We are engaged primarily in the ownership, operation, leasing, management, acquisition,
expansion and development of real estate properties. Our real estate properties
consist primarily of regional malls and community shopping centers. We owned or
held an interest in 245 income-producing properties in North America, which consisted
of 174 regional malls, 67 community shopping centers, and four office and mixed-use
properties in 37 states and Canada. Mixed-use properties are properties that include
a combination of retail space, office space, and/or hotel components. In addition,
we also own interests in three parcels of land held for future development. Finally,
we have ownership interests in 47'assets in Europe (France, Italy, Poland and
Portugal).
Our primary business objectives are to increase Funds From Operations ("FFO")
per share, operating results and the value of our Properties while maintaining
a stable balance sheet consistent with our financing policies. We intend to
achieve these objectives by:
pursuing a leasing strategy that capitalizes on the desirable location of our
Properties;
improving the performance of our Properties by using the economies of scale
that result from our size to help control operating costs and by generating
additional revenues through merchandising, marketing and promotional activities;
renovating and/or expanding our Properties where appropriate;
developing new shopping centers which meet our economic criteria; and
acquiring additional shopping centers and the portfolios of other retail real
estate companies that meet our investment criteria.
We develop and acquire properties to generate both current income and long-term
appreciation in value. We do not have a policy limiting the amount or percentage
of assets that may be invested in any particular property or type of property
or in any geographic area. We may purchase or lease properties for long-term
investment or develop, redevelop, and/or sell our Properties, in whole or in
part, when circumstances warrant. We participate with other entities in property
ownership, through joint ventures or other types of co-ownership. These equity
investments may be subject to existing mortgage financing and other indebtedness
that have priority over our equity interest.
We may also invest in securities of other entities engaged in real estate activities
or securities of other issuers. However, any of these investments would be subject
to the percentage ownership limitations and gross income tests necessary for
Simon Propertys REIT qualification under the Code. These REIT limitations mean
that we cannot make an investment that would cause Simon Propertys real estate
assets to be less than 75% of its total assets. In addition, Simon Property
must derive at least 75% of its gross income from "rents from real estate"
and at least 95% must be derived from rents from real estate, interest, dividends
and gains from the sale or disposition of stock or securities.
We plan to achieve our primary business objectives through a variety of methods
discussed below, although we cannot assure you that we will achieve such objectives.
Leasing.'We pursue a leasing strategy that includes:
marketing available space to maintain or increase occupancy levels;
renewing existing leases and originating new leases at higher base rents per
square foot;
negotiating leases that allow us to recover from our tenants for the majority
of our property operating, real estate tax, repairs and maintenance, and advertising
and promotion expenditures; and
executing leases that provide for percentage or overage rents and/or regular
or periodic fixed contractual increases in base rents.
Management.'We draw upon our expertise gained through management of a geographically
diverse Portfolio, nationally recognized as comprising high quality retail and
mixed-use Properties. In doing so, we seek to maximize cash flow through a combination
of:
an active merchandising program to maintain our shopping centers as inviting
shopping destinations;
efforts to minimize overhead and operating costs which not only benefits our
operations but also reduces the costs reimbursed to us from our tenants. A tenants
ability to pay rent is affected by the percentage of its sales represented by
occupancy costs, which consist of rent and expense recoveries. As sales levels
increase, if expenses subject to recovery are controlled, the tenant can afford
to pay higher base rent.
coordinated marketing and promotional activities that establish and maintain
customer loyalty; and
systematic planning and monitoring of results.
Other Revenues.'Due to our size, tenant and vendor relationships, we also generate
revenues from other sources, including:
Simon Brand Venture ("Simon Brand") which obtains revenues from establishing
our malls as leading market resource providers for retailers and other businesses
and consumer-focused corporate alliances. Simon Brand revenues include payment
services, national media contracts, a national beverage contract and other contracts
with national companies.
Simon Brand also pursues mall marketing initiatives, including the sale of
gift cards. We tested a Simon Visa Gift Card in some of our regional malls in
the fall of 2001 and completed the roll-out of our Simon Gift Card program to
substantially all our regional malls during 2002 and 2003. The gift card program
has replaced our existing paper certificates.
Simon Business Network ("Simon Business") obtains revenues from offering
products and property operating services, resulting from its relationships with
vendors, to our tenants and others. These services include such items as energy
services, facility services, waste handling, vertical transportation, as well
as major capital expenditures such as roofing, parking lots and energy systems.
The tenant services provided through Simon Business include a national waste
management services program, a national total facility service program which
includes operational and maintenance services, a national automatic teller machine
program, a national security services program, and parking service programs.
Competition
We consider our principal competitors to be seven other major United States
or internationally publicly-held, companies that own or operate regional malls
in the United States. We also compete with many commercial developers, real
estate companies and other owners of retail real estate that operate in our
trade areas. Some of our Properties are of the same type and are within the
same market area as other competitive properties. The existence of competitive
properties could have a material adverse effect on our ability to lease space
and on the level of rents we can obtain. This results in competition for both
the acquisition of prime sites (including land for development and operating
properties) and for tenants to occupy the space that we and our competitors
develop and manage. In addition, our malls compete against non-physical based
forms of retailing such as catalog companies and e-commerce websites that offer
similar retail products.