Investments in Unconsolidated Entities and International Investments

12 Months Ended

Dec. 31, 2023

Investments in Unconsolidated Entities and International Investments

Investments in Unconsolidated Entities and International Investments

6. Investments in Unconsolidated Entities and International Investments

Real Estate Joint Ventures and Investments

Joint ventures are common in the real estate industry. We use joint ventures to finance properties, develop new properties and diversify our risk in a particular property or portfolio of properties.  As discussed in Note 2, we held joint venture interests in 81 properties as of December 31, 2023 and 82 properties as of December 31, 2022.

Certain of our joint venture properties are subject to various rights of first refusal, buy-sell provisions, put and call rights, or other sale or marketing rights for partners which are customary in real estate joint venture agreements and the industry. We and our partners in these joint ventures may initiate these provisions (subject to any applicable lock up or similar restrictions), which may result in either the sale of our interest or the use of available cash or borrowings, or the use of limited partnership interests in the Operating Partnership, to acquire the joint venture interest from our partner.

We may provide financing to joint ventures primarily in the form of interest bearing construction loans. As of December 31, 2023 and 2022, we had construction loans and other advances to these related parties totaling $98.0 million and $112.0 million, respectively, which are included in deferred costs and other assets in the accompanying consolidated balance sheets.

During the third quarter of 2023, we disposed of our interest in one unconsolidated property through foreclosure in satisfaction of the $114.8 million non-recourse mortgage loan. We recognized no gain or loss in connection with this disposal.

During 2022, we recorded a non-cash gain of $19.9 million related to the disposition and foreclosure of two unconsolidated properties in satisfaction of the respective $99.6 million and $83.1 million non-recourse mortgage loans, which is included in gain (loss) on acquisition of controlling interest, sale or disposal of, or recovery on, assets and interests in unconsolidated entities and impairment, net in the accompanying consolidated statement of operations and comprehensive income. This non-cash investing and financing activity is excluded from our consolidated statement of cash flows.

During the fourth quarter of 2021, we disposed of our interest in an unconsolidated property resulting in a gain of $3.4 million which is included in (gain) loss on acquisition of controlling interest, sale or disposal of, or recovery on, assets and interests in unconsolidated entities and impairment, net in the consolidated statements of operations and comprehensive income. Our share of the proceeds from this transaction was $3.0 million.

During the second quarter of 2021, we sold our interest in one multi-family residential investment. Our share of the gross proceeds from this transaction was $27.1 million. The gain of $14.9 million on the sale is included in other income in the accompanying consolidated statement of operations and comprehensive income.

Taubman Realty Group

On September 7, 2023, we acquired an additional 4% ownership in TRG for approximately $199.6 million by issuing 1,725,000 units in the Operating Partnership, bringing our noncontrolling ownership interest in TRG to 84%. Substantially all our investment has been determined to relate to investment property. Our investment includes 6.38% Series A Cumulative Redeemable Preferred Units for $362.5 million issued to us.

The tables below represent summary financial information of TRG.

	December 31,		December 31,
	2023		2022
Total assets	$	3,416,630	$	3,555,686
Total liabilities		4,386,131		4,356,406
Noncontrolling interests		164,720		163,293

	For the Year Ended
	December 31,
	2023		2022		2021
Total revenues	$	695,222	$	693,835	$	600,426
Operating income before other items		281,349		254,395		197,074
Consolidated net income		42,910		164,072		97,361
Our share of net income		32,728		129,065		78,370
Amortization of excess investment		(113,333)		(189,629)		(196,072)

Other Platform Investments

As of December 31, 2023, we own a 41.67% noncontrolling interest in J.C. Penney, a department store retailer. We also own a 33.3% noncontrolling interest in SPARC Group. During the first quarter of 2022, SPARC Group acquired certain assets and operations of Reebok and entered into a long-term strategic partnership agreement with ABG to become the core licensee and operating partner for Reebok in the United States.

During the third quarter of 2023, SPARC Group issued equity to a third party resulting in the dilution of our ownership to approximately 33.3% and a deemed disposal of a proportional interest of our investment. As a result, we recognized a non-cash pre-tax gain on the deemed disposal of $145.8 million, which is included in gain on disposal, exchange, or revaluation of equity interests, net in the consolidated statement of operations and comprehensive income. This non-cash investing activity is excluded from our consolidated statement of cash flows. In connection with this transaction, we recorded deferred taxes of $36.9 million, which is included in income and other tax expense in the consolidated statement of operations and comprehensive income.

During the fourth quarter of 2023, we sold a portion of our interest in ABG for cash proceeds of $300.2 million, resulting in a pre-tax gain of $157.1 million, which is included in gain on disposal, exchange, or revaluation of equity interests, net, in the consolidated statement of operations. In connection with this transaction, we recorded tax expense of $39.3 million which is included in income and other tax expense in the consolidated statement of operations and

comprehensive income. Concurrently, ABG completed a capital transaction resulting in the dilution of our ownership to approximately 9.6% and a deemed disposal of a proportional interest of our investment. As a result, we recognized a non-cash pre-tax gain on the deemed disposal of $10.3 million, which is included in gain on disposal, exchange, or revaluation of equity interests, net in the consolidated statement of operations and comprehensive income. This non-cash investing activity is excluded from our consolidated statement of cash flows. In connection with this transaction, we recorded deferred taxes of $2.6 million, which is included in income and other tax expense in the consolidated statement of operations and comprehensive income.  The carrying amount of our investment in ABG was $733.2 million and $767.5 million at December 31, 2023 and 2022, respectively.

During the third quarter of 2023, ABG completed a capital transaction resulting in the dilution of our ownership to approximately 11.7% and a deemed disposal of a proportional interest of our investment. As a result, we recognized a non-cash pre-tax gain on the deemed disposal of $12.4 million, which is included in gain on disposal, exchange, or revaluation of equity interests, net in the consolidated statement of operations and comprehensive income. This non-cash investing activity is excluded from our consolidated statement of cash flows. In connection with this transaction, we recorded deferred taxes of $3.1 million, which is included in income and other tax expense in the consolidated statement of operations and comprehensive income.

During the second quarter of 2023, ABG completed a capital transaction resulting in a dilution of our ownership from approximately 12.3% to approximately 11.8% and a deemed disposal of a proportional interest of our investment. As a result, we recognized a non-cash pre-tax gain on the deemed disposal of $36.4 million, which is included in gain on disposal, exchange, or revaluation of equity interests in the consolidated statement of operations and comprehensive income. This non-cash investing activity is excluded from our consolidated statement of cash flows. In connection with this transaction, we recorded deferred taxes of $9.1 million, which is included in income and other tax expense in the consolidated statement of operations and comprehensive income.

During the fourth quarter of 2022, we sold to ABG all of our interests in the licensing venture of Eddie Bauer for additional interests in ABG. As a result, in the fourth quarter of 2022, we recognized a non-cash pre-tax gain of $159.0 million, which is included in gain on disposal, exchange, or revaluation of equity interests, net, representing the difference between the fair value of the interests received determined using Level 3 inputs and the $98.8 million carrying value of the intellectual property licensing venture less costs to sell.  This non-cash investing and financing activity is excluded from our consolidated statement of cash flows. In connection with this transaction, we recorded deferred taxes of $39.7 million.

On July 1, 2021, we sold to ABG all of our interests in both the Forever 21 and Brooks Brothers licensing ventures for additional interests in ABG. As a result, in the third quarter of 2021, we recognized a non-cash pre-tax gain of $159.8 million, which is included in gain on disposal, exchange, or revaluation of equity interests, net, representing the difference between the fair value of the interests received determined using Level 3 inputs and the carrying value of $102.7 million of the intellectual property licensing ventures less costs to sell. This non-cash investing and financing activity is excluded from our consolidated statement of cash flows. In connection with this transaction, we recorded deferred taxes of $47.9 million.

On December 20, 2021, we sold a portion of our interest in ABG, resulting in a pre-tax gain of $18.8 million, which is included in gain on disposal, exchange, or revaluation of equity interests, net, in the consolidated statement of operations. In connection with this transaction, we recorded tax expense of $8.0 million which is included in income and other tax expense in the consolidated statements of operations and comprehensive income. Subsequently, we acquired additional interests in ABG for cash consideration of $100.0 million.

As of December 31, 2023, we own a 45% noncontrolling interest in Rue Gilt Groupe.

On December 19, 2022, we completed the acquisition of a 50% noncontrolling legal ownership interest in Jamestown, a global real estate investment and asset management company, as well as separate interests in certain real estate and working capital, for total cash consideration of $173.4 million. In connection with this transaction our excess investment was primarily assigned to intangible assets and goodwill.

The tables below represents combined summary financial information, after intercompany eliminations, of our other platform investments.

	December 31,		December 31,
	2023		2022
Total assets	$	14,921,120	$	12,897,980
Total liabilities		11,406,440		10,521,772
Noncontrolling interests		501,224		362,652

	For the Year Ended
	December 31,
	2023		2022		2021
Total revenues	$	13,865,845	$	14,895,379	$	14,454,661
Operating income before other items		683,723		972,360		1,550,358
Consolidated net income		239,491		738,255		1,400,632
Our share of net income (loss)		40,002		238,412		402,658
Amortization of excess investment		(6,740)		(6,659)		(7,546)

International Investments

We conduct our international operations primarily through joint venture arrangements and account for the majority of these international joint venture investments using the equity method of accounting.

European Investments  

At December 31, 2023, we owned 63,924,148 shares, or approximately 22.4%, of Klépierre, which had a quoted market price of $27.24 per share. The tables below represent summary financial information with respect to our investment in Klépierre. This information is based on applicable Euro:USD exchange rates and after our conversion of Klépierre’s results to GAAP.

	December 31,		December 31,
	2023		2022
Total assets	$	16,114,513	$	16,016,137
Total liabilities		10,282,111		10,074,502
Noncontrolling interests		1,255,479		1,226,734

	For the Year Ended
	December 31,
	2023		2022		2021
Total revenues	$	1,359,246	$	1,308,409	$	1,240,277
Operating income before other items		618,260		590,829		380,470
Consolidated net income		347,311		581,075		848,104
Our share of net income		64,805		116,084		164,575
Amortization of excess investment		(17,658)		(13,937)		(19,444)

During the year ended December 31, 2023 we recorded a net loss of $11.2 million related to Klépierre’s disposition of certain assets. During the years ended December 31, 2022 and 2021, we recorded net gains of $1.3 million and $1.2 million, respectively, related to Klépierre’s disposition of certain assets. These transactions are included in (loss) gain on

acquisition of controlling interest, sale or disposal of, or recovery on, assets and interests in unconsolidated entities and impairment, net in the accompanying consolidated statements of operations and comprehensive income.

During the year ended December 31, 2021, Klépierre elected to step-up the tax basis of certain assets in Italy, which triggered a one-time payment at a significantly reduced tax rate. As a result of the step-up in tax basis, a previously established deferred tax liability was reversed resulting in a non-cash gain, of which our share was $118.4 million.

We have an interest in a European investee that had interests in 12 Designer Outlet properties as of December 31, 2023, 11 Designer Outlet properties as of December 31, 2022, and 11 Designer Outlet properties as of December 31, 2021. Eight of these Designer Outlets are consolidated by us as of December 31, 2023. As of December 31, 2023, our legal percentage ownership interests in these properties ranged from 23% to 94%. Due to certain redemption rights held by our venture partner, which will require us to purchase their interests under certain circumstances, the noncontrolling interest is presented (i) in the accompanying Simon consolidated balance sheets outside of equity in limited partners’ preferred interest in the Operating Partnership and noncontrolling redeemable interests in properties and (ii) in the accompanying Operating Partnership consolidated balance sheets within preferred units, various series, at liquidation value, and noncontrolling redeemable interests in properties.

On January 1, 2021 our European investee gained control of Ochtrup Designer Outlets as a result of the expiration of certain participating rights held by a venture partner. This resulted in the consolidation of the property and related mortgage of $47.1 million, requiring a remeasurement of our previously held equity interest, which had a carrying value of $48.7 million, to fair value and the recognition of a non-cash gain of $3.7 million in earnings during the first quarter of 2021, which includes amounts reclassified from accumulated other comprehensive income (loss) related to the currency translation adjustment previously recorded on our investment. The non-cash gain is included in (loss) gain on acquisition of controlling interest, sale or disposal of, or recovery on, assets and interests in unconsolidated entities and impairment, net in the accompanying consolidated statements of operations and comprehensive income, and this non-cash investing and financing activity is excluded from our consolidated statement of cash flows. The determination of the fair value consisted of Level 2 and 3 inputs and was predominately allocated to investment property.

In addition, we have a 50.0% noncontrolling interest in a European property management and development company that provides services to the Designer Outlet properties.

We also have minority interests in Value Retail PLC and affiliated entities, which own or have interests in and operate nine luxury outlets located throughout Europe and we also have a direct minority ownership in three of those outlets. At December 31, 2023 and 2022, the carrying value of these equity instruments without readily determinable fair values was $140.8 million and is included in deferred costs and other assets.

Asian Joint Ventures  

We conduct our international Premium Outlet operations in Japan through a joint venture with Mitsubishi Estate Co., Ltd. We have a 40% noncontrolling ownership interest in this joint venture. The carrying amount of our investment in this joint venture was $231.2 million and $206.3 million as of December 31, 2023 and 2022, respectively, including all related components of accumulated other comprehensive income (loss). We conduct our international Premium Outlet operations in South Korea through a joint venture with Shinsegae International Co. We have a 50% noncontrolling ownership interest in this joint venture. The carrying amount of our investment in this joint venture was $200.6 million and $199.5 million as of December 31, 2023 and 2022, respectively, including all related components of accumulated other comprehensive income (loss).

Summary Financial Information

The following tables present a summary of the combined balance sheets and statements of operations of our equity method investments and share of income from such investments, excluding our investments in Klépierre and TRG, as well as our other platform investments.

COMBINED BALANCE SHEETS

	December 31,		December 31,
	2023		2022
Assets:
Investment properties, at cost	$	19,315,578	$	19,256,108
Less - accumulated depreciation		8,874,745		8,490,990
		10,440,833		10,765,118
Cash and cash equivalents		1,372,377		1,445,353
Tenant receivables and accrued revenue, net		505,933		546,025
Right-of-use assets, net		126,539		143,526
Deferred costs and other assets		537,943		482,375
Total assets	$	12,983,625	$	13,382,397
Liabilities and Partners’ Deficit:
Mortgages	$	14,282,839	$	14,569,921
Accounts payable, accrued expenses, intangibles, and deferred revenue		1,032,217		961,984
Lease liabilities		116,535		133,096
Other liabilities		368,582		446,064
Total liabilities		15,800,173		16,111,065
Preferred units		67,450		67,450
Partners’ deficit		(2,883,998)		(2,796,118)
Total liabilities and partners’ deficit	$	12,983,625	$	13,382,397
Our Share of:
Partners’ deficit	$	(1,258,809)	$	(1,232,086)
Add: Excess Investment		1,173,852		1,219,117
Our net (deficit) Investment in unconsolidated entities, at equity	$	(84,957)	$	(12,969)

“Excess Investment” represents the unamortized difference of our investment over our share of the equity in the underlying net assets of the joint ventures or other investments acquired and has been determined to relate to the fair value of the investment properties, intangible assets, including goodwill, and debt premiums and discounts. We amortize excess investment over the life of the related depreciable components of assets acquired, typically no greater than 40 years, the terms of the applicable leases, the estimated useful lives of the finite lived intangibles, and the applicable debt maturity, respectively. The amortization is included in the reported amount of income from unconsolidated entities.

As of December 31, 2023, scheduled principal repayments on these joint venture properties’ mortgage indebtedness, assuming the obligations remain outstanding through the initial maturities, are as follows:

2024	$	2,069,780
2025		2,437,450
2026		2,832,212
2027		2,288,445
2028		2,170,056
Thereafter		2,516,281
Total principal maturities		14,314,224
Debt issuance costs		(31,385)
Total mortgages	$	14,282,839

This debt becomes due in installments over various terms extending through 2035 with interest rates ranging from 0.21% to 15.25% and a weighted average interest rate of 4.61% at December 31, 2023.

COMBINED STATEMENTS OF OPERATIONS

	December 31,
	2023		2022		2021
REVENUE:
Lease income	$	2,984,455	$	2,894,611	$	2,797,221
Other income		464,058		341,923		319,956
Total revenue		3,448,513		3,236,534		3,117,177
OPERATING EXPENSES:
Property operating		638,638		605,018		575,584
Depreciation and amortization		656,089		666,762		686,790
Real estate taxes		237,809		246,707		263,325
Repairs and maintenance		77,093		81,522		79,300
Advertising and promotion		83,279		74,776		72,441
Other		236,955		205,405		200,899
Total operating expenses		1,929,863		1,880,190		1,878,339
Operating Income Before Other Items		1,518,650		1,356,344		1,238,838
Interest expense		(685,193)		(599,245)		(605,591)
Gain on sale or disposal of, or recovery on, assets and interests in unconsolidated entities, net		20,529		50,336		34,814
Net Income	$	853,986	$	807,435	$	668,061
Third-Party Investors’ Share of Net Income	$	436,408	$	423,816	$	333,304
Our Share of Net Income	$	417,578	$	383,619	$	334,757
Amortization of Excess Investment		(59,707)		(60,109)		(64,974)
Our Share of Gain on Sale or Disposal of Assets and Interests in Other Income in the Consolidated Financial Statements		—		—		(14,941)
Our Share of Gain on Sale or Disposal of, or Recovery on, Assets and Interests in Unconsolidated Entities, net		(454)		(2,532)		(541)
Income from Unconsolidated Entities	$	357,417	$	320,978	$	254,301

Our share of income from unconsolidated entities in the above table, aggregated with our share of results from our investments in Klépierre and TRG, as well as our other platform investments, is presented in income from unconsolidated entities in the accompanying consolidated statements of operations and comprehensive income.  Unless otherwise noted, our share of the gain on sale or disposal of, or recovery on, assets and interests in unconsolidated entities, net is reflected within gain (loss) on acquisition of controlling interest, sale or disposal of, or recovery on, assets and interests in unconsolidated entities and impairment, net in the accompanying consolidated statements of operations and comprehensive income.