balance sheet. Included in our accumulated other comprehensive income (loss) as of December 31, 2008 and 2007 is our share of the joint ventures accumulated derivative gains or (losses) of $(19.6) million and $(5.8) million, respectively.

Fair Value of Financial Instruments

            The carrying value of our variable-rate mortgages and other loans approximates their fair values. We estimate the fair values of consolidated fixed-rate mortgages using cash flows discounted at current borrowing rates and other indebtedness using cash flows discounted at current market rates. The fair values of financial instruments and our related discount rate assumptions used in the estimation of fair value for our consolidated fixed-rate mortgages and other indebtedness as of December 31 is summarized as follows:

 
  2008   2007  

Fair value of fixed-rate mortgages and other indebtedness
(in millions)

  $ 12,385   $ 14,742  

Average discount rates assumed in calculation of fair value
of fixed-rate mortgages

    6.33 %   5.23 %

            We estimate the fair values of consolidated fixed-rate unsecured notes using quoted market prices, or, if no quoted market prices are available, we use quoted market prices for securities with similar terms and maturities.

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Notes to Consolidated Financial Statements (Continued)

(Dollars in thousands, except share and per share amounts and where indicated as in millions or billions)

9. Rentals under Operating Leases

            Future minimum rentals to be received under noncancelable tenant operating leases for each of the next five years and thereafter, excluding tenant reimbursements of operating expenses and percentage rent based on tenant sales volume as of December 31, 2008 are as follows:

2009

  $ 1,898,110  

2010

    1,762,658  

2011

    1,584,012  

2012

    1,402,718  

2013

    1,209,345  

Thereafter

    3,731,109  
       

  $ 11,587,952  
       

            Approximately 0.6% of future minimum rents to be received are attributable to leases with an affiliate of a limited partner in the Operating Partnership.

10. Equity

            Our Board of Directors is authorized to reclassify excess common stock into one or more additional classes and series of capital stock, to establish the number of shares in each class or series and to fix the preferences, conversion and other rights, voting powers, restrictions, limitations as to dividends, and qualifications and terms and conditions of redemption of such class or series, without any further vote or action by the stockholders. The issuance of additional classes or series of capital stock may have the effect of delaying, deferring or preventing a change in control of Simon Property without further action of the stockholders. The ability to issue additional classes or series of capital stock, while providing flexibility in connection with possible acquisitions and other corporate purposes, could have the effect of making it more difficult for a third party to acquire, or of discouraging a third party from acquiring, a majority of our outstanding voting stock.

            Holders of our common stock are entitled to one vote for each share held of record on all matters submitted to a vote of stockholders, other than for the election of directors. At the time of the initial public offering of our predecessor in 1993, the charter of the predecessor gave Melvin Simon, Herbert Simon, David Simon and certain of their affiliates, or the Simons, the right to elect four of the members of the Board of Directors, conditioned upon the Simons, or entities they control, maintaining specified levels of equity ownership in Simon Property's predecessor, the Operating Partnership and all of their subsidiaries. In addition, at that time, Melvin Simon & Associates, Inc., or MSA, acquired 3,200,000 shares of Class B common stock. MSA placed the Class B common stock into a voting trust under which the Simons were the sole trustees. These voting trustees had the authority to elect the four members of the Board of Directors. These same arrangements were incorporated into Simon Property's Charter in 1998 during the combination of its predecessor and Corporate Property Investors, Inc. Shares of Class B common stock convert automatically into an equal number of shares of common stock upon the sale or transfer thereof to a person not affiliated with Melvin Simon, Herbert Simon or David Simon. The Class B shares can be converted into shares of common stock at the option of the holders. At the initial offering we reserved 3,200,000 shares of common stock for the possible conversion of the outstanding Class B shares. During 2008, the previously outstanding 4,000 Class C shares were converted to 4,000 shares of common stock and the Class C shares were retired.

Common Stock Issuances and Repurchases

            In 2008, we issued 2,574,608 shares of common stock to eight limited partners in exchange for an equal number of Units.

            We issued 282,106 shares of common stock related to employee and director stock options exercised during 2008. We used the net proceeds from the option exercises of approximately $11.9 million to acquire additional Units. The Operating Partnership used the net proceeds for general working capital purposes.

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Notes to Consolidated Financial Statements (Continued)

(Dollars in thousands, except share and per share amounts and where indicated as in millions or billions)

10. Equity (Continued)

            On July 26, 2007, our Board of Directors authorized us to repurchase up to $1.0 billion of common stock over the next twenty-four months as market conditions warrant. We may repurchase the shares in the open market or in privately negotiated transactions. During 2008, no purchases were made as part of this program. The program had remaining availability of approximately $950.7 million at December 31, 2008.

Temporary Equity

            As discussed in Note 3, as a result of the retrospective adoption of SFAS 160 and the application of EITF D-98, we classify as temporary equity those securities for which there is the possibility that we could be required to redeem the security for cash irrespective of the probability of such a possibility. As a result, we reclassified one series of preferred stock from permanent equity, and we maintained in temporary equity several series of preferred units of the Operating Partnership. Each of these securities that are classified in temporary equity are discussed below.

            Series I 6% Convertible Perpetual Preferred Stock.    This series of preferred stock was issued in connection with our acquisition of Chelsea Property Group in 2004. The terms of this series of preferred stock are substantially identical to those of the related series of 6% Series I Convertible Perpetual Preferred Units described below. During 2008, holders exchanged 22,400 preferred units for an equal number of shares of preferred stock. In prior years, 1,093,042 preferred units had been exchanged for an equal number of shares of preferred stock. Dividends accrue quarterly at an annual rate of 6% per share. On or after October 14, 2009, we can redeem the preferred stock, in whole or in part, for cash only equal to the liquidation preference ($50.00 per share) plus accumulated and unpaid dividends. However, if the redemption date falls between the record date and the preferred stock dividend payment date, the redemption price will be the liquidation preference only. The redemption may occur only if, for 20 trading days within a period of 30 consecutive trading days ending on the trading day before notice of redemption is issued, the closing price per share of the common stock exceeds 130% of the applicable redemption price. This series of preferred stock is also convertible into common stock by the holder upon the occurrence of a conversion triggering event. A conversion triggering event includes the following: (a) if we call the preferred stock for redemption; or, (b) if we are a party to a consolidation, merger, share exchange, or sale of all or substantially all of our assets; or, (c) if during any fiscal quarter after the fiscal quarter ending December 31, 2004, the closing sale price of the common stock for at least 20 trading days in a period of 30 consecutive trading days ending on the last trading day of the preceding fiscal quarter exceeds 125% of the applicable conversion price. If the closing trigger price condition is not met at the end of any quarter, then conversions are not permitted in the following quarter. This series of preferred stock can also be put to us for cash upon the occurrence of a change of control event, which would include a change in the majority of our directors that occurs over a two year period. As a result, this series of preferred stock is classified outside permanent equity because such a change in Board composition could be deemed outside our control. The carrying amount of the Series I Preferred Stock of $379,513 and $700,247 as of December 31, 2008 and 2007, respectively, is equal to its liquidation value, which is the amount payable upon the occurrence of such event.

            As of December 31, 2008, the conversion trigger price of $77.88 was not met and as a result conversion of each share of this series of preferred stock into shares of common stock is not permitted through March 31, 2009. However, holders of Series I 6% Convertible Perpetual Preferred Stock had the right to convert their shares into shares of common stock during the year ended December 31, 2008. A total of 6,437,072 shares of Series I preferred stock were converted into 5,151,776 shares of common stock for the year then ended.

            Limited Partners' Preferred Interests in the Operating Partnership and Other Noncontrolling Redeemable Interests in Properties.    The following table summarizes each series of preferred units of the Operating Partnership and the amount of the noncontrolling redeemable interests in properties as of December 31. The noncontrolling redeemable interests in properties are more fully discussed in Note 3. The redemption features of each of these series of preferred units of the Operating Partnership contain provisions which could require us to settle the redemption in cash. As a

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Notes to Consolidated Financial Statements (Continued)

(Dollars in thousands, except share and per share amounts and where indicated as in millions or billions)

10. Equity (Continued)


result, these series of preferred units in the Operating Partnership, along with the noncontrolling redeemable interests in properties, remain classified outside permanent equity.

 
  2008   2007  

6% Series I Convertible Perpetual Preferred Units, 19,000,000 units authorized, 1,518,371 and 3,034,675 issued and outstanding

  $ 75,919   $ 151,734  

7.75% / 8.00% Cumulative Redeemable Preferred Units, 900,000 shares authorized, 850,698 issued and outstanding

    85,070     85,070  

7.50% Cumulative Redeemable Preferred Units, 260,000 units authorized, 255,373 issued and outstanding

    25,537     25,537  

8.00% Cumulative Redeemable Preferred Units, 2,700,000 units authorized, 1,356,814 and 1,418,307 issued and outstanding

    40,704     42,549  
           

    227,230     304,890  

Other noncontrolling redeemable interests in properties

    49,378     44,264  
           

Limited partners' preferred interest in the Operating Partnership and other noncontrolling redeemable interests in properties

  $ 276,608   $ 349,154  
           

            6% Series I Convertible Perpetual Preferred Units.    This series of preferred units accrues cumulative quarterly distributions at $3.00 per unit. The preferred units are exchangeable for shares of Series I preferred stock on a one for one basis or, at Simon's option, may be settled in cash. In 2008, holders exchanged 22,400 preferred units of this series for an equal number of shares of Series I preferred stock. Additionally, 1,493,904 preferred units were converted into 1,187,238 common units. The preferred units have terms that are substantially identical to the Series I preferred stock.

            7.75%/8.00% Cumulative Redeemable Preferred Units.    This series of preferred units accrues cumulative quarterly distributions at a rate of 8.00% of the liquidation value through December 31, 2009, 10.00% of the liquidation value for the period beginning January 1, 2010 and ending December 31, 2010, and 12% of the liquidation value thereafter. A holder may require the Operating Partnership to repurchase the preferred units on or after January 1, 2009, or any time that the aggregate liquidation value of the outstanding preferred units exceeds 10% of the book value of partners' equity of the Operating Partnership. The Operating Partnership may redeem the preferred units on or after January 1, 2011, or earlier upon the occurrence of certain tax triggering events. The Operating Partnership intends to redeem these units after January 1, 2009, upon the occurrence of a tax triggering event. The redemption price is the liquidation value ($100.00 per preferred unit) plus accrued and unpaid distributions, payable in cash or an interest in one or more properties mutually agreed upon.

            7.50% Cumulative Redeemable Preferred Units.    This series of preferred units accrues cumulative quarterly distributions at a rate of $7.50 annually. The Operating Partnership may redeem the preferred units on or after November 10, 2013, unless there is the occurrence of certain tax triggering events such as death of the initial holder, or the transfer of any units to any person or entity other than the persons or entities entitled to the benefits of the original holder. The redemption price is the liquidation value ($100.00 per preferred unit) plus accrued and unpaid distributions, payable either in cash or fully registered shares of our common stock at our election. In the event of the death of a holder of the preferred units, the occurrence of certain tax triggering events applicable to the holder, or on or after November 10, 2006, the holder may require the Operating Partnership to redeem the preferred units at the same redemption price payable at the option of the Operating Partnership in either cash or shares of common stock.

            8.00% Cumulative Redeemable Preferred Units.    This series of preferred units accrues cumulative quarterly distributions at a rate of $2.40 annually. The preferred units are paired with one 7.00% preferred unit or with the number of Units into which the 7.00% preferred units may be converted. The Operating Partnership may redeem the preferred units at their liquidation value ($30.00 per preferred unit) plus accrued and unpaid distributions on or after August 27, 2009, payable in either a new series of preferred units having the same terms as the preferred units, except that the distribution rate would be reset to a then determined market rate, or in Units. The preferred units are

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Notes to Consolidated Financial Statements (Continued)

(Dollars in thousands, except share and per share amounts and where indicated as in millions or billions)

10. Equity (Continued)


convertible at the holders' option on or after August 27, 2004, into shares of Series D preferred stock or Units. In the event of the death of a holder of the preferred units, or the occurrence of certain tax triggering events applicable to a holder, the Operating Partnership may be required to redeem the preferred units owned by such holder at their liquidation value payable at the option of the Operating Partnership in either cash or fully registered shares of our common stock. During 2008, 61,493 of the preferred units were redeemed for $1.8 million in cash.

Permanent Equity

            Preferred Stock.    We have the following series of preferred stock that were previously issued, but had no shares outstanding at the end of 2008 and 2007: Series B 6.5% Convertible Preferred Stock (5,000,000 shares); Series C 7.00% Cumulative Convertible Preferred Stock (2,700,000 shares); Series D 8.00% Cumulative Redeemable Preferred Stock (2,700,000 shares); Series E 8.00% Cumulative Redeemable Preferred Stock (1,000,000 shares); Series F 8.75% Cumulative Redeemable Preferred Stock (8,000,000 shares); Series G 7.89% Cumulative Step-Up Premium Rate Preferred Stock (3,000,000 shares); Series H Variable Rate Preferred Stock (4,530,000 shares); Series K Variable Rate Redeemable Preferred Stock (8,000,000 shares); and Series L Variable Rate Redeemable Preferred Stock (6,000,000 shares).

            Dividends on all series of preferred stock are calculated based upon the preferred stock's preferred return multiplied by the preferred stock's corresponding liquidation value. The Operating Partnership pays preferred distributions to us equal to the dividends we pay on the preferred stock issued.

            Series C 7.00% Cumulative Convertible Preferred Stock and Series D 8.00% Cumulative Redeemable Preferred Stock.    We issued these two series of preferred stock in 1999 to facilitate the possible conversion of two related series of preferred units: 7.00% Cumulative Convertible Preferred Units (classified as noncontrolling interests) and the 8.00% Cumulative Redeemable Preferred Units (classified as temporary equity). Each of these series of preferred stock has terms that are substantially identical to the related series of preferred units. There are no shares of either series currently outstanding.

            Series J 83/8% Cumulative Redeemable Preferred Stock.    We issued this series of preferred stock in 2004 to replace a series of Chelsea preferred stock. Dividends accrue quarterly at an annual rate of 83/8% per share. We can redeem this series, in whole or in part, on and after October 15, 2027 at a redemption price of $50.00 per share, plus accumulated and unpaid dividends. This preferred stock was issued at a premium of $7,553 as of the date of our acquisition of Chelsea. The unamortized premium included in the carrying value of the preferred stock at December 2008 and 2007 was $6,185 and $6,514, respectively.

Noncontrolling Interests

            The following series of preferred units are included in noncontrolling interests due to the ability for the Operating Partnership to settle the redemption in either cash or units at its election. The noncontrolling interests in the consolidated balance sheets also include the third parties' nonredeemable minority holdings in properties that we consolidate but do not wholly-own and the limited partners' common interest in the Operating Partnership due to our ability to settle any redemption in cash or common stock at our election. These noncontrolling interests are classified as permanent equity in connection with our adoption of SFAS 160 as discussed in Note 3.

            7.00% Cumulative Convertible Preferred Units.    This series of preferred units accrues cumulative quarterly distributions at a rate of $1.96 annually. The preferred units are convertible at the holders' option on or after August 27, 2004, into either an equal number of shares of Series C preferred stock or Units of the Operating Partnership at a ratio of 0.75676 Units to each preferred unit provided that the closing stock price of the common stock exceeds $37.00 for any three consecutive trading days prior to the conversion date. The Operating Partnership may redeem the preferred units at their liquidation value ($28.00 per unit) plus accrued and unpaid distributions on or after August 27, 2009, by issuing Units. In the event of the death of a holder of the preferred units, or the occurrence of certain tax triggering events applicable to a holder, the Operating Partnership may be required to redeem the preferred units at the liquidation value payable at the option of the Operating Partnership in either cash or shares of common stock. During 2008, holders converted 6,583 preferred units into 4,981 Units. The balance of noncontrolling

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Notes to Consolidated Financial Statements (Continued)

(Dollars in thousands, except share and per share amounts and where indicated as in millions or billions)

10. Equity (Continued)


interests related to this series of preferred units totalled $2,639 and $2,823 at December 31, 2008 and 2007, respectively.

Other Equity Activity

            Notes Receivable from Former CPI Stockholders.    Notes receivable of $17,199 from stockholders of an entity are reflected as a deduction from capital in excess of par value in the consolidated statements of equity in the accompanying financial statements. The notes do not bear interest and become due at the time the underlying shares are sold.

            The Simon Property Group 1998 Stock Incentive Plan.    This plan, or the 1998 plan, provides for the grant of equity-based awards in the form of options to purchase shares, stock appreciation rights, restricted stock grants and performance unit awards. Options may be granted which are qualified as "incentive stock options" within the meaning of Section 422 of the Code and options which are not so qualified. An aggregate of 11,300,000 shares of common stock have been reserved for issuance under the 1998 plan. Additionally, the partnership agreement requires us to sell shares of common stock to the Operating Partnership, at fair value, sufficient to satisfy the exercising of any stock options, and for us to purchase Units for cash in an amount equal to the fair market value of such shares.

            Administration.    The 1998 plan is administered by the Compensation Committee of the Board of Directors. The committee determines which eligible individuals may participate and the type, extent and terms of the awards to be granted to them. In addition, the committee interprets the 1998 plan and makes all other determinations deemed advisable for its administration. Options granted to employees become exercisable over the period determined by the committee. The exercise price of an employee option may not be less than the fair market value of the shares on the date of grant. Employee options generally vest over a three-year period and expire ten years from the date of grant. Since 2001, we have not granted any options to employees, except for a series of reload options we assumed as part of a prior business combination.

            Automatic Awards For Eligible Directors.    Directors who are not also our employees or employees of our affiliates receive automatic awards under the 1998 plan. Until 2003, these awards took the form of stock options. Since then, the awards have been shares of restricted stock. Currently, each eligible director receives on the first day of the first calendar month following his or her initial election an award of restricted stock with a value of $82,500 (pro-rated for partial years of service). Thereafter, as of the date of each annual meeting of stockholders, eligible directors who are re-elected receive an award of restricted stock having a value of $82,500. In addition, eligible directors who serve as chairpersons of the standing committees (excluding the Executive Committee) receive an additional annual award of restricted stock having a value of $10,000 (in the case of the Audit Committee) or $7,500 (in the case of all other standing committees). The Lead Director also receives an annual restricted stock award having a value of $12,500. The restricted stock vests in full after one year.

            Once vested, the delivery of the shares of restricted stock (including reinvested dividends) is deferred under our Director Deferred Compensation Plan until the director retires, dies or becomes disabled or otherwise no longer serves as a director. The directors may vote and are entitled to receive dividends on the underlying shares; however, any dividends on the shares of restricted stock must be reinvested in shares of common stock and held in the deferred compensation plan until the shares of restricted stock are delivered to the former director.

            In addition to automatic awards, eligible directors may be granted discretionary awards under the 1998 plan.

            Restricted Stock.    The 1998 plan also provides for shares of restricted stock to be granted to certain employees at no cost to those employees, subject to achievement of certain financial and return-based performance measures established by the committee related to the most recent year's performance. Once granted, the shares of restricted stock then vest annually over a four-year period (25% each year) beginning on January 1 of each year. The cost of restricted stock grants, which is based upon the stock's fair market value on the grant date, is charged to earnings ratably over the vesting period. Through December 31, 2008 a total of 4,738,409 shares of restricted stock, net of

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Notes to Consolidated Financial Statements (Continued)

(Dollars in thousands, except share and per share amounts and where indicated as in millions or billions)

10. Equity (Continued)


forfeitures, have been awarded under the plan. Information regarding restricted stock awards are summarized in the following table for each of the years presented:

 
  For the Year Ended
December 31,
 
 
  2008   2007   2006  

Restricted stock shares awarded during the year, net of
forfeitures

    276,872     222,725     415,098  

Weighted average fair value of shares granted during the year

  $ 85.77   $ 120.55   $ 84.33  

Amortization expense

  $ 28,640   $ 26,779   $ 23,369  

            The weighted average life of our outstanding options as of December 31, 2008 is 2.3 years. Information relating to Director Options and Employee Options from December 31, 2005 through December 31, 2008 is as follows:

 
  Director Options   Employee Options  
 
  Options   Weighted Average
Exercise Price
Per Share
  Options   Weighted Average
Exercise Price
Per Share
 

Shares under option at December 31, 2005

    37,500   $ 27.80     1,527,922   $ 30.39  
                   

Granted

        N/A     70,000     90.87  

Exercised

    (18,000 )   27.68     (396,659 )   36.02  

Forfeited

    (3,000 )   24.25     (3,000 )   24.47  
                   

Shares under option at December 31, 2006

    16,500   $ 28.57     1,198,263   $ 32.07  
                   

Granted

        N/A     23,000     99.03  

Exercised, none were forfeited during the period

    (16,500 )   28.57     (214,525 )   32.62  
                   

Shares under option at December 31, 2007

      $     1,006,738   $ 33.48  
                   

Granted

                 

Exercised, none were forfeited during the period

            (282,106 )   41.96  
                   

Shares under option at December 31, 2008

      $     724,632   $ 30.18  
                   

 

 
  Outstanding and Exercisable  
Employee Options:
  
Range of Exercise Prices
  Options   Weighted Average
Remaining
Contractual Life
in Years
  Weighted Average
Exercise Price
Per Share
 

$22.36 - $30.38

    615,583     1.96   $ 25.13  

$30.39 - $46.97

    59,749     5.09     46.97  

$46.98 - $63.51

    26,300     5.17     50.17  

$63.52 - $99.03

    23,000     0.24     99.03  
                 
 

Total

    724,632         $ 30.18  
                 

            We also maintain a tax-qualified retirement 401(k) savings plan and offer no other postretirement or post employment benefits to our employees.

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Notes to Consolidated Financial Statements (Continued)

(Dollars in thousands, except share and per share amounts and where indicated as in millions or billions)

10. Equity (Continued)

Exchange Rights

            Limited partners in the Operating Partnership have the right to exchange all or any portion of their Units for shares of common stock on a one-for-one basis or cash, as determined by the Board of Directors. The amount of cash to be paid if the exchange right is exercised and the cash option is selected will be based on the trading price of our common stock at that time. At December 31, 2008, we had reserved 68,190,138 shares of common stock for possible issuance upon the exchange of Units, options, and Class B common stock and certain convertible preferred stock.

Common Stock Dividends

            On January 30, 2009, our Board of Directors approved a quarterly common stock dividend of $0.90 per share, to be paid in a combination of cash and shares of our common stock. While our stockholders will have the right to elect to receive their dividend in either cash or common stock, we have announced that the aggregate cash component of the dividend will not exceed 10% of the total dividend, or $0.09 per share. If the number of stockholders electing to receive cash would result in our payment of cash in excess of this 10% limitation, we will allocate the cash payment on a pro rata basis among those stockholders making the cash election. We have reserved the right to elect to pay this dividend all in cash. Our Board of Directors reviews and approves dividends on a quarterly basis, and no determination has been made about whether our remaining 2009 dividends will be paid in a similar combination of cash and common stock. Paying all or a portion of the 2009 dividend in a combination of cash and shares of our common stock allows us to satisfy our REIT taxable income distribution requirement under existing IRS revenue procedures, while enhancing our financial flexibility and balance sheet strength.

11. Commitments and Contingencies

Litigation

            As previously disclosed, for several years we have been defending actions brought by the Attorneys General of Massachusetts, New Hampshire and Connecticut in their respective state courts and similar litigation brought by other parties alleging that the sale of co-branded, bank-issued gift cards by our affiliate, SPGGC, Inc., at certain of our properties, violated state gift certificate and consumer protection laws. We previously reported the dismissal of the New Hampshire litigation. During the fourth quarter of 2008, the complaint in the Massachusetts litigation was dismissed and we settled the Connecticut litigation. The only remaining legal proceedings involving gift card sales are two purported class actions brought by private parties in New York. With the resolution of the remaining Attorneys General's actions in 2008, we no longer believe that the ultimate outcome of these related actions would have a material adverse effect on our financial position, results of operations or cash flows and, accordingly, we do not expect to report further developments in these actions.

            We are also involved in various other legal proceedings that arise in the ordinary course of our business. We believe that such litigation, claims and administrative proceedings will not have a material adverse impact on our financial position or our results of operations. We record a liability when a loss is considered probable and the amount can be reasonably estimated.

Lease Commitments

            As of December 31, 2008, a total of 29 of the consolidated properties are subject to ground leases. The termination dates of these ground leases range from 2009 to 2090. These ground leases generally require us to make fixed annual rental payments, or a fixed annual rental plus a percentage rent component based upon the revenues or

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Notes to Consolidated Financial Statements (Continued)

(Dollars in thousands, except share and per share amounts and where indicated as in millions or billions)

11. Commitments and Contingencies (Continued)


total sales of the property. Some of these leases also include escalation clauses and renewal options. We incurred ground lease expense included in other expense as follows:

 
  For the Year Ended
December 31,
 
 
  2008   2007   2006  

Ground lease expense

  $ 30,681   $ 30,499   $ 29,301  

            Future minimum lease payments due under these ground leases for years ending December 31, excluding applicable extension options, are as follows:

2009

  $ 16,530  

2010

    16,288  

2011

    16,338  

2012

    16,451  

2013

    16,699  

Thereafter

    669,723  
       

  $ 752,029  
       

Insurance

            We maintain commercial general liability, fire, flood, extended coverage and rental loss insurance on all of our properties in the United States through wholly-owned captive insurance entities and other self-insurance mechanisms. Rosewood Indemnity, Ltd. and Bridgewood Insurance Company, Ltd. are our wholly-owned captive insurance subsidiaries, and have agreed to indemnify our general liability carrier for a specific layer of losses for the properties that are covered under these arrangements. The carrier has, in turn, agreed to provide evidence of coverage for this layer of losses under the terms and conditions of the carrier's policy. A similar policy written through these captive insurance entities also provides initial coverage for property insurance and certain windstorm risks at the properties located in coastal windstorm locations.

            We currently maintain insurance coverage against acts of terrorism on all of our properties in the United States on an "all risk" basis in the amount of up to $1 billion per occurrence for certified foreign acts of terrorism and $500 million per occurrence for non-certified domestic acts of terrorism. The current federal laws which provide this coverage are expected to operate through 2014. Despite the existence of this insurance coverage, any threatened or actual terrorist attacks in high profile markets could adversely affect our property values, revenues, consumer traffic and tenant sales.

Guarantees of Indebtedness

            Joint venture debt is the liability of the joint venture and is typically secured by the joint venture property, which is non-recourse to us. As of December 31, 2008, the Operating Partnership has loan guarantees and other guarantee obligations of $71.9 million and $6.6 million, respectively, to support our total $6.6 billion share of joint venture mortgage and other indebtedness in the event the joint venture partnership defaults under the terms of the underlying arrangement. Mortgages which are guaranteed by us are secured by the property of the joint venture and that property could be sold in order to satisfy the outstanding obligation.

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Notes to Consolidated Financial Statements (Continued)

(Dollars in thousands, except share and per share amounts and where indicated as in millions or billions)

11. Commitments and Contingencies (Continued)

Concentration of Credit Risk

            We are subject to risks incidental to the ownership and operation of commercial real estate. These risks include, among others, the risks normally associated with changes in the general economic climate, trends in the retail industry, creditworthiness of tenants, competition for tenants and customers, changes in tax laws, interest rate and foreign currency levels, the availability of financing, and potential liability under environmental and other laws. Our regional malls, Premium Outlet Centers, The Mills, and community/lifestyle centers rely heavily upon anchor tenants like most retail properties. Four retailers occupied 532 of the approximately 1,376 anchor stores in the properties as of December 31, 2008. An affiliate of one of these retailers is a limited partner in the Operating Partnership.

Limited Life Partnerships

            FASB Statement No. 150, "Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity" (SFAS 150) establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. It requires that an issuer classify a financial instrument that is within its scope as a liability. The effective date of a portion of the Statement has been indefinitely postponed by the FASB. We have certain transactions, arrangements, or financial instruments that have been identified that appear to meet the criteria for liability recognition in accordance with paragraphs 9 and 10 under SFAS 150 due to the finite life of certain joint venture arrangements. However, SFAS 150 requires disclosure of the estimated settlement value of these non-controlling interests. As of December 31, 2008 and 2007, the estimated settlement value of these non-controlling interests was approximately $130 million and $145 million, respectively. The noncontrolling interest amount recognized as a liability on the consolidated balance sheets related to these noncontrolling interests was approximately $23 million as of December 31, 2008 and 2007.

12. Related Party Transactions

            Our management company provides management, insurance, and other services to Melvin Simon & Associates, Inc., a related party, and other non-owned properties. Amounts for services provided by our management company and its affiliates to our unconsolidated joint ventures and other related parties were as follows:

 
  For the Year Ended December 31,  
 
  2008   2007   2006  

Amounts charged to unconsolidated joint ventures

  $ 125,663   $ 95,564   $ 62,879  

Amounts charged to properties owned by related parties

    4,980     5,049     9,494  

            During 2008 and 2007, we recorded interest income of $15.3 million and $39.1 million, respectively, and financing fee income of $3.1 million and $17.4 million, respectively, net of inter-entity eliminations, related to the loans that we have provided to Mills and SPG-FCM and lending financing services to those entities and the properties in which they hold an ownership interest.

13. Recently Issued Accounting Pronouncements

            In December 2007, the FASB issued SFAS No. 141(R), "Business Combinations" which requires an acquirer to measure the identifiable assets acquired, the liabilities assumed and any noncontrolling interest in the acquiree at their fair values on the acquisition date, with goodwill being the excess value over the net identifiable assets acquired, and that costs of acquisition be expensed as incurred. SFAS 141(R) is effective for financial statements issued for fiscal years beginning after December 15, 2008. Early adoption is prohibited. We do not expect the adoption of SFAS 141(R) to have a significant impact on our results of operations or financial position.

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Notes to Consolidated Financial Statements (Continued)

(Dollars in thousands, except share and per share amounts and where indicated as in millions or billions)

13. Recently Issued Accounting Pronouncements (Continued)

            In March 2008, the FASB issued SFAS No. 161, "Disclosures about Derivative Instruments and Hedging Activities — an amendment of FASB Statement No. 133." This statement amends and expands the disclosure requirements of SFAS 133. This statement is effective for fiscal years beginning after November 15, 2008, and interim periods within those fiscal years. We are in the process of determining the impact of adopting this statement.

14. Quarterly Financial Data (Unaudited)

            Quarterly 2008 and 2007 data is summarized in the table below and, as disclosed in Note 3, the amounts have been reclassified from previously disclosed amounts in accordance with the discontinued operations provisions of SFAS No. 144 and reflect dispositions through December 31, 2008. Income from continuing operations, income from continuing operations per share — Basic, and income from continuing operations per share — Diluted as previously reported in the September 30, 2007 Form 10-Q were $179,253, $0.74, and $0.74, respectively, and are presented below as $186,345, $0.77, and $0.77, respectively. All other amounts previously reported are equal to the amounts reported below. Quarterly amounts may not equal annual amounts due to rounding.

 
  First Quarter   Second Quarter   Third Quarter   Fourth Quarter  

2008
                         

Total revenue

  $ 895,298   $ 922,947   $ 935,594   $ 1,029,316  

Operating income

    351,775     379,038     383,351     445,373  

Consolidated income from continuing operations

    129,022     114,353     159,736     196,449  

Net income available to common stockholders

    87,933     76,572     112,809     145,203  

Income from continuing operations per share — Basic

  $ 0.39   $ 0.34   $ 0.50   $ 0.64  

Net income per share — Basic

  $ 0.39   $ 0.34   $ 0.50   $ 0.64  

Income from continuing operations per share — Diluted

  $ 0.39   $ 0.34   $ 0.50   $ 0.64  

Net income per share — Diluted

  $ 0.39   $ 0.34   $ 0.50   $ 0.64  

Weighted average shares outstanding

    223,455,345     224,982,539     225,356,074     227,512,179  

Diluted weighted average shares outstanding

    224,071,920     225,571,345     225,925,532     227,909,356  

2007
                         

Total revenue

  $ 852,141   $ 855,932   $ 907,145   $ 1,035,581  

Operating income

    348,809     333,343     378,446     473,434  

Consolidated income from continuing operations

    146,819     98,176     239,269     190,341  

Net income available to common stockholders

    98,381     59,917     164,937     112,929  

Income from continuing operations per share — Basic

  $ 0.44   $ 0.27   $ 0.77   $ 0.60  

Net income per share — Basic

  $ 0.44   $ 0.27   $ 0.74   $ 0.51  

Income from continuing operations per share — Diluted

  $ 0.44   $ 0.27   $ 0.77   $ 0.60  

Net income per share — Diluted

  $ 0.44   $ 0.27   $ 0.74   $ 0.51  

Weighted average shares outstanding

    222,443,434     223,399,287     223,103,314     223,015,421  

Diluted weighted average shares outstanding

    223,300,903     224,236,142     223,848,882     223,688,665  

65


Table of Contents


Part IV

Item 15. Exhibits and Financial Statement Schedules

 
   
  Page No.  
(1)   Consolidated Financial Statements        

 

 

Simon Property Group, Inc. and Subsidiaries' consolidated financial statements and independent registered public accounting firm's report are set forth in Item 8 of this Annual Report on Form 10-K/A and are incorporated herein by reference.

 

 

 

 

(2)

 

Financial Statement Schedule

 

 

 

 

 

 

Simon Property Group, Inc. and Subsidiaries Schedule III — Schedule of Real Estate and Accumulated Depreciation

 

 

68

 

 

 

Notes to Schedule III

 

 

75

 

(3)

 

Exhibits

 

 

 

 

 

 

The Exhibit Index attached hereto is hereby incorporated by reference to this Item. The following exhibits listed on the Exhibit Index are filed with this Annual Report on Form 10-K/A.

 

 

76

 
Exhibit No.    
  12.1   Statement regarding computation of ratios.

 

23.1

 

Consent of Ernst & Young LLP.

 

31.1

 

Certification by the Chief Executive Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

 

31.2

 

Certification by the Chief Financial Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

 

32

 

Certification by the Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

66


Table of Contents


SIGNATURES

            Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.


 

 

SIMON PROPERTY GROUP, INC.

 

 

By

 

/s/ STEPHEN E. STERRETT

Stephen E. Sterrett
Executive Vice President and Chief Financial Officer

May 1, 2009

67


Table of Contents

SCHEDULE III

Simon Property Group, Inc. and Subsidiaries
Real Estate and Accumulated Depreciation
December 31, 2008
(Dollars in thousands)

 
   
  Initial Cost (Note 3)   Cost Capitalized
Subsequent to
Acquisition (Note 3)
  Gross Amounts At Which
Carried At December 31, 2008
   
   
Name, Location
  Encumbrances   Land   Buildings and
Improvements
  Land   Buildings and
Improvements
  Land   Buildings and Improvements   Total (1)   Accumulated
Depreciation (2)
  Date of
Construction or
Acquisition

Regional Malls

                                                         

Anderson Mall, Anderson, SC

  $ 27,755   $ 1,712   $ 15,227   $ 1,363   $ 19,920   $ 3,075   $ 35,147   $ 38,222   $ 13,173   1972

Arsenal Mall, Watertown, MA

    1,090     15,505     47,680         9,642     15,505     57,322     72,827     14,268   1999 (Note 4)

Bangor Mall, Bangor, ME

    80,000     5,478     59,740         8,336     5,478     68,076     73,554     16,533   2004 (Note 5)

Barton Creek Square, Austin, TX

        2,903     20,929     7,983     59,959     10,886     80,888     91,774     37,244   1981

Battlefield Mall, Springfield, MO

    94,530     3,919     27,231     3,225     61,405     7,144     88,636     95,780     44,137   1970

Bay Park Square, Green Bay, WI

        6,358     25,623     4,133     23,438     10,491     49,061     59,552     18,164   1980

Bowie Town Center, Bowie, MD

        2,710     65,044     235     5,206     2,945     70,250     73,195     20,419   2001

Boynton Beach Mall, Boynton Beach, FL

        22,240     78,804     4,666     25,616     26,906     104,420     131,326     33,023   1985

Brea Mall, Brea, CA

        39,500     209,202         25,119     39,500     234,321     273,821     68,588   1998 (Note 4)

Broadway Square, Tyler, TX

        11,470     32,431         21,590     11,470     54,021     65,491     19,376   1994 (Note 4)

Brunswick Square, East Brunswick, NJ

    83,452     8,436     55,838         27,827     8,436     83,665     92,101     31,304   1973

Burlington Mall, Burlington, MA

        46,600     303,618     19,600     87,961     66,200     391,579     457,779     96,968   1998 (Note 4)

Castleton Square, Indianapolis, IN

        26,250     98,287     7,434     69,346     33,684     167,633     201,317     51,133   1972

Century III Mall, West Mifflin, PA

    81,930     17,380     102,364     10     8,437     17,390     110,801     128,191     61,726   1979

Charlottesville Fashion Square, Charlottesville, VA

            54,738         13,580         68,318     68,318     22,858   1997 (Note 4)

Chautauqua Mall, Lakewood, NY

        3,257     9,641         16,214     3,257     25,855     29,112     10,859   1971

Chesapeake Square, Chesapeake, VA

    70,841     11,534     70,461         7,445     11,534     77,906     89,440     35,341   1989

Cielo Vista Mall, El Paso, TX

        1,005     15,262     608     43,508     1,613     58,770     60,383     30,773   1974

College Mall, Bloomington, IN

        1,003     16,245     720     43,130     1,723     59,375     61,098     25,054   1965

Columbia Center, Kennewick, WA

        17,441     66,580         21,461     17,441     88,041     105,482     28,211   1987

Copley Place, Boston, MA

    200,000         378,045         78,878         456,923     456,923     83,023   2002 (Note 4)

Coral Square, Coral Springs, FL

    83,134     13,556     93,630         13,987     13,556     107,617     121,173     44,897   1984

Cordova Mall, Pensacola, FL

        18,626     73,091     7,321     43,797     25,947     116,888     142,835     29,187   1998 (Note 4)

Cottonwood Mall, Albuquerque, NM

        10,122     69,958         3,316     10,122     73,274     83,396     30,708   1996

Crossroads Mall, Omaha, NE

    41,150     639     30,658     409     35,783     1,048     66,441     67,489     26,719   1994 (Note 4)

Crystal River Mall, Crystal River, FL

    14,916     5,393     20,241         4,857     5,393     25,098     30,491     9,077   1990

DeSoto Square, Bradenton, FL

    64,153     9,011     52,675         8,107     9,011     60,782     69,793     22,276   1973

Domain, The, Austin, TX (Note 6)

        45,152     197,010         52,560     45,152     249,570     294,722     15,462   2005

Edison Mall, Fort Myers, FL

        11,529     107,350         28,267     11,529     135,617     147,146     40,169   1997 (Note 4)

Fashion Mall at Keystone, Indianapolis, IN

            120,579         48,162         168,741     168,741     49,510   1997 (Note 4)

Firewheel Town Center, Garland, TX

        8,636     82,716         23,617     8,636     106,333     114,969     14,381   2004

Forest Mall, Fond Du Lac, WI

    16,478     721     4,491         8,792     721     13,283     14,004     7,180   1973

Forum Shops at Caesars, The, Las Vegas, NV

    524,657         276,567         204,235         480,802     480,802     108,579   1992

68


Table of Contents

SCHEDULE III

Simon Property Group, Inc. and Subsidiaries
Real Estate and Accumulated Depreciation
December 31, 2008
(Dollars in thousands)

 
   
  Initial Cost (Note 3)   Cost Capitalized
Subsequent to
Acquisition (Note 3)
  Gross Amounts At Which
Carried At December 31, 2008
   
   
Name, Location
  Encumbrances   Land   Buildings and
Improvements
  Land   Buildings and
Improvements
  Land   Buildings and Improvements   Total (1)   Accumulated
Depreciation (2)
  Date of
Construction or
Acquisition

Great Lakes Mall, Mentor, OH

        12,302     100,362         10,656     12,302     111,018     123,320     41,141   1961

Greenwood Park Mall, Greenwood, IN

        2,423     23,445     5,275     114,688     7,698     138,133     145,831     44,094   1979

Gulf View Square, Port Richey, FL

        13,690     39,991     2,023     20,097     15,713     60,088     75,801     22,595   1980

Gwinnett Place, Duluth, GA

    115,000     17,051     141,191         4,210     17,051     145,401     162,452     38,335   1998 (Note 5)

Haywood Mall, Greenville, SC

        11,585     133,893     6     18,976     11,591     152,869     164,460     56,637   1998 (Note 4)

Independence Center, Independence, MO

    200,000     5,042     45,798         32,209     5,042     78,007     83,049     30,951   1994 (Note 4)

Ingram Park Mall, San Antonio, TX

    77,180     733     17,163     73     19,934     806     37,097     37,903     19,914   1979

Irving Mall, Irving, TX

        6,737     17,479     2,533     41,225     9,270     58,704     67,974     31,356   1971

Jefferson Valley Mall, Yorktown Heights, NY

        4,868     30,304         24,516     4,868     54,820     59,688     26,133   1983

Knoxville Center, Knoxville, TN

    58,446     5,006     21,617     3,712     35,324     8,718     56,941     65,659     27,153   1984

La Plaza Mall, McAllen, TX

        1,375     9,828     6,569     38,146     7,944     47,974     55,918     20,715   1976

Laguna Hills Mall, Laguna Hills, CA

        27,928     55,446         16,694     27,928     72,140     100,068     21,952   1997 (Note 4)

Lakeline Mall, Austin, TX

        10,088     81,568     14     15,742     10,102     97,310     107,412     34,197   1995

Lenox Square, Atlanta, GA

        38,213     492,411         58,481     38,213     550,892     589,105     154,881   1998 (Note 4)

Lima Mall, Lima, OH

        7,662     35,338         9,611     7,662     44,949     52,611     18,738   1965

Lincolnwood Town Center, Lincolnwood, IL

        7,907     63,480     28     7,435     7,935     70,915     78,850     34,674   1990

Livingston Mall, Livingston, NJ

        22,214     105,250         36,557     22,214     141,807     164,021     37,760   1998 (Note 4)

Longview Mall, Longview, TX

    30,839     259     3,567     124     7,931     383     11,498     11,881     5,461   1978

Mall of Georgia, Mill Creek, GA

    185,238     47,492     326,633         3,826     47,492     330,459     377,951     63,130   1999 (Note 5)

Maplewood Mall, Minneapolis, MN

        17,119     80,758         11,225     17,119     91,983     109,102     20,774   2002 (Note 4)

Markland Mall, Kokomo, IN

    21,818         7,568         10,056         17,624     17,624     8,852   1968

McCain Mall, N. Little Rock, AR

            9,515     10,530     12,180     10,530     21,695     32,225     15,541   1973

Melbourne Square, Melbourne, FL

        15,762     55,891     4,160     27,929     19,922     83,820     103,742     25,959   1982

Menlo Park Mall, Edison, NJ

        65,684     223,252         33,429     65,684     256,681     322,365     84,104   1997 (Note 4)

Midland Park Mall, Midland, TX

    31,852     687     9,213         12,459     687     21,672     22,359     12,438   1980

Miller Hill Mall, Duluth, MN

        2,998     18,092         27,471     2,998     45,563     48,561     26,800   1973

Montgomery Mall, Montgomeryville, PA

    89,460     27,105     86,915         25,243     27,105     112,158     139,263     23,114   2004 (Note 5)

Muncie Mall, Muncie, IN

    7,381     172     5,776     52     27,118     224     32,894     33,118     15,399   1970

North East Mall, Hurst, TX

        128     12,966     19,010     148,611     19,138     161,577     180,715     59,473   1971

Northfield Square Mall, Bourbonnais, IL

    29,067     362     53,396         1,240     362     54,636     54,998     30,675   2004 (Note 5)

Northgate Mall, Seattle, WA

        24,369     115,992         93,581     24,369     209,573     233,942     51,408   1987

Northlake Mall, Atlanta, GA

    67,423     33,400     98,035         4,324     33,400     102,359     135,759     45,679   1998 (Note 4)

Northwoods Mall, Peoria, IL

        1,185     12,779     2,451     37,093     3,636     49,872     53,508     27,003   1983

Oak Court Mall, Memphis, TN

        15,673     57,304         8,756     15,673     66,060     81,733     22,571   1997 (Note 4)

Ocean County Mall, Toms River, NJ

        20,404     124,945         23,684     20,404     148,629     169,033     42,213   1998 (Note 4)

69


Table of Contents

SCHEDULE III

Simon Property Group, Inc. and Subsidiaries
Real Estate and Accumulated Depreciation
December 31, 2008
(Dollars in thousands)

 
   
  Initial Cost (Note 3)   Cost Capitalized
Subsequent to
Acquisition (Note 3)
  Gross Amounts At Which
Carried At December 31, 2008
   
   
Name, Location
  Encumbrances   Land   Buildings and
Improvements
  Land   Buildings and
Improvements
  Land   Buildings and Improvements   Total (1)   Accumulated
Depreciation (2)
  Date of
Construction or
Acquisition

Orange Park Mall, Orange Park, FL

        12,998     65,121         40,115     12,998     105,236     118,234     38,028   1994 (Note 4)

Orland Square, Orland Park, IL

        35,514     129,906         21,808     35,514     151,714     187,228     50,348   1997 (Note 4)

Oxford Valley Mall, Langhorne, PA

    74,805     24,544     100,287         7,881     24,544     108,168     132,712     44,939   2003 (Note 4)

Paddock Mall, Ocala, FL

        11,198     39,727         16,180     11,198     55,907     67,105     16,770   1980

Penn Square Mall, Oklahoma City, OK

    65,828     2,043     155,958         27,936     2,043     183,894     185,937     53,104   2002 (Note 4)

Pheasant Lane Mall, Nashua, NH

        3,902     155,068     550     14,786     4,452     169,854     174,306     48,112   2004 (Note 5)

Phipps Plaza, Atlanta, GA

        19,200     210,610         21,669     19,200     232,279     251,479     69,196   1998 (Note 4)

Plaza Carolina, Carolina, PR

    236,901     15,493     279,560         11,798     15,493     291,358     306,851     45,077   2004 (Note 4)

Port Charlotte Town Center,
Port Charlotte, FL

    50,998     5,471     58,570         15,396     5,471     73,966     79,437     28,559   1989

Prien Lake Mall, Lake Charles, LA

        1,842     2,813     3,091     36,807     4,933     39,620     44,553     17,982   1972

Richmond Town Square,
Richmond Heights, OH

    44,739     2,600     12,112         59,924     2,600     72,036     74,636     39,566   1966

River Oaks Center, Calumet City, IL

        30,884     101,224         10,726     30,884     111,950     142,834     35,903   1997 (Note 4)

Rockaway Townsquare, Rockaway, NJ

        44,116     212,257     27     31,359     44,143     243,616     287,759     67,050   1998 (Note 4)

Rolling Oaks Mall, San Antonio, TX

        1,929     38,609         14,027     1,929     52,636     54,565     24,504   1988

Roosevelt Field, Garden City, NY

        164,058     702,008     2,117     39,064     166,175     741,072     907,247     214,402   1998 (Note 4)

Ross Park Mall, Pittsburgh, PA

        23,541     90,203         71,846     23,541     162,049     185,590     52,602   1986

Santa Rosa Plaza, Santa Rosa, CA

        10,400     87,864         10,039     10,400     97,903     108,303     29,416   1998 (Note 4)

Shops at Mission Viejo, The,
Mission Viejo, CA

        9,139     54,445     7,491     145,967     16,630     200,412     217,042     74,101   1979

South Hills Village, Pittsburgh, PA

        23,445     125,840         16,698     23,445     142,538     165,983     45,546   1997 (Note 4)

South Shore Plaza, Braintree, MA

        101,200     301,495         68,214     101,200     369,709     470,909     94,453   1998 (Note 4)

Southern Park Mall, Boardman, OH

        16,982     77,767     97     23,786     17,079     101,553     118,632     38,609   1970

SouthPark, Charlotte, NC

        42,092     188,055     100     165,073     42,192     353,128     395,320     76,472   2002 (Note 4)

St. Charles Towne Center, Waldorf, MD

        7,710     52,934     1,180     26,829     8,890     79,763     88,653     35,872   1990

Stanford Shopping Center, Palo Alto, CA

    240,000         339,537         5,914         345,451     345,451     59,939   2003 (Note 4)

Summit Mall, Akron, OH

    65,000     15,374     51,137         37,647     15,374     88,784     104,158     27,201   1965

Sunland Park Mall, El Paso, TX

    33,734     2,896     28,900         7,120     2,896     36,020     38,916     19,949   1988

Tacoma Mall, Tacoma, WA

    122,687     37,803     125,826         73,353     37,803     199,179     236,982     55,789   1987

Tippecanoe Mall, Lafayette, IN

        2,897     8,439     5,517     44,478     8,414     52,917     61,331     32,228   1973

Town Center at Aurora, Aurora, CO

        9,959     56,832     6     56,463     9,965     113,295     123,260     34,436   1998 (Note 4)

Town Center at Boca Raton, Boca Raton, FL

        64,200     307,317         151,838     64,200     459,155     523,355     121,435   1998 (Note 4)

Town Center at Cobb, Kennesaw, GA

    280,000     32,585     158,225         10,577     32,585     168,802     201,387     42,921   1998 (Note 5)

Towne East Square, Wichita, KS

        8,525     18,479     1,429     39,772     9,954     58,251     68,205     30,712   1975

70


Table of Contents

SCHEDULE III

Simon Property Group, Inc. and Subsidiaries
Real Estate and Accumulated Depreciation
December 31, 2008
(Dollars in thousands)

 
   
  Initial Cost (Note 3)   Cost Capitalized
Subsequent to
Acquisition (Note 3)
  Gross Amounts At Which
Carried At December 31, 2008
   
   
Name, Location
  Encumbrances   Land   Buildings and
Improvements
  Land   Buildings and
Improvements
  Land   Buildings and Improvements   Total (1)   Accumulated
Depreciation (2)
  Date of
Construction or
Acquisition

Towne West Square, Wichita, KS

    50,520     972     21,203     61     11,960     1,033     33,163     34,196     17,703   1980

Treasure Coast Square, Jensen Beach, FL

        11,124     72,990     3,067     34,067     14,191     107,057     121,248     36,073   1987

Tyrone Square, St. Petersburg, FL

        15,638     120,962         28,764     15,638     149,726     165,364     51,781   1972

University Park Mall, Mishawaka, IN

    100,000     16,768     112,158     7,000     47,833     23,768     159,991     183,759     79,097   1996 (Note 4)

Upper Valley Mall, Springfield, OH

    47,904     8,421     38,745         10,739     8,421     49,484     57,905     17,660   1979

Valle Vista Mall, Harlingen, TX

    40,000     1,398     17,159     372     20,659     1,770     37,818     39,588     18,165   1983

Virginia Center Commons, Glen Allen, VA

        9,764     50,547     4,149     9,454     13,913     60,001     73,914     24,645   1991

Walt Whitman Mall, Huntington Station, NY

        51,700     111,258     3,789     43,113     55,489     154,371     209,860     56,032   1998 (Note 4)

Washington Square, Indianapolis, IN

    30,194     16,800     36,495     462     27,599     17,262     64,094     81,356     36,259   1974

West Ridge Mall, Topeka, KS

    68,711     5,453     34,132     1,168     22,444     6,621     56,576     63,197     22,658   1988

Westminster Mall, Westminster, CA

        43,464     84,709         29,676     43,464     114,385     157,849     31,882   1998 (Note 4)

White Oaks Mall, Springfield, IL

    50,000     3,024     35,692     2,102     40,247     5,126     75,939     81,065     28,355   1977

Wolfchase Galleria, Memphis, TN

    225,000     15,881     128,276         9,358     15,881     137,634     153,515     45,898   2002 (Note 4)

Woodland Hills Mall, Tulsa, OK

    78,612     34,211     187,123         12,898     34,211     200,021     234,232     50,452   2004 (Note 5)

Premium Outlet Centers

                                                         

Albertville Premium Outlets, Albertville, MN

        3,900     97,059         3,318     3,900     100,377     104,277     20,303   2004 (Note 4)

Allen Premium Outlets, Allen, TX

        13,855     43,687     97     22,194     13,952     65,881     79,833     13,097   2004 (Note 4)

Aurora Farms Premium Outlets, Aurora, OH

        2,370     24,326         2,285     2,370     26,611     28,981     11,525   2004 (Note 4)

Camarillo Premium Outlets, Camarillo, CA

        16,670     224,721     558     42,303     17,228     267,024     284,252     36,705   2004 (Note 4)

Carlsbad Premium Outlets, Carlsbad, CA

        12,890     184,990     96     1,679     12,986     186,669     199,655     28,057   2004 (Note 4)

Carolina Premium Outlets, Smithfield, NC

    19,696     3,170     59,863         2,038     3,170     61,901     65,071     15,197   2004 (Note 4)

Chicago Premium Outlets, Aurora, IL

        659     118,005     4,940     11,407     5,599     129,412     135,011     24,875   2004 (Note 4)

Clinton Crossings Premium Outlets,
Clinton, CT

        2,060     107,556     472     1,855     2,532     109,411     111,943     20,326   2004 (Note 4)

Columbia Gorge Premium Outlets,
Troutdale, OR

        7,900     16,492         785     7,900     17,277     25,177     6,402   2004 (Note 4)

Desert Hills Premium Outlets, Cabazon, CA

        3,440     338,679         3,522     3,440     342,201     345,641     48,475   2004 (Note 4)

Edinburgh Premium Outlets, Edinburgh, IN

        2,857     47,309         11,006     2,857     58,315     61,172     13,726   2004 (Note 4)

Folsom Premium Outlets, Folsom, CA

        9,060     50,281         2,717     9,060     52,998     62,058     13,571   2004 (Note 4)

Gilroy Premium Outlets, Gilroy, CA

        9,630     194,122         4,358     9,630     198,480     208,110     36,472   2004 (Note 4)

Houston Premium Outlets, Cypress, TX

        21,159     69,350         28,755     21,159     98,105     119,264     3,335   2007

Jackson Premium Outlets, Jackson, NJ

        6,413     104,013     3     2,778     6,416     106,791     113,207     16,211   2004 (Note 4)

Jersey Shore Premium Outlets, Tinton Falls, NJ

        16,141     50,979         73,424     16,141     124,403     140,544     858   2007

Johnson Creek Premium Outlets,
Johnson Creek, WI

        2,800     39,546         4,458     2,800     44,004     46,804     6,986   2004 (Note 4)

Kittery Premium Outlets, Kittery, ME

    43,556     11,832     94,994         4,557     11,832     99,551     111,383     12,049   2004 (Note 4)

Las Americas Premium Outlets, San Diego, CA

    180,000     45,168     251,878         1,252     45,168     253,130     298,298     10,166   2007 (Note 4)

Las Vegas Outlet Center, Las Vegas, NV

        13,085     160,777         4,144     13,085     164,921     178,006     21,023   2004 (Note 4)

Las Vegas Premium Outlets, Las Vegas, NV

        25,435     134,973         58,647     25,435     193,620     219,055     28,121   2004 (Note 4)

71


Table of Contents

SCHEDULE III

Simon Property Group, Inc. and Subsidiaries
Real Estate and Accumulated Depreciation
December 31, 2008
(Dollars in thousands)

 
   
  Initial Cost (Note 3)   Cost Capitalized
Subsequent to
Acquisition (Note 3)
  Gross Amounts At Which
Carried At December 31, 2008
   
   
Name, Location
  Encumbrances   Land   Buildings and
Improvements
  Land   Buildings and
Improvements
  Land   Buildings and Improvements   Total (1)   Accumulated
Depreciation (2)
  Date of
Construction or
Acquisition

Leesburg Corner Premium Outlets,
Leesburg, VA

        7,190     162,023         2,930     7,190     164,953     172,143     32,161   2004 (Note 4)

Liberty Village Premium Outlets,
Flemington, NJ

        5,670     28,904         1,712     5,670     30,616     36,286     9,240   2004 (Note 4)

Lighthouse Place Premium Outlets,
Michigan City, IN

    88,623     6,630     94,138         4,019     6,630     98,157     104,787     23,683   2004 (Note 4)

Napa Premium Outlets, Napa, CA

        11,400     45,023         1,349     11,400     46,372     57,772     9,239   2004 (Note 4)

North Georgia Premium Outlets,
Dawsonville, GA

        4,300     132,325         1,709     4,300     134,034     138,334     25,352   2004 (Note 4)

Orlando Premium Outlets, Orlando, FL

        14,040     304,410     16,100     45,228     30,140     349,638     379,778     42,526   2004 (Note 4)

Osage Beach Premium Outlets,
Osage Beach, MO

        9,460     85,804     3     3,417     9,463     89,221     98,684     18,910   2004 (Note 4)

Petaluma Village Premium Outlets,
Petaluma, CA

        13,322     14,067         2,918     13,322     16,985     30,307     5,619   2004 (Note 4)

Philadelphia Premium Outlets, Limerick, PA

    190,000     16,676     105,249         15,481     16,676     120,730     137,406     6,310   2006

Rio Grande Valley Premium Outlets,
Mercedes, TX

        12,693     41,547     1     34,874     12,694     76,421     89,115     6,576   2005

Round Rock Premium Outlets,
Round Rock, TX

        21,977     82,252         2,796     21,977     85,048     107,025     10,897   2005

Seattle Premium Outlets, Seattle, WA

        13,557     103,722     12     3,181     13,569     106,903     120,472     16,207   2004 (Note 4)

St. Augustine Premium Outlets,
St. Augustine, FL

        6,090     57,670     2     6,825     6,092     64,495     70,587     14,436   2004 (Note 4)

The Crossings Premium Outlets,
Tannersville, PA

    53,992     7,720     172,931         8,821     7,720     181,752     189,472     28,388   2004 (Note 4)

Vacaville Premium Outlets, Vacaville, CA

        9,420     84,850         4,540     9,420     89,390     98,810     21,354   2004 (Note 4)

Waikele Premium Outlets, Waipahu, HI

        22,630     77,316         872     22,630     78,188     100,818     15,658   2004 (Note 4)

Waterloo Premium Outlets, Waterloo, NY

    72,822     3,230     75,277         5,701     3,230     80,978     84,208     18,137   2004 (Note 4)

Woodbury Common Premium Outlets,
Central Valley, NY

        11,110     862,559     1,658     3,182     12,768     865,741     878,509     125,123   2004 (Note 4)

Wrentham Village Premium Outlets,
Wrentham, MA

        4,900     282,031         3,124     4,900     285,155     290,055     47,852   2004 (Note 4)

Community/Lifestyle Centers

                                                         

Arboretum at Great Hills, Austin, TX

        7,640     36,774     71     8,248     7,711     45,022     52,733     13,249   1998 (Note 4)

Bloomingdale Court, Bloomingdale, IL

    26,592     8,748     26,184         9,684     8,748     35,868     44,616     16,295   1987

Brightwood Plaza, Indianapolis, IN

        65     128         337     65     465     530     311   1965

Charles Towne Square, Charleston, SC

            1,768     370     10,636     370     12,404     12,774     6,225   1976

Chesapeake Center, Chesapeake, VA

        5,352     12,279         532     5,352     12,811     18,163     4,523   1989

72


Table of Contents

SCHEDULE III

Simon Property Group, Inc. and Subsidiaries
Real Estate and Accumulated Depreciation
December 31, 2008
(Dollars in thousands)

 
   
  Initial Cost (Note 3)   Cost Capitalized
Subsequent to
Acquisition (Note 3)
  Gross Amounts At Which
Carried At December 31, 2008
   
   
Name, Location
  Encumbrances   Land   Buildings and
Improvements
  Land   Buildings and
Improvements
  Land   Buildings and Improvements   Total (1)   Accumulated
Depreciation (2)
  Date of
Construction or
Acquisition

Countryside Plaza, Countryside, IL

        332     8,507     2,554     9,002     2,886     17,509     20,395     7,031   1977

Dare Centre, Kill Devil Hills, NC

    1,640         5,702         189         5,891     5,891     747   2004 (Note 4)

DeKalb Plaza, King of Prussia, PA

    3,071     1,955     3,405         1,105     1,955     4,510     6,465     1,518   2003 (Note 4)

Eastland Plaza, Tulsa, OK

        651     3,680         80     651     3,760     4,411     3,280   1986

Forest Plaza, Rockford, IL

    14,585     4,132     16,818     453     9,689     4,585     26,507     31,092     8,573   1985

Gateway Shopping Centers, Austin, TX

    87,000     24,549     81,437         7,719     24,549     89,156     113,705     17,706   2004 (Note 4)

Great Lakes Plaza, Mentor, OH

        1,028     2,025         3,680     1,028     5,705     6,733     2,842   1976

Greenwood Plus, Greenwood, IN

        1,131     1,792         3,735     1,131     5,527     6,658     2,678   1979

Henderson Square, King of Prussia, PA

    14,616     4,223     15,124         147     4,223     15,271     19,494     2,705   2003 (Note 4)

Highland Lakes Center, Orlando, FL

    15,189     7,138     25,284         1,217     7,138     26,501     33,639     12,026   1991

Ingram Plaza, San Antonio, TX

        421     1,802     4     59     425     1,861     2,286     1,183   1980

Keystone Shoppes, Indianapolis, IN

            4,232         974         5,206     5,206     1,730   1997 (Note 4)

Knoxville Commons, Knoxville, TN

        3,731     5,345         1,738     3,731     7,083     10,814     4,819   1987

Lake Plaza, Waukegan, IL

        2,487     6,420         1,059     2,487     7,479     9,966     3,325   1986

Lake View Plaza, Orland Park, IL

    19,388     4,702     17,543         13,062     4,702     30,605     35,307     12,767   1986

Lakeline Plaza, Austin, TX

    21,256     5,822     30,875         6,984     5,822     37,859     43,681     13,634   1998

Lima Center, Lima, OH

        1,808     5,151         6,788     1,808     11,939     13,747     4,176   1978

Lincoln Crossing, O'Fallon, IL

    2,935     674     2,192         630     674     2,822     3,496     1,169   1990

Lincoln Plaza, King of Prussia, PA

            21,299         1,942         23,241     23,241     8,204   2003 (Note 4)

MacGregor Village, Cary, NC

    6,596     502     8,897         183     502     9,080     9,582     1,150   2004 (Note 4)

Mall of Georgia Crossing, Mill Creek, GA

        9,506     32,892         260     9,506     33,152     42,658     10,703   2004 (Note 5)

Markland Plaza, Kokomo, IN

        206     738         6,234     206     6,972     7,178     2,513   1974

Martinsville Plaza, Martinsville, VA

            584         408         992     992     720   1967

Matteson Plaza, Matteson, IL

    8,537     1,771     9,737         2,685     1,771     12,422     14,193     6,044   1988

Muncie Plaza, Muncie, IN

        267     10,509     87     1,350     354     11,859     12,213     3,959   1998

New Castle Plaza, New Castle, IN

        128     1,621         1,417     128     3,038     3,166     1,893   1966

North Ridge Plaza, Joliet, IL

        2,831     7,699         3,231     2,831     10,930     13,761     4,450   1985

North Ridge Shopping Center, Raleigh, NC

    8,056     385     12,838         406     385     13,244     13,629     1,768   2004 (Note 4)

Northwood Plaza, Fort Wayne, IN

        148     1,414         1,543     148     2,957     3,105     1,695   1974

Palms Crossing, McAllen, TX (Note 6)

        13,923     45,925         5,837     13,923     51,762     65,685     2,802   2006

Park Plaza, Hopkinsville, KY

        300     1,572         217     300     1,789     2,089     1,750   1968

Pier Park, Panama City Beach, FL

          25,992     73,158         41,120     25,992     114,278     140,270     3,404   2006

Regency Plaza, St. Charles, MO

    4,003     616     4,963         569     616     5,532     6,148     2,296   1988

Richardson Square Mall, Richardson, TX

        6,285         1,268     15,506     7,553     15,506     23,059     322   1977

Rockaway Convenience Center, Rockaway, NJ

        5,149     26,435         6,543     5,149     32,978     38,127     7,673   1998 (Note 4)

Rockaway Town Plaza, Rockaway, NJ

            18,698         1,765         20,463     20,463     2,335   2004

Shops at Arbor Walk, Austin, TX (Note 6)

        930     42,546         5,210     930     47,756     48,686     4,026   2005

73


Table of Contents

SCHEDULE III

Simon Property Group, Inc. and Subsidiaries
Real Estate and Accumulated Depreciation
December 31, 2008
(Dollars in thousands)

 
   
  Initial Cost (Note 3)   Cost Capitalized
Subsequent to
Acquisition (Note 3)
  Gross Amounts At Which
Carried At December 31, 2008
   
   
Name, Location
  Encumbrances   Land   Buildings and
Improvements
  Land   Buildings and
Improvements
  Land   Buildings and Improvements   Total (1)   Accumulated
Depreciation (2)
  Date of
Construction or
Acquisition

Shops at North East Mall, The, Hurst, TX

        12,541     28,177     402     5,782     12,943     33,959     46,902     13,879   1999

St. Charles Towne Plaza, Waldorf, MD

    25,613     8,377     18,993         2,918     8,377     21,911     30,288     9,784   1987

Teal Plaza, Lafayette, IN

        99     878         3,011     99     3,889     3,988     2,071   1962

Terrace at the Florida Mall, Orlando, FL

        2,150     7,623         5,201     2,150     12,824     14,974     4,043   1989

Tippecanoe Plaza, Lafayette, IN

            745     234     5,037     234     5,782     6,016     3,006   1974

University Center, Mishawaka, IN

        3,071     7,413         3,095     3,071     10,508     13,579     7,115   1980

Washington Plaza, Indianapolis, IN

        941     1,697         398     941     2,095     3,036     2,561   1976

Waterford Lakes Town Center, Orlando, FL

        8,679     72,836         14,176     8,679     87,012     95,691     31,000   1999

West Ridge Plaza, Topeka, KS

    5,158     1,376     4,560         1,770     1,376     6,330     7,706     2,866   1988

White Oaks Plaza, Springfield, IL

    15,741     3,169     14,267         1,392     3,169     15,659     18,828     6,595   1986

Wolf Ranch, Georgetown, TX

        22,118     51,547         5,489     22,118     57,036     79,154     7,695   2004

Other Properties

                                                         

Crossville Outlet Center, Crossville, TN

        263     4,380         229     263     4,609     4,872     712   2004 (Note 4)

Factory Merchants Branson, Branson, MO

        1,383     19,637     1     846     1,384     20,483     21,867     1,681   2004 (Note 4)

Factory Shoppes at Branson Meadows, Branson, MO

    9,160         5,205         228         5,433     5,433     707   2004 (Note 4)

Factory Stores of America — Boaz, AL

    2,678         924         7         931     931     104   2004 (Note 4)

Factory Stores of America — Georgetown, KY

    6,349     148     3,610         47     148     3,657     3,805     461   2004 (Note 4)

Factory Stores of America — Graceville, FL

    1,886     12     408         60     12     468     480     55   2004 (Note 4)

Factory Stores of America — Lebanon. MO

    1,586     24     214             24     214     238     40   2004 (Note 4)

Factory Stores of America —
Nebraska City, NE

    1,488     26     566         13     26     579     605     80   2004 (Note 4)

Factory Stores of America — Story City, IA

    1,841     7     526             7     526     533     64   2004 (Note 4)

Factory Stores of North Bend,
North Bend, WA

        2,143     36,197         1,901     2,143     38,098     40,241     5,498   2004 (Note 4)

Nanuet Mall, Nanuet, NY

        27,310     162,993         3,427     27,310     166,420     193,730     104,236   1998 (Note 4)

Palm Beach Mall, West Palm Beach, FL

    50,953     11,962     112,437         35,542     11,962     147,979     159,941     94,848   1967

Raleigh Springs Mall, Memphis, TN

        4,663     28,604         12,892     4,663     41,496     46,159     40,567   1971

University Mall, Pensacola, FL

        4,256     26,657         3,908     4,256     30,565     34,821     13,258   1994

Development Projects

                                                         

Cincinnati Premium Outlets, Monroe, OH

        14,117     32,157             14,117     32,157     46,274       2008

Other pre-development costs

        31,890     26,844             31,890     26,844     58,734        

Other

        3,304     3,818     665     344     3,969     4,162     8,131     3,363    
                                         

  $ 5,208,029     2,606,933   $ 17,523,294   $ 188,093   $ 4,589,650   $ 2,795,026   $ 22,112,944   $ 24,907,970   $ 6,015,677    
                                         

74


Table of Contents


Simon Property Group, Inc. and Subsidiaries

Notes to Schedule III as of December 31, 2008

(Dollars in thousands)

(1) Reconciliation of Real Estate Properties:

            The changes in real estate assets for the years ended December 31, 2008, 2007, and 2006 are as follows:

 
  2008   2007   2006  

Balance, beginning of year

  $ 24,163,367   $ 22,644,299   $ 21,551,247  
 

Acquisitions and consolidations

    7,640     743,457     402,095  
 

Improvements

    797,717     1,057,663     772,806  
 

Disposals and de-consolidations

    (60,754 )   (282,052 )   (81,849 )
               

Balance, close of year

  $ 24,907,970   $ 24,163,367   $ 22,644,299  
               

            The unaudited aggregate cost of real estate assets for federal income tax purposes as of December 31, 2008 was $18,390,068.

(2) Reconciliation of Accumulated Depreciation:

            The changes in accumulated depreciation and amortization for the years ended December 31, 2008, 2007, and 2006 are as follows:

 
  2008   2007   2006  

Balance, beginning of year

  $ 5,168,565   $ 4,479,198   $ 3,694,807  
 

Acquisitions and consolidations (5)

        12,714     64,818  
 

Depreciation expense

    871,556     808,041     767,726  
 

Disposals

    (24,444 )   (131,388 )   (48,153 )
               

Balance, close of year

  $ 6,015,677   $ 5,168,565   $ 4,479,198  
               

            Depreciation of our investment in buildings and improvements reflected in the consolidated statements of operations and comprehensive income is calculated over the estimated original lives of the assets as follows:

(3)
Initial cost generally represents net book value at December 20, 1993, except for acquired properties and new developments after December 20, 1993. Initial cost also includes any new developments that are opened during the current year. Costs of disposals of property are first reflected as a reduction to cost capitalized subsequent to acquisition.

(4)
Not developed/constructed by us or our predecessors. The date of construction represents the acquisition date.

(5)
Property initial cost for these properties is the cost at the date of consolidation for properties previously accounted for under the equity method of accounting. Accumulated depreciation amounts for properties consolidated which were previously accounted for under the equity method of accounting include the minority interest holders' portion of accumulated depreciation.

(6)
Secured by a $260,000 cross-collateralized and cross-defaulted mortgage loan facility.

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Table of Contents

Exhibits
   

2

 

Agreement and Plan of Merger, dated as February 12, 2007, by and among SPG-FCM Ventures, LLC, SPG-FCM Acquisitions, Inc., SPG-FCM Acquisitions, L.P., The Mills Corporation, and The Mills Limited Partnership (incorporated by reference to Exhibit 2.1 to the Registrant's Current Report on Form 8-K filed February 23, 2007).

3.1

 

Amended and Restated Certificate of Incorporation of the Registrant (incorporated by reference to Exhibit 3.1 of the Registrant's Current Report on Form 8-K filed on October 9, 1998).

3.2

 

Restated By-laws of the Registrant (incorporated by reference to Exhibit 3.2 of the Registrant's Current Report on Form 8-K filed July 30, 2008).

3.3

 

Certificate of Powers, Designations, Preferences and Rights of the 6% Series I Convertible Perpetual Preferred Stock, $0.0001 Par Value (incorporated by reference to Exhibit 3.1 to the Registrant's Current Report on Form 8-K filed October 20, 2004).

3.4

 

Certificate of Powers, Designations, Preferences and Rights of the 83/8% Series J Cumulative Redeemable Preferred Stock, $0.0001 Par Value (incorporated by reference to Exhibit 3.2 to the Registrant's Current Report on Form 8-K filed October 20, 2004).

9.1

 

Second Amended and Restated Voting Trust Agreement, Voting Agreement and Proxy dated as of March 1, 2004 between Melvin Simon & Associates, Inc., on the one hand and Melvin Simon, Herbert Simon, and David Simon on the other hand (incorporated by reference to Exhibit 9.1 of the Registrant's Quarterly Report on Form 10-Q filed on May 10, 2004).

9.2

 

Voting Trust Agreement, Voting Agreement and Proxy dated as of March 1, 2004 between David Simon, Melvin Simon and Herbert Simon (incorporated by reference to Exhibit 9.2 of the Registrant's Quarterly Report on Form 10-Q filed on May 10, 2004).

10.1

 

Eighth Amended and Restated Agreement of Limited Partnership of Simon Property Group, L.P. dated as of May 8, 2008 (incorporated by reference to Exhibit 10.1 of the Registrant's Current Report on Form 8-K filed May 9, 2008).

10.2

 

$3,500,000,000 Credit Agreement, dated as of December 15, 2005, among Simon Property Group, L.P., the Institutions named therein as Lenders and the Institutions named therein as Co-Agents (incorporated by reference to Exhibit 99.2 of Simon Property Group, L.P.'s Current Report on Form 8-K filed on December 20, 2005).

10.3

 

Amendment to Credit Agreement among Simon Property Group, L.P., the Institutions named therein as Lenders and the Institutions named therein as Co-Agents, dated October 4, 2007 (incorporated by reference to Exhibit 10.3 of the Registrant's Form 10-K).

10.4

 

Form of the Indemnity Agreement between the Registrant and its directors and officers (incorporated by reference to Exhibit 10.7 of the Registrant's Form S-4 filed August 13, 1998 (Reg. No. 333-61399)).

10.5

 

Registration Rights Agreement, dated as of September 24, 1998, by and among the Registrant and the persons named therein. (incorporated by reference to Exhibit 4.4 of the Registrant's Current Report on Form 8-K filed October 9, 1998).

10.6

 

Registration Rights Agreement, dated as of August 27, 1999 by and among the Registrant and the persons named therein (incorporated by reference to Exhibit 4.4 to the Registration Statement on Form S-3 filed March 24, 2004 (Reg. No. 333-113884)).

10.7

 

Registration Rights Agreement, dated as of November 14, 1997, by and between O'Connor Retail Partners, L.P. and Simon DeBartolo Group,  Inc. (incorporated by reference to Exhibit 4.8 to the Registration Statement on Form S-3 filed December 7, 2001 (Reg. No. 333-74722)).

10.8*

 

Simon Property Group, L.P. 1998 Stock Incentive Plan, as amended (incorporated by reference to Exhibit 10.2 of the Registrant's Current Report on Form 8-K filed May 9, 2008).

10.9*

 

Form of Nonqualified Stock Option Award Agreement under the Simon Property Group, L.P. 1998 Stock Incentive Plan (incorporated by reference to Exhibit 10.8 of the Registrant's 2004 Form 10-K).

10.10*

 

Form of Performance-Based Restricted Stock Award Agreement under the Simon Property Group, L.P. 1998 Stock Incentive Plan (incorporated by reference to Exhibit 10.9 of the Registrant's 2006 Form 10-K).

10.11*

 

Form of Non-Employee Director Restricted Stock Award Agreement under the Simon Property Group, L.P. 1998 Stock Incentive Plan (incorporated by reference to Exhibit 10.10 of the Registrant's 2004 Form 10-K).

10.12*

 

Employment Agreement among Richard S. Sokolov, the Registrant, and Simon Property Group Administrative Services Partnership, L.P. dated January 1, 2007.

10.13*

 

Description of Director and Executive Compensation Agreements.

10.14

 

Credit and Guaranty Agreement, dated as of February 16, 2007, by and among The Mills Limited Partnership, as Borrower, The Mills Corporation, as Parent, certain of its subsidiaries, as Guarantors, the lenders party thereto, and Simon Property Group, L.P., as Administrative Agent and Collateral Agent (incorporated by reference to Exhibit 10.1 to the Registrant's Current Report on Form 8-K filed February 23, 2007).

10.15

 

Voting Agreement dated as of June 20, 2004 among the Registrant, Simon Property Group, L.P., and certain holders of shares of common stock of Chelsea Property Group, Inc. and/or common units of CPG Partners, L.P. (incorporated by reference to Exhibit 99.3 to the Registrant's Current Report on Form 8-K filed June 22, 2004).

12.1

 

Statement regarding computation of ratios.

21.1

 

List of Subsidiaries of the Company (incorporated by reference to Exhibit 12.1 of the Registrant's 2008 Form 10-K).

23.1

 

Consent of Ernst & Young LLP.

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Table of Contents

Exhibits
   

31.1

 

Certification by the Chief Executive Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2

 

Certification by the Chief Financial Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32

 

Certification by the Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.


*
Represents a management contract, or compensatory plan, contract or arrangement required to be filed pursuant to Regulation S-K.

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