Significant Accounting Policies (Policies)

9 Months Ended

Sep. 30, 2016

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 market deposits or securities. 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 of high credit quality. However, at certain times, such cash and cash equivalents are in excess of Federal Deposit Insurance Corporation and Securities Investor Protection Corporation insurance limits.

Marketable and Non-Marketable Securities

Marketable and Non‑Marketable Securities

Marketable securities consist primarily of the investments of our captive insurance subsidiaries, available‑for‑sale securities, our deferred compensation plan investments, and certain investments held to fund the debt service requirements of debt previously secured by investment properties. At September 30, 2016 and December 31, 2015, we had marketable securities of $209.8 million and $183.8 million, respectively, generally accounted for as available-for-sale, which are adjusted to their quoted market price with a corresponding adjustment in other comprehensive income (loss). Net unrealized gains as of September 30, 2016 and December 31, 2015 were approximately $25.6 million and $12.6 million, respectively, and represent the valuation adjustments for our marketable securities.

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 less than 1 to 10 years. These securities are classified as available‑for‑sale and are valued based upon quoted market prices or other observable inputs 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 accretion of discounts to maturity. Changes in the values of these securities are recognized in accumulated other comprehensive income (loss) until the gain or loss is realized or until any unrealized loss is deemed to be other‑than‑temporary. We review any declines in value of these securities for other‑than‑temporary impairment and consider the severity and duration of any decline in value. To the extent an other‑than‑temporary impairment is deemed to have occurred, an impairment charge is recorded and a new cost basis is established.

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 as the amounts are fully payable to the employees that earned the compensation. Changes in value of these securities and changes to the matching liability to employees are both recognized in earnings and, as a result, there is no impact to consolidated net income.

On June 24, 2015 we sold our investment in certain marketable securities that were accounted for as available-for-sale securities, with the value adjusted to their quoted market price through other comprehensive income (loss). At the date of sale, we owned 5.71 million shares. The aggregate proceeds received from the sale were $454.0 million, and we recognized a gain on the sale of $80.2 million, which is included in other income in the accompanying consolidated statements of operations and comprehensive income for the nine months ended September 30, 2015.

At September 30, 2016 and December 31, 2015, we had investments of $188.2 million and $181.4 million, respectively, in non‑marketable securities that we account for under the cost method. We regularly evaluate these investments for any other-than-temporary impairment in their estimated fair value. No material adjustment in the carrying value was required for the three and nine months ended September 30, 2016.

Fair Value Measurements

Level 1 fair value inputs are quoted prices for identical items in active, liquid and visible markets such as stock exchanges. Level 2 fair value inputs are observable information for similar items in active or inactive markets, and appropriately consider counterparty creditworthiness in the valuations. Level 3 fair value inputs reflect our best estimate of inputs and assumptions market participants would use in pricing an asset or liability at the measurement date. The inputs are unobservable in the market and significant to the valuation estimate. We have no investments for which fair value is measured on a recurring basis using Level 3 inputs.

The marketable securities we held at September 30, 2016 and December 31, 2015 were primarily classified as having Level 1 fair value inputs. In addition, we had derivative instruments which were classified as having Level 2 inputs, which consist primarily of foreign currency forward contracts and interest rate swap agreements with a gross liability balance of $13.8 million at September 30, 2016 and a gross asset value of $13.5 million and $27.8 million at September 30, 2016 and December 31, 2015, respectively.

Note 6 includes a discussion of the fair value of debt measured using Level 2 inputs. Notes 5 and 9 include discussions of the fair values recorded in purchase accounting using Level 2 and Level 3 inputs. Level 3 inputs to our purchase accounting and impairment analyses include our estimations of net operating results of the property, capitalization rates and discount rates.

Noncontrolling Interests

Simon

Details of the carrying amount of Simon’s noncontrolling interests are as follows:


	As of		As of
	September 30,		December 31,
	2016		2015
Limited partners’ interests in the Operating Partnership	$	693,532	$	741,449
Nonredeemable noncontrolling interests in properties, net		4,284		3,456
Total noncontrolling interests reflected in equity	$	697,816	$	744,905

Net income attributable to noncontrolling interests (which includes nonredeemable and redeemable noncontrolling interests in consolidated properties, limited partners’ interests in the Operating Partnership and preferred distributions payable by the Operating Partnership on its outstanding preferred units) is a component of consolidated net income. In addition, the individual components of other comprehensive income (loss) are presented in the aggregate for both controlling and noncontrolling interests, with the portion attributable to noncontrolling interests deducted from comprehensive income attributable to common stockholders.

A rollforward of noncontrolling interests reflected in equity is as follows:


	For The Three Months				For the Nine Months
	Ended September 30,				Ended September 30,
	2016		2015		2016		2015
Noncontrolling interests, beginning of period	$	696,286	$	766,261	$	744,905	$	858,328
Net income attributable to noncontrolling interests after preferred distributions and income attributable to redeemable noncontrolling interests in consolidated properties		77,172		71,175		229,370		243,432
Distributions to noncontrolling interest holders		(79,235)		(81,296)		(239,679)		(234,694)
Other comprehensive income (loss) allocable to noncontrolling interests:
Unrealized (loss) gain on derivative hedge agreements		(164)		(987)		(1,886)		1,874
Net loss (gain) reclassified from accumulated other comprehensive loss into earnings		418		404		19,147		(10,341)
Currency translation adjustments		194		(865)		5,977		(20,530)
Changes in available-for-sale securities and other		172		1,148		1,557		(2,216)
		620		(300)		24,795		(31,213)
Adjustment to limited partners’ interest from change in ownership in the Operating Partnership		(9,433)		(9,791)		(28,398)		(91,294)
Units exchanged for common shares		(96)		(2)		(70,101)		(7,907)
Units redeemed		—		—		—		(14,843)
Long-term incentive performance units		12,081		11,819		36,243		35,459
Contributions by noncontrolling interests, net, and other		421		165		681		763
Noncontrolling interests, end of period	$	697,816	$	758,031	$	697,816	$	758,031

The Operating Partnership

Our evaluation of the appropriateness of classifying the Operating Partnership’s common units of partnership interest, or units, held by Simon and the Operating Partnership's limited partners within permanent equity considered several significant factors. First, as a limited partnership, all decisions relating to the Operating Partnership’s operations and distributions are made by Simon, acting as the Operating Partnership’s sole general partner. The decisions of the general partner are made by Simon's Board of Directors or management. The Operating Partnership has no other governance structure. Secondly, the sole asset of Simon is its interest in the Operating Partnership. As a result, a share of common stock of Simon, or common stock, if owned by the Operating Partnership, is best characterized as being similar to a treasury share and thus not an asset of the Operating Partnership.

Limited partners of the Operating Partnership have the right under the Operating Partnership’s partnership agreement to exchange their units for shares of common stock or cash, as selected by Simon as the sole general partner. Accordingly, we classify units held by limited partners in permanent equity because Simon may elect to issue shares of common stock to limited partners exercising their exchange rights rather than using cash. Under the Operating Partnership’s partnership agreement, the Operating Partnership is required to redeem units held by Simon only when Simon has repurchased shares of common stock. We classify units held by Simon in permanent equity because the decision to redeem those units would be made by Simon.

Net income attributable to noncontrolling interests (which includes nonredeemable and redeemable noncontrolling interests in consolidated properties) is a component of consolidated net income.

A rollforward of noncontrolling interests reflected in equity is as follows:


	For the Three Months Ended				For the Nine Months Ended
	September 30,				September 30,
	2016		2015		2016		2015
Noncontrolling nonredeemable interests (deficit) in properties, net — beginning of period	$	3,853	$	(411)	$	3,456	$	(229)
Net income attributable to noncontrolling nonredeemable interests		650		840		1,989		2,138
Distributions to noncontrolling nonredeemable interestholders		(640)		(781)		(1,842)		(2,861)
Contributions by noncontrolling interests, net, and other		421		164		681		764
Noncontrolling nonredeemable interests (deficit) in properties, net — end of period	$	4,284	$	(188)	$	4,284	$	(188)

Accumulated Other Comprehensive Income (Loss)

Simon

The changes in accumulated other comprehensive income (loss) net of noncontrolling interest by component consisted of the following as of September 30, 2016:


					Net unrealized
	Currency		Accumulated		gains on
	translation		derivative		marketable
	adjustments		losses, net		securities		Total
Beginning balance	$	(248,285)	$	(15,161)	$	10,760	$	(252,686)
Other comprehensive income (loss) before reclassifications		12,911		(14,094)		11,446		10,263
Amounts reclassified from accumulated other comprehensive income (loss)		118,833		7,758		—		126,591
Net current-period other comprehensive income (loss)		131,744		(6,336)		11,446		136,854
Ending balance	$	(116,541)	$	(21,497)	$	22,206	$	(115,832)

The reclassifications out of accumulated other comprehensive income (loss) consisted of the following during the nine months ended September 30, 2016 and 2015:


	September 30, 2016		September 30, 2015
	Amount reclassified		Amount reclassified
Details about accumulated other	from accumulated		from accumulated
comprehensive income (loss)	other comprehensive		other comprehensive		Affected line item where
components:	income (loss)		income (loss)		net income is presented
Currency translation adjustments	$	(136,806)	$	—	Gain upon acquisition of controlling interests and sale or disposal of assets and interests in unconsolidated entities, net
		17,973		—	Net income attributable to noncontrolling interests
	$	(118,833)	$	—


Accumulated derivative losses, net	$	(9,303)	$	(8,097)	Interest expense
		372		—	Gain upon acquisition of controlling interests and sale or disposal of assets and interests in unconsolidated entities, net
		1,173		1,161	Net income attributable to noncontrolling interests
	$	(7,758)	$	(6,936)

Realized gain on sale of marketable securities	$	—	$	80,187	Other income
		—		(11,502)	Net income attributable to noncontrolling interests
	$	—	$	68,685

The Operating Partnership

The changes in accumulated other comprehensive income (loss) by component consisted of the following as of September 30, 2016:


					Net unrealized
	Currency		Accumulated		gains on
	translation		derivative		marketable
	adjustments		losses, net		securities		Total
Beginning balance	$	(289,866)	$	(17,704)	$	12,563	$	(295,007)
Other comprehensive income (loss) before reclassifications		18,888		(15,979)		13,003		15,912
Amounts reclassified from accumulated other comprehensive income (loss)		136,806		8,931		—		145,737
Net current-period other comprehensive income (loss)		155,694		(7,048)		13,003		161,649
Ending balance	$	(134,172)	$	(24,752)	$	25,566	$	(133,358)

The reclassifications out of accumulated other comprehensive income (loss) consisted of the following during the nine months ended September 30, 2016 and 2015:


	September 30, 2016		September 30, 2015
	Amount reclassified		Amount reclassified
Details about accumulated other	from accumulated		from accumulated
comprehensive income (loss)	other comprehensive		other comprehensive		Affected line item where
components:	income (loss)		income (loss)		net income is presented
Currency translation adjustments	$	(136,806)	$	—	Gain upon acquisition of controlling interests and sale or disposal of assets and interests in unconsolidated entities, net
	$	(136,806)	$	—

Accumulated derivative losses, net	$	(9,303)	$	(8,097)	Interest expense
		372		—	Gain upon acquisition of controlling interests and sale or disposal of assets and interests in unconsolidated entities, net
	$	(8,931)	$	(8,097)

Realized gain on sale of marketable securities	$	—	$	80,187	Other income
	$	—	$	80,187

Derivative Financial Instruments

We record all derivatives on our consolidated balance sheets at fair value. The accounting for changes in the fair value of derivatives depends on the intended use of the derivative, whether we have designated a derivative as a hedge and whether the hedging relationship has satisfied the criteria necessary to apply hedge accounting. We may use a variety of derivative financial instruments in the normal course of business to selectively manage or hedge a portion of the risks associated with our indebtedness and interest payments. Our objectives in using interest rate derivatives are to add stability to interest expense and to manage our exposure to interest rate movements. To accomplish this objective, we primarily use interest rate swaps and caps. We require that hedging derivative instruments be highly effective in reducing the risk exposure that they are designated to hedge. As a result, there is no significant ineffectiveness from any of our derivative activities. We formally designate any instrument that meets these hedging criteria as a hedge at the inception of the derivative contract. We have no credit‑risk‑related hedging or derivative activities.

As of September 30, 2016, we had the following outstanding interest rate derivatives:


	Number of	Notional
Interest Rate Derivative	Instruments	Amount
Interest Rate Swaps	3	$	750.0 million
Interest Rate Caps	1	$	52.0 million

The carrying value of our interest rate swap agreements, at fair value, as of September 30, 2016, is a net liability balance of $6.9 million, of which $7.9 million is included in other liabilities and $1.0 million is included in deferred costs and other assets.

The interest rate cap agreement was of nominal value as of September 30, 2016 and we generally do not apply hedge accounting to these arrangements. As of December 31, 2015, we had no outstanding interest rate derivatives.

We are also exposed to fluctuations in foreign exchange rates on financial instruments which are denominated in foreign currencies, primarily in Japan and Europe. We use currency forward contracts and foreign currency denominated debt to manage our exposure to changes in foreign exchange rates on certain Yen and Euro‑denominated receivables and net investments. Currency forward contracts involve fixing the Yen:USD or Euro:USD exchange rate for delivery of a specified amount of foreign currency on a specified date. The currency forward contracts are typically cash settled in U.S. dollars for their fair value at or close to their settlement date.

We had the following Euro:USD forward contracts at September 30, 2016 and December 31, 2015 (in millions):


			Asset/(Liability) Value as of
			September 30,		December 31,
Notional Value		Maturity Date	2016		2015
€	50.00	August 12, 2016	$	—	$	13.0
€	50.00	August 11, 2017	$	11.8	$	13.0
€	50.00	May 15, 2019	$	0.7	$	1.8
€	50.00	May 15, 2019	$	(1.7)		—
€	50.00	May 15, 2020	$	(1.8)		—
€	50.00	May 14, 2021	$	(2.0)		—

Asset balances in the above table are included in deferred costs and other assets and liability balances are recorded in other liabilities within the consolidated financial statements. We have designated the above as net investment hedges. Accordingly, we report the changes in fair value in other comprehensive income (loss). Changes in the value of these forward contracts are offset by changes in the underlying hedged Euro-denominated joint venture investment.

The total gross accumulated loss related to our derivative activities, including our share of the other comprehensive loss from joint venture properties, approximated $24.8 million and $17.7 million as of September 30, 2016 and December 31, 2015, respectively.

New Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2014-09, "Revenue From Contracts With Customers." ASU 2014-09 amends the existing accounting standards for revenue recognition and is based on principles that govern the recognition of revenue at an amount an entity expects to be entitled when products are transferred to customers. In July 2015, the FASB delayed the effective date of the new revenue recognition standard by one year, which will result in the new standard being effective for us beginning with the first quarter of 2018. The new standard can be adopted either retrospectively to each prior reporting period presented or as a cumulative effect adjustment as of the date of adoption. We are currently evaluating the impact that the adoption of the new accounting standard will have on our consolidated financial statements.

In February 2015, the FASB issued ASU 2015-02, "Amendments to the Consolidation Analysis." ASU 2015-02 makes changes to both the variable interest model and the voting model. We adopted this standard as required on January 1, 2016. All reporting entities involved with limited partnerships and similar entities were required to re-evaluate whether these entities, including the Operating Partnership, are subject to the variable interest model or the voting model and whether they qualify for consolidation. The adoption of this new standard did not result in any material changes to our consolidated financial statements or disclosures, including the disclosures related to the Operating Partnership.

In April 2015, the FASB issued ASU 2015-03, "Simplifying the Presentation of Debt Issuance Costs." ASU 2015-03 requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. We adopted this standard as required on January 1, 2016, resulting in a reclassification of $85.5 million from deferred costs and other assets to a reduction of the carrying amount of mortgages and other unsecured indebtedness.

In September 2015, the FASB issued ASU 2015-16, "Simplifying the Accounting for Measurement-Period Adjustments," which requires adjustments to provisional amounts used in business combinations during the measurement period to be recognized in the reporting period in which the adjustment amounts are determined. It also requires the disclosure of the impact on changes in estimates on earnings, depreciation, amortization and other income effects. We adopted this standard as required on January 1, 2016. The adoption of this standard did not have an impact on our consolidated financial statements.

In January 2016, the FASB issued ASU 2016-01, "Financial Instruments — Overall: Recognition and Measurement of Financial Assets and Financial Liabilities," which will require entities to measure their equity investments at fair value and recognize any changes in fair value in net income unless the investments qualify for the new practicability exception. The practicability exception will be available for equity investments that do not have readily determinable fair values. The guidance will be effective for us beginning with the first quarter of 2018. We are currently evaluating the impact that the adoption of the new standard will have on our consolidated financial statements.

In February 2016, the FASB issued ASU 2016-02, "Leases," which is expected to result in lessees recognizing most leased assets on the balance sheet. Lessor accounting will remain substantially similar to the current accounting; however, certain refinements were made to conform the standard with the recently issued revenue recognition guidance in ASU 2014-09. ASU 2016-02 will be effective for us retrospectively for annual and interim periods beginning after December 15, 2018. We are currently evaluating the impact that the adoption of the new standard will have on our consolidated financial statements.

In March 2016, the FASB issued ASU 2016-07, "Investments – Equity Method and Joint Ventures," eliminating the requirement for retrospective application of equity method accounting when an investment previously accounted for by another method initially qualifies for the equity method. This standard will be effective for us retrospectively for annual and interim periods beginning after December 15, 2016. We do not expect that the adoption of this new standard will have an impact on our consolidated financial statements.

In June 2016, the FASB issued ASU 2016-13, "Financial Instruments - Credit Losses," which introduces new guidance for an approach based on expected losses to estimate credit losses on certain types of financial instruments. It also modifies the impairment model for available-for-sale debt securities and provides for a simplified accounting model for purchased financial assets with credit deterioration since their origination. Instruments in scope include loans, held-to-maturity debt securities, and net investments in leases as well as reinsurance and trade receivables. This standard will be effective for us in fiscal years beginning after December 15, 2019. We are currently evaluating the impact that the adoption of the new standard will have on our consolidated financial statements.

In August 2016, the FASB issued ASU 2016-15, "Statement of Cash Flows", which is expected to reduce diversity in practice regarding the classification of certain transactions in the statement of cash flows. The standard will be effective for us retrospectively for annual and interim periods beginning after December 15, 2017. We are currently evaluating the impact that the adoption of the new standard will have on our consolidated financial statements.

- Definition

Disclosure of accounting policy for cash and cash equivalents, including the policy for determining which items are treated as cash equivalents. Other information that may be disclosed includes (1) the nature of any restrictions on the entity's use of its cash and cash equivalents, (2) whether the entity's cash and cash equivalents are insured or expose the entity to credit risk, (3) the classification of any negative balance accounts (overdrafts), and (4) the carrying basis of cash equivalents (for example, at cost) and whether the carrying amount of cash equivalents approximates fair value.

+ References + Details

- Definition

Disclosure of accounting policy for investments in financial assets, including marketable securities (debt and equity securities with readily determinable fair values), investments accounted for under the equity method and cost method, securities borrowed and loaned, and repurchase and resale agreements. For marketable securities, the disclosure may include the entity's accounting treatment for transfers between investment categories and how the fair values for such securities are determined. Also, for all investments, an entity may describe its policy for assessing, recognizing and measuring impairment of the investment.

+ References + Details