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As filed with the Securities and Exchange Commission on August 13, 2004

Registration No. 333-        



SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549


Form S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933


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

Delaware
(State or other jurisdiction
of incorporation)
  6978
(Primary Standard Industrial
Classification Code Number)
  046268599
(I.R.S. Employer
Identification No.)

National City Center
115 West Washington Street, Suite 15 East
Indianapolis, Indiana 46204
(317) 636-1600
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)

James M. Barkley, Esq.
Simon Property Group, Inc.
National City Center
115 West Washington Street, Suite 15 East
Indianapolis, Indiana 46204
(317) 636-1600
(Name, address, including zip code, and telephone number,
including area code, of agent for service)



with copies to:
Richard L. Posen, Esq.
Robert B. Stebbins, Esq.
Willkie Farr & Gallagher LLP
787 Seventh Avenue
New York, New York 10019
(212) 728-8000
  Martin H. Neidell, Esq.
Stroock & Stroock & Lavan LLP
180 Maiden Lane
New York, New York 10038
(212) 806-5400

Approximate date of commencement of proposed sale to the public: As soon as practicable after this Registration Statement becomes effective.

        If the securities being registered on this form are being offered in connection with the formation of a holding company and there is compliance with General Instruction G, check the following box.    o

        If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.    o

        If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.    o

CALCULATION OF REGISTRATION FEE


Title of Each Class of
Securities to be Registered(1)

  Amount to
be Registered

  Proposed Maximum
Offering Price
per Share

  Proposed Maximum
Aggregate
Offering Price

  Amount of
Registration Fee


Common Stock, $.0001 par value   18,527,151 (2)(3) N/A   $ 1,473,295,630 (4) $ 186,666.56

6% Series I Convertible Perpetual Preferred Stock   18,931,160 (5) N/A     N/A(4)     N/A        

83/8% Series J Cumulative Redeemable Preferred Stock   796,948 (6) N/A   $ 38,731,673 (7) $ 4,907.30

Total   N/A   N/A   $ 1,512,027,303   $ 191,573.86

(1)
This Registration Statement relates to the shares of Common Stock, par value $.0001 per share ("Simon Common Stock"), 6% Series I Convertible Perpetual Preferred Stock ("Simon 6% Convertible Preferred Stock") and 83/8% Series J Cumulative Redeemable Preferred Stock ("Simon 83/8% Preferred Stock") of the Registrant to be issuable upon the completion of the merger (the "REIT Merger") of Simon Acquisition I, LLC, a Maryland limited liability company and an indirect subsidiary of Simon Property Group, Inc., a Delaware corporation ("Simon"), with and into Chelsea Property Group, Inc., a Maryland corporation ("Chelsea"). This Registration Statement also relates to those shares of Simon Common Stock and Simon 6% Convertible Preferred Stock issuable upon exchange of common and preferred partnership interests (respectively, "SPG LP Common Interests" and "SPG LP Preferred Interests") in Simon Property Group, L.P., a Delaware limited partnership ("SPG LP"), to be issued to the holders of common units ("CPG Common Units") in CPG Partners, L.P. ("CPG LP") either in a private placement in exchange (the "CPG Exchange") for such CPG Common Units or in a private placement upon completion of a merger (the "Partnership Merger") of Simon Acquisition II, LLC, a Delaware limited liability company and an indirect wholly owned subsidiary of SPG LP, with and into CPG LP.

(2)
The number of shares of Simon Common Stock to be registered pursuant to this Registration Statement is based on (x) the maximum number of shares of Simon Common Stock issuable to holders of Chelsea common stock, par value $.01 per share ("Chelsea Common Stock"), in the REIT Merger at the exchange ratio of 0.2936 of a share of Simon Common Stock in exchange for each share of Chelsea Common Stock (based on 47,257,825 shares of Chelsea Common Stock outstanding on August 9, 2004 (assuming the exercise of all outstanding options to acquire Chelsea Common Stock)) and (y) the maximum number of shares of Simon Common Stock issuable to holders of the SPG LP Common Interests to be issued in the CPG Exchange and/or the Partnership Merger upon exchange of such SPG LP Common Interests (based on the maximum number of SPG LP Common Interests issuable to holders of the 7,202,746 CPG Common Units outstanding on August 9, 2004 at the exchange ratio of 0.6459 of a SPG LP Common Interest in exchange for each CPG Common Unit).

(3)
Together with such indeterminate number of shares of Simon Common Stock as may from time to time be issued upon conversion of the Simon 6% Convertible Preferred Stock (including those shares of Simon 6% Convertible Preferred Stock issued in exchange for SPG LP Preferred Interests) registered hereunder. Pursuant to Rule 457(i) under the Securities Act of 1933, as amended (the "Securities Act"), no separate fee is required in respect of such shares of Simon Common Stock.

(4)
Pursuant to Rules 457(c), 457(f)(1) and 457(f)(2) under the Securities Act, and solely for the purpose of calculating the registration fee, the proposed maximum aggregate offering price of the Simon Common Stock and the Simon 6% Convertible Preferred Stock collectively is equal to (1) (x) the estimated number of shares of Chelsea Common Stock to be exchanged in the REIT Merger multiplied by (y) $65.49, the average of the high and low sale prices per share of Chelsea Common Stock on the New York Stock Exchange Composite Tape on August 9, 2004 plus (2) (x) 7,202,746 CPG Common Units multiplied by (y) $11.06, which was the book value per CPG Common Unit on June 30, 2004, less (3) $1,701,281,700, the aggregate amount of cash expected to be payable to the holders of Chelsea Common Stock in the REIT Merger.

(5)
The number of shares of Simon 6% Convertible Preferred Stock to be registered pursuant to this Registration Statement is based on (x) the maximum number of shares of Simon 6% Convertible Preferred Stock issuable to holders of Chelsea Common Stock in the REIT Merger at the exchange ratio of 0.3000 of a share of Simon 6% Convertible Preferred Stock in exchange for each share of Chelsea Common Stock (based on 47,257,825 shares of Chelsea Common Stock outstanding on August 9, 2004 (assuming the exercise of all outstanding options to acquire Chelsea Common Stock)) and (y) the maximum number of shares of Simon 6% Convertible Preferred Stock issuable to holders of the SPG LP Preferred Interests to be issued in the CPG Exchange and/or the Partnership Merger upon exchange of such SPG LP Preferred Interests (based on the maximum number of SPG LP Preferred Interests issuable to holders of the 7,202,746 CPG Common Units outstanding on August 9, 2004 at the exchange ratio of 0.6600 of a SPG LP Preferred Interest in exchange for each CPG Common Unit).

(6)
The number of shares of Simon 83/8% Preferred Stock to be registered pursuant to this Registration Statement is based on an exchange ratio of one share of Simon 83/8% Preferred Stock for each share of Chelsea 83/8% Series A Cumulative Redeemable Preferred Stock ("Chelsea Series A Preferred Stock") outstanding immediately prior to the effective time of the REIT Merger (based on 796,948 shares of Chelsea Series A Preferred Stock outstanding on August 9, 2004).

(7)
Pursuant to Rules 457(c) and 457(f)(2) under the Securities Act, and solely for the purpose of calculating the registration fee, the proposed maximum aggregate offering price is equal to 796,948 shares of Chelsea Series A Preferred Stock multiplied by $48.60, which was the book value per share of Chelsea Series A Preferred Stock on June 30, 2004.

        The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment that specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until this Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.




The information in this proxy statement/prospectus is not complete and can be changed. Simon Property Group, Inc. may not sell the securities being offered by use of this proxy statement/prospectus until the registration statement filed with the Securities and Exchange Commission, of which this proxy statement/prospectus is part, is declared effective. This proxy statement/prospectus is not an offer to sell these securities and is not soliciting an offer to buy these securities in any jurisdiction where such offer, solicitation or sale is prohibited.

GRAPHIC

                        , 2004

To the holders of common stock of Chelsea Property Group, Inc. and, for informational purposes only, to the holders of Chelsea's 83/8% Series A Cumulative Redeemable Preferred Stock

        You are being asked to vote on an historic event for our company—the proposed merger of Simon Acquisition I, LLC, a Maryland limited liability company and an indirect subsidiary of Simon Property Group, Inc., a Delaware corporation, with and into Chelsea Property Group, Inc., a Maryland corporation, which we refer to in this proxy statement/prospectus as the REIT Merger.

        Your board of directors sees this as a unique strategic opportunity to combine with a growing and well-managed enterprise. In particular, your board of directors considered that:

        Chelsea's board of directors has approved and declared advisable the REIT Merger and the merger agreement. Your board unanimously recommends that the holders of Chelsea common stock vote "FOR" the approval of the REIT Merger and the merger agreement.

        Attached to this letter is an important document providing detailed information concerning Simon, Chelsea and the REIT Merger and a more thorough explanation of your board's view of the REIT Merger and the other transactions contemplated by the merger agreement. PLEASE READ THIS DOCUMENT CAREFULLY, INCLUDING THE SECTION DESCRIBING RISK FACTORS BEGINNING ON PAGE 38.

        In the proposed REIT Merger, Chelsea will become an indirect subsidiary of Simon. For each share of Chelsea common stock that you own, you will receive:

        The consideration that you will receive in the REIT Merger will not be adjusted unless the average closing price per share of Simon common stock during a specified period prior to the closing date of the REIT Merger is greater than $58.75 or less than $43.43. In such circumstances, the consideration that you will receive in the REIT Merger will be adjusted as described in this proxy statement/prospectus. In addition, Simon will not issue fractional shares of Simon common stock and Simon 6%



Convertible Preferred Stock in the REIT Merger, but, after aggregating the number of shares that you are entitled to upon exchange of all of your Chelsea common stock, Simon will make a cash payment to you in lieu of any such fractional shares. See "Summary of the Mergers—The REIT Merger."

        On            , 2004, the closing price of Simon common stock was $            per share. The dollar value of the shares of Simon common stock to be issued in the REIT Merger will change depending on changes in the market price of Simon common stock and will not be known at the time that you vote on the REIT Merger and the merger agreement. You should obtain current market quotations for both the Simon common stock and the Chelsea common stock.

        Simon common stock is listed on the New York Stock Exchange under the symbol "SPG" and Chelsea common stock is listed on the New York Stock Exchange under the symbol "CPG." The Simon 6% Convertible Preferred Stock to be issued in the REIT Merger will be listed on the New York Stock Exchange under the symbol "    ." There were                        shares of Simon common stock outstanding on a fully diluted basis on                        , 2004. Assuming that the Simon common stock exchange ratio is not adjusted and that the outstanding limited partnership interests in CPG Partners, L.P. are not converted into Chelsea common stock, we expect that Simon will issue                        shares of Simon common stock and            shares of Simon 6% Convertible Preferred Stock in the REIT Merger.

        Approval of the REIT Merger and the merger agreement by the holders of at least 662/3% of Chelsea's outstanding common stock entitled to vote thereon is required to complete the REIT Merger. Accordingly, you are cordially invited to attend a special meeting of holders of Chelsea common stock for the purpose of considering and voting upon the approval of the REIT Merger and the merger agreement to be held on                        2004, at             a.m., local time, at            .

        Holders of our 83/8% Series A Cumulative Redeemable Preferred Stock do not have the right to vote on the REIT Merger, but will be issued one share of Simon's 83/8% Series J Cumulative Redeemable Preferred Stock in exchange for each share of their Chelsea Series A Preferred Stock in the REIT Merger. Simon does not intend to list the Simon 83/8% Preferred Stock on any national securities exchange or to seek the admission thereof for trading on any automated dealer quotation system. The Simon 83/8% Preferred Stock is expected to be eligible for trading in the PORTAL market, the National Association of Securities Dealer's screen-based automated market for trading of securities eligible for resale under Rule 144A.

        Whether or not you plan to attend the special meeting, if you are a holder of Chelsea common stock please submit your proxy promptly by telephone or Internet in accordance with the instructions on the enclosed proxy card or by completing, dating and returning your proxy card in the enclosed envelope. Returning the proxy card or otherwise submitting your proxy does not deprive you of your right to attend the special meeting and vote in person. It is important to vote your shares of Chelsea common stock in person or by proxy because the failure to vote will have the same effect as a vote against the REIT Merger and the merger agreement.

We look forward to your support.

Sincerely,


David C. Bloom
Chairman and Chief Executive Officer
Chelsea Property Group, Inc.

 

 

        Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of the securities to be issued in connection with the transactions contemplated by the merger agreement or determined if this proxy statement/prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

        This proxy statement/prospectus is dated                        , 2004 and is expected to be first mailed to Chelsea stockholders on or about that date.



REFERENCE TO ADDITIONAL INFORMATION

        This proxy statement/prospectus incorporates important business and financial information about Chelsea and Simon from documents that are not included in or delivered with this document. You can obtain documents related to Chelsea or Simon that are incorporated by reference in this document, without charge, by requesting them in writing or by telephone from the appropriate company.

Chelsea Property Group, Inc.
Investor Relations
103 Eisenhower Parkway
Roseland, New Jersey 07068
(973) 228-6111
  Simon Property Group, Inc.
Investor Relations
National City Center
115 West Washington Street, Suite 15 East
Indianapolis, Indiana 46204
(317) 636-1600

        Please note that copies of the documents provided to you will not include exhibits, unless the exhibits are specifically incorporated by reference into the documents or this proxy statement/prospectus.

        In order to receive timely delivery of requested documents in advance of the special meeting, you should make your request no later than            , 2004.

        For information on submitting your proxy, please refer to the instructions on the enclosed proxy card. To submit your proxy by telephone, you should dial 1-877-PRX-VOTE (1-877-779-8683) toll-free from a touch tone phone and follow the recorded instructions when calling from within the United States, Canada or Puerto Rico, or dial                         when calling from elsewhere. To submit your proxy through the Internet, visit www.eproxyvote.com/cpg and follow the instructions on the website.

        See "Where You Can Find More Information" beginning on page 160.

i



CHELSEA PROPERTY GROUP, INC.



NOTICE OF SPECIAL MEETING OF HOLDERS OF CHELSEA COMMON STOCK
TO BE HELD ON            , 2004


        A special meeting of holders of Chelsea common stock will be held at         a.m., local time, on                        , 2004, at                        for the purpose of considering and voting on:

        The board of directors has fixed the close of business on                        , 2004 as the record date. Only holders of Chelsea common stock of record at the close of business on the record date will be entitled to vote at the special meeting and any adjournments or postponements of the special meeting.

        Holders of Chelsea's Series A Preferred Stock will not be entitled to vote on the REIT Merger and the merger agreement.

        THE CHELSEA BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE IN FAVOR OF THE PROPOSAL TO APPROVE THE REIT MERGER AND THE MERGER AGREEMENT.

        Please do not send any share certificates you may have at this time.

        You should read carefully and in its entirety the attached proxy statement/prospectus which includes a copy of the merger agreement.

        It is important that your shares of Chelsea common stock be represented at the special meeting. Whether or not you plan to attend the special meeting, please submit your proxy promptly by telephone or Internet in accordance with the instructions on the accompanying proxy card, or by completing, dating and returning your proxy card in the enclosed envelope. A failure to vote will have the same effect as a vote against approval of the REIT Merger and the merger agreement. You may revoke your proxy at any time until it is voted by a later dated proxy or by attending the special meeting and voting in person.

    By Order of the Board of Directors

 

 


Denise M. Elmer
Secretary

                                , 2004

ii



TABLE OF CONTENTS

 
  PAGE
QUESTIONS AND ANSWERS ABOUT THE MERGERS   1
SUMMARY OF THE MERGERS   9
  The Companies   9
  Comparative Per Share Market Price Data   10
  The Special Meeting   11
  The Merger Agreement   11
  The REIT Merger   11
  The Partnership Merger and the Optional Partnership Exchange Offer   14
  Recommendation of the Chelsea Board of Directors   15
  Opinion of Chelsea's Financial Advisor   16
  Interests of Chelsea Directors and Officers in the Mergers   16
  Material U.S. Federal Income Tax Consequences of the Mergers   17
  Anticipated Accounting Treatment   18
  Regulatory Matters Related to the Mergers   18
  No Dissenters' Rights of Appraisal   18
  Restrictions on Solicitation   18
  Conditions to the Mergers   18
  Termination   21
  Voting Agreements   23
  Put Agreement   23
  Listing of Simon Securities   23
  Comparison of Stockholder Rights   24
SUMMARY TERMS OF THE SIMON 6% CONVERTIBLE PREFERRED STOCK   25
SUMMARY TERMS OF THE SIMON 83/8% PREFERRED STOCK   29
SELECTED CONSOLIDATED FINANCIAL DATA OF SIMON   31
SELECTED CONSOLIDATED FINANCIAL DATA OF CHELSEA   33
SELECTED UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL DATA   35
COMPARATIVE PER SHARE DATA   36
COMPARATIVE PER SHARE MARKET PRICE DATA   37
RISK FACTORS   38
  Risks Relating to the Mergers   38
  Risks Relating to the Simon 6% Convertible Preferred Stock and the Simon 83/8% Preferred Stock   41
  Risks Relating to Simon   42
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS   46
RATIO OF SIMON'S EARNINGS TO FIXED CHARGES AND PREFERRED STOCK DIVIDENDS   47
THE SPECIAL MEETING   48
  General; Date; Time and Place   48
  Purpose of the Special Meeting   48
  Record Date; Voting Power   48
  Required Vote; Quorum; How to Vote   48
  Revocation of Proxy   49
  Expenses of Solicitation   49
  Questions About Voting Your Shares   49
THE MERGERS   50
  Background of the Mergers   50
     

iii


  Recommendation of Chelsea's Board of Directors   54
  Chelsea's Reasons for the Mergers   55
  Opinion of Chelsea's Financial Advisor   57
  Simon's Reasons for the Mergers   66
  Interests of Chelsea Directors and Officers in the Mergers   67
  Anticipated Accounting Treatment   73
  Regulatory Matters Related to the Mergers   73
  Merger Fees, Costs and Expenses   73
  No Dissenters' Rights of Appraisal   74
  Stock Exchange Listing and Related Matters   74
  Resale of Simon Securities   74
  Certain Litigation Relating to the Mergers   74
  Recent Developments   76
THE MERGER AGREEMENT AND RELATED AGREEMENTS   77
  Merger Agreement   77
  Voting Agreements   97
  Put Agreement   99
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION   101
MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES OF THE REIT MERGER, THE PARTNERSHIP MERGER AND THE OPTIONAL PARTNERSHIP EXCHANGE OFFER   116
  Consequences to Chelsea's U.S. Stockholders of the REIT Merger   117
  Consequences to Chelsea's Non-U.S. Stockholders of the REIT Merger   118
  Backup Withholding   119
  Certain Material U.S. Federal Income Tax Consequences of Owning and Disposing of Simon Common Stock, Simon 6% Convertible Preferred Stock and Simon 83/8% Preferred Stock Received in the REIT Merger   119
  Consequences to U.S. Unitholders of the Partnership Merger and/or the Optional Partnership Exchange Offer   123
    Disposition of Simon Operating Partnership Common and Preferred Interests   126
DESCRIPTION OF SIMON CAPITAL STOCK   127
  Authorized Stock   127
  Description of Common Stock   127
  Description of Simon 6% Convertible Preferred Stock   129
  Description of Simon 83/8% Preferred Stock   140
  Description of the Book-Entry System   145
RESTRICTIONS ON OWNERSHIP AND TRANSFER OF SIMON SECURITIES   147
COMPARISON OF STOCKHOLDER RIGHTS   149
  Number of Directors   149
  Standard of Conduct for a Director   149
  Removal of Directors   150
  Filling Vacancies on the Board of Directors   150
  Interested Director Transactions   151
  Amendment of Charter   151
  Amendment of Bylaws   151
  Stockholder Meetings and Provisions for Notices; Proxies   152
  Voting by Stockholders   152
  Stockholder Action Without a Meeting   152
  Merger, Consolidations and Sales of Assets Generally   152
  Business Combinations   153
     

iv


  Appraisal Rights   153
  Dividends   154
  Limitation of Liability and Indemnification of Directors and Officers   155
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT OF CHELSEA   157
EXPERTS   159
LEGAL MATTERS   159
OTHER MATTERS   159
  Simon 2005 Annual Meeting Stockholder Proposals   159
  Chelsea 2005 Annual Meeting Stockholder Proposals   160
WHERE YOU CAN FIND MORE INFORMATION   160

APPENDICES


Appendix A

 


 

Agreement and Plan of Merger, dated as of June 20, 2004, by and among Simon Property Group, Inc., Simon Property Group, L.P., Simon Acquisition I, LLC, Simon Acquisition II, LLC, Chelsea Property Group, Inc. and CPG Partners, L.P.

Appendix B

 


 

Form of Voting Agreement by and among Simon Property Group, Inc., Simon Property Group, L.P. and certain limited partners of CPG Partners, L.P.

Appendix C

 


 

Put Agreement, dated as of June 20, 2004, by and between Simon Property Group, L.P. and CPG Partners, L.P.

Appendix D

 


 

Form of Certificate of Designations of 6% Series I Convertible Perpetual Preferred Stock of Simon Property Group, Inc.

Appendix E

 


 

Form of Certificate of Designations of 83/8% Series J Cumulative Redeemable Preferred Stock of Simon Property Group, Inc.

Appendix F

 


 

Opinion of Merrill Lynch, Pierce, Fenner & Smith Incorporated

v



QUESTIONS AND ANSWERS ABOUT THE MERGERS

Q:
What am I being asked to vote on?

A:
Holders of Chelsea common stock are being asked to vote to approve the merger agreement entered into by and among Simon Property Group, Inc. (which we refer to in this proxy statement/prospectus as Simon), Simon Property Group, L.P. (which we refer to in this proxy statement/prospectus as the Simon Operating Partnership), Simon Acquisition I, LLC, Simon Acquisition II, LLC, Chelsea Property Group, Inc. (which we refer to in this proxy statement/prospectus as Chelsea) and CPG Partners, L.P. (which we refer to in this proxy statement/prospectus as the Chelsea Operating Partnership) and the merger of Simon Acquisition I, LLC with and into Chelsea pursuant to the merger agreement. In this proxy statement/prospectus, we refer to this merger as the REIT Merger.
Q:
What will I receive in the REIT Merger for each share of Chelsea common stock?

A:
In the REIT Merger, Chelsea will become an indirect subsidiary of Simon and each share of Chelsea common stock (other than shares owned by Chelsea, Simon or their direct or indirect wholly owned subsidiaries) shall be converted into the right to receive:

$36.00 in cash;

0.2936 of a share of Simon common stock; and

0.3000 of a share of Simon 6% Series I Convertible Perpetual Preferred Stock.

Q:
Can the number of shares of Simon common stock to be issued in the REIT Merger for each share of Chelsea common stock change between now and the time the REIT Merger is completed?

A:
Yes. The number of shares of Simon common stock you will receive in the REIT Merger will be adjusted if the average of ten randomly selected (in a manner reasonably acceptable to Simon and Chelsea) closing prices of Simon common stock on the New York Stock Exchange during the period of the 30 most recent trading days ending on the fifth business day prior to the closing of the REIT Merger (the "Closing Date Reference Price") is greater than $58.75 or lower than $43.43. If the Closing Date Reference Price is greater than $58.75, then the Simon common stock exchange ratio will be lowered so that you will only receive $17.25 worth of Simon common stock in exchange for each share of Chelsea common stock based on the Closing Date Reference Price. If the Closing Date Reference Price is lower than $43.43, then the Simon common stock exchange ratio will not be adjusted but you will receive an additional cash payment to ensure that you receive $12.75 in value in exchange for each share of Chelsea common stock; the amount of any such additional cash payment shall be equal to $12.75 less the value of 0.2936 of a share of Simon common stock valued at the Closing Date Reference Price. The amounts in this paragraph are in addition to the other cash consideration and Simon 6% Convertible Preferred Stock that you will receive in the REIT Merger.
Q:
What will happen to shares of Chelsea Series A Preferred Stock in the REIT Merger?

A:
Each share of Chelsea Series A Preferred Stock (other than shares owned by Chelsea, Simon or their direct or indirect wholly owned subsidiaries) will be converted into the right to receive one share of Simon 83/8% Series J Cumulative Redeemable Preferred Stock, which will have substantially the same terms and rights as the Chelsea Series A Preferred Stock. We refer to the Simon 83/8% Series J Cumulative Redeemable Preferred Stock in this proxy statement/prospectus as

2


Q:
How does the Chelsea board of directors recommend that I vote?

A:
The Chelsea board of directors unanimously recommends that you vote "FOR" approval of the REIT Merger and the merger agreement.

Q:
Why is my board of directors recommending that I vote for approval of the REIT Merger and the merger agreement?

A:
In recommending that you vote for approval of the REIT Merger and the merger agreement, Chelsea's board of directors considered, among other things:

that the per share REIT Merger Consideration provided for in the merger agreement represented a premium of approximately 24.6% over the average closing sale price for a share of Chelsea common stock for the 30 trading days ending on June 18, 2004, which was the last trading day before the announcement of the Mergers, and 13.3% over the closing sale price for a share of Chelsea common stock on June 18, 2004;

that the REIT Merger Consideration offers holders of Chelsea common stock both the opportunity to participate in the growth and opportunities of the combined company and to continue to have an investment in the retail real estate industry through a larger and more diversified enterprise through the stock component, and to realize cash for a portion of the value of their shares through the cash component;

its knowledge of Simon and its belief that Simon is a growing and well-managed enterprise, as well as the complementary nature of the businesses and geographical position of Chelsea and Simon;

the provisions of the merger agreement, including the limited nature of the closing conditions, the provisions regarding operating Chelsea as a separate division and the treatment of Chelsea employees following the Mergers, the exceptions to the no solicitation and board recommendation provisions, and the size of the termination fee; and

the fairness opinion of Merrill Lynch, Pierce, Fenner & Smith Incorporated.

3


Q:
What vote of Chelsea stockholders and what vote of Simon stockholders is required in connection with the REIT Merger?

A:
The affirmative vote of the holders of at least 662/3% of the outstanding shares of Chelsea common stock entitled to vote on the REIT Merger and the merger agreement is required to approve the REIT Merger and the merger agreement. No vote of Simon stockholders is required (or will be sought) in connection with the REIT Merger.

Q:
What will happen if I do not vote?

A:
If you do not vote your shares of Chelsea common stock, that will be the equivalent of a vote against approval of the REIT Merger and the merger agreement.

Q:
What is the structure of the REIT Merger?

A:
In the REIT Merger, Simon Acquisition I, LLC will be merged with and into Chelsea. After the REIT Merger, Chelsea will continue as the surviving corporation of the REIT Merger, will become a wholly owned subsidiary of the Simon Operating Partnership and will continue to be organized and operated in conformity with the requirements for qualification as a real estate investment trust, or REIT, until such time as it has been liquidated for U.S. federal income tax purposes.

Q:
How much of Simon will Chelsea stockholders own after the REIT Merger?

A:
After the REIT Merger, assuming that the Simon common stock exchange ratio is not adjusted and that the outstanding limited partnership interests in the Chelsea Operating Partnership are not converted into Chelsea common stock, Chelsea stockholders will own approximately    % of the Simon common stock on a fully diluted basis (based on              shares of Simon common stock outstanding as of                        , 2004).

Q:
What is the Partnership Merger?

A:
As a condition to the closing of the REIT Merger, the Chelsea Operating Partnership must obtain the requisite approval of holders of a majority of its limited partnership interests for the merger of Simon Acquisition II, LLC with and into the Chelsea Operating Partnership. As discussed herein, holders of approximately 72% of the common units of the Chelsea Operating Partnership (consisting of certain directors and officers of Chelsea and their affiliates) have entered into voting agreements with Simon and the Simon Operating Partnership pursuant to which they have agreed to vote such common units in favor of the Partnership Merger if the REIT Merger is approved. Such holders, who own 0.7% of the outstanding Chelsea common stock, have also agreed to vote their Chelsea common stock in favor of the REIT Merger.

4


Q:
What is the Optional Partnership Exchange Offer?

A.
The Simon Operating Partnership has agreed to offer each holder of common units in the Chelsea Operating Partnership the option to exchange immediately prior to the effective time of the Partnership Merger its common units in the Chelsea Operating Partnership for the Partnership Merger Consideration. In this proxy statement/prospectus, we refer to this exchange offer as the Optional Partnership Exchange Offer. Participation in the Optional Partnership Exchange Offer will be conditioned upon, among other things, the electing holder first delivering its consent to the Partnership Merger.
Q:
What are the tax consequences of the REIT Merger to Chelsea stockholders?

A:
The exchange of Chelsea common stock for the REIT Merger Consideration will be a taxable transaction for U.S. federal income tax purposes. In general, you will recognize capital gain or loss for U.S. federal income tax purposes equal to the difference, if any, between the value of the REIT Merger

5


Q:
Will Simon and Chelsea coordinate the declaration and payment of dividends prior to the completion of the REIT Merger?

A:
Yes. In the merger agreement, Simon and Chelsea have agreed to coordinate the declaration and payment of dividends on Simon common stock and Chelsea common stock, including with respect to record dates and payment dates. However, this does not apply to Chelsea's regular second quarter 2004 dividend and Simon currently intends to consent to Chelsea not complying with this requirement with respect to coordinating Chelsea's regular third quarter dividend with Simon's next quarterly dividend which will be paid in August 2004.

6


Q:
When do you expect the Mergers to be completed?

A:
We expect to complete the Mergers after we receive Chelsea stockholder approval at the special meeting. We currently anticipate closing in the last four months of 2004. However, it is possible that factors outside Simon's and Chelsea's control could require us to complete the Mergers at a later time or not complete them at all.

Q:
What do I need to do now?

A:
If you hold shares of Chelsea common stock, after carefully reading and considering the information contained in this proxy statement/prospectus and consulting with your tax and other advisors, please submit your proxy by telephone or Internet in accordance with the instructions set forth on the enclosed proxy card, or fill out, sign and date the proxy card, and then mail your signed proxy card in the enclosed prepaid envelope as soon as possible so that your shares of Chelsea common stock may be voted at the special meeting. See "The Special Meeting" beginning on page 48.
Q:
If my shares of Chelsea common stock are held in "street name" by my broker, will my broker vote my shares of Chelsea common stock for me?

A:
Your broker will not vote your shares of Chelsea common stock unless you instruct the broker to do so. Please check with your broker and follow the voting procedures your broker provides. Your broker will advise you whether you may submit voting instructions by telephone or Internet. If you do not

7


Q:
May I change my vote after I have submitted a proxy by telephone or Internet or mailed my signed proxy card?

A:
Yes. You may change your vote at any time before your proxy is voted at the special meeting. You can do this in several ways. You can send a written notice stating that you want to revoke your proxy, or you can complete and submit a new proxy card. If you choose either of these methods, you must submit your notice of revocation or your new proxy card to:
Q:
If I want to attend the special meeting, what do I do?

A:
You must come to                        at     a.m., local time, on                        , 2004.

Q:
Should I send in my stock certificates now?

A:
No. If you hold any Chelsea stock certificates, you will receive written instructions for exchanging those Chelsea stock certificates for the REIT Merger Consideration or the Simon 83/8% Preferred Stock (as applicable). You may not have received any stock certificates because your Chelsea securities were directly registered. The written instructions you will receive will also advise you what to do if your securities were directly registered.

Q:
What if I cannot find my stock certificate?

A:
There will be a procedure for you to receive the REIT Merger Consideration or the Simon 83/8% Preferred Stock (as applicable) in the REIT Merger even if you lost one or more of your Chelsea stock certificates. This procedure, however, may take time to complete. In order to ensure that you will be able to receive the REIT Merger Consideration or the Simon 83/8% Preferred Stock (as applicable) promptly after the REIT Merger is completed, if you cannot locate your Chelsea certificates after looking for them carefully, we urge you to contact EquiServe Trust Company, N.A. as soon as possible and follow the procedure for replacing your Chelsea certificates. EquiServe Trust Company, N.A. can be reached at                        , or you can write to EquiServe Trust Company, N.A. at the following address:
Q:
Who can help answer my additional questions about the REIT Merger, the Partnership Merger or the Optional Partnership Exchange Offer?

A:
If you have questions about the REIT Merger, the Partnership Merger or the Optional Partnership Exchange Offer, you should contact:

8



SUMMARY OF THE MERGERS

        This summary highlights selected information from this proxy statement/prospectus. It does not contain all of the information that may be important to you. You should carefully read this entire proxy statement/prospectus and the other documents to which this document refers for a more complete understanding of the matters being considered at the special meeting. See "Where You Can Find More Information" beginning on page 160. Unless we have otherwise stated, all references in this proxy statement/prospectus to Simon are to Simon Property Group, Inc., all references to the Simon Operating Partnership are to Simon Property Group, L.P., all references to Chelsea are to Chelsea Property Group, Inc., all references to the Chelsea Operating Partnership are to CPG Partners, L.P. and all references to the Mergers are to the REIT Merger and the Partnership Merger.

The Companies

        Simon owns, operates, manages, leases, acquires, expands and develops real estate properties, primarily regional malls and community shopping centers. Simon has elected to be taxed as a REIT for U.S. federal income tax purposes.

        The core of Simon's business originated with the shopping center businesses of Melvin Simon, Herbert Simon, David Simon and other members and associates of the Simon family. Simon has grown significantly by acquiring properties and merging with other real estate companies, including its merger with DeBartolo Realty Corporation in 1996 and its combination with Corporate Property Investors, Inc. in 1998.

        As of June 30, 2004, Simon and Simon's majority-owned operating partnership subsidiary, Simon Property Group, L.P., owned or held an interest in 247 income-producing properties in North America which consisted of 176 regional malls, 67 community shopping centers and four office and mixed-use properties in 37 states, Canada and Puerto Rico. Mixed-use properties are properties whose operating income includes two or more significant retail, office and/or hotel components. As of the same date, Simon owned interests in four parcels of land held for future development and had ownership interests in other real estate assets in the United States. Finally, Simon had ownership interests in 48 assets in Europe (France, Italy, Poland and Portugal).

        If you want to find more information about Simon, please see the section entitled "Where You Can Find More Information" beginning on page 160.

        Simon Acquisition I, LLC is a Maryland limited liability company and a direct wholly owned subsidiary of the Simon Operating Partnership. Simon Acquisition I, LLC was organized on June 17, 2004 solely for the purpose of effecting the REIT Merger. It has not carried on any activities other than in connection with the merger agreement.

        Simon Acquisition II, LLC is a Delaware limited liability company and a direct wholly owned subsidiary of Simon Acquisition Holdings II, LLC, which itself is a Delaware limited liability company and a direct wholly owned subsidiary of the Simon Operating Partnership. Simon Acquisition II, LLC and Simon Acquisition Holdings II, LLC were organized on June 17, 2004 solely for the purpose of

9



effecting the Partnership Merger. They have not carried on any activities other than in connection with the merger agreement.

        Chelsea is the managing general partner of CPG Partners, L.P., an operating partnership that specializes in owning, developing, leasing, marketing and managing upscale and fashion-oriented manufacturers' outlet centers. Chelsea has elected to be treated as a REIT for U.S. federal income tax purposes. As of June 30, 2004, Chelsea wholly or partially owned 60 centers in 31 states and Japan containing approximately 16.6 million square feet of gross leasable area. Chelsea's portfolio consisted of 40 domestic and international outlet centers containing 13.9 million square feet of gross leasable area and 20 other centers containing approximately 2.7 million square feet of gross leasable area. The outlets generally are located near metropolitan areas including New York City, Los Angeles, Chicago, Boston, Washington, D.C., San Francisco, Sacramento, Atlanta and Dallas, as well as Tokyo, Osaka and Fukuoka, Japan. Some outlets are also located within 20 miles of major tourist destinations including Palm Springs, Napa Valley, Orlando, Las Vegas and Honolulu.

        If you want to find more information about Chelsea, please see the section entitled "Where You Can Find More Information" beginning on page 160.

Comparative Per Share Market Price Data
(Page 37)

        Simon common stock and Chelsea common stock are each listed on the New York Stock Exchange. Simon's and Chelsea's ticker symbols are "SPG" and "CPG," respectively. The following table sets forth the closing prices per share of Simon common stock and Chelsea common stock as reported on the New York Stock Exchange Composite Transaction Tape on June 18, 2004, the last full trading day prior to the announcement of the merger agreement, and on            , 2004, the most recent practicable date prior to the mailing of this proxy statement/prospectus to Chelsea's stockholders. This table also sets forth the pro forma equivalent price per share of Chelsea common stock on June 18, 2004 and on            , 2004. The pro forma equivalent price per share is equal to (a) the closing price of a share of Simon common stock on each such date multiplied by 0.2936 (the exchange ratio for the issuance of Simon common stock in the REIT Merger, excluding the effect of any adjustments based on the Closing Date Reference Price of Simon common stock) plus (b) $36.00 (the cash portion of the consideration for each share of Chelsea common stock in the REIT Merger) plus (c) $15.00 (the $50.00 liquidation value of a share of Simon 6% Convertible Preferred Stock multiplied by 0.3000, which is the exchange ratio for the issuance of Simon 6% Convertible Preferred Stock in the REIT Merger). These prices will fluctuate prior to the special meeting and the REIT Merger, and stockholders are urged to obtain current market quotations prior to making any decision with respect to the REIT Merger.

 
  Simon
Common
Stock

  Chelsea
Common
Stock

  Chelsea Pro
Forma
Equivalent

At June 18, 2004   $ 52.30   $ 58.24   $ 66.36
At            , 2004                  

10


The Special Meeting
(Page 48)

        The special meeting will be held at             a.m., local time, on                        , 2004 at                        .

        The purpose of the special meeting is to vote upon approval of the REIT Merger and the merger agreement.

        Only holders of Chelsea common stock as of the close of business on                        , 2004, the record date, are entitled to vote at the special meeting or any adjournments or postponements of the special meeting. Each share of Chelsea common stock is entitled to one vote.

        The affirmative vote of the holders of at least 662/3% of the outstanding shares of Chelsea common stock as of the record date is required to approve the REIT Merger and the merger agreement. A stockholder may vote in person at the special meeting or by proxy without attending the special meeting. Proxies may be authorized by telephone, via the Internet or by mailing a signed proxy card. The failure to vote, or the abstention from voting, by a stockholder will have the same effect as a vote against approval of the REIT Merger and the merger agreement. As of the record date,                        shares of Chelsea common stock were outstanding. On the record date,            % of the outstanding shares of Chelsea common stock were held by directors and executive officers of Chelsea and their respective affiliates. All of Chelsea's directors and executive officers have indicated that they intend to vote their shares of Chelsea common stock in favor of approval of the REIT Merger and the merger agreement.

The Merger Agreement
(Page 77)

        The merger agreement is described in "The Merger Agreement and Related Agreements" beginning on page 77. The merger agreement is also attached to this proxy statement/prospectus as Appendix A. We urge you to read the entire merger agreement because it is the legal document governing the REIT Merger.

The REIT Merger
(Page 77)

        The merger agreement provides for, among other things, the merger of Simon Acquisition I, LLC, a direct wholly owned subsidiary of the Simon Operating Partnership, with and into Chelsea. Following completion of the REIT Merger, Chelsea will continue as the surviving corporation of the REIT Merger, will become a wholly owned subsidiary of the Simon Operating Partnership and will continue to be organized and operated in conformity with the requirements for qualification as a REIT until such time as it has been liquidated for U.S. federal income tax purposes.

11



        In the REIT Merger, each share of Chelsea common stock (other than shares owned by Chelsea, Simon or their direct or indirect wholly owned subsidiaries) shall be converted into the right to receive:

        If the Closing Date Reference Price is greater than $58.75, then the Simon common stock exchange ratio shall be adjusted to equal 0.2936 multiplied by a fraction, the numerator of which will be $58.75, and the denominator of which will be the Closing Date Reference Price. As a result, the Simon common stock exchange ratio will be reduced and you will receive less shares of Simon common stock than you would have using the original exchange ratio of 0.2936. This adjustment results in the value of the Simon common stock you are entitled to receive in the REIT Merger being capped at $17.25 if the Closing Date Reference Price is greater than $58.75. For example, if the Closing Date Reference Price is $75.00, the Simon common stock exchange ratio would be reduced to 0.229987, which would result in you receiving $17.25 of Simon common stock for each share of Chelsea common stock based on the Closing Date Reference Price. This would be in addition to the $36.00 in cash and 0.3000 of a share of Simon 6% Convertible Preferred Stock that you would also be entitled to receive in exchange for each share of Chelsea common stock.

        If the Closing Date Reference Price is lower than $43.43, then instead of adjusting the Simon common stock exchange ratio, you will be entitled to an additional cash payment determined using the following formula:

        where:

This adjustment ensures that if the Closing Date Reference Price is lower than $43.43, you will receive $12.75 in value (consisting of Simon common stock and cash) for the portion of the merger consideration that originally was meant to consist of Simon common stock. For example, if the Closing Date Reference Price is $30.00, you would receive 0.2936 of a share of Simon common stock (which at the Closing Date Reference Price would be worth $8.80) plus $3.95 in cash (for a total value of $12.75 based on the Closing Date Reference Price) for each share of Chelsea common stock. This would be in addition to the $36.00 in cash and 0.3000 of a share of Simon 6% Convertible Preferred Stock that you would also be entitled to receive in exchange for each share of Chelsea common stock.

        If the Closing Date Reference Price is between $43.43 and $58.75, then there will be no adjustment to the consideration paid in the REIT Merger. As a result, the market value in such circumstance of the Simon common stock that you will receive in the REIT Merger will depend on the market price of the Simon common stock on the closing date of the REIT Merger. See "Risk Factors" beginning on page 38.

        You will not receive any fractional shares of Simon common stock or Simon 6% Convertible Preferred Stock in the REIT Merger. After taking into account all shares of Chelsea common stock delivered by you, Simon will pay you:

12


        In the merger agreement, Simon and Chelsea have agreed to coordinate the declaration and payment of dividends on Simon common stock and Chelsea common stock, including with respect to record dates and payment dates. However, this does not apply to Chelsea's regular second quarter 2004 dividend and Simon currently intends to consent to Chelsea not complying with this requirement with respect to coordinating Chelsea's regular third quarter dividend with Simon's next quarterly dividend which will be paid in August 2004. See "Questions and Answers About the Mergers" for a description of the dividends anticipated to be paid by Chelsea to holders of Chelsea common stock for periods prior to the effective date of the REIT Merger.

        After the effective date of the REIT Merger, former Chelsea stockholders who receive Simon common stock in the REIT Merger shall have the right to receive dividends from Simon on such Simon common stock for the periods after the effective date to the extent they continue to hold such stock on the applicable record dates for such post-closing periods.

        In the REIT Merger, each share of Chelsea Series A Preferred Stock (other than shares owned by Chelsea, Simon or their direct or indirect wholly owned subsidiaries) will be converted into the right to receive one share of Simon 83/8% Preferred Stock, which will have substantially the same terms and rights as the Chelsea Series A Preferred Stock.

        Immediately prior to the effective time of the REIT Merger, Chelsea shall pay any accumulated dividends on the Chelsea Series A Preferred Stock to the holders thereof for the period from the last preceding dividend payment date to but excluding the date of the closing of the REIT Merger. Dividends on the Simon 83/8% Preferred Stock will accrue from and after the date of the closing of the REIT Merger. The dividend payment dates for the Simon 83/8% Preferred Stock will be the last day of March, June, September and December of each year, commencing on the first such date to occur after the closing of the REIT Merger. On such date, Simon shall pay holders of Simon 83/8% Preferred Stock a dividend equal to the annual dividend rate of $4.1875 per share for the period from and including the date of the closing of the REIT Merger to but excluding the date on which such initial dividend is payable based on a 360-day year of twelve 30-day months.

        Each outstanding and unexercised option to purchase shares of Chelsea common stock granted under Chelsea's 1993 Stock Option Plan, as amended, and Chelsea's 2000 Stock Option Plan, as amended, whether or not exercisable or vested, will be converted at the effective time of the REIT Merger into a replacement option to purchase shares of Simon common stock on the same terms and conditions under which it was originally issued (but taking into account any changes thereto, including the acceleration thereof, provided for in, or required or permitted by, Chelsea's option plans, certain specified award agreements or other agreements or such option grant by reason of the merger agreement and the transactions contemplated thereby). Each new Simon option shall be exercisable for a number of shares of Simon common stock equal to (i) the number of shares of Chelsea common stock subject to the Chelsea option to which such new Simon option relates multiplied by (ii) the Option Exchange Ratio (as defined in "The Merger Agreement and Related Agreements—Merger Agreement—Chelsea Stock Options"), rounded to the nearest share. The per share exercise price of each new Simon option shall equal (A) the per share exercise price of the Chelsea option to which such new Simon option relates divided by (B) the Option Exchange Ratio, rounded to the nearest

13


one-hundredth of a cent. All Chelsea stock options that have not vested under the Chelsea stock option plans will vest upon completion of the REIT Merger. Notwithstanding the foregoing, in the case of any Chelsea option to which Section 421 of the Internal Revenue Code of 1986, as amended (the "Internal Revenue Code"), as of the effective time of the REIT Merger (after taking into account the effect of any accelerated vesting thereof) applies by reason of its qualification under Section 422 of the Internal Revenue Code, the exercise price, the number of shares subject to such option and the terms and conditions of exercise of such option shall be determined in a manner consistent with the requirements of Section 424(a) of the Internal Revenue Code.

        Prior to the effective time of the REIT Merger and subject to the terms of the Chelsea option plans, Chelsea shall take all actions necessary and appropriate to allow each holder of a Chelsea option (whether or not exercisable or vested) to elect, in lieu of the treatment provided above, to convert each Chelsea option so held into the right to receive an amount of cash at the effective time of the REIT Merger equal to the product of (i) the excess, if any, of the per share dollar value of the REIT Merger Consideration on the closing date of the REIT Merger over the per share exercise price of such Chelsea option and (ii) the number of shares of Chelsea common stock subject to such Chelsea option (such payment to be net of all applicable withholding taxes). Under the provisions of their employment contracts, Messrs. David C. Bloom, Leslie T. Chao, Thomas J. Davis and Michael J. Clarke are obligated to elect to receive cash for each of their Chelsea options.

The Partnership Merger and the Optional Partnership Exchange Offer
(Page 77)

        As a condition to the closing of the REIT Merger, the Chelsea Operating Partnership must obtain the requisite approval of holders of a majority of its limited partnership interests for the merger of Simon Acquisition II, LLC with and into the Chelsea Operating Partnership. As discussed in "The Merger Agreement and Related Agreements—Voting Agreements," holders of approximately 72% of the common units of the Chelsea Operating Partnership (consisting of certain directors and officers of Chelsea and their affiliates) have entered into voting agreements with Simon and the Simon Operating Partnership pursuant to which they have agreed to vote such common units in favor of the Partnership Merger if the REIT Merger is approved. Such holders, who own 0.7% of the outstanding Chelsea common stock, have also agreed to vote their Chelsea common stock in favor of the REIT Merger.

        The Chelsea Operating Partnership has agreed to redeem all of its outstanding Series B Cumulative Redeemable Preferred Units prior to the effective time of the Partnership Merger. As a result, the common units will be the only limited partnership interests in the Chelsea Operating Partnership entitled to vote on the Partnership Merger. The holders of common units that have entered into voting agreements have the right to vote sufficient limited partnership interests to approve the Partnership Merger without the affirmative vote of any other holders of limited partnership interests in the Chelsea Operating Partnership, thus ensuring approval of the Partnership Merger on behalf of the Chelsea Operating Partnership.

        Subject to certain limitations contained in the voting agreements, the holders of common units in the Chelsea Operating Partnership have the right to convert such units into Chelsea common stock at any time prior to the REIT Merger, and any such shares of Chelsea common stock shall then be converted into the right to receive the REIT Merger Consideration in the REIT Merger.

        In the Partnership Merger, each common unit of the Chelsea Operating Partnership (excluding common units owned by Chelsea, the Chelsea Operating Partnership, Simon, the Simon Operating Partnership or their direct or indirect wholly owned subsidiaries, which shall be cancelled in the Partnership Merger (other than any common units acquired by the Simon Operating Partnership in the Optional Partnership Exchange Offer, which shall remain outstanding after the Partnership Merger)) shall be converted into the right to receive 0.6459 of a common partnership interest in the Simon

14



Operating Partnership and 0.6600 of a preferred partnership interest in the Simon Operating Partnership.

        The common partnership interests in the Simon Operating Partnership to be issued in the Partnership Merger are exchangeable, at the request of the holder of such interests, for cash or, at Simon's option, for shares of Simon common stock on a one-for-one basis. The preferred partnership interests in the Simon Operating Partnership to be issued in the Partnership Merger will have the same economic terms as the Simon 6% Convertible Preferred Stock except that they shall be, at the request of the holder of such interests, (1) convertible into common partnership interests in the Simon Operating Partnership on the same terms as the Simon 6% Convertible Preferred Stock shall be convertible into Simon common stock and (2) exchangeable for cash or, at Simon's option, for shares of Simon 6% Convertible Preferred Stock on a one-for-one basis.

        In the event that the Closing Date Reference Price is greater than $58.75, then the common partnership interest exchange ratio shall be adjusted to equal 0.6459 multiplied by a fraction, the numerator of which will be $58.75, and the denominator of which will be the Closing Date Reference Price, and in the event that the Closing Date Reference Price is less than $43.43, then the common partnership interest exchange ratio shall be adjusted to equal 0.6459 multiplied by a fraction, the numerator of which will be $43.43, and the denominator of which will be the Closing Date Reference Price.

        The Partnership Merger will become effective immediately after the closing of the REIT Merger, with the Chelsea Operating Partnership as the surviving entity. Immediately after consummation of the Partnership Merger, the partners of the Chelsea Operating Partnership will be Chelsea (which at that point will be a subsidiary of the Simon Operating Partnership), Simon Acquisition Holdings II, LLC and, if any holders of common units in the Chelsea Operating Partnership elect to participate in the Optional Partnership Exchange Offer, the Simon Operating Partnership.

        The Simon Operating Partnership has agreed to offer each holder of common units in the Chelsea Operating Partnership the option to exchange immediately prior to the effective time of the Partnership Merger its common units in the Chelsea Operating Partnership for the Partnership Merger Consideration. Participation in the Optional Partnership Exchange Offer will be conditioned upon, among other things, the electing holder first delivering its consent to the Partnership Merger.

        If the holders of all of the outstanding common units of the Chelsea Operating Partnership elect to participate in the Optional Partnership Exchange Offer, there will be no need to consummate the Partnership Merger. Instead, the Simon Operating Partnership will issue the Partnership Merger Consideration immediately after consummation of the REIT Merger to the holders of outstanding common units of the Chelsea Operating Partnership in exchange for such common units.

Recommendation of the Chelsea Board of Directors
(Page 54)

        Chelsea's board of directors has determined that the merger agreement and the transactions contemplated thereby, including the Mergers, are advisable and fair to, and in the best interests of, Chelsea and its stockholders and the holders of common units of the Chelsea Operating Partnership, and has approved and declared advisable the Mergers, the merger agreement and the other transactions contemplated by the merger agreement, and unanimously recommends that you vote in favor of approving the REIT Merger and the merger agreement.

        THE CHELSEA BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS OF CHELSEA VOTE "FOR" APPROVAL OF THE REIT MERGER AND THE MERGER AGREEMENT.

15



Opinion of Chelsea's Financial Advisor
(Page 57)

        In deciding to approve the merger agreement and the Mergers, the Chelsea board of directors received an opinion from Merrill Lynch, Chelsea's financial advisor, that the REIT Merger Consideration was, as of the date of the opinion, fair from a financial point of view to the Chelsea stockholders. The full text of Merrill Lynch's written opinion dated June 18, 2004 is attached to this proxy statement/prospectus as Appendix F. You are encouraged to read this opinion carefully in its entirety for a description of the assumptions made, procedures followed, matters considered and limitations on the review undertaken by Merrill Lynch.

Interests of Chelsea Directors and Officers in the Mergers
(Page 68)

        In considering the recommendation of the Chelsea board with respect to the REIT Merger and the merger agreement, you should be aware that certain directors and officers of Chelsea have interests in the proposed Mergers that are different from, or are in addition to, the interests of Chelsea stockholders. These interests include the fact that certain directors and officers of Chelsea who own common units in the Chelsea Operating Partnership will be able, unless they elect to convert their common units in the Chelsea Operating Partnership into shares of Chelsea common stock before the REIT Merger, to defer their taxable gains in their common units in the Chelsea Operating Partnership by receiving in the Partnership Merger and/or the Optional Partnership Exchange Offer common and preferred partnership interests in the Simon Operating Partnership in exchange for their common units in the Chelsea Operating Partnership. The REIT Merger, in contrast, is a taxable transaction and, as a result, holders of Chelsea common stock other than certain tax-exempt holders will be required to pay tax on gains arising from exchanging their Chelsea stock for the REIT Merger Consideration. Based on an analysis of its stockholders by Merrill Lynch, Chelsea's board noted that more than 70% of the Chelsea stockholders are institutions and pass-through entities (such as mutual funds) that will not have to pay, or are less sensitive to the payment of, taxes on their gains. Unlike Chelsea's stockholders, certain holders of common units in the Chelsea Operating Partnership (including some of Chelsea's directors and officers) may face tax recapture (and thus be taxed at rates higher than those potentially applicable to the holders of Chelsea common stock in the REIT Merger) with respect to a portion of their gains if they participate in a taxable transaction involving their common units in the Chelsea Operating Partnership. Such potential tax recapture could arise if a holder of common units in the Chelsea Operating Partnership obtained its units in tax-deferred transactions when it contributed interests in real estate, which may have been subject to depreciation for U.S. federal income tax purposes, to the Chelsea Operating Partnership. In addition, unlike holders of Chelsea common stock who have an initial tax basis equal to the price paid for the common stock, holders of common units in the Chelsea Operating Partnership who obtained their common units in exchange for a contribution of property in a tax-deferred transaction have a tax basis in their common units initially derived from their tax basis in the contributed property, which could be a fraction of the value of the common units received in exchange for the contribution of property.

        These interests also include the acceleration of the vesting of stock options, the vesting of payments under Chelsea's long-term executive incentive plan, the employment agreements received by four of Chelsea's executive officers which will govern the terms of such executive officers' employment after the REIT Merger (but will be void if the REIT Merger does not occur), the severance payments to be received by Chelsea's officers and other employees under certain circumstances and the rights provided to certain holders of common units of the Chelsea Operating Partnership under the tax protection agreement.

        The merger agreement provides that Chelsea's chairman and chief executive officer, David C. Bloom, will be appointed as a non-voting advisory director to Simon's board of directors following the

16



REIT Merger. In addition, Chelsea's board, based upon the recommendation of its compensation committee, has determined to pay Mr. Bloom a special bonus of $5,000,000 immediately prior to the effective time of the REIT Merger. Of that amount, $4.0 million is in consideration of Mr. Bloom's voluntary non-participation in Chelsea's existing 2002-2006 Long-Term Executive Incentive Plan (which we refer to in this proxy statement/prospectus as the LTIP), and the remainder is in consideration of Mr. Bloom's services to Chelsea.

        Furthermore, Chelsea's board, based upon the recommendation of its compensation committee, has determined to pay Chelsea's vice chairman, William D. Bloom, a special bonus of $500,000 upon completion of the Mergers in consideration of Mr. Bloom's previously having agreed to receive below-market salary and bonus compensation for numerous prior years and his reduced participation in Chelsea's LTIP.

        Also, following completion of the REIT Merger, Chelsea, as the surviving company, will indemnify and for six years provide directors' and officers' insurance for the directors and officers of Chelsea for events occurring before the REIT Merger, including events that are related to the merger agreement.

        The Chelsea board was aware that these interests existed and considered them when it approved and declared advisable the merger agreement and the Mergers and determined that the merger agreement and the Mergers are advisable and fair to, and in the best interests of, Chelsea and its stockholders.

Material U.S. Federal Income Tax Consequences of the Mergers
(Page 116)

        The exchange of Chelsea common stock for the REIT Merger Consideration will be a taxable transaction for U.S. federal income tax purposes. In general, you will recognize capital gain or loss for U.S. federal income tax purposes equal to the difference, if any, between the value of the REIT Merger Consideration you receive and your adjusted tax basis in the Chelsea common stock exchanged by you in the REIT Merger, except that any gain will constitute ordinary income to the extent of any dividends declared, but unpaid, with respect to your shares. Generally, if you have held your shares for more than one year, you will recognize any gain as long-term capital gain. The deducibility of capital losses is subject to limitations.

        The exchange of Chelsea Series A Preferred Stock for Simon 83/8% Preferred Stock will also be a taxable transaction for U.S. federal income tax purposes. However, assuming that the Simon 83/8% Preferred Stock has a value equal to its liquidation preference and your tax basis in your Chelsea Series A Preferred Stock is equal to its liquidation preference, you should not recognize any capital gain or loss on the exchange of those shares for Simon 83/8% Preferred Stock.

        The exchange of common units in the Chelsea Operating Partnership for common and preferred partnership interests in the Simon Operating Partnership in the context of either the Partnership Merger or the Optional Partnership Exchange Offer is intended to be a tax-deferred transaction for U.S. federal income tax purposes.

        For further information concerning the U.S. federal income tax consequences of the REIT Merger, the Partnership Merger and the Optional Partnership Exchange Offer, please see "Material U.S. Federal Income Tax Consequences of the REIT Merger, the Partnership Merger and the Optional Partnership Exchange Offer" beginning on page 116. Because the tax consequences of the REIT Merger, the Partnership Merger and the Optional Partnership Exchange Offer are complex and may vary depending on your particular circumstances, you are urged to consult your own tax advisors for a full understanding of the tax consequences to you.

17


Anticipated Accounting Treatment
(Page 73)

        It is expected that the transactions will be accounted for as a purchase of Chelsea by Simon under generally accepted accounting principles. Simon will account for the transactions as a purchase business combination in accordance with Statement of Financial Accounting Standards ("SFAS") No. 141, "Business Combinations," using Chelsea's historical financial information and accounting policies and applying fair value estimates to the acquired assets, liabilities and commitments of Chelsea as of the date of the transactions.

Regulatory Matters Related to the Mergers
(Page 73)

        We do not need to obtain any material regulatory approvals in order to consummate the Mergers.

No Dissenters' Rights of Appraisal
(Page 74)

        The holders of Chelsea common stock and Chelsea Series A Preferred Stock are not entitled to any dissenters' rights of appraisal with respect to the REIT Merger.

Restrictions on Solicitation
(Page 87)

        Subject to specified legal and statutory exceptions, the merger agreement precludes Chelsea or any of its subsidiaries or representatives, whether directly or indirectly, from (i) soliciting, initiating, encouraging or taking any other action to facilitate (including by the furnishing of information) the submission of any inquiry, proposal or offer from any person (other than Simon or its affiliates) relating to, or that could reasonably be expected to lead to, any Takeover Proposal (as defined in "The Merger Agreement and Related Agreements—Merger Agreement—Principal Covenants—No Solicitation"), (ii) agreeing to, approving or recommending any Takeover Proposal or entering into any agreement with respect to any Takeover Proposal or (iii) entering into, continuing or otherwise participating in any discussions or negotiations regarding, or furnishing to any person any information with respect to, or taking any other action to facilitate any inquiries or the making of any proposal that constitutes, or could reasonably be expected to lead to, any Takeover Proposal.

Conditions to the Mergers
(Page 92)

        The obligations of each party to the merger agreement to complete the REIT Merger are subject to the satisfaction or waiver of the following conditions:

18


        The obligation of Simon to effect the REIT Merger is further subject to the satisfaction or waiver of the following conditions:

        The obligation of Chelsea to effect the REIT Merger is further subject to the satisfaction or waiver of the following conditions:

19


        Where the law permits, a party to the merger agreement may elect to waive a condition to its obligation to complete the REIT Merger that has not been satisfied. We cannot be certain when (or if) the conditions to the REIT Merger will be satisfied or waived or that the REIT Merger will be completed. We expect to complete the REIT Merger as promptly as practicable after all of the conditions have been satisfied or waived.

        The Partnership Merger is not subject to any conditions other than consummation of the REIT Merger. Since the REIT Merger is conditioned upon obtaining the approval of holders of a majority of the limited partnership interests of the Chelsea Operating Partnership, we expect to close the Partnership Merger immediately after consummation of the REIT Merger. As discussed in "The Merger Agreement and Related Agreements—Voting Agreements," holders of approximately 72% of the common units of the Chelsea Operating Partnership (consisting of certain directors and officers of Chelsea and their affiliates) have entered into voting agreements with Simon and the Simon Operating Partnership pursuant to which they have agreed to vote such common units in favor of the Partnership Merger if the REIT Merger is approved. Such holders have the right to vote sufficient limited partnership interests to approve the Partnership Merger without the affirmative vote of any other holders of limited partnership interests in the Chelsea Operating Partnership, thus ensuring approval of the Partnership Merger on behalf of the Chelsea Operating Partnership if the REIT Merger is approved by the holders of Chelsea common stock. Such holders, who own 0.7% of the outstanding Chelsea common stock, have also agreed to vote their Chelsea common stock in favor of the REIT Merger.

        Nevertheless, if the holders of all of the outstanding common units of the Chelsea Operating Partnership elect to participate in the Optional Partnership Exchange Offer, there will be no need to consummate the Partnership Merger. Instead, the Simon Operating Partnership will issue the Partnership Merger Consideration immediately after consummation of the REIT Merger to the holders of outstanding common units of the Chelsea Operating Partnership in exchange for such common units.

20



Termination
(Page 94)

        The merger agreement may be terminated at any time before the effective time of the REIT Merger, whether before or after approval of the REIT Merger by the Chelsea stockholders, in any of the following ways:

21


        Chelsea has agreed to pay Simon a termination fee of $110 million, and the put agreement (which is discussed below) shall become effective in accordance with its terms, if any of the following events occur:

        Simon has the option to delay receipt of the termination fee under certain circumstances in order to protect its status as a REIT.

        In addition to the termination fee, Chelsea has agreed to pay Simon's out-of-pocket expenses (including all fees and expenses of counsel, accountants, investment bankers, experts and consultants) incurred in connection with the merger agreement and the transactions contemplated thereby in certain

22



circumstances where Simon is entitled to terminate the merger agreement. Likewise, Simon has agreed to pay Chelsea's out-of-pocket expenses (including all fees and expenses of counsel, accountants, investment bankers, experts and consultants) incurred in connection with the merger agreement and the transactions contemplated thereby in certain circumstances where Chelsea is entitled to terminate the merger agreement.

Voting Agreements
(Page 97)

        In order to induce Simon and the Simon Operating Partnership to enter into the merger agreement, holders of approximately 72% of the common units of the Chelsea Operating Partnership (consisting of certain directors and officers of Chelsea and their affiliates) have entered into voting agreements with Simon and the Simon Operating Partnership pursuant to which they have agreed to vote such common units in favor of the Partnership Merger if the REIT Merger is approved. Such holders have the right to vote sufficient limited partnership interests to approve the Partnership Merger without the affirmative vote of any other holders of limited partnership interests in the Chelsea Operating Partnership, thus ensuring approval of the Partnership Merger on behalf of the Chelsea Operating Partnership if the REIT Merger is approved. Such holders, who own 0.7% of the outstanding Chelsea common stock, have also agreed to vote their Chelsea common stock in favor of the REIT Merger. The form of voting agreement is attached to this proxy statement/prospectus as Appendix B.

Put Agreement
(Page 99)

        In order to induce Simon and the Simon Operating Partnership to enter into the merger agreement and to address Simon's objections to being a joint venture partner with a subsequent acquirer of Chelsea who is not acceptable to Simon, the Chelsea Operating Partnership entered into a put agreement with the Simon Operating Partnership. The put agreement provides that, in the event the merger agreement is terminated and a termination fee is owed to Simon thereunder, the Simon Operating Partnership shall have the right, exercisable for 60 days thereafter, to require the Chelsea Operating Partnership to acquire its interests in two 50/50 joint ventures, Simon/Chelsea Las Vegas Development, LLC and Simon/Chelsea Chicago Development, LLC, for the fair market value of such interests, which will be determined either by agreement of the parties or, failing such agreement, through an appraisal procedure set forth in the put agreement. Simon/Chelsea Las Vegas Development, LLC owns and operates the 435,000 square-foot Las Vegas Premium Outlets which opened in August 2003 and Simon/Chelsea Chicago Development, LLC owns and operates the 438,000 square-foot Chicago Premium Outlets which opened in May 2004. The closing of the transactions contemplated by the put agreement shall occur 10 business days after the final determination of fair market value. The put agreement is attached to this proxy statement/prospectus as Appendix C.

Listing of Simon Securities
(Page 74)

        The shares of Simon common stock and Simon 6% Convertible Preferred Stock to be issued in the REIT Merger will be listed on the New York Stock Exchange under the symbols "SPG" and "    ," respectively.

        Simon does not intend to list the Simon 83/8% Preferred Stock on any national securities exchange or to seek the admission thereof for trading on any automated dealer quotation system. The Simon 83/8% Preferred Stock is expected to be eligible for trading in the PORTAL market, the National Association of Securities Dealer's screen-based automated market for trading of securities eligible for resale under Rule 144A.

23



Comparison of Stockholder Rights
(Page 149)

        The conversion of your shares of Chelsea common stock into the right to receive, among other things, Simon securities in the REIT Merger will result in differences between your rights as a Chelsea stockholder, governed by the Maryland General Corporation Law (which we refer to in this proxy statement/prospectus as the MGCL) and Chelsea's charter and bylaws and your rights as a Simon stockholder, governed by the Delaware General Corporation Law (which we refer to in this proxy statement/prospectus as the DGCL) and Simon's charter and bylaws.

24


SUMMARY TERMS OF THE SIMON 6% CONVERTIBLE PREFERRED STOCK

        The following is a brief summary of selected terms of the Simon 6% Convertible Preferred Stock. For a more complete description, see "Description of Simon Capital Stock—Description of Simon 6% Convertible Preferred Stock" beginning on page 129.

Dividends   Cumulative from the date of issuance and payable at an annual rate of 6% on a quarterly basis, commencing on the initial date of issuance.

Liquidation Preference

 

$50.00 per share.

Ranking

 

The Simon 6% Convertible Preferred Stock, with respect to dividend rights and upon liquidation, winding up and dissolution, will rank:

 

 


 

junior to each class or series of Simon's capital stock the terms of which provide that such class or series will rank senior to the Simon 6% Convertible Preferred Stock;

 

 


 

on a parity with Simon's other outstanding preferred stock, the Simon 83/8% Preferred Stock to be issued in the REIT Merger and any other class or series of Simon's capital stock that is not by its terms junior or senior to the Simon 6% Convertible Preferred Stock; and

 

 


 

senior to the Simon common stock, the Simon Class B common stock, the Simon Class C common stock and each class or series of Simon's capital stock the terms of which provide that such class or series will rank junior to the Simon 6% Convertible Preferred Stock.

Conversion

 

Subject to the requirements set forth in the following paragraph, the Simon 6% Convertible Preferred Stock will be convertible, at the option of the holder, into shares of Simon common stock at a conversion rate of 0.783 of a share of Simon common stock per $50.00 liquidation preference of Simon 6% Convertible Preferred Stock, which is equal to an initial conversion price of $63.857 per share. The conversion rate may be adjusted for certain reasons.

 

 

A holder will be entitled to convert its Simon 6% Convertible Preferred Stock into a number of shares of Simon common stock based upon the then applicable conversion rate only under the following circumstances:

 

 


 

if the Simon 6% Convertible Preferred Stock is called for redemption, a holder will be entitled to convert its Simon 6% Convertible Preferred Stock into shares of Simon common stock until 5:00 p.m., New York City time, two business days immediately preceding the date fixed for redemption;
         

25



 

 


 

if Simon is a party to a consolidation, merger, binding share exchange or sale of all or substantially all of its assets, in each case pursuant to which shares of Simon common stock would be converted into cash, securities or other property, a holder will be entitled to convert its shares of Simon 6% Convertible Preferred Stock into Simon common stock at any time from and after the date that is 15 days prior to the anticipated effective date of the transaction until 15 days after the actual date of such transaction; and

 

 


 

if during any fiscal quarter after the last day of the fiscal quarter during which the Simon 6% Convertible Preferred Stock is issued, and only during such quarter, the closing sale price of the Simon 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 then applicable conversion price on such trading day (initially 125% of $63.8625, or $79.828125);

Optional Redemption

 

The Simon 6% Convertible Preferred Stock will not be redeemable before the fifth anniversary of the initial issuance date thereof. On or after such date, Simon will be entitled to redeem, in whole or in part, the Simon 6% Convertible Preferred Stock at any time at a redemption price equal to 100% of the liquidation preference plus accumulated and unpaid dividends, if any, thereon to, but excluding, the redemption date. Simon will only be able to exercise this redemption right if, for 20 trading days in a period of 30 consecutive trading days ending on the trading day before the date Simon gives the redemption notice, the closing price per share of Simon common stock exceeds 130% of the then applicable conversion price for the Simon 6% Convertible Preferred Stock.

Change of Control Put

 

Upon a change of control (as defined below in "Description of Simon Capital Stock—Description of Simon 6% Convertible Preferred Stock—Change of Control Put Right"), holders of Simon 6% Convertible Preferred Stock will have the right to require Simon to repurchase all or any portion of their shares of Simon 6% Convertible Preferred Stock. Simon will purchase the Simon 6% Convertible Preferred Stock in cash at a price equal to 100% of the liquidation preference of the Simon 6% Convertible Preferred Stock to be purchased plus accumulated and unpaid dividends, if any, thereon to, but excluding, the change of control purchase date. Simon will be required to purchase the Simon 6% Convertible Preferred Stock as of a date that is not less than 30 nor more than 60 days after Simon mails notice of the occurrence of such change of control. Simon will be required to give notice to all holders of Simon 6% Convertible Preferred Stock of the

 

 

 

 

 

26



 

 

occurrence of the change of control and of their resulting purchase right as promptly as practicable but not later than 20 days after the occurrence of a change of control. To exercise this right, a holder will be required to deliver a written notice to the transfer agent prior to the close of business on the business day immediately before the change of control purchase date. Notwithstanding the occurrence of a change of control, Simon will not be required to purchase shares of Simon 6% Convertible Preferred Stock in the event it has exercised its right to redeem all of the shares of Simon 6% Convertible Preferred Stock.

Voting Rights

 

Holders of shares of Simon 6% Convertible Preferred Stock will have no voting rights unless (1) dividends on any shares of Simon 6% Convertible Preferred Stock or any other class or series of stock ranking on a parity with the Simon 6% Convertible Preferred Stock with respect to the payment of dividends shall be in arrears for dividend periods, whether or not consecutive, containing in the aggregate a number of days equivalent to six calendar quarters or (2) Simon fails to pay the redemption price on the redemption date for shares of Simon 6% Convertible Preferred Stock called for redemption or the purchase price on the purchase date for shares of Simon 6% Convertible Preferred Stock following a change of control. In each such case, the holders of shares of Simon 6% Convertible Preferred Stock (voting separately as a class with all other series of preferred stock upon which like voting rights have been conferred and are exercisable) will be entitled to vote for the election of two of the authorized number of Simon's directors at a special meeting called for that purpose or at the next annual meeting of stockholders and each subsequent meeting until the redemption price, the purchase price or all dividends accumulated on the Simon 6% Convertible Preferred Stock (as applicable) have been fully paid or set aside for payment.

 

 

In addition, the affirmative vote of holders of at least 662/3% of the outstanding shares of the Simon 6% Convertible Preferred Stock, voting as a single class in person or by proxy, at an annual meeting of Simon's stockholders or at a special meeting called for the purpose, or by written consent in lieu of such a meeting, shall be required to alter, repeal or amend any provisions of the Simon charter or the Certificate of Designations of the Simon 6% Convertible Preferred Stock, whether by merger, consolidation, combination, reclassification or otherwise, if the amendment would materially and adversely affect the rights, powers, or preferences of the holders of Simon 6% Convertible Preferred Stock; provided however, that (i) any such event will not be deemed to materially and adversely affect such rights, powers or preferences, in each such case, where each share of Simon 6% Convertible Preferred Stock remains outstanding without a material

 

 

 

 

 

27



 

 

change to its terms and rights or is converted into or exchanged for preferred stock of the surviving entity having preferences, conversion and other rights, privileges, voting powers, restrictions, limitations and terms or conditions of redemption thereof identical to that of a share of Simon 6% Convertible Preferred Stock, (ii) any increase in the amount of the authorized Simon common stock or currently authorized junior stock or parity stock or the creation and issuance of any class or series of common stock, junior stock or parity stock will not be deemed to materially and adversely affect such rights, powers or preferences; and (iii) the creation of, or increase in the authorized number of, shares of any class or series of senior stock shall be deemed to materially and adversely affect such rights, powers and preferences.

28


SUMMARY TERMS OF THE SIMON 83/8% PREFERRED STOCK

        The following is a brief summary of selected terms of the Simon 83/8% Preferred Stock. For a more complete description, see "Description of Simon Capital Stock—Description of Simon 83/8% Preferred Stock" beginning on page 140.

Dividends   Cumulative from the date of issuance and payable at an annual rate of 83/8% on a quarterly basis, commencing on the initial date of issuance.

Liquidation Preference

 

$50.00 per share.

Ranking

 

The Simon 83/8% Preferred Stock, with respect to dividend rights and upon liquidation, winding up and dissolution, will rank:

 

 


 

junior to each class or series of Simon's capital stock the terms of which provide that such class or series will rank senior to the Simon 83/8% Preferred Stock;

 

 


 

on a parity with Simon's other outstanding preferred stock, the Simon 6% Convertible Preferred Stock to be issued in the REIT Merger and any other class or series of Simon's capital stock that is not by its terms junior or senior to the Simon 83/8% Preferred Stock; and

 

 


 

senior to the Simon common stock, the Simon Class B common stock, the Simon Class C common stock and each class or series of Simon's capital stock the terms of which provide that such class or series will rank junior to the Simon 83/8% Preferred Stock.

Optional Redemption

 

The Simon 83/8% Preferred Stock will not be redeemable before October 15, 2027. On or after October 15, 2027, Simon may redeem, in whole or in part, the Simon 83/8% Preferred Stock at any time at a redemption price equal to 100% of the liquidation preference plus accumulated and unpaid dividends, if any, thereon to, but excluding, the redemption date. The redemption price of the Simon 83/8% Preferred Stock (other than any portion thereof consisting of accumulated and unpaid dividends) shall be paid solely from the sale proceeds of other capital stock of Simon and not from any other source.

Voting Rights

 

Holders of shares of Simon 83/8% Preferred Stock will have no voting rights unless dividends payable on the Simon 83/8% Preferred Stock shall be in arrears for six or more quarterly periods, whether or not such quarterly periods are consecutive. In such a case, the holders of shares of Simon 83/8% Preferred Stock (voting separately as a class with all other series of preferred stock upon which like voting rights have been conferred and are exercisable) will be entitled to vote for the election of two of the authorized number of Simon's directors at a special meeting called for that purpose or at the next annual meeting of stockholders and each subsequent meeting until all dividends accumulated on the Simon 83/8% Preferred Stock have been fully paid or set aside for payment.
         

29



 

 

In addition, the affirmative vote or consent of holders of at least 662/3% of the outstanding Simon 83/8% Preferred Stock voting separately as a class will be required for (1) the issuance of any class or series of stock ranking senior to the Simon 83/8% Preferred Stock as to dividend rights or rights upon liquidation and (2) the amendment, alteration or repeal of the provisions of Simon's charter (including the Certificate of Designations of the Simon 83/8% Preferred Stock), whether by merger, consolidation or otherwise, so as to materially and adversely affect any right, preference, privilege or voting power of the Simon 83/8% Preferred Stock or the holders thereof; provided, however, with respect to the occurrence of any of the events set forth in clause (2) above, so long as the Simon 83/8% Preferred Stock remains outstanding with the terms thereof materially unchanged, taking into account that upon the occurrence of an event set forth in clause (2) above Simon may not be the surviving entity, the occurrence of any such event shall not be deemed to materially and adversely affect such rights, preferences, privileges or voting powers of holders of Simon 83/8% Preferred Stock; and provided, further, that (x) any increase in the amount of the authorized Simon preferred stock or the creation or the issuance of any other series of Simon preferred stock or (y) any increase in the amount of authorized Simon 83/8% Preferred Stock, in each case ranking on a parity with or junior to the Simon 83/8% Preferred Stock with respect to the payment of dividends and the distribution of assets upon liquidation, dissolution or winding up, shall not be deemed to materially and adversely affect such rights, preferences, privileges or voting powers.

Conversion

 

The Simon 83/8% Preferred Stock shall not be convertible into or exchangeable for any other property or securities of Simon.

30



SELECTED CONSOLIDATED FINANCIAL DATA OF SIMON

        The following selected historical consolidated financial data for each of the years in the five-year period ended December 31, 2003 has been derived from Simon's audited consolidated financial statements. Amounts represent the combined amounts for Simon and SPG Realty Consultants, Inc. for all periods as of or for the years ended December 31, 1999 to December 31, 2002 and Simon thereafter. SPG Realty merged into Simon on December 31, 2002. The following selected historical consolidated financial data for the six months ended June 30, 2004 and 2003 has been derived from Simon's unaudited interim consolidated financial statements. In the opinion of Simon's management, the unaudited interim consolidated financial statements include all adjustments, consisting only of normal recurring adjustments, necessary for the fair presentation of the interim consolidated financial statements. Results for the interim periods are not necessarily indicative of the results to be expected for the full year. This information is only a summary and you should read it together with Simon's historical consolidated financial statements contained in its Annual Report on Form 10-K for the year ended December 31, 2003 (as amended in the Form 8-K filed on August 11, 2004 to retroactively reflect a 2004 property disposal as discontinued operations) and the Quarterly Report on Form 10-Q for the quarter ended June 30, 2004 that have been filed with the SEC and incorporated into this document by reference. See "Where You Can Find More Information" beginning on page 160.

 
  As of or for the Six
Months Ended June 30,
(unaudited)

  As of or for the Year Ended December 3l,
 
 
  2004
  2003
  2003
  2002(1)
  2001
  2000
  1999(1)
 
 
  (in thousands, except per share data)

 
OPERATING DATA:                                            
  Total consolidated revenue   $ 1,184,884   $ 1,090,032   $ 2,309,304   $ 2,119,474   $ 2,048,835   $ 2,020,751   $ 1,892,703  
  Income from continuing operations     179,795     184,010     450,634     544,399     282,460     346,770     297,395  
  Net income available to common stockholders   $ 119,062   $ 105,432   $ 313,577   $ 358,387   $ 147,789   $ 186,528   $ 167,314  

BASIC EARNINGS PER SHARE:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 
  Income from continuing operations   $ 0.58   $ 0.59   $ 1.53   $ 1.92   $ 0.87   $ 1.13   $ 0.97  
  Discontinued operations         (0.03 )   0.12     0.07              
  Cumulative effect of accounting change                     (0.01 )   (0.05 )    
   
 
 
 
 
 
 
 
  Net income   $ 0.58   $ 0.56   $ 1.65   $ 1.99   $ 0.86   $ 1.08   $ 0.97  
   
 
 
 
 
 
 
 
  Weighted average shares outstanding     203,901     188,077     189,475     179,910     172,669     172,895     172,089  

DILUTED EARNINGS PER SHARE:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 
  Income from continuing operations   $ 0.58   $ 0.59   $ 1.53   $ 1.92   $ 0.86   $ 1.13   $ 0.97  
  Discontinued operations         (0.03 )   0.12     0.07              
  Cumulative effect of accounting change                     (0.01 )   (0.05 )    
   
 
 
 
 
 
 
 
  Net income   $ 0.58   $ 0.56   $ 1.65   $ 1.99   $ 0.85   $ 1.08   $ 0.97  
   
 
 
 
 
 
 
 
  Diluted weighted average shares outstanding     204,789     188,789     190,299     181,501     173,028     172,994     172,226  
  Distributions per share(2)   $ 1.30   $ 1.20   $ 2.40   $ 2.18   $ 2.08   $ 2.02   $ 2.02  

BALANCE SHEET DATA:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 
  Cash and cash equivalents   $ 519,070   $ 351,408   $ 535,623   $ 397,129   $ 259,760   $ 223,111   $ 157,632  
  Total assets     16,264,110     14,826,185     15,684,721     14,904,502     13,810,954     13,937,945     14,223,243  
  Mortgages and other notes payable     11,051,380     9,701,674     10,266,388     9,546,081     8,841,378     8,728,582     8,768,951  
  Stockholders' equity   $ 3,249,164   $ 3,406,123   $ 3,338,627   $ 3,467,733   $ 3,214,691   $ 3,064,471   $ 3,253,658  

OTHER DATA:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 
  Cash flow provided by (used in):                                            
    Operating activities   $ 319,490   $ 320,392   $ 951,967   $ 882,990   $ 859,062   $ 743,519   $ 660,307  
    Investing activities     (696,896 )   (196,534 )   (761,663 )   (785,730 )   (351,310 )   (134,237 )   (661,051 )
    Financing activities     360,853     (169,579 )   (51,810 )   40,109     (471,103 )   (543,803 )   29,181  
  Funds from operations ("FFO")(3)     520,257     470,305     1,041,105     936,356     786,635     781,937     703,518  
  FFO allocable to Simon   $ 403,160   $ 355,025   $ 787,467   $ 691,004   $ 571,974   $ 567,532   $ 511,830  

Notes

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1)
On May 3, 2002, Simon, The Rouse Company and Westfield America Trust jointly acquired the assets of Rodamco North America N.V. In 1999, Simon acquired the assets of New England Development Company.

31


(2)
Represents distributions declared per period.

(3)
Simon considers FFO to be a key measure of its operating performance that is not specifically defined by accounting principles generally accepted in the United States ("GAAP"). Simon believes 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. Simon also uses this measure internally to measure the operating performance of its portfolio.


As defined by the National Association of Real Estate Investment Trusts ("NAREIT"), FFO is consolidated net income computed in accordance with GAAP:

    excluding real estate related depreciation and amortization;

    excluding gains and losses from extraordinary items and cumulative effects of accounting changes;

    excluding gains and losses from the sales of real estate;

    plus the allocable portion of FFO of unconsolidated joint ventures based upon economic ownership interest; and

    all determined on a consistent basis in accordance with GAAP.


Simon has adopted NAREIT's clarification of the definition of FFO that requires Simon to include the effects of nonrecurring items not classified as an extraordinary, cumulative effect of accounting change or resulting from the sale of depreciable real estate. However, you should understand that FFO:

    does not represent cash flows from operations as defined by GAAP;

    should not be considered as an alternative to net income determined in accordance with GAAP as a measure of operating performance; and

    is not an alternative to cash flows as a measure of liquidity.


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

 
  As of or for the Six
Months Ended June 30,
(unaudited)

  As of or for the Year Ended December 3l,
 
 
  2004
  2003
  2003
  2002
  2001
  2000
  1999
 
 
  (in thousands, except percentage data)

 
Funds From Operations   $ 520,257   $ 470,305   $ 1,041,105   $ 936,356   $ 786,635   $ 781,937   $ 703,518  
   
 
 
 
 
 
 
 
Increase in FFO from prior period     10.6 %   18.9 %   11.2 %   19.0 %   0.6 %   11.1 %   N/M  
   
 
 
 
 
 
 
 

Reconciliation:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 
Net income   $ 134,732   $ 136,797   $ 368,715   $ 422,588   $ 199,149   $ 223,336   $ 204,385  
  Plus:                                            
  Limited partners' interest in the Simon Operating Partnership and preferred distributions of the Simon Operating Partnership     44,581     39,343     113,000     139,067     81,611     111,092     93,010  
  Cumulative effect of accounting change                     1,700     12,342      
  Depreciation and amortization from consolidated properties and discontinued operations     279,798     247,929     499,737     478,379     452,428     418,670     381,265  
  Simon's share of depreciation and amortization from unconsolidated affiliates     83,632     72,502     147,629     150,217     138,814     119,562     92,247  
  Loss/(Gain) on sales of real estate and discontinued operations     1,593     12,735     (17,248 )   (162,011 )   (2,610 )   (19,704 )   7,062  
  Tax provision related to gain on sale     4,415                          
  Less:                                            
  Management company gain on sale of real estate, net                 (8,400 )            
  Minority interest portion of depreciation and amortization     (3,019 )   (1,966 )   (3,546 )   (7,943 )   (7,012 )   (5,951 )   (5,128 )
  Preferred distributions and dividends     (25,475 )   (37,035 )   (67,182 )   (75,541 )   (77,445 )   (77,410 )   (69,323 )
   
 
 
 
 
 
 
 
Funds From Operations   $ 520,257   $ 470,305   $ 1,041,105   $ 936,356   $ 786,635   $ 781,937   $ 703,518  
   
 
 
 
 
 
 
 
FFO allocable to Simon   $ 403,160   $ 355,025   $ 787,467   $ 691,004   $ 571,974   $ 567,532   $ 511,830  
   
 
 
 
 
 
 
 

32



SELECTED CONSOLIDATED FINANCIAL DATA OF CHELSEA

        The following selected historical consolidated financial data for each of the years in the five-year period ended December 31, 2003 has been derived from Chelsea's audited consolidated financial statements. The following selected historical consolidated financial data for the six months ended June 30, 2004 and 2003 has been derived from Chelsea's unaudited interim consolidated financial statements. In the opinion of Chelsea's management, the unaudited interim consolidated financial statements include all adjustments, consisting only of normal recurring adjustments, necessary for the fair presentation of the interim consolidated financial statements. Results for the interim periods are not necessarily indicative of the results to be expected for the full year. This information is only a summary and you should read it together with Chelsea's historical consolidated financial statements contained in its Annual Report on Form 10-K for the year ended December 31, 2003 and the Quarterly Report on Form 10-Q for the quarter ended June 30, 2004 that have been filed with the SEC and incorporated into this document by reference. See "Where You Can Find More Information" beginning on page 160.

 
  As of or for the Six Months Ended June 30,
(unaudited)

  As of or for the Year Ended December 3l,
 
 
  2004
  2003
  2003
  2002
  2001
  2000
  1999
 
 
  (in thousands, except per share data)

 
OPERATING DATA:                                            
  Rental revenue   $ 143,050   $ 127,656   $ 277,028   $ 202,021   $ 142,498   $ 123,525   $ 111,828  
   
 
 
 
 
 
 
 
  Total revenues   $ 189,863   $ 169,891   $ 372,265   $ 278,489   $ 202,882   $ 176,488   $ 158,636  
  Total expenses     (135,334 )   (123,803 )   (260,940 )   (194,958 )   (147,450 )   (121,878 )   (111,371 )
  Income from unconsolidated investments     10,347     3,946     11,006     9,802     15,025     6,723     308  
  Loss from and impairment of Chelsea Interactive             (2,518 )   (47,756 )   (5,337 )   (2,364 )    
  Gain (loss) on sale or write-down of assets                 10,911     617         (694 )
   
 
 
 
 
 
 
 
  Income from continuing operations before minority interest     64,876     50,034     119,813     56,488     65,737     58,969     46,879  
 
Minority interest

 

 

(11,464

)

 

(9,834

)

 

(22,225

)

 

(12,523

)

 

(14,582

)

 

(14,359

)

 

(9,155

)
  Income (loss) from discontinued operations, net of minority interest         578     (844 )   1,171     659     1,170     557  
  Gain on sale of discontinued operation, net of minority interest         4,008     4,784                  
   
 
 
 
 
 
 
 
  Net income     53,412     44,786     101,528     45,136     51,814     45,780     38,281  
 
Preferred dividend

 

 

(1,668

)

 

(1,668

)

 

(3,336

)

 

(3,422

)

 

(4,188

)

 

(4,188

)

 

(4,188

)
   
 
 
 
 
 
 
 
  Net income available to common stockholders   $ 51,744   $ 43,118   $ 98,192   $ 41,714   $ 47,626   $ 41,592   $ 34,093  
   
 
 
 
 
 
 
 
 
Net income per share of Chelsea common stock (diluted)(1)(2)

 

$

1.13

 

$

0.99

 

$

2.20

 

$

1.05

 

$

1.37

 

$

1.29

 

$

1.07

 
   
 
 
 
 
 
 
 
OWNERSHIP INTEREST:(2)                                            
  Chelsea common stock     45,873     43,655     44,597     39,798     34,710     32,252     31,816  
  Chelsea Operating Partnership units     7,258     7,501     7,442     6,426     6,358     6,712     6,778  
  Weighted average shares/units outstanding     53,131     51,156     52,039     46,224     41,068     38,964     38,594  

BALANCE SHEET DATA:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 
  Rental properties before accumulated depreciation   $ 2,100,179   $ 1,960,569   $ 2,072,783   $ 1,837,174   $ 1,127,906   $ 908,344   $ 848,813  
  Total assets     1,996,505     1,816,615     1,970,414     1,703,030     1,099,308     901,314     806,055  
  Unsecured and mortgage debt     1,202,951     1,067,967     1,211,472     1,030,820     548,538     450,353     355,684  
  Total liabilities     1,323,635     1,169,974     1,304,880     1,107,756     624,246     528,752     426,198  
  Minority interest     143,004     137,974     144,688     139,443     115,639     101,203     102,561  
  Redeemable preferred stock     38,731     38,731     38,731     38,731     48,385     48,385     48,385  
  Stockholders' equity     529,866     508,667     520,846     455,831     359,423     271,359     277,296  
  Distributions declared per share of Chelsea common stock(2)   $ 1.20   $ 1.07   $ 2.14   $ 1.86   $ 1.56   $ 1.50   $ 1.44  

33



OTHER DATA:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 
  Funds from operations(1)   $ 98,216   $ 81,135   $ 185,095   $ 97,401   $ 108,862   $ 93,556   $ 79,980  
  Cash flows from:                                            
    Operating activities     103,384     88,668     181,634     128,222     121,723     106,658     87,502  
    Investing activities     (44,570 )   (80,937 )   (213,603 )   (404,178 )   (112,551 )   (121,479 )   (77,490 )
    Financing activities   $ (59,244 ) $ (8,976 ) $ 27,894   $ 273,903   $ (2,604 ) $ 23,995   $ (10,781 )

Notes

(1)
Chelsea's management believes that FFO should be considered in conjunction with net income to facilitate a clearer understanding of the operating results of Chelsea. Chelsea has adopted NAREIT's definition of FFO as described in "Selected Consolidated Financial Data of Simon." Chelsea considers FFO to be a key measure of its operating performance that is not specifically defined by GAAP. Chelsea believes that FFO is helpful to investors because it is a widely recognized measure of performance of equity REITs and provides a relevant basis for comparison among REITs. Chelsea's management also uses FFO internally to measure the operating performance of its portfolio. FFO does not represent cash generated from operating activities in accordance with GAAP and should not be considered as an alternative to net income (determined in accordance with GAAP) as an indication of Chelsea's financial performance or to cash flow from operating activities (determined in accordance with GAAP) as a measure of Chelsea's liquidity, nor is it indicative of funds available to fund Chelsea's cash needs, including its ability to make cash distributions.
   

The following schedule reconciles net income, which Chelsea believes is the most directly comparable GAAP financial measure, to FFO for the periods presented.

 
  As of or for the Six Months Ended June 30,
(unaudited)

  As of or for the Year Ended December 3l,
 
 
  2004
  2003
  2003
  2002
  2001
  2000
  1999
 
 
  (in thousands)

 
Net income   $ 53,412   $ 44,786   $ 101,528   $ 45,136   $ 51,814   $ 45,780   $ 38,281  
  Plus:                                            
  Limited partners' interest in the Chelsea Operating Partnership, net of preferred distribution     8,540     7,014     16,241     6,870     8,858     8,758     7,326  
  Preferred dividend     (1,668 )   (1,668 )   (3,336 )   (3,422 )   (4,188 )   (4,188 )   (4,188 )
  Depreciation and amortization from wholly owned properties     35,754     34,901     73,651     58,275     48,554     42,978     39,716  
  Depreciation and amortization from joint ventures     3,543     1,293     4,069     4,166     5,964     2,024      
  Amortization of deferred financing costs and depreciation of non-rental real estate assets     (1,365 )   (1,183 )   (2,274 )   (2,401 )   (1,807 )   (1,796 )   (1,849 )
  Net (gain) loss on sale or write-down of assets         (4,008 )   (4,784 )   (11,223 )   (333 )       694  
   
 
 
 
 
 
 
 
Funds From Operations   $ 98,216   $ 81,135   $ 185,095   $ 97,401   $ 108,862   $ 93,556   $ 79,980  
   
 
 
 
 
 
 
 
(2)
Assumes that the 2-for-1 stock split on May 28, 2002 had occurred on January 1, 1999.

34



SELECTED UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL DATA

        The following sets forth selected unaudited pro forma condensed combined financial data. The pro forma amounts included below have been prepared in accordance with GAAP, are based on the purchase method of accounting and are presented as if the Mergers had been effective as of January 1, 2003 and carried forward for the six months ended June 30, 2004 and the year ended December 31, 2003 for the pro forma statements of operations and as of June 30, 2004 for the pro forma balance sheet.

        You should read this information in conjunction with, and the information is qualified in its entirety by, the consolidated financial statements and accompanying notes of Simon and Chelsea incorporated into this proxy statement/prospectus by reference and the unaudited pro forma condensed combined financial statements and accompanying discussions and notes beginning on page 101. See also "Where You Can Find More Information" beginning on page 160. The pro forma amounts in the table below are presented for informational purposes only. You should not rely on the pro forma amounts as being necessarily indicative of the financial position or results of operations of the combined company that would have actually occurred had the Mergers been effective during the periods presented or of the future financial position or future results of operations of the combined company. The combined financial information as of or for the periods presented may have been different had the companies actually been combined as of or during those periods.

Unaudited Pro Forma Condensed Combined Financial Data
  As of and for the
Six Months Ended
June 30, 2004

  For the Year Ended
December 31, 2003

 
  (in thousands, except per share data)

OPERATING DATA:            
  Total consolidated revenue   $ 1,392,963   $ 2,700,435
  Income from continuing operations     196,725     473,302
  Net income available to common stockholders   $ 110,009   $ 263,550

PER SHARE DATA:

 

 

 

 

 

 
  Basic earnings per share   $ 0.51   $ 1.30
  Diluted earnings per share   $ 0.51   $ 1.30

BALANCE SHEET DATA:

 

 

 

 

 

 
  Cash and cash equivalents   $ 541,177     N/A
  Total assets     21,404,029     N/A
  Mortgages and other notes payable     14,175,922     N/A
  Stockholders' equity   $ 4,637,955     N/A

35



COMPARATIVE PER SHARE DATA

        The following table presents, for the periods indicated, selected historical per share data for shares of Simon common stock and Chelsea common stock, as well as unaudited pro forma per share amounts for shares of Simon common stock and unaudited pro forma per share equivalent amounts for shares of Chelsea common stock, assuming that 12,963,454 shares of Simon common stock, 13,246,036 shares of Simon 6% Convertible Preferred Stock with a total liquidation value of approximately $662.3 million and the cash portion of the REIT Merger Consideration (and the conversion of Chelsea outstanding stock options to cash) which totals approximately $1,721.1 million had been issued in the REIT Merger. The pro forma amounts included in the table below are presented as if the Mergers had been effective for the periods presented, have been prepared in accordance with GAAP and are based on the purchase method of accounting.

        You should read this information in conjunction with, and the information is qualified in its entirety by, the consolidated financial statements and accompanying notes of Simon and Chelsea incorporated into this proxy statement/prospectus by reference and the unaudited pro forma condensed combined financial information and accompanying discussions and notes beginning on page 101. See also "Where You Can Find More Information" beginning on page 160. The pro forma amounts in the table below are presented for informational purposes only. You should not rely on the pro forma amounts as being indicative of the financial position or results of operations of the combined company that would have actually occurred had the Mergers been effective during the periods presented or of the future financial position or future results of operations of the combined company. The combined financial information as of and for the periods presented may have been different had the companies actually been combined as of and during those periods.

 
  As of and for the
Six Months
Ended
June 30, 2004
(unaudited)

  As of and for the
Year Ended
December 31, 2003

Simon—Historical            
Income Per Share from Continuing Operations:            
  Basic   $ 0.58   $ 1.53
  Diluted     0.58     1.53
Distributions Per Share     1.30     2.40
Book Value Per Share at Period End   $ 13.85   $ 14.56

Chelsea—Historical

 

 

 

 

 

 
Income Per Share from Continuing Operations:            
  Basic   $ 1.18   $ 2.21
  Diluted     1.13     2.11
Distributions Per Share     1.20     2.14
Book Value Per Share at Period End   $ 11.12   $ 11.95

Simon—Pro Forma

 

 

 

 

 

 
Income Per Share from Continuing Operations:            
  Basic   $ 0.51   $ 1.30
  Diluted     0.51     1.30
Distributions Per Share     1.30     2.40
Book Value Per Share at Period End   $ 16.15     N/A

Chelsea—Pro Forma Equivalent

 

 

 

 

 

 
Income Per Share from Continuing Operations:            
  Basic   $ 0.15   $ 0.38
  Diluted     0.15     0.38
Distributions Per Share     0.38     0.70
Book Value Per Share at Period End   $ 4.74     N/A

36



COMPARATIVE PER SHARE MARKET PRICE DATA

        Simon common stock and Chelsea common stock are each listed on the New York Stock Exchange. Simon's and Chelsea's ticker symbols are "SPG" and "CPG," respectively. The following table shows, for the calendar quarters indicated, based on published financial sources: (1) the high and low closing prices of shares of Simon common stock and Chelsea common stock as reported on the New York Stock Exchange Composite Transaction Tape and (2) the cash distributions paid per share of Simon common stock and Chelsea common stock.

 
  Simon Common Stock
  Chelsea Common Stock
 
  High
  Low
  Distributions
  High
  Low
  Distributions
2002                                    
First Quarter(1)   $ 33.07   $ 28.80   $ 0.525   $ 27.40   $ 23.93   $ 0.405
Second Quarter     36.95     32.52     0.55     35.03     26.80     0.485
Third Quarter     36.84     29.40     0.55     34.59     26.40     0.485
Fourth Quarter   $ 35.81   $ 31.00   $ 0.55   $ 35.40   $ 31.13   $ 0.485

2003

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 
First Quarter   $ 37.18   $ 31.70   $ 0.60   $ 38.50   $ 32.18   $ 0.535
Second Quarter     40.04     35.85     0.60     43.90     37.63     0.535
Third Quarter     43.96     38.59     0.60     47.90     41.20     0.535
Fourth Quarter   $ 48.59   $ 43.58   $ 0.60   $ 56.13   $ 47.80   $ 0.535

2004

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 
First Quarter   $ 58.44   $ 46.20   $ 0.65   $ 62.94   $ 52.65   $ 0.60
Second Quarter     58.44     51.82     0.65     65.65     48.05     0.60
Third Quarter (through                        , 2004)   $     $     $     $     $     $  

Notes

(1)
Chelsea's first quarter 2002 distribution is adjusted to give effect to the 2-for-1 stock split on May 28, 2002.

        The following table sets forth the closing prices per share of Simon common stock and Chelsea common stock as reported on the New York Stock Exchange Composite Transaction Tape on June 18, 2004, the last full trading day prior to the announcement of the merger agreement, and on                        , 2004, the most recent practicable date prior to the mailing of this proxy statement/prospectus to Chelsea's stockholders. This table also sets forth the pro forma equivalent price per share of Chelsea common stock on June 18, 2004 and on                        , 2004. The pro forma equivalent price per share is equal to (a) the closing price of a share of Simon common stock on each such date multiplied by 0.2936 (the exchange ratio for the issuance of Simon common stock in the REIT Merger, excluding the effect of any adjustments based on the Closing Date Reference Price of Simon common stock) plus (b) $36.00 (the cash portion of the consideration for each share of Chelsea common stock in the REIT Merger) plus (c) $15.00 (the $50.00 liquidation value of a share of Simon 6% Convertible Preferred Stock multiplied by 0.3000, which is the exchange ratio for the issuance of Simon 6% Convertible Preferred Stock in the REIT Merger). These prices will fluctuate prior to the special meeting and the REIT Merger, and stockholders are urged to obtain current market quotations prior to making any decision with respect to the REIT Merger.

 
  Simon
Common
Stock

  Chelsea
Common
Stock

  Chelsea Pro
Forma
Equivalent

At June 18, 2004   $ 52.30   $ 58.24   $ 66.36
At                        , 2004   $     $     $  

37



RISK FACTORS

        In addition to the other information contained or incorporated by reference in this proxy statement/prospectus, you should consider the following risk factors in determining how to vote at the special meeting of Chelsea.

Risks Relating to the Mergers

        Upon the completion of the REIT Merger, each share of common stock of Chelsea Property Group outstanding immediately prior to the REIT Merger will be converted into the right to receive $36.00 in cash, 0.2936 of a share of Simon common stock and 0.3000 of a share of Simon 6% Convertible Preferred Stock. The Simon common stock exchange ratio will not be adjusted unless the average of ten randomly selected (in a manner reasonably acceptable to Simon and Chelsea) closing prices of Simon common stock on the New York Stock Exchange during the period of the 30 most recent trading days ending on the fifth business day prior to the closing of the REIT Merger (which we refer to in this proxy statement/prospectus as the Closing Date Reference Price) is greater than $58.75 or lower than $43.43. If the Closing Date Reference Price is greater than $58.75, then the Simon common stock exchange ratio will be lowered so that you will only receive $17.25 worth of Simon common stock in exchange for each share of Chelsea common stock based on the Closing Date Reference Price. If the Closing Date Reference Price is lower than $43.43, then the Simon common stock exchange ratio will not be adjusted but you will receive a cash payment (in addition to the $36.00 in cash, 0.2936 of a share of Simon common stock and 0.3000 of a share of Simon 6% Convertible Preferred Stock to which you are entitled) to ensure that you receive $12.75 in value in exchange for each share of Chelsea common stock; the amount of any such additional cash payment shall be equal to $12.75 less the value of 0.2936 of a share of Simon common stock valued at the Closing Date Reference Price. If the Closing Date Reference Price is between $43.43 and $58.75, then there will be no adjustment to the Simon common stock exchange ratio and no additional cash payment. See "Summary—The REIT Merger—Treatment of Chelsea Common Stock."

        Because the Simon common stock exchange ratio is, except as otherwise provided in the prior paragraph, fixed at 0.2936 of a share of Simon common stock for each share of Chelsea common stock, the market value of the Simon common stock issued in the REIT Merger will depend upon the market price of a share of Simon common stock upon completion of the REIT Merger. The market value of Simon common stock will fluctuate prior to the completion of the REIT Merger and therefore may be different at the time the REIT Merger is consummated than it was at the time the merger agreement was signed and at the time of the special meeting. Stock price changes may result from a variety of factors that are beyond Simon's control, including general market and economic conditions and changes in business prospects. Accordingly, stockholders cannot be sure of the market value of the Simon common stock that will be issued in the REIT Merger or the market value of Simon common stock at any time after the REIT Merger.

        If the REIT Merger is consummated, such consummation will not occur until after the date of the special meeting and the satisfaction or waiver of all the conditions to the REIT Merger. Therefore, at the time of the special meeting you will not know the precise dollar value of the REIT Merger Consideration you will become entitled to receive at the effective time of the REIT Merger. You are urged to obtain a current market quotation for Simon common stock.

38



        Upon consummation of the REIT Merger, holders of Chelsea common stock will become holders of Simon common stock and Simon 6% Convertible Preferred Stock. Simon's businesses differ from those of Chelsea, and accordingly the results of operations of the combined company will be affected by some factors different from those currently affecting the results and operations of Chelsea. For a discussion of the businesses of Chelsea and Simon and certain factors to consider in connection with those businesses, see the documents incorporated by reference in this proxy statement/prospectus and referred to under "Where You Can Find More Information" beginning on page 160.

        The market prices of Simon common stock and Simon 6% Convertible Preferred Stock may decline as a result of the Mergers if Simon does not achieve the perceived benefits of the Mergers as rapidly or to the extent anticipated by financial or industry analysts or the effect of the Mergers on Simon's financial results is not consistent with the expectations of financial or industry analysts.

        Certain of the directors and officers of Chelsea have interests in the Mergers that are different from, or in addition to, yours. These interests include the fact that certain directors and officers of Chelsea who own common units in the Chelsea Operating Partnership will be able, unless they elect to convert their common units in the Chelsea Operating Partnership into shares of Chelsea common stock before the REIT Merger, to defer their taxable gains in their common units in the Chelsea Operating Partnership by receiving in the Partnership Merger and/or the Optional Partnership Exchange Offer common and preferred partnership interests in the Simon Operating Partnership in exchange for their common units in the Chelsea Operating Partnership. The REIT Merger, in contrast, is a taxable transaction and, as a result, holders of Chelsea common stock other than certain tax-exempt holders will be required to pay tax on gains arising from exchanging their Chelsea stock for the REIT Merger Consideration. Based on an analysis of its stockholders by Merrill Lynch, Chelsea's board noted that more than 70% of the Chelsea stockholders are institutions and pass-through entities (such as mutual funds) that will not have to pay, or are less sensitive to the payment of, taxes on their gains. Unlike Chelsea's stockholders, certain holders of common units in the Chelsea Operating Partnership (including some of Chelsea's directors and officers) may face tax recapture (and thus be taxed at rates higher than those potentially applicable to the holders of Chelsea common stock in the REIT Merger) with respect to a portion of their gains if they participate in a taxable transaction involving their common units in the Chelsea Operating Partnership. Such potential tax recapture could arise if a holder of common units in the Chelsea Operating Partnership obtained its units in tax-deferred transactions when it contributed interests in real estate, which may have been subject to depreciation for U.S. federal income tax purposes, to the Chelsea Operating Partnership. In addition, unlike holders of Chelsea common stock who have an initial tax basis equal to the price paid for the common stock, holders of common units in the Chelsea Operating Partnership who obtained their common units in exchange for a contribution of property in a tax-deferred transaction have a tax basis in their common units initially derived from their tax basis in the contributed property, which could be a fraction of the value of the common units received in exchange for the contribution of property.

        These interests also include the acceleration of the vesting of stock options, the vesting of payments under Chelsea's long-term executive incentive plan, the employment agreements received by four of Chelsea's executive officers which will govern the terms of such executive officers' employment after the REIT Merger (but will be void if the REIT Merger does not occur), the severance payments

39



to be received by Chelsea's officers and other employees under certain circumstances and the rights provided to certain holders of common units of the Chelsea Operating Partnership under the tax protection agreement.

        The merger agreement provides that Chelsea's chairman and chief executive officer, David C. Bloom, will be appointed as a non-voting advisory director to Simon's board of directors following the REIT Merger. In addition, Chelsea's board, based upon the recommendation of its compensation committee, has determined to pay Mr. Bloom a special bonus of $5,000,000 immediately prior to the effective time of the REIT Merger. Of that amount, $4.0 million is in consideration of Mr. Bloom's voluntary non-participation in Chelsea's LTIP, and the remainder is in consideration of Mr. Bloom's services to Chelsea.

        Furthermore, Chelsea's board, based upon the recommendation of its compensation committee, has determined to pay Chelsea's vice chairman, William D. Bloom, a special bonus of $500,000 upon completion of the Mergers in consideration of Mr. Bloom's previously having agreed to receive below-market salary and bonus compensation for numerous prior years and his reduced participation in Chelsea's LTIP.

        Also, following completion of the REIT Merger, Chelsea, as the surviving company, will indemnify and for six years provide directors' and officers' insurance for the directors and officers of Chelsea for events occurring before the REIT Merger, including events that are related to the merger agreement.

        For the above reasons, the directors and officers of Chelsea are more likely to vote to approve the REIT Merger and the merger agreement than if they did not have these interests. Chelsea stockholders should consider whether these interests may have influenced these directors and officers to support or recommend approval of the Mergers and the merger agreement.

        See "The Mergers—Interests of Chelsea Directors and Officers in the Mergers."

        If the Mergers are not completed for any reason, Chelsea may be subject to a number of material risks, including the following:

        Further, if the Mergers are terminated and Chelsea's board of directors determines to seek another merger or business combination, there can be no assurance that it will be able to find a party willing to pay an equivalent or more attractive price than the price to be paid in the Mergers. In addition, while the merger agreement is in effect and subject to very narrowly defined exceptions, Chelsea is prohibited from soliciting, initiating or encouraging or entering into certain extraordinary transactions, such as a merger, sale of assets or other business combination, with any party other than Simon. See "The Merger Agreement and Related Agreements—Merger Agreement—Principal Covenants—No Solicitation."

40



Risks Relating to the Simon 6% Convertible Preferred Stock and the Simon 83/8% Preferred Stock

        The Simon 6% Convertible Preferred Stock and the Simon 83/8% Preferred Stock will be newly designated series of preferred stock when issued at the closing of the REIT Merger. As such, there is no established trading market for the Simon 6% Convertible Preferred Stock or the Simon 83/8% Preferred Stock and there can be no assurance as to the development or liquidity of any market for such securities, the ability of the holders to sell their Simon 6% Convertible Preferred Stock or Simon 83/8% Preferred Stock or the price at which holders of the Simon 6% Convertible Preferred Stock or Simon 83/8% Preferred Stock may be able to sell such securities. Future trading prices of the Simon 6% Convertible Preferred Stock and the Simon 83/8% Preferred Stock will depend on many factors, including, among other things, prevailing interest rates, Simon's operating results and the market for similar securities. In addition, although the Simon 6% Convertible Preferred Stock will be listed on the New York Stock Exchange, Simon does not intend to list the Simon 83/8% Preferred Stock on any national securities exchange or to seek the admission thereof for trading on any automated dealer quotation system. The Simon 83/8% Preferred Stock is expected to be eligible for trading in the PORTAL market, the National Association of Securities Dealer's screen-based automated market for trading of securities eligible for resale under Rule 144A.

        The Simon 6% Convertible Preferred Stock and the Simon 83/8% Preferred Stock will rank junior to all of Simon's liabilities. In the event of Simon's bankruptcy, liquidation or winding-up, Simon's assets will be available to pay obligations on the Simon 6% Convertible Preferred Stock and the Simon 83/8% Preferred Stock, including the purchase of shares of Simon 6% Convertible Preferred Stock for cash upon a change of control, only after all of Simon's indebtedness and other liabilities have been paid. In addition, the Simon 6% Convertible Preferred Stock and the Simon 83/8% Preferred Stock will effectively rank junior to all existing and future liabilities of Simon's subsidiaries and any capital stock of Simon's subsidiaries held by others. The rights of holders of the Simon 6% Convertible Preferred Stock and the Simon 83/8% Preferred Stock to participate in the distribution of assets of Simon's subsidiaries will rank junior to the prior claims of each subsidiary's creditors and any such other equity holders. As of June 30, 2004, Simon had total consolidated liabilities on a pro forma basis of approximately $15.3 billion. Consequently, if Simon is forced to liquidate its assets to pay its creditors, it may not have sufficient assets remaining to pay amounts due on any or all of its preferred stock then outstanding. Simon and its subsidiaries may incur substantial amounts of additional debt and other obligations that will rank senior to the Simon 6% Convertible Preferred Stock and the Simon 83/8% Preferred Stock, and the terms of the Simon 6% Convertible Preferred Stock and the Simon 83/8% Preferred Stock will not limit the amount of such debt or other obligations that Simon may incur, except that Simon will not be able to issue preferred stock senior to the Simon 6% Convertible Preferred Stock or the Simon 83/8% Preferred Stock without the approval of holders of at least 662/3% of the Simon 6% Convertible Preferred Stock or the Simon 83/8% Preferred Stock, as the case may be, outstanding at the time.

        Simon's charter authorizes Simon to issue up to 100,000,000 shares of preferred stock in one or more series on terms determined by Simon's board of directors. As of June 30, 2004, Simon had

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12,000,000 shares of preferred stock outstanding. Simon's future issuance of any series of preferred stock under its charter could therefore effectively diminish its ability to pay dividends on, and the liquidation preference of, the Simon 6% Convertible Preferred Stock and the Simon 83/8% Preferred Stock.

        The price of Simon common stock could be affected by possible sales of Simon common stock by investors who view the Simon 6% Convertible Preferred Stock as a more attractive means of equity participation in Simon and by hedging or arbitrage activity that may develop involving Simon's common stock. Any such sales of Simon common stock or hedging or arbitrage could, in turn, affect the market price of the Simon 6% Convertible Preferred Stock.

Risks Relating to Simon

        As of June 30, 2004, consolidated mortgages and other indebtedness for which Simon is liable totaled $11.1 billion, of which approximately $482.8 million matures during the second half of 2004. Simon is subject to the risks normally associated with debt financing, including the risk that its cash flow from operations will be insufficient to meet required debt service. Simon's debt service costs generally will not be reduced when developments, such as the entry of new competitors or the loss of major tenants, could cause a reduction in income from a property. Should such events occur, Simon's operations and ability to make expected distributions to stockholders may be adversely affected. If a property is mortgaged to secure payment of indebtedness and Simon is unable to pay that indebtedness, the property could be transferred to the mortgagee resulting in a loss of income and a decline in asset value.

        As of June 30, 2004, approximately $2.1 billion of Simon's total consolidated debt was subject to floating interest rates. In a rising interest rate environment, these debt service costs will increase. In addition, Simon may not be able to refinance maturing debt on as favorable terms. Increased debt service costs would adversely affect Simon's cash flow and the amount of cash Simon has available for distribution to its stockholders.

        Simon uses interest rate hedging arrangements to manage its exposure to interest rate volatility, but these arrangements may expose Simon to additional risks. Although Simon's interest rate risk management policy establishes minimum credit ratings for counterparties, this does not eliminate the risk that a counterparty may fail to honor its obligations. Developing an effective interest rate risk strategy is complex and no strategy can completely insulate Simon from risks associated with interest rate fluctuations. There can be no assurance that Simon's hedging activities will have the desired beneficial impact on Simon's results of operations or financial condition. These hedging agreements may involve costs, such as transaction fees or breakage costs, if Simon terminates them.

        One of the factors that may influence the price of Simon's securities in public markets is the annual distribution rate Simon pays as compared with the yields on alternative investments. Any significant increase in interest rates could lead holders of Simon's securities to seek higher yields through other investments, which could adversely affect the market price of Simon's securities.

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        Shopping malls compete with other retail properties for tenants on the basis of the rent charged and location. The principal competition for existing shopping malls may come from future shopping malls that will be located in the same market areas and from mail order and electronic commerce. There is also considerable competition to acquire desirable real estate. The competition is provided by real estate investment trusts, insurance companies, private pension plans and private developers. Additionally, Simon's credit rating and leverage will affect its competitive position in the public debt and equity markets.

        Simon faces competition from other shopping mall developers for the acquisition of prime development sites and for tenants and is subject to the risks of real estate development, including the lack of financing, construction delays, environmental requirements, budget overruns and lease-up. Simon competes with other real estate operations in seeking management, leasing revenues, land for development and properties for acquisition. In addition, retailers at its properties face increasing competition from discount shopping centers, outlet malls, catalogues, discount shopping clubs and electronic commerce. With respect to many of its properties, there are similar properties within the same market area. The existence of competitive properties affects Simon's ability to lease space and the level of rents Simon can obtain. Renovations and expansions at competing malls could negatively affect Simon's properties. Increased competition could adversely affect Simon's revenues.

        Simon's concentration in the retail shopping center real estate market means that Simon is subject to factors that affect the retail environment generally, including the level of consumer spending, the willingness of retailers to lease space in its shopping centers and tenant bankruptcies. These factors include changes in economic conditions, consumer confidence and terrorist activities.

        Simon is subject to the risks that, upon expiration of leases for space in its properties, the premises may not be relet or the terms of reletting, including the cost of concessions to tenants, may be less favorable than current lease terms. If Simon is unable to relet all or a substantial portion of this space or if the rental rates upon such reletting are significantly lower than expected rates, the cash generated before debt repayments and capital expenditures and ability to make expected distributions to stockholders would be adversely affected.

        Regional malls are typically anchored by well-known department stores and other tenants who generate shopping traffic at the mall. The value of Simon's properties would be adversely affected if tenants or anchors failed to meet their contractual obligations, sought concessions in order to continue operations or ceased their operations. If the sales of stores operating in Simon's properties were to decline significantly due to economic conditions, closing of anchors or other reasons, tenants may be unable to pay their minimum rents or expense recovery charges. In the event of default by a tenant or anchor, Simon may experience delays and costs in enforcing its rights as landlord.

        As of June 30, 2004, Simon owned interests in 90 income-producing properties with other parties. Of those, 19 properties are included in Simon's consolidated financial statements. Simon accounts for the other 71 properties under the equity method. Although at June 30, 2004, Simon had operational control, as general partner or property manager, of 59 of the 71 properties, Simon did not have sole control over all major decisions, such as selling or refinancing the properties without the consent of the

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other owners. These limitations may adversely affect Simon's ability to sell these properties at the most advantageous time for Simon.

        Simon's real estate investment properties represent substantially all of Simon's total consolidated assets. Real property investments are relatively illiquid. Simon's ability to vary its portfolio of properties in response to changes in economic and other conditions is limited. If Simon wants to sell a property, there is no assurance that Simon will be able to dispose of it in the desired time period or that the sales price of a property will exceed Simon's investment.

        As of June 30, 2004, there were approximately 261,520,168 outstanding units of limited partnership interests of the Simon Operating Partnership that are exchangeable for cash or, at Simon's option, shares of Simon common stock on a one-for-one basis. Immediately after consummation of the Partnership Merger, there will be approximately 279,135,876 outstanding units of limited partnership interests of the Simon Operating Partnership that, subject to Simon's election, are exchangeable for shares of Simon common stock on a one-for-one basis. Although such exchanges would typically require the exchanging limited partner to recognize taxable gain on the exchange, the sale of a substantial number of shares could adversely affect the prevailing market price for Simon's securities. In addition, certain holders of limited partnership interests in the Chelsea Operating Partnership will have registration rights after the Mergers with respect to the shares of Simon common stock owned by them or issuable to them upon exchange of their limited partnership interests in the Simon Operating Partnership. The existence of these registration rights and similar rights in favor of other parties could also adversely affect the terms upon which Simon can obtain additional capital in the equity markets in the future.

        Simon's charter contains a general restriction on the accumulation of shares in excess of 8% of its capital stock. The charter permits the Simon family to own up to 18%. Ownership is determined by the lower of the amount of outstanding shares, voting power or value controlled. Simon's board of directors may, by majority vote, permit exceptions to those levels in circumstances where the board of directors determines Simon's ability to qualify as a REIT will not be jeopardized. These restrictions on ownership may have the effect of delaying, deferring or preventing a transaction or a change of control that might otherwise be in the best interest of Simon's stockholders. Other provisions of Simon's charter and bylaws could have the effect of delaying or preventing a change of control even if some stockholders deem such a change to be in their best interests. These include provisions preventing holders of Simon common stock from acting by written consent and requiring that up to six directors in the aggregate may be elected by holders of Simon Class B common stock and Simon Class C common stock.

        Simon and Retail Property Trust, a subsidiary of the Simon Operating Partnership organized as a Massachusetts business trust, have elected to be taxed as REITs. Simon and Retail Property Trust believe that they are organized and operated so as to qualify as REITs under the Internal Revenue Code. Simon and Retail Property Trust intend to continue to operate in a manner so as to maintain their status as REITs, but no assurance can be given that they will succeed in this. Qualification as a REIT requires Simon and Retail Property Trust to satisfy annual and quarterly tests under highly technical and complex Internal Revenue Code provisions for which there are only limited judicial and

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administrative interpretations. For example, at least 95% of a REIT's gross income in any year must be derived from qualifying sources, and a REIT must pay dividends to stockholders aggregating annually at least 90% of its REIT taxable income determined without regard to the dividends paid deduction and by excluding capital gains. These provisions and the applicable Treasury regulations are more difficult to comply with in Simon's case because Simon holds its assets in partnership form. Legislation, new regulations, administrative interpretations or court decisions could significantly change the tax laws with respect to qualification as a REIT or the federal income tax consequences of such qualification. If either of Simon or Retail Property Trust were to fail to qualify as a REIT in any taxable year, the nonqualifying entity would be subject to federal income tax, including any applicable alternative minimum tax, on its taxable income at regular corporate rates and it would be disqualified from treatment as a REIT for four years. For a description of the U.S. federal income tax requirements for qualification as a REIT and a summary of certain material consequences of losing REIT status, see the section entitled "Important Federal Income Tax Considerations" in the Form S-3/A filed by Simon with the SEC on April 7, 2004 in connection with the registration and sale of its common stock which is incorporated by reference in this proxy statement/prospectus.

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CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS

        This proxy statement/prospectus contains or incorporates by reference forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. You can identify these forward-looking statements by use of the words "believes," "anticipates," "plans," "expects," "may," "will," "intends," "estimates" and similar expressions, whether in the negative or affirmative. Simon and Chelsea cannot guarantee that they actually will achieve the plans, intentions or expectations discussed in these forward-looking statements. Simon's and/or Chelsea's actual results could differ materially. Forward looking statements include, without limitation, the information concerning possible or assumed future results of operations of Simon and Chelsea as set forth under "The Mergers—Recommendation of Chelsea's Board of Directors," "The Mergers—Chelsea's Reasons for the Mergers," "The Mergers—Opinion of Chelsea's Financial Advisor" and "The Mergers—Simon's Reasons for the Mergers." These statements are not historical facts but instead represent only Simon's and/or Chelsea's expectations, estimates and projections regarding future events.

        The forward-looking statements contained or incorporated by reference in this proxy statement/prospectus are not guarantees of future performance and involve certain risks and uncertainties that are difficult to predict. The future results and stockholder values of Chelsea and Simon may differ materially from those expressed in the forward looking statements contained or incorporated by reference in this proxy statement/prospectus due to, among other factors, the matters set forth under "Risk Factors" and the factors detailed in each company's filings with the SEC. Neither Simon nor Chelsea undertakes any obligation to update or release any revisions to these forward-looking statements to reflect events or circumstances after the date of this proxy statement/prospectus or to reflect the occurrence of unanticipated events, except as required by law.

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RATIO OF SIMON'S EARNINGS TO FIXED CHARGES AND PREFERRED STOCK DIVIDENDS

        The table below contains Simon's historical and pro forma consolidated ratio of earnings to fixed charges and preferred stock dividends for the periods indicated.

 
  For the Six Months Ended June 30,
  For the Year Ended December 3l,
 
 
  2004
  2003
  2003
  2002
  2001
  2000
  1999
 
Ratio of Simon's earnings to fixed charges and preferred stock dividends:(1)                              
  Historical(2)   1.43 x 1.39 x 1.52 x 1.64 x 1.33 x 1.37 x 1.34 x
  Pro forma(3)   1.34 x N/A   1.39 x N/A   N/A   N/A   N/A  

Notes

(1)
For purposes of calculating the ratio of earnings to fixed charges and preferred stock dividends, "earnings" have been computed by adding fixed charges, excluding capitalized interest, to income (loss) from continuing operations including income from minority interests and Simon's share of income (loss) from 50%-owned affiliates which have fixed charges, and including distributed operating income from unconsolidated joint ventures instead of income from unconsolidated joint ventures. There are generally no restrictions on Simon's ability to receive distributions from its joint ventures where no preference in favor of the other owners of the joint venture exists. "Fixed charges and preferred stock dividends" consists of interest costs, whether expensed or capitalized, the interest component of rental expenses and amortization of debt issue costs.


The computation of the ratio of earnings to fixed charges and preferred stock dividends has been restated to adopt SFAS No. 145, "Rescission of FASB Statements No. 4, 44, and 64, Amendment of SFAS No. 13, and Technical Corrections." Among other items, SFAS No. 145 rescinds SFAS No. 4, "Reporting of Gains and Losses from Extinguishment of Debt." As a result, gains and losses from extinguishment of debt should be classified as extraordinary items only if they meet the criteria of Accounting Policy Board Opinion No. 30. Debt extinguishments as part of a company's risk management strategy would not meet the criteria for classification as extraordinary items. Therefore, Simon is required to reclassify all of the extraordinary items related to debt transactions recorded in prior periods, including those recorded in the current period, to income from continuing operations.

(2)
The ratio of earnings to fixed charges and preferred stock dividends has been restated, where applicable, for the reclassification of discontinued operations. For the year ended December 31, 2002, the ratio includes $162.0 million of gains on sales of assets, net. Excluding these gains the ratio would have been 1.42x for the year ended December 31, 2002. For the year ended December 31, 2001, the ratio includes a $47.0 million impairment charge. Excluding this charge the ratio would have been 1.39x for the year ended December 31, 2001. For the year ended December 31, 1999, the ratio includes a $12.0 million unusual loss and a total of $12.3 million of asset write-downs. Excluding these items, the ratio would have been 1.39x for the year ended December 31, 1999.

(3)
The pro forma ratio of earnings to fixed charges and preferred stock dividends is computed using the unaudited pro forma financial data as if the Mergers had been effective as of January 1, 2003 and carried forward for the six months ended June 30, 2004 and the year ended December 31, 2003.

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THE SPECIAL MEETING

General; Date; Time and Place

        This proxy statement/prospectus is being provided by, and the enclosed proxy is solicited by and on behalf of, Chelsea's board of directors for use at a special meeting of holders of Chelsea common stock.

        The special meeting is scheduled to be held at         a.m., local time, on                        , 2004 at        , unless it is postponed or adjourned.

Purpose of the Special Meeting

        The purpose of the special meeting is to:


Record Date; Voting Power

        Only holders of shares of Chelsea common stock as of the close of business on                        , 2004, which is the record date for the special meeting, will be entitled to vote at the special meeting and any adjournments or postponements of the special meeting. Each share of Chelsea common stock is entitled to one vote at the special meeting.

Required Vote; Quorum; How to Vote

        The affirmative vote of the holders of at least 662/3% of the outstanding shares of Chelsea common stock as of the record date is required to approve the REIT Merger and the merger agreement. As of the record date, there were outstanding                        shares of Chelsea common stock.

        Because the required vote of the stockholders with respect to the REIT Merger and the merger agreement is based upon the total number of outstanding shares of Chelsea common stock, the failure to submit a proxy card (or to authorize a proxy by telephone or by Internet or to vote in person at the special meeting) or the abstention from voting by a stockholder will have the same effect as a vote against approval of the REIT Merger and the merger agreement. Brokers holding shares of Chelsea common stock as nominees will not have discretionary authority to vote those shares in the absence of instructions from the beneficial owners of those shares, so the failure to provide voting instructions to your broker will also have the same effect as a vote against the REIT Merger and the merger agreement.

        The obligation of Chelsea and Simon to consummate the REIT Merger is subject to, among other things, the condition that the Chelsea stockholders approve the REIT Merger and the merger agreement. If Chelsea's stockholders fail to approve the REIT Merger and the merger agreement at the special meeting, each of Chelsea and Simon will have the right to terminate the merger agreement. See "The Merger Agreement and Related Agreements—Merger Agreement—Termination."

        The holders of a majority of the shares of the Chelsea common stock outstanding on the record date must be present, either in person or by proxy, at the special meeting to constitute a quorum. In general, abstentions and broker non-votes are counted as present at the special meeting for the purpose of determining a quorum for the special meeting.

        A stockholder may vote in person at the special meeting or by proxy without attending the special meeting. To vote by proxy, a stockholder will have to do one of the following: (a) submit a proxy by

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telephone, (b) submit a proxy over the Internet or (c) complete the enclosed proxy card, sign and date it and return it in the enclosed postage prepaid envelope.

        If you are a registered stockholder (that is, you own Chelsea common stock in your own name and not through a broker, nominee or in some other "street name" capacity), you may submit a proxy by telephone by dialing 1-877-PRX-VOTE (1-877-779-8683) and following the instructions provided or over the Internet by visiting www.eproxyvote.com/cpg and following the instructions provided (please see the accompanying proxy card for instructions on how to access the telephone and Internet voting systems). If you are a stockholder holding shares as of the record date, you may vote by proxy by using the accompanying proxy card. When you return a proxy card that is properly signed and completed, the shares of Chelsea common stock represented by the proxy will be voted as you specify in the proxy card. If you hold shares in "street name," your broker or other nominee will advise you whether you may submit your voting instruction by telephone or through the Internet.

        Shares of Chelsea common stock held in the Chelsea Property Group 401(k) Savings Plan (referred to in this proxy statement/prospectus as the 401(k) Plan) are held of record and are voted by the trustee of the 401(k) Plan. Participants in the 401(k) Plan may direct the trustee as to how to vote shares of Chelsea common stock allocated to their accounts in the manner specified by the trustee. The trustee of the 401(k) Plan will vote shares of Chelsea common stock as to which it has not received direction in a manner as may be specified by the trustee and the 401(k) Plan.

        All properly executed proxies that are not revoked will be voted at the special meeting as instructed on those proxies. Executed proxies containing no instructions will be voted in favor of approval of the REIT Merger and the merger agreement.

Revocation of Proxy

        A stockholder who executes and returns a proxy may revoke it at any time before it is voted by sending a written notice to the Secretary of Chelsea stating that the earlier proxy is revoked or by returning a proxy bearing a later date (using a new proxy card, by telephone or by Internet, in each case following the instructions provided on the proxy card). If your shares are held in "street name" and you would like to revoke an earlier vote, please check with your broker and follow the voting procedures your broker provides.

Expenses of Solicitation

        Chelsea and Simon have agreed to share equally the costs of filing, printing and mailing Simon's registration statement on Form S-4 and this proxy statement/prospectus. In addition to soliciting proxies by mail, directors, officers and employees of Chelsea or Simon, without receiving additional compensation, may solicit proxies by telephone, by facsimile or in person. Arrangements may also be made with brokerage firms and other custodians, nominees and fiduciaries to forward solicitation materials to the beneficial owners of shares of Chelsea common stock held of record by these persons, and Chelsea will reimburse these brokerage firms, custodians, nominees and fiduciaries for reasonable out-of-pocket expenses incurred by them in connection therewith. In addition, MacKenzie Partners, Inc. (referred to in this proxy statement/prospectus as MacKenzie) has been retained by Chelsea to assist in the solicitation of proxies and Chelsea may also retain an additional solicitor. MacKenzie, which may hire subcontractors as needed, may contact holders of shares of Chelsea common stock by mail, telephone, facsimile, telegraph and personal interviews and may request brokers, dealers and other nominee stockholders to forward materials to beneficial owners of shares of Chelsea common stock. MacKenzie will receive reasonable and customary compensation for its services (estimated at $                  ) and will be reimbursed for certain customary out-of-pocket expenses.

Questions About Voting Your Shares

        If you have any questions about how to vote or direct a vote in respect of your Chelsea common stock, you may call MacKenzie at                        .

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THE MERGERS

Background of the Mergers

        Recognizing the complementary nature of their businesses and the quality of their respective operations, Simon and Chelsea more than seven years ago entered into their first strategic joint venture arrangement which allowed them to explore and assess the development of premium outlet centers. That strategic relationship led the two companies to successfully partner together on various projects. During that same period, both Simon and Chelsea grew and improved the overall quality of their respective portfolios through acquisition and development activity so that today each is recognized as a premier owner, developer and manager of high quality real estate. Their growth and the success of their joint venture relationships have culminated in the boards of directors of Simon and Chelsea determining that a strategic combination of the two companies is in the best interests of their respective stockholders and will combine the portfolios and the management groups of Simon and Chelsea to further grow, improve and enhance the quality of the combined portfolio.

        In May 1997, Chelsea and Simon DeBartolo Group, Inc., a predecessor of Simon, formed a strategic alliance to develop and acquire high-end outlet centers in the United States. Chelsea and Simon were the co-managing general partners, each with 50% ownership of the joint venture and any entities formed with respect to specific projects. In 1998, the Chelsea/Simon joint venture commenced construction on a 430,000 square-foot 50/50 joint venture project in Orlando, Florida. Orlando Premium Outlets opened in the first half of 2000. In conjunction with the alliance, Chelsea sold 1.4 million shares of Chelsea common stock to Simon in June 1997, for an aggregate price of $50 million. In July 2000, Simon sold the 1.4 million shares of Chelsea common stock that it had acquired in June 1997 to an institutional investor for $50 million in a negotiated trade. In April 2002, Simon sold its 50% ownership interest in Orlando Premium Outlets to Chelsea.

        In June 2001, Chelsea and Simon identified three possible future joint ventures to develop and acquire high-end outlet centers in the United States. In June 2002, Chelsea and Simon entered into a new 50/50 joint venture project to develop and operate Las Vegas Premium Outlets, a 435,000 square-foot single-phase premium outlet center located in Las Vegas, Nevada. This center opened in August 2003. In August 2002, Chelsea and Simon entered into a new 50/50 joint venture project to develop and operate Chicago Premium Outlets, a 438,000 square-foot single-phase premium outlet center located in Aurora, Illinois, near Chicago. This center opened in May 2004.

        Prior to entering into the merger agreement, Chelsea and Simon continued to examine other possible future joint venture projects to develop and acquire high-end outlet centers in the United States.

        On April 14, 2004, David C. Bloom, chairman and chief executive officer of Chelsea, and David Simon, chief executive officer of Simon, together with other senior executives of Chelsea and Simon, met in Indianapolis to discuss certain proposed budgets for Chicago Premium Outlets. During the course of the meeting, the participants had an informal discussion regarding various joint strategic opportunities, including the possibility of working together to develop additional properties.

        On May 10, 2004, David C. Bloom and David Simon met for dinner in New York City, at which time David Simon asked about the possibility of a strategic business combination between Simon and Chelsea. As part of the discussion, Mr. Simon advised Mr. Bloom that it was essential to the transaction that Mr. Bloom and the other key members of Chelsea management agree to remain with the Chelsea Operating Partnership after the transaction. Shortly thereafter, Mr. Simon contacted representatives of Simon's primary financial advisor, UBS Investment Bank, to discuss the possibility of a strategic business combination or other strategic transaction between Simon and Chelsea.

        On May 17, 2004, representatives of UBS met with David Simon and other Simon senior executives in Indianapolis. At this meeting, UBS gave a presentation on the financial and strategic

50



implications of a business combination between Simon and Chelsea. On May 24, 2004, UBS made a further presentation to David Simon at the annual conference of the International Council of Shopping Centers ("ICSC") in Las Vegas. At this meeting, UBS presented an update of its analysis regarding the financial and strategic implications of a business combination between Simon and Chelsea.

        On May 24, 2004, David Simon and David C. Bloom met for dinner after the ICSC conference. At the dinner, Messrs. Simon and Bloom discussed the possibility and benefits to stockholders of a business combination between Simon and Chelsea. Mr. Simon proposed that each share of Chelsea common stock would be valued at $60.00 per share if the parties could agree upon the other terms of a transaction. Mr. Bloom advised Mr. Simon that he had met with key members of Chelsea's management and they had agreed to remain with the Chelsea Operating Partnership following the Mergers.

        On June 6, 2004, David Simon and David C. Bloom, together with other senior executives of Simon and Chelsea, met in New York City and discussed the general terms of a possible business combination between Simon and Chelsea. At this meeting, representatives of Simon initially proposed a business combination in which each share of Chelsea common stock would be valued at $60.00 per share with the consideration to consist of $30.00 in cash and $30.00 in Simon common stock and Simon preferred stock, split evenly between the two securities. Chelsea's representatives responded by proposing a business combination in which each share of Chelsea common stock would be valued at $70.00 per share. After discussions, Simon's representatives revised their proposal to value each share of Chelsea common stock at $65.00 per share and Chelsea's representatives revised their proposal to value each share of Chelsea common stock at $67.00 per share. Each revised proposal contemplated that 50% of the consideration would be paid in cash and 50% would be paid in stock, with the stock portion split evenly between Simon common stock and Simon preferred stock. These proposals were made subject to agreement upon all other terms and conditions.

        On June 8, 2004, Simon and Chelsea entered into a confidentiality agreement to enable Simon to conduct additional due diligence in connection with the possible business combination. A series of meetings and conference calls were held thereafter, during which materials on Chelsea were provided to Simon and its representatives and advisors for evaluation.

        Early on June 10, 2004, David Simon called David C. Bloom and proposed that each share of Chelsea common stock would be valued at $66.00 per share if the parties could agree upon the other terms of a transaction.

        On June 10, 2004, following Chelsea's annual meeting of stockholders, a meeting of the Chelsea board of directors was held at which management of Chelsea discussed with the Chelsea board a proposed combination with Simon. At this meeting, Chelsea's board met with senior management and its legal advisors to discuss the proposed terms of the combination and the strategic implications. The Chelsea board authorized the retention of Merrill Lynch as its financial advisor, whereupon representatives of Merrill Lynch were invited to attend the meeting. The Chelsea board and its financial and legal advisors reviewed the potential benefits and risks and tax consequences of the proposed combination. Senior management of Chelsea and representatives of its financial advisor reviewed for the board the strategic rationale for the proposed transaction. An important aspect of the transaction considered by the Chelsea board was the retention of the management and employees of Chelsea. Chelsea's board also instructed the compensation committee to make recommendations as to compensation of key members of management, as well as incentives to retain all of Chelsea's employees. Merrill Lynch then presented an analysis of the proposed transaction and responded to questions. Merrill Lynch described to the Chelsea board a potential transaction valuing each share of Chelsea common stock at $66.00 per share. Merrill Lynch's analysis was based on a transaction in which holders of Chelsea common stock would receive $33.00 in cash and $33.00 in Simon common stock and Simon preferred stock, split evenly between the two securities, and in which the stock

51



consideration would be tax-free to the Chelsea stockholders but the cash would be taxable to the extent of any gain realized by the Chelsea stockholders.

        At the June 10, 2004 board meeting, Chelsea's board authorized its management and financial and legal advisors to proceed with negotiating the proposed transaction and a merger agreement and related documents. From that date, Chelsea's management and its legal representatives reviewed and discussed the proposed terms of the transaction, which would include employment agreements between Chelsea and certain of its executives, operating Chelsea as a separate division out of its present offices, a new severance policy for employees and a tax protection agreement between Simon and certain limited partners of the Chelsea Operating Partnership.

        On June 12, 2004, a draft of the proposed merger agreement was circulated by Willkie Farr & Gallagher LLP, Simon's legal counsel, to Stroock & Stroock & Lavan LLP, Chelsea's legal counsel. Simon and Chelsea and their respective legal counsel began negotiating the agreement on June 14, 2004 and negotiations continued past the close of business on June 18th, including discussions concerning the exchange ratios, the terms of the Simon 6% Convertible Preferred Stock, the put agreement, the employment agreements, the voting agreements and the tax protection agreement.

        Simon's proposal set forth in the draft merger agreement was conditioned upon structuring the transaction in a manner that would achieve a basis "step-up" in the assets of the Chelsea Operating Partnership that were indirectly owned by Chelsea. Such a step-up could only be achieved in a transaction that would be taxable to the holders of Chelsea common stock. Simon's proposal also was conditioned upon the execution of voting agreements with certain limited partners of the Chelsea Operating Partnership, pursuant to which the limited partners who hold approximately 72% of the outstanding common units of the Chelsea Operating Partnership and 0.7% of the outstanding Chelsea common stock would agree to vote their Chelsea common stock in favor of the REIT Merger and their common units of the Chelsea Operating Partnership in favor of the Partnership Merger. In addition, Simon's proposal contemplated a termination option for Simon to acquire Woodbury Common Premium Outlets at its fair market value (as determined by an independent appraiser) from the Chelsea Operating Partnership if the merger agreement was terminated for certain specified reasons.

        On June 14, 2004, Simon and Chelsea and their respective representatives met to discuss the initial draft of the merger agreement. Given that the draft merger agreement provided a structure in which the stock consideration would be taxable to Chelsea stockholders, Chelsea requested that Simon increase the price per share of Chelsea common stock. Simon rejected this request, although it offered to increase the per share cash component from $33.00 to $36.00 (with a reduction in the per share stock component from $33.00 to $30.00 in Simon common stock and Simon preferred stock, split evenly between the two securities). At the meeting, Chelsea also objected to the termination option. After negotiations, it was proposed that Chelsea instead grant Simon an option to sell to Chelsea its interests in the two 50/50 joint ventures, Simon/Chelsea Las Vegas Development, LLC and Simon/Chelsea Chicago Development, LLC, for the fair market value of such interests in the event the merger agreement was terminated for certain specified reasons. In addition, Chelsea objected to the voting agreements requiring certain limited partners of the Chelsea Operating Partnership to vote their common units in the Chelsea Operating Partnership in favor of the Partnership Merger regardless of whether Chelsea's stockholders approved the REIT Merger. After negotiations, it was proposed that the vote of these limited partners in favor of the Partnership Merger would be effective only if the REIT Merger was approved by the Chelsea stockholders.

        At the June 14, 2004 meeting, Chelsea also requested that the value of the Simon common stock component of the REIT Merger Consideration be fixed in the event that the price of Simon common stock dropped by more than 20%. Simon responded that it would be amenable to fixing the value of the Simon common stock component of the REIT Merger Consideration in the event of a decline in the price of Simon common stock below a certain point, but that such protection should be in the form

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of a reciprocal "collar" that would cap the value of Simon common stock to be exchanged in the REIT Merger if the Simon common stock price increased above a certain value. Simon proposed that the reciprocal collar should be triggered if the average price of Simon common stock during a period prior to the consummation of the transaction moved by more than 10% in either direction from a pre-determined price.

        At the June 14, 2004 meeting, Chelsea also requested that it be entitled to appoint two members to Simon's board of directors following the REIT Merger. Simon responded that it would not appoint additional directors chosen by Chelsea to its board of directors due to the fact that it would need to amend its charter to do so, which would require the approval of the Simon stockholders. Simon, however, did offer to agree to appoint David C. Bloom as a non-voting advisory director to Simon's board of directors following the REIT Merger.

        On June 15, 2004, the acquisitions committee of Simon's board of directors met with certain senior executives of Simon and representatives of UBS and Willkie Farr & Gallagher LLP to discuss the proposed Mergers. The acquisitions committee authorized Simon to conduct further discussions with Chelsea, subject to the review and approval by the Simon board of directors of the final terms and conditions of any definitive merger agreement.

        On June 15, 2004, a revised draft of the proposed merger agreement was circulated by Willkie Farr & Gallagher LLP to Stroock & Stroock & Lavan LLP. On June 16, 2004, Simon and Chelsea and their respective representatives met again to discuss the revised draft of the merger agreement. At the meeting, the parties discussed the collar and it was proposed that the upper and lower limits would be 15% from $51.09, which resulted in an upper limit of $58.75 and a lower limit of $43.43.

        On June 17, 2004, Chelsea's board met to discuss the potential combination. Chelsea's senior management and its legal and financial advisors updated the board on the status of the negotiations, and the terms of the agreements were reviewed and discussed with Chelsea's board, including responses to questions from Chelsea's board. Chelsea's financial advisors presented the Chelsea board with their financial analyses of the Mergers and Chelsea's legal advisors reviewed the specific terms and provisions of the merger agreement, the put agreement, the voting agreements, the tax protection agreement, the employment agreements and the severance and employee benefit arrangements for Chelsea's employees, and reviewed with the Chelsea board its obligations under Maryland law. In particular, the board discussed the proposed tax treatment of the transaction (which differed from the tax treatment described to Chelsea's board at its meeting of June 10th) and Simon's proposal to increase the per share cash component from $33.00 to $36.00 (with a reduction in the per share stock component from $33.00 to $30.00 in Simon common stock and Simon preferred stock, split evenly between the two securities). Following these presentations, discussions and questions, Chelsea's board deliberated on the proposed Mergers and authorized Chelsea's management and legal advisors to finalize the definitive terms of the Mergers.

        On June 18, 2004, Simon's board of directors met to consider the proposed Mergers. Following presentations and analysis by Simon's management, UBS, Morgan Stanley & Co. Incorporated (who Simon had retained in early June 2004 to provide additional financial advice) and Willkie Farr & Gallagher LLP regarding the final terms of the proposed Mergers, and discussions and deliberations by Simon's board, the board unanimously approved the merger agreement and the transactions contemplated by the merger agreement.

        Also on June 18, 2004, the board of directors of Chelsea met again telephonically after the close of trading with its legal and financial advisors. At this meeting, Merrill Lynch rendered its oral opinion, which was subsequently confirmed by delivery of a written opinion dated June 18, 2004, that, as of that date, the REIT Merger Consideration to be received for each outstanding share of Chelsea common stock pursuant to the merger agreement was fair from a financial point of view to the holders of such shares. After additional discussions and deliberations, Chelsea's board unanimously approved the

53



Mergers, the merger agreement and the transactions contemplated thereby and recommended that Chelsea's stockholders and holders of common units of the Chelsea Operating Partnership approve the merger agreement, including the Mergers and the other transactions contemplated by the merger agreement.

        Thereafter, representatives of Simon and Chelsea finalized the merger agreement, disclosure schedules and related documents, and the merger agreement, voting agreements, put agreement and employment agreements were executed as of June 20, 2004. The transaction was publicly announced on June 21, 2004.

Recommendation of Chelsea's Board of Directors

        Chelsea's board of directors has determined that the merger agreement and the transactions contemplated thereby, including the Mergers, are advisable and fair to, and in the best interests of, Chelsea and its stockholders and the holders of common units of the Chelsea Operating Partnership, and has approved and declared advisable the Mergers, the merger agreement and the other transactions contemplated by the merger agreement, and unanimously recommends that you vote in favor of approving the REIT Merger and the merger agreement.

        In considering the recommendation of the Chelsea board with respect to the Mergers and the merger agreement, you should be aware that certain directors and officers of Chelsea have interests in the proposed Mergers that are different from, or are in addition to, the interests of Chelsea stockholders. These interests include the fact that certain directors and officers of Chelsea who own common units in the Chelsea Operating Partnership will be able, unless they elect to convert their common units in the Chelsea Operating Partnership into shares of Chelsea common stock before the REIT Merger, to defer their taxable gains in their common units in the Chelsea Operating Partnership by receiving in the Partnership Merger and/or the Optional Partnership Exchange Offer common and preferred partnership interests in the Simon Operating Partnership in exchange for their common units in the Chelsea Operating Partnership. The REIT Merger, in contrast, is a taxable transaction and, as a result, holders of Chelsea common stock other than certain tax-exempt holders will be required to pay tax on gains arising from exchanging their Chelsea stock for the REIT Merger Consideration. Based on an analysis of its stockholders by Merrill Lynch, Chelsea's board noted that more than 70% of the Chelsea stockholders are institutions and pass-through entities (such as mutual funds) that will not have to pay, or are less sensitive to the payment of, taxes on their gains. Unlike Chelsea's stockholders, certain holders of common units in the Chelsea Operating Partnership (including some of Chelsea's directors and officers) may face tax recapture (and thus be taxed at rates higher than those potentially applicable to the holders of Chelsea common stock in the REIT Merger) with respect to a portion of their gains if they participate in a taxable transaction involving their common units in the Chelsea Operating Partnership. Such potential tax recapture could arise if a holder of common units in the Chelsea Operating Partnership obtained its units in tax-deferred transactions when it contributed interests in real estate, which may have been subject to depreciation for U.S. federal income tax purposes, to the Chelsea Operating Partnership. In addition, unlike holders of Chelsea common stock who have an initial tax basis equal to the price paid for the common stock, holders of common units in the Chelsea Operating Partnership who obtained their common units in exchange for a contribution of property in a tax-deferred transaction have a tax basis in their common units initially derived from their tax basis in the contributed property, which could be a fraction of the value of the common units received in exchange for the contribution of property.

        These interests also include the acceleration of the vesting of stock options, the vesting of payments under Chelsea's long-term executive incentive plan, the employment agreements received by four of Chelsea's executive officers which will govern the terms of such executive officers' employment after the REIT Merger (but will be void if the REIT Merger does not occur), the severance payments to be received by Chelsea's officers and other employees under certain circumstances and the rights

54



provided to certain holders of common units of the Chelsea Operating Partnership under the tax protection agreement.

        The merger agreement provides that Chelsea's chairman and chief executive officer, David C. Bloom, will be appointed as a non-voting advisory director to Simon's board of directors following the REIT Merger. In addition, Chelsea's board, based upon the recommendation of its compensation committee, has determined to pay Mr. Bloom a special bonus of $5,000,000 immediately prior to the effective time of the REIT Merger. Of this amount, $4,000,000 is in consideration of Mr. Bloom's voluntary non-participation in Chelsea's LTIP, and the remainder is in consideration of Mr. Bloom's services to Chelsea.

        Furthermore, Chelsea's board, based upon the recommendation of its compensation committee, has determined to pay Chelsea's vice chairman, William D. Bloom, a special bonus of $500,000 upon completion of the Mergers in consideration of Mr. Bloom's previously having agreed to receive below-market salary and bonus compensation for numerous prior years and his reduced participation in Chelsea's LTIP.

        Also, following completion of the REIT Merger, Chelsea, as the surviving company, will indemnify and for six years provide directors' and officers' insurance for the directors and officers of Chelsea for events occurring before the REIT Merger, including events that are related to the merger agreement.

        The Chelsea board was aware that these interests existed and considered them when it approved and declared advisable the merger agreement and the Mergers and determined that the merger agreement and the Mergers are advisable and fair to, and in the best interests of, Chelsea and its stockholders.

        See "—Interests of Chelsea Directors and Officers in the Mergers."

Chelsea's Reasons for the Mergers

        In reaching its decision, Chelsea's board consulted with Chelsea's management team and its legal and financial advisors in this transaction. Chelsea's board considered both Chelsea's short-term and long-term interests, as well as those of its stockholders and the holders of common units in the Chelsea Operating Partnership. In concluding that the merger agreement and the transactions contemplated thereby, including the Mergers, are advisable and fair to, and in the best interests of, Chelsea and its stockholders and the holders of common units of the Chelsea Operating Partnership, Chelsea's board considered, among other things, the following factors:

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        Although each member of Chelsea's board individually considered these and other factors, the board did not collectively assign any specific or relative weights to the factors considered and did not make any determination with respect to any individual factor. The board collectively made its determination based on the conclusions reached by its members, in light of the factors that each of them considered appropriate, that the merger agreement and the transactions contemplated thereby, including the Mergers, are advisable and fair to, and in the best interests of, Chelsea and its stockholders and the holders of common units of the Chelsea Operating Partnership.

        THE CHELSEA BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS OF CHELSEA VOTE "FOR" APPROVAL OF THE REIT MERGER AND THE MERGER AGREEMENT.

Opinion of Chelsea's Financial Advisor

        Chelsea retained Merrill Lynch to act as its exclusive financial advisor in connection with the REIT Merger. On June 18, 2004, Merrill Lynch rendered its oral opinion to Chelsea's board of directors (subsequently confirmed by delivery of a written opinion dated June 18, 2004) that, as of such date and based upon and subject to the factors and assumptions set forth therein, the consideration to be received by the holders of Chelsea common stock pursuant to the REIT Merger was fair from a financial point of view to the holders of Chelsea common stock.

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        The full text of the Merrill Lynch opinion, which sets forth, among other things, the assumptions made, procedures followed, matters considered and qualifications and limitations on the review undertaken by Merrill Lynch, is included as Appendix F to this proxy statement/prospectus and is incorporated herein by reference. Chelsea stockholders are urged to read such opinion in its entirety. The Merrill Lynch opinion was provided to Chelsea's board of directors for its information and addresses only the fairness of the consideration in the REIT Merger from a financial point of view to the holders of Chelsea common stock, and does not address any other aspect of the REIT Merger nor any other aspect of the related transactions or constitute a recommendation to any stockholder of Chelsea as to how such stockholder should vote on the proposed REIT Merger or any related matter at the special meeting. Merrill Lynch was not asked, and the Merrill Lynch opinion did not address, the fairness to, or any consideration of, the holders of any class of securities, creditors or other constituencies of Chelsea or the Chelsea Operating Partnership, other than holders of Chelsea common stock. Merrill Lynch's opinion did not address the merits of the underlying decision by Chelsea to engage in the REIT Merger. This summary is qualified in its entirety by reference to the full text of such opinion.

        The REIT Merger Consideration was determined through negotiations between Chelsea and Simon and was approved by Chelsea's board of directors. Merrill Lynch provided advice to Chelsea during the course of those negotiations.

        The summary set forth below does not purport to be a complete description of the analyses underlying the Merrill Lynch opinion or the presentations made by Merrill Lynch to Chelsea's board of directors. The preparation of a fairness opinion is a complex and analytic process involving various determinations as to the most appropriate and relevant methods of financial analysis and the application of those methods to the particular circumstances. In arriving at its opinion, Merrill Lynch considered the results of all analyses and did not attribute any particular weight to any analysis or factor considered by it. Merrill Lynch made its determination as to fairness on the basis of its experience and professional judgment after considering the results of all such analyses. While each factor set forth below is separate, Merrill Lynch believes that its analyses must be considered as a whole and that selecting portions of its analyses or of the summary set forth below, without considering all analyses, would create an incomplete view of the process underlying its opinion.

        In performing its analyses, numerous assumptions were made with respect to industry performance, general business, economic, market and financial conditions and other matters, many of which are beyond the control of Merrill Lynch or Chelsea. Any estimates contained in the analyses performed by Merrill Lynch are not necessarily indicative of actual values or future results, which may be significantly more or less favorable than suggested analyses. Additionally, estimates of the value of businesses or securities do not purport to be appraisals or to reflect the prices at which such businesses or securities might actually be sold. Accordingly, such analyses and estimates are inherently subject to substantial uncertainty. In addition, as described above, the Merrill Lynch opinion was among several factors taken into consideration by Chelsea's board of directors in making its determination to approve the merger agreement and the REIT Merger. Consequently, the analyses performed by Merrill Lynch described below should not be viewed as determinative of the decision of Chelsea's board of directors or Chelsea's management with respect to the fairness of the REIT Merger Consideration.

        In arriving at its opinion, Merrill Lynch, among other things: (i) reviewed publicly available business and financial information relating to Chelsea and Simon that Merrill Lynch deemed to be relevant; (ii) reviewed information, including financial forecasts, relating to the business, earnings, cash flow, assets, liabilities and prospects of Chelsea and Simon furnished to Merrill Lynch by Chelsea and Simon; (iii) conducted discussions with members of senior management and representatives of Chelsea and Simon concerning the matters described in clauses (i) and (ii) above; (iv) reviewed the market prices and valuation multiples for Chelsea common stock and Simon common stock and compared them with those of certain publicly traded companies that Merrill Lynch deemed to be relevant;

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(v) reviewed the results of operations of Chelsea and Simon and compared them with those of certain publicly traded companies that Merrill Lynch deemed to be relevant; (vi) compared the proposed financial terms of the REIT Merger with the financial terms of certain other transactions that Merrill Lynch deemed to be relevant; (vii) participated in certain discussions and negotiations among representatives of Chelsea and Simon and their financial and legal advisors; (viii) reviewed the potential pro forma impact of the REIT Merger; (ix) reviewed a draft dated June 18, 2004 of the merger agreement; and (x) reviewed such other financial studies and analyses and took into account such other matters as Merrill Lynch deemed necessary, including Merrill Lynch's assessment of general economic, market and monetary conditions.

        In preparing its opinion, Merrill Lynch assumed and relied on the accuracy and completeness of all information supplied or otherwise made available to Merrill Lynch, discussed with or reviewed by or for Merrill Lynch, or publicly available, and Merrill Lynch did not assume any responsibility for independently verifying such information or undertake an independent evaluation or appraisal of any of the assets or liabilities of Chelsea or Simon nor was Merrill Lynch furnished with any such evaluation or appraisal. Merrill Lynch did not evaluate the solvency or fair value of Chelsea or Simon under any state or federal laws relating to bankruptcy, insolvency or similar matters. In addition, Merrill Lynch did not assume any obligation to conduct any physical inspection of the properties or facilities of Chelsea or Simon. With respect to the financial forecast information furnished to or discussed with Merrill Lynch by Chelsea or Simon, Merrill Lynch assumed that such information has been reasonably prepared and reflects the best currently available estimates and judgment of Chelsea's and Simon's management as to the expected future financial performance of Chelsea or Simon, as the case may be. With respect to publicly available financial forecast information relating to Chelsea or Simon, Merrill Lynch was advised, and assumed, that such forecasts represent reasonable estimates and judgments as to the future financial performance of Chelsea and Simon as the case may be. Merrill Lynch also assumed that the final form of the merger agreement would be substantially similar to the last draft reviewed by Merrill Lynch.

        The Merrill Lynch opinion is necessarily based upon market, economic and other conditions as they existed on, and could be evaluated as of, the date of the Merrill Lynch opinion. Merrill Lynch assumed that in the course of obtaining the necessary consents or approvals (contractual or otherwise) for the REIT Merger, no restrictions, including any divestiture requirements or amendments or modifications, will be imposed that will have a material adverse effect on the contemplated benefits of the REIT Merger.

        In connection with the preparation of the Merrill Lynch opinion, Merrill Lynch was not authorized by Chelsea or Chelsea's board of directors to solicit, nor did Merrill Lynch solicit, third-party indications of interest for the acquisition of all or any part of Chelsea. Merrill Lynch did not express any opinion as to the prices at which Chelsea common stock or Simon common stock would trade following the announcement of the REIT Merger and the Partnership Merger or the price at which the Simon common stock or the Simon 6% Convertible Preferred Stock will trade following consummation of the Mergers.

        The following is a summary of the material analyses presented by Merrill Lynch to Chelsea's board of directors on June 17, 2004 as updated on June 18, 2004 in connection with the rendering of the Merrill Lynch opinion.

        Chelsea Historical Stock Price Analysis.    Merrill Lynch analyzed the intraday high and low stock prices of Chelsea for the 52 weeks ending June 16, 2004, which were $62.94 and $39.95, respectively. The current price as of June 16, 2004 of $56.87 was 90.4% of the 52 week high of $62.94.

        Chelsea Comparable Public Companies Analysis.    Merrill Lynch reviewed and compared certain financial information for Chelsea to corresponding financial information, ratios and public market multiples for the following (a) publicly traded retail companies in the mall sector (which we refer to in

59



this proxy statement/prospectus as the Malls), (b) publicly traded retail companies in the shopping center sector (which we refer to in this proxy statement/prospectus as the Shopping Centers) and (c) publicly traded retail company in the factory outlet sector (which we refer to in this proxy statement/prospectus as the Factory Outlet):

Malls

   
General Growth Properties, Inc.
The Rouse Company
CBL & Associates Properties, Inc.
The Macerich Company
The Mills Corporation
Pennsylvania Real Estate Investment Trust
Taubman Centers, Inc.
   
Shopping Centers

   

Kimco Realty Corporation
Developers Diversified Realty Corporation
Weingarten Realty Investors
New Plan Excel Realty Trust, Inc.
Regency Centers Corporation
Federal Realty Investment Trust
Pan Pacific Retail Properties, Inc.
Heritage Property Investment Trust
Equity One, Inc.

 

 
Factory Outlet

   

Tanger Factory Outlet Centers, Inc.

 

 

        Although none of the selected companies is directly comparable to Chelsea, the companies included were chosen because they are publicly traded companies with operations that for purposes of Merrill Lynch's analysis may be considered similar to certain operations of Chelsea.

        The financial multiples and ratios for the selected companies were based on publicly available financial data as of June 16, 2004 obtained from SEC filings and publicly available research reports and the corresponding financial multiples and ratios for Chelsea were based on estimates from Chelsea management and publicly available research reports. The multiples and ratios for Chelsea and the selected companies were calculated using the closing price of Chelsea's common stock and the common stock of each of the selected companies on June 16, 2004. With respect to the selected companies, Merrill Lynch calculated:

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        The following table presents the results of this analysis:

Company

  (Debt plus
Preferred Stock)/TMC

  EBITDA/
2004E

  EBITDA/
2005E

  FFO/
2004E

  FFO/
2005E

  Price/
NAV

  Implied
Cap. Rate

 
Chelsea   32.2 % 15.2 x 14.0 x 14.3 x 13.2 x 130.7 % 7.5 %
Malls                              
  Mean   54.1 % 14.8 x 13.6 x 11.1 x 10.2 x 114.6 % 7.9 %
Shopping Centers                              
  Mean   42.4 % 14.5 x 13.5 x 12.2 x 11.5 x 104.6 % 8.0 %
Factory Outlet   47.3 % 12.2 x 11.9 x 10.3 x 9.9 x 105.6 % 8.0 %

        Merrill Lynch selected a range of multiples of estimated 2004 FFO of 10.0x to 14.0x for Chelsea based on the comparable companies analysis which implied an (i) equity value per share of $41.00 and $57.40, respectively, based on Chelsea management estimates and (ii) equity value per share of $39.60 and $55.44, respectively, based on wall street estimates, in each case as compared to the implied offer price of $66.00 which implied multiples of 16.1x and 16.7x based on Chelsea management and wall street estimates of 2004 FFO, respectively.

        Merrill Lynch also selected a range of multiples of estimated 2005 FFO of 10.0x to 13.5x for Chelsea based on the comparable companies analysis which implied an (i) equity value per share of $46.00 and $62.10, respectively, based on Chelsea management estimates and (ii) equity value per share of $43.20 and $58.32, respectively, based on wall street estimates, in each case as compared to the implied offer price of $66.00 which implied multiples of 14.3x and 15.3x based on Chelsea management and wall street estimates of 2005 FFO, respectively.

        None of the selected companies used in the above analysis is identical to Chelsea. Accordingly, an analysis of the results of the foregoing necessarily involves complex considerations and judgments concerning differences in financial and operating characteristics of the selected companies and other factors that could affect the public trading value of Chelsea and the selected companies. Mathematical analysis (such as determining the mean or median) of the financial ratios of the selected companies is not in itself a meaningful method of using comparable company data.

        Chelsea Comparable Transaction Analysis.    Merrill Lynch analyzed certain information relating to fifteen mergers and acquisitions announced in the last eight years representing acquisitions of shopping centers, regional malls and outlet malls. The transactions reviewed, which we refer to in this proxy statement/prospectus as the selected transactions, were:

Shopping Center Transactions

Date Announced

  Target
  Acquiror
6/18/03   Mid Atlantic Realty Trust   Kimco Realty Corporation
11/06/02   Center Trust, Inc.   Pan Pacific Retail Properties, Inc.
8/22/00   Western Properties Trust   Pan Pacific Retail Properties, Inc.
5/14/98   Excel Realty Trust   New Plan Realty Trust

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Regional Mall Transactions

Date Announced

  Target
  Acquiror
5/14/03   Crown American Realty Trust   Pennsylvania Real Estate Investment Trust
3/04/02   JP Realty, Inc.   General Growth Properties, Inc.
1/13/02   Rodamco North America, N.V.   Simon Property Group, Inc. /The Rouse Company/ Westfield America, Inc.
12/05/01   Assets of the Richard E. Jacobs Group   Westfield America, Inc.
9/25/00   Urban Shopping Centers, Inc.   Rodamco North America N.V.
9/25/00   Assets of the Richard E. Jacobs Group   CBL & Associates Properties, Inc.
2/25/99   New England Development Company   Simon Property Group, Inc.
4/06/98   TrizecHahn Corporation   Westfield America, Inc.
2/19/98   Corporate Property Investors, Inc.   Simon Property Group, Inc.
3/26/96   DeBartolo Realty Corporation   Simon Property Group, Inc.

Outlet Mall Transaction

Date Announced

  Target
  Acquiror
10/06/03   Charter Oak Partners   Tanger Factory Outlet Centers, Inc.

        Based on the SEC filings and the press releases of the companies involved in the selected transactions, Merrill Lynch calculated various multiples and ratios implied for the target companies in the selected transactions by the offer values and the transaction values in the selected transactions. With respect to the selected transactions, Merrill Lynch calculated:

        The following table presents the results of this analysis:

 
  Offer Value as Multiple of:
  Transaction Value as a Multiple of:
 
 
  LTM
FFO

  Current
FFO

  Forward
FFO

  LTM
EBITDA

  Current
EBITDA

  Forward
EBITDA

 
Shopping Center Transactions:                          
  Mean   10.6 x 10.3 x 9.5 x 11.6 x 12.1 x 11.6 x
  Median   10.1 x 10.7 x 9.8 x 11.5 x 12.1 x 11.6 x
Regional Mall Transactions:                          
  Mean   11.8 x 11.0 x 9.9 x 12.4 x 13.2 x 11.1 x
  Median   11.3 x 10.1 x 9.6 x 12.0 x 11.8 x 10.0 x
Outlet Mall Transaction   N/A   N/A   8.3 x N/A   N/A   10.0 x

        Merrill Lynch selected a range of multiples of offer value to one year forward FFO of 7.0x to 12.5x based on the comparable transactions analysis which implied an (i) equity value per share of $28.70 and $51.25 for Chelsea, respectively, based on Chelsea management estimates and (ii) equity value per share of $27.72 and $49.50, respectively, based on wall street estimates, each as compared to the implied offer price of $66.00 which implied multiples of 16.1x and 16.7x based on Chelsea management and wall street estimates of Chelsea's one year forward FFO, respectively.

        None of the companies or the selected transactions used in the above analysis is identical to Chelsea or the REIT Merger. Accordingly, an analysis of the results of the foregoing necessarily involves complex considerations and judgments concerning differences in financial and operating

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characteristics of the companies and the selected transactions and other factors that may have affected the selected transactions and/or affect the REIT Merger.

        Historical Public REIT Premium Analysis.    Merrill Lynch reviewed and compared premiums to stock price paid in selected public REIT acquisitions to the premiums to the closing stock price for Chelsea common stock represented by the implied offer price of $66.00. In this analysis, Merrill Lynch reviewed transactions where the consideration consisted of 100% cash, a combination of cash and stock and 100% stock. The following table presents the results of this analysis:

Premiums to Stock Price

Transaction

  T—1 Day
  T—1 Week
  52 Week High
 
100% Cash Transactions:              
  Mean   17.4 % 17.2 % 1.2 %
  Median   17.0 % 16.2 % 2.4 %

Combined Cash and Stock Transactions:

 

 

 

 

 

 

 
  Mean   14.0 % 15.3 % 0.4 %
  Median   15.7 % 16.1 % 0.4 %

100% Stock Transactions:

 

 

 

 

 

 

 
  Mean   7.3 % 9.4 % (1.4 )%
  Median   9.2 % 8.5 % 0.2 %

Chelsea/Simon REIT Merger

 

16.1

%

17.2

%

4.9

%

        Chelsea Discounted Cash Flow Analysis.    Merrill Lynch calculated a range of discounted cash flow values for Chelsea using (i) by Chelsea management projections and (ii) wall street projections. This analysis was based on the sum of (a) the present value of projected, standalone, after tax, levered free cash flows of Chelsea for the fiscal years 2005 through 2008 and (b) the present value of the terminal value as a multiple of Chelsea's estimated 2008 FFO. Merrill Lynch calculated a range of values for Chelsea by utilizing discount rates ranging from 7.00% to 8.00% and terminal value multiples of Chelsea's estimated 2008 FFO ranging from 9.0x to 11.0x. This analysis resulted in a range of illustrative values for Chelsea on an equity value per share basis of (x) $60.01 to $71.67 based on Chelsea management projections and (y) $50.41 to $60.04 based on Wall street projections.

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        Chelsea Discounted Dividend Analysis.    Merrill Lynch calculated a range of discounted dividends for Chelsea using (i) Chelsea management projections and (ii) wall street projections. This analysis was based on the sum of (a) the present value of projected, standalone, after tax dividends per share for Chelsea for the fiscal years 2005 through 2008 and (b) the present value of the terminal value as a multiple of Chelsea's estimated 2008 FFO per share. Merrill Lynch calculated a range of terminal values of Chelsea by utilizing discount rates ranging from 7.0% to 8.0% and terminal value multiples of Chelsea's estimated 2008 FFO ranging from 9.0x to 11.0x. This analysis resulted in a range of illustrative values for Chelsea on an equity value per share basis of (x) $54.21 to $65.98 based on Chelsea management projections and (y) $46.88 to $56.68 based on wall street projections.

        Chelsea Net Asset Value Analysis.    Merrill Lynch calculated, using net asset valuation methodology, a range of implied net asset per share values for Chelsea using the estimated net market value of Chelsea's owned properties, unconsolidated joint venture investments/assets and other assets and subtracting Chelsea's liabilities, based on information provided by Chelsea management as of June 2004, Chelsea's March 31, 2004 Form 10-Q filing and publicly available research reports. Merrill Lynch derived a range of low and high implied net asset values per share for Chelsea of $42.40 to $46.22, respectively, as compared to the implied offer price of $66.00.

        Merrill Lynch also calculated a range of implied net asset per share values for Chelsea by applying 105% and 150% (which is reflective of a range of premiums paid in the selected comparable transactions listed above in "—Chelsea Comparable Transaction Analysis" as a percentage of the NAVs of the target companies in those transactions) to an estimate of Chelsea's current NAV, as contained in a Merrill Lynch research report dated June 11, 2004. Merrill Lynch derived a range of implied net asset per share values for Chelsea of $45.70 to $65.28 based on this analysis, as compared to the implied offer price of $66.00.

        Simon Historical Stock Price Analysis.    Merrill Lynch analyzed the intraday high and low stock prices of Simon for the 52 weeks ending June 16, 2004, which were $58.83 and $38.50, respectively. The current price as of June 16, 2004 of $51.25 was 87.1% of the 52 week high of $58.83.

        Simon Comparable Public Companies Analysis.    Merrill Lynch reviewed and compared certain financial information for Simon to corresponding financial information, ratios and public market multiples for the following Malls:

Malls

   
General Growth Properties, Inc.
The Rouse Company
CBL & Associates Properties, Inc.
The Macerich Company
The Mills Corporation
Pennsylvania Real Estate Investment Trust
Taubman Centers, Inc.
   

        Although none of the selected companies is directly comparable to Simon, the companies included were chosen because they are publicly traded companies with operations that for purposes of Merrill Lynch's analysis may be considered similar to certain operations of Simon.

        The financial multiples and ratios for the selected companies were based on publicly available financial data as of June 16, 2004 obtained from SEC filings and publicly available research reports and the corresponding financial multiples and ratios for Simon were based on estimates from Simon management and publicly available research reports. The multiples and ratios for Simon and the selected companies were calculated using the closing price of Simon's common stock and the common

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stock of each of the selected companies on June 16, 2004. With respect to the selected companies, Merrill Lynch calculated:

        The following table presents the results of this analysis:

Company

  Dividend
Yield

  (Debt plus
Preferred
Stock)/TMC

  EBITDA/
2004E

  EBITDA/
2005E

  FFO/
2004E

  FFO/
2005E

  Price/
NAV

  Implied
Cap. Rate

 
Simon   5.1 % 50.7 % 13.4 x 12.8 x 11.9 x 11.1 x 104.6 % 7.6 %
Malls                                  
  Mean   5.1 % 54.1 % 14.8 x 13.6 x 11.1 x 10.2 x 114.6 % 7.9 %

        Merrill Lynch selected a range of multiples of estimated 2004 FFO of 11.0x to 12.0x for Simon based on the comparable companies analysis which implied an (i) equity value per share of $47.52 and $51.84, respectively, based on Simon management estimates and (ii) equity value per share of $47.41 and $51.72, respectively, based on wall street estimates, in each case as compared to the $51.09 per share equity value implied offer price which implied multiples of 11.8x and 11.9x for Simon based on Simon management and wall street estimates of Simon's 2004 FFO, respectively.

        Merrill Lynch also selected a range of multiples of estimated 2005 FFO of 10.0x to 11.0x for Simon based on comparable companies analysis which implied an (i) equity value per share of $46.60 and $51.26, respectively, based on Simon management estimates and (ii) equity value per share of $46.20 and $50.82, respectively, based on wall street estimates, in each case as compared to the $51.09 per share equity value implied offer price which implied multiples of 11.0x and 11.1x based on Simon management and wall street estimates of Simon's 2005 FFO, respectively.

        None of the selected companies used in the above analysis is identical to Simon. Accordingly, an analysis of the results of the foregoing necessarily involves complex considerations and judgments concerning differences in financial and operating characteristics of the selected companies and other factors that could affect the public trading value of Simon and the selected companies. Mathematical analysis (such as determining the mean or median) of the financial ratios of the selected companies is not in itself a meaningful method of using comparable company data.

        Simon Discounted Cash Flow Analysis.    Merrill Lynch calculated a range of discounted cash flow values for Simon using (i) Simon management projections and (ii) wall street projections. This analysis was based on the sum of (a) the present value of projected, standalone, after tax, levered free cash flows of Simon for the fiscal years 2005 through 2008 and (b) the present value of the terminal value as a multiple of Simon's estimated 2008 FFO. Merrill Lynch calculated a range of values for Simon by utilizing discount rates ranging from 7.00% to 8.00% and terminal value multiples of Simon's estimated 2008 FFO ranging from 8.5x to 10.5x. This analysis resulted in a range of illustrative values for Simon on an equity value per share basis of (x) $52.28 to $62.98 based on Simon management projections and (y) $51.45 to $61.94 based on wall street projections.

        Simon Discounted Dividend Analysis.    Merrill Lynch calculated a range of discounted dividends for Simon using (i) Simon management projections and (ii) wall street projections. This analysis was based

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on the sum of (a) the present value of projected, standalone, after tax dividends per share for Simon for the fiscal years 2005 through 2008 and (b) the present value of the terminal value as a multiple of Simon's estimated 2008 FFO per share. Merrill Lynch calculated a range of terminal values of Simon by utilizing discount rates ranging from 7.0% to 8.0% and terminal value multiples of Simon's estimated 2008 FFO ranging from 8.5x to 10.5x. This analysis resulted in a range of illustrative values for Simon on an equity value per share basis of (x) $47.18 to $57.79 based on Simon management projections and (y) $45.58 to $55.96 based on wall street projections.

        Simon Net Asset Value Analysis.    Merrill Lynch calculated a range of implied net asset per share values for Simon by applying 105% and 125% (which is reflective of a range of stock prices as a percentage of NAV for the Malls listed above in "—Simon Comparable Public Companies Analysis") to an estimate of Simon's current NAV, as contained in a Merrill Lynch research report dated May 11, 2004. Merrill Lynch derived a range of implied net asset per share values for Simon of $54.07 to $64.38 based on this analysis.

        Pursuant to a letter agreement dated June 14, 2004 between Chelsea and Merrill Lynch, Chelsea agreed to pay Merrill Lynch a customary fee, contingent and payable upon consummation of the REIT Merger. Additionally, Chelsea has agreed to reimburse Merrill Lynch for certain reasonable out-of-pocket expenses, including certain reasonable fees and disbursements of its legal counsel. Chelsea has also agreed to indemnify Merrill Lynch and certain related persons for certain liabilities related to or arising out of its engagement, including liabilities under the federal securities laws.

        Chelsea retained Merrill Lynch based upon Merrill Lynch's experience and expertise. Merrill Lynch is an internationally recognized investment banking and advisory firm. Merrill Lynch, as part of its investment banking business, is continuously engaged in the valuation of businesses and securities in connection with mergers and acquisitions, negotiated underwritings, competitive biddings, secondary distributions of listed and unlisted securities, private placements and valuations for corporate and other purposes.

        Merrill Lynch has, in the past, provided financial advisory and financing services to Chelsea and Simon and/or their affiliates and may continue to do so and has received, and may receive, fees for rendering those services. In addition, in the ordinary course of its business, Merrill Lynch may actively trade the equity and other securities of Chelsea or its affiliates, as well as securities of Simon or its affiliates, for its own account and for the accounts of customers and, accordingly, may at any time hold a long or short position in those securities.

Simon's Reasons for the Mergers

        The Simon board of directors believes that the merger agreement and the transactions contemplated thereby, including the Mergers, are advisable and fair to, and in the best interests of, Simon and its stockholders. In reaching its decision, Simon's board consulted with Simon's management team and its legal and financial advisors in this transaction. Simon's board considered both Simon's short-term and long-term interests, as well as those of its stockholders. In concluding that the merger agreement and the transactions contemplated thereby, including the Mergers, are advisable and fair to, and in the best interests of, Simon and its stockholders, Simon's board considered, among other things, the following factors:

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        Although each member of Simon's board individually considered these and other factors, the board did not collectively assign any specific or relative weights to the factors considered and did not make any determination with respect to any individual factor. The board collectively made its determination based on the conclusions reached by its members, in light of the factors that each of them considered appropriate, that the merger agreement and the transactions contemplated thereby, including the Mergers, are advisable and fair to, and in the best interests of, Simon and its stockholders.

Interests of Chelsea Directors and Officers in the Mergers

        When the Chelsea stockholders consider the Chelsea board's recommendation to vote in favor of approval of the REIT Merger and the merger agreement, the Chelsea stockholders should be aware that certain of Chelsea's directors and officers have interests in the Mergers that may be different from, or in addition to, the interests of other Chelsea stockholders. The Chelsea board was aware that these interests existed and considered them when it approved and declared advisable the merger agreement and the Mergers and determined that the merger agreement and the Mergers are advisable and fair to, and in the best interests of, Chelsea and its stockholders. The material interests are summarized below.

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        The merger agreement provides that Chelsea's chairman and chief executive officer, David C. Bloom, will be appointed as a non-voting advisory director to Simon's board of directors following the REIT Merger.

        In connection with the Mergers, Chelsea entered into employment agreements with David C. Bloom—Chief Executive Officer, Leslie T. Chao—President, Thomas J. Davis—President and Michael J. Clarke—Executive Vice President and Chief Financial Officer, which will govern the terms of the executives' employment as of the closing date of the REIT Merger (but will be void if the REIT Merger does not occur). The term of the agreements shall continue until December 31, 2006. The agreements provide for annual base salaries in the following current amounts: for Mr. Bloom, $1,000,000; for Mr. Chao, $600,000; for Mr. Davis, $600,000; and for Mr. Clarke, $350,000. Mr. Bloom's base salary is subject to increase at the discretion of Chelsea's board, while Messrs. Chao and Davis are entitled to annual increases of $25,000 and Mr. Clarke of $15,000.

        The agreements provide that the executives are eligible to earn an annual bonus of up to 200% (in the case of Mr. Bloom) and 100% (in the case of Messrs. Chao, Davis and Clarke) of the executive's base salary based upon the satisfaction of certain performance goals tied to Chelsea's existing 5-year performance plan.

        In addition, Mr. Bloom's agreement provides that he shall be paid a special bonus of $5,000,000 immediately prior to the effective time of the REIT Merger. Of that amount, $4.0 million is in consideration of Mr. Bloom's voluntary non-participation in Chelsea's LTIP, and the remainder is in consideration of Mr. Bloom's services to Chelsea. See "—Vesting of Payments under Chelsea's LTIP" below.

        The employment agreements provide that if an executive's employment terminates for any reason, the executive will be entitled to receive any accrued but unpaid base salary, bonus, unused vacation and unreimbursed expenses. If either Mr. Bloom's or Mr. Davis's employment is terminated by Chelsea without cause or by the executive for good reason at any time prior to December 31, 2006, the executive shall be entitled to (a) continuation of his base salary until December 31, 2006, (b) three times the executive's average annual bonus for the two calendar years prior to the year in which the termination of employment occurs reduced by any bonus actually paid to the executive with respect to calendar years 2004, 2005 and 2006 and (c) the continuation of health benefits for not more than two years. With respect to Mr. Chao and Mr. Clarke, upon the earlier to occur of (a) termination of Mr. Chao's or Mr. Clarke's employment by Chelsea without cause or by the executive for good reason at any time prior to December 31, 2006 or (b) December 31, 2006, each of Mr. Chao and Mr. Clarke shall be entitled to severance pay equal to two times the executive's base salary and average annual bonus for the two calendar years prior to the year in which the termination of employment occurs and the continuation of health benefits for not more than two years.

        Mr. Bloom has agreed not to compete with Chelsea in the management, operation or acquisition of shopping centers (including outlet malls) until (a) December 31, 2016, if (i) his employment is terminated by Chelsea without cause, by him for good reason, due to his disability or upon the expiration of the term of his employment agreement and (ii) he continues to receive the annuity payments described below or (b) two years following the termination of his employment by Chelsea for cause or by him without good reason. Mr. Davis has agreed to a similar restriction, except that his restriction applies solely to outlet malls and continues only through December 31, 2014.

        In partial consideration for the non-competition covenant of Mr. Bloom and Mr. Davis, respectively, Chelsea shall also purchase at the closing of the REIT Merger a $15,000,000 annuity for

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Mr. Bloom, with amounts payable in at least annual installments ratably over a period of 10 years beginning in 2007 as discussed below, and an annuity for Mr. Davis which will provide for payments to him of $1,000,000 per year for eight years beginning in 2007. Mr. Davis's annuity is identical in all other respects to Mr. Bloom's annuity. Both annuities will be owned by Chelsea, with Mr. Bloom or Mr. Davis as the primary beneficiary, as applicable, and Chelsea as the contingent beneficiary. If Mr. Bloom or Mr. Davis is terminated by Chelsea without cause or resigns for good reason or upon expiration of the term on December 31, 2006, the executive shall be entitled to receive the payments under the annuity beginning in 2007 and the continuation of health benefits for not more than two years. If Mr. Bloom's or Mr. Davis's employment is terminated by Chelsea for cause, by the executive without good reason or due to death or disability (under certain circumstances) prior to December 31, 2006, the executive shall forfeit his rights to any annuity payments, and Chelsea shall become entitled to payments under the annuity. In addition, if after payments begin under the annuity the executive violates his non-competition covenant, Chelsea shall have the right to cause the executive to forfeit any remaining annuity payments.

        Each employment agreement also provides that the executive shall never divulge confidential information, shall not solicit Chelsea's customers, clients or employees for a period of two years after termination of the executive's employment, shall assign intellectual property rights to Chelsea and shall disclose to Chelsea all business opportunities related to Chelsea for a period of one year after termination of the executive's employment.

        Chelsea's board, based upon the recommendation of its compensation committee, has determined to pay Chelsea's vice chairman, William D. Bloom, a special bonus of $500,000 upon completion of the Mergers in consideration of Mr. Bloom previously having agreed to receive below-market salary and bonus compensation for numerous prior years and his reduced participation in Chelsea's LTIP.

        Chelsea's officers, other than its chairman and chief executive officer, David C. Bloom, participate in Chelsea's LTIP, which is designed to provide a strong incentive to participants to improve Chelsea's performance. The LTIP generally requires the continued employment of participants over the five-year period beginning January 1, 2002 in order to receive the full benefits under the plan. As of March 31, 2004, Chelsea had accrued approximately $17,600,000 on its financial statements for LTIP payments which may be paid as of December 31, 2006, assuming the continued employment of each participant. In connection with the Mergers, Chelsea's board, based upon the recommendation of its compensation committee after review of Chelsea's projections and forecasts through 2007, determined to fix the total amount payable under the LTIP at $24,000,000. Chelsea expects to accrue the entire $24,000,000 amount payable under the LTIP by the closing date of the REIT Merger.

        Under the LTIP payout schedule adopted by Chelsea's board, each of the 18 participants in the LTIP shall have the option to elect within 30 days of the closing of the REIT Merger, to receive either their respective "Closing Amount" or their respective "Termination Amount". The following chart shows the respective amounts to be paid to each of Messrs. William D. Bloom, Chao, Davis and Clarke depending upon his election:

Participants

  Closing Amount
  Termination Amount
William D. Bloom   $ 880,000   $ 1,200,000
Leslie T. Chao   $ 1,540,000   $ 2,826,000
Thomas J. Davis   $ 1,540,000   $ 2,826,000
Michael J. Clarke   $ 1,155,000   $ 2,119,500

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        If a participant elects to receive the Closing Amount, Chelsea shall pay such amount after closing of the REIT Merger to the participant in full satisfaction of the participant's rights under the LTIP. If a participant elects to receive the Termination Amount or makes no election, and the participant remains employed with Chelsea through December 31, 2006 or the participant's employment with Chelsea is terminated prior to December 31, 2006 without cause, as a result of the participant's resignation for good reason or due to death or disability, the participant shall receive the full Termination Amount. If a participant elects to receive the Termination Amount or makes no election, and the participant's employment with Chelsea is terminated prior to December 31, 2006 for cause or as a result of the participant's resignation without good reason, the participant shall not be entitled to receive any payments under the LTIP.

        Each of Chelsea's officers (other than Messrs. David C. Bloom, William D. Bloom, Chao, Davis and Clarke) and employees shall be entitled to severance payments and continuation of health benefits in the event of the termination of their employment before December 31, 2007. Under the employee severance plan adopted by Chelsea to be effective upon the closing of the Mergers, if a participant with the title of "vice-president" and above terminates his or her employment for good reason or is terminated by Chelsea without cause on or before December 31, 2006, such participant shall be entitled to (i) receive a lump sum cash payment equal to the sum of (A) 12 months of base salary plus (B) the greater of the annual bonus earned by the participant for the calendar year prior to the calendar year of termination or the average annual bonus earned by the participant for the two calendar years prior to the calendar year of termination, and (ii) the continuation of health benefits for 12 months. If a participant with a title "vice-president" and above terminates his or her employment for good reason or is terminated by Chelsea without cause during 2007, such a participant will be entitled to (i) receive a lump sum cash payment equal to the sum of (A) the participant's earned but unpaid bonus, if any, for 2006 and (B) the greater of (I) the severance pay the participant is entitled to receive under any Simon severance plans or programs and (II) a pro-rata bonus for 2007, and 12 months of base salary subject to a ratable reduction and phase-out on a month by month basis throughout 2007, and (ii) continuation of health benefits for up to 12 months, subject to a ratable phase-out on a month by month basis throughout 2007. In addition, if a participant with a title below "vice-president" terminates his or her employment for good reason or is terminated by Chelsea without cause on or before December 31, 2006, such participant shall be entitled to (i) receive a lump sum cash payment equal to the sum of (A) six months of base salary plus (B) 50% of the greater of the annual bonus earned by the participant for the calendar year prior to the calendar year of termination or the average annual bonus earned by the participant for the two calendar years prior to the calendar year of termination, and (ii) the continuation of health benefits for six months. If a participant with a title below "vice-president" terminates his or her employment for good reason or is terminated by Chelsea without cause during 2007, such a participant will be entitled to (i) receive a lump sum cash payment equal to the sum of (A) the participant's earned but unpaid bonus, if any, for 2006 and (B) the greater of (I) the severance the participant is entitled to receive under any Simon severance plans or programs and (II) a pro-rata bonus for 2007 (limited to the amount provided in clause (B) in the preceding sentence), and 6 months of base salary, subject to a ratable reduction and phase-out on a month by month basis throughout the first six months of 2007, and (ii) continuation of health benefits for up to six months, subject to a ratable phase-out on a month by month basis throughout the first six months of 2007. After 2007, no participant will be entitled to benefits under the Chelsea severance plan.

        Under Chelsea's existing stock option plans, all outstanding, unvested stock options, including those options held by Chelsea's officers, will become fully vested and exercisable upon completion of the Mergers. Assuming the Mergers are consummated on September 30, 2004, at such time the

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estimated aggregate number of shares of Chelsea stock underlying stock options held by Messrs. David C. Bloom, William D. Bloom, Chao, Davis and Clarke that will vest upon the effectiveness of the Mergers is 405,000 in the aggregate and 541,000 in the aggregate for the other executive officers. The exercise prices of the executive officers' (including Messrs. David C. Bloom's, William D. Bloom's, Chao's, Davis's and Clarke's) stock options that will vest upon the Mergers range from $15.13 to $59.95 per share.

        In addition, in accordance with the terms of the merger agreement, holders of any unexercised options, including Chelsea's directors and officers, as of the REIT Merger closing will be able to elect to convert each option so held into cash and receive a single-sum payment in an amount equal to (i) the excess of the dollar value of the REIT Merger Consideration payable with respect to a share of Chelsea common stock on the closing date over the stock option exercise price multiplied by (ii) the number of shares subject to such stock options. Holders of Chelsea options who do not elect to receive cash shall instead receive options to acquire Simon common stock upon conversion of their Chelsea options in the REIT Merger. See "The Merger Agreement and Related Agreements—Merger Agreement—Chelsea Stock Options." Under the provisions of their employment contracts, Messrs. David C. Bloom, Chao, Davis and Clarke are obligated to elect to receive cash for each of their Chelsea options. Upon completion of the Mergers, all executive officers as a group will receive an aggregate cash payment of approximately $37.4 million in connection with the cash settlement of their unvested stock options (which shall become vested upon completion of the Mergers) and will receive an aggregate cash payment of approximately $80.8 million in connection with the cash settlement of their vested stock options. All non-employee directors as a group will receive an aggregate cash payment of approximately $3.2 million in connection with the cash settlement of their vested stock options.

        Each of David C. Bloom, William D. Bloom, Leslie T. Chao, Thomas J. Davis, Michael J. Clarke, Barry M. Ginsburg and Philip D. Kaltenbacher (on behalf of themselves and/or certain affiliates) have entered into a voting agreement with Simon and the Simon Operating Partnership as described under "The Merger Agreement and Related Agreements—Voting Agreements."

        Certain directors and officers of Chelsea who own common units in the Chelsea Operating Partnership will be able to defer their taxable gains by receiving in the Partnership Merger and/or the Optional Partnership Exchange Offer common and preferred partnership interests in the Simon Operating Partnership, unless they elect to convert their common units in the Chelsea Operating Partnership into shares of Chelsea common stock before the REIT Merger. The REIT Merger, in contrast, is a taxable transaction and, as a result, holders of Chelsea common stock other than certain tax-exempt holders will be required to pay tax on gains arising from exchanging their Chelsea stock for the REIT Merger Consideration. Based on an analysis of its stockholders by Merrill Lynch, Chelsea's board noted that more than 70% of the Chelsea stockholders are institutions and pass-through entities (such as mutual funds) that will not have to pay, or are less sensitive to the payment of, taxes on their gains. Unlike Chelsea's stockholders, certain holders of common units in the Chelsea Operating Partnership (including some of Chelsea's directors and officers) may face tax recapture (and thus be taxed at rates higher than those potentially applicable to the holders of Chelsea common stock in the REIT Merger) with respect to a portion of their gains if they participate in a taxable transaction involving their common units in the Chelsea Operating Partnership. Such potential tax recapture could arise if a holder of common units in the Chelsea Operating Partnership obtained its units in tax-deferred transactions when it contributed interests in real estate, which may have been subject to depreciation for U.S. federal income tax purposes, to the Chelsea Operating Partnership. In addition,

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unlike holders of Chelsea common stock who have an initial tax basis equal to the price paid for the common stock, holders of common units in the Chelsea Operating Partnership who obtained their common units in exchange for a contribution of property in a tax-deferred transaction have a tax basis in their common units initially derived from their tax basis in the contributed property, which could be a fraction of the value of the common units received in exchange for the contribution of property.

        This aspect of the transaction is expected to allow David C. Bloom (who, together with his affiliates, beneficially owns 1,773,620 common units), Leslie T. Chao (who, together with his wife, beneficially owns 324,458 common units), William D. Bloom (who beneficially owns 810,470 common units), Barry M. Ginsburg (who, together with his affiliates, beneficially owns 398,036 common units) and Philip D. Kaltenbacher (who, together with his affiliates, beneficially owns 751,238 common units), as well as certain of their family members, trusts and other holders of common units in the Chelsea Operating Partnership, the opportunity to defer the otherwise significant taxable gain they would face if the Partnership Merger or the Optional Partnership Exchange Offer was taxable like the REIT Merger.

        Pursuant to the tax protection agreement that will be entered into upon closing of the REIT Merger, Simon and the Simon Operating Partnership will agree, for the benefit of certain limited partners of the Chelsea Operating Partnership (some of whom may include certain of Chelsea's directors and officers, including David C. Bloom, William D. Bloom, Leslie T. Chao, Barry M. Ginsburg and Philip D. Kaltenbacher and certain of their family members and affiliates) not to sell, transfer, exchange or otherwise dispose of, except in tax-deferred transactions, six specified properties. Such properties are sometimes referred to herein as the "protected properties." These restrictions do not cover all properties held by the surviving partnership and have a duration of 15 years for one property and 10 years for the five other properties. In addition, Simon and the Simon Operating Partnership have agreed for tax purposes to make available to certain limited partners of the Chelsea Operating Partnership the opportunity to guarantee indebtedness or enter into similar arrangements providing limited protection from the recognition of taxable income and gain.

        The merger agreement provides that, following completion of the REIT Merger, Chelsea, as the surviving company, will indemnify and hold harmless all past and present directors and officers of Chelsea to the same extent these individuals were indemnified as of the date of the merger agreement pursuant to Chelsea's charter and bylaws for acts or omissions occurring at or prior to the completion of the REIT Merger. In addition, for a period of six years after the REIT Merger, Chelsea, as the surviving company, will maintain in effect in its (or any successor's) charter and bylaws (or similar governing documents) provisions regarding elimination of liability of directors, indemnification of officers, directors and employees and advancement of expenses which are no less advantageous to the intended beneficiaries than those currently contained in the charter and bylaws of Chelsea. The merger agreement further provides that Chelsea, as the surviving company, will maintain its policies of directors' and officers' liability insurance for a period of six years after completion of the REIT Merger (provided that Chelsea may substitute policies of at least the same coverage and amounts containing terms and conditions that are, in the aggregate, no less advantageous to the insured) with respect to claims arising from facts or events that occurred on or before completion of the REIT Merger, including events that are related to the merger agreement. However, Chelsea will not be required to expend more than 200% of the current amounts expended by Chelsea for its policies. If the annual premiums exceed this amount, then Chelsea, as the surviving company, is obligated to obtain a policy with the greatest coverage available for the above-mentioned amount. These provisions shall be binding upon any successor to Chelsea and, if Chelsea fails to comply with its indemnification obligations described above, Simon shall fulfill such obligations of Chelsea.

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Anticipated Accounting Treatment

        It is expected that the Mergers will be accounted for as a purchase by Simon of Chelsea under generally accepted accounting principles. Under the purchase method of accounting, the purchase price will be allocated to the fair value of tangible and any identified intangible assets acquired and liabilities assumed. These allocations will be added to the assets and liabilities of Simon. Financial statements of Simon issued after consummation of the Mergers will reflect the operations of Chelsea after the Mergers and will not be restated retroactively to reflect the historical financial position or results of operations of Chelsea.

        All unaudited pro forma financial information contained in this proxy statement/prospectus has been prepared using the purchase method to account for the Mergers based upon preliminary estimates made by Simon. The allocation of the purchase price will be determined after the Mergers are completed and after completion of an analysis to determine the assigned fair values of Chelsea's tangible and identifiable intangible assets and liabilities. Accordingly, the final purchase accounting adjustments and restructuring may be materially different from the unaudited pro forma adjustments presented in this proxy statement/prospectus. Any decrease in the net fair value of the assets and liabilities of Chelsea as compared to the unaudited pro forma information included in this proxy statement/prospectus will have the effect of increasing the amount of the excess purchase price required to be allocated.

        At its June 30-July 1, 2004 meeting, the Emerging Issues Task Force ("EITF") of the Financial Accounting Standards Board reached a tentative conclusion on EITF Issue No. 04-8 "The Effect of Contingently Convertible Debt on Diluted Earnings per Share" ("EITF No. 04-8"). The EITF tentatively concluded that contingently convertible debt should be included in diluted earnings per share computations using the if-converted method regardless of whether the market price trigger (or other contingent feature) has been satisfied. The Financial Accounting Standards Board has asked the EITF to continue to deliberate EITF No. 04-8 and to clarify during its September 29-30, 2004 meeting whether the tentative conclusion should be expanded to include other instruments that are convertible into common stock after contingencies have been satisfied, such as contingently convertible equity. If EITF No. 04-8 is issued and expanded to include contingently convertible equity, then the shares of Simon common stock into which the shares of Simon 6% Convertible Preferred Stock are convertible would, as of the initial issuance date of the Simon 6% Convertible Preferred Stock, be considered a potentially dilutive security for the purposes of calculating diluted earnings per share and diluted FFO per share. We currently expect that for the purposes of calculating diluted FFO per share these securities would be considered dilutive securities and for the purposes of calculating diluted earnings per share these securities would be considered antidilutive for so long as the Simon 6% Convertible Preferred Stock is outstanding.

Regulatory Matters Related to the Mergers

        We do not need to obtain any material regulatory approvals in order to consummate the Mergers.

Merger Fees, Costs and Expenses

        All expenses incurred in connection with the merger agreement and the transactions contemplated by the merger agreement will be paid by the party incurring those expenses, except that Simon and Chelsea have agreed to share equally the fees, costs and expenses related to filing, printing and mailing Simon's registration statement on Form S-4, this proxy statement/prospectus and the solicitation materials for the holders of common units of the Chelsea Operating Partnership. Notwithstanding the foregoing, Chelsea and Simon have agreed to pay certain of the other party's fees in certain circumstances when the merger agreement is terminated. See "The Merger Agreement and Related

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Agreements—Merger Agreement—Termination Fees; Effectiveness of Put Agreement; Other Expenses."

No Dissenters' Rights of Appraisal

        The MGCL provides that in some mergers, stockholders who do not vote in favor of a merger and who comply with a series of statutory requirements have the right to receive, instead of the merger consideration, the fair value of their stock as appraised by appraisers appointed by a Maryland court or, in certain circumstances, by the court itself, payable in cash. However, this right to appraisal is not available under the MGCL to holders of Chelsea common stock or Chelsea Series A Preferred Stock in connection with the REIT Merger.

Stock Exchange Listing and Related Matters

        Simon has agreed to use its reasonable best efforts to cause the shares of Simon common stock and Simon 6% Convertible Preferred Stock to be issued in the REIT Merger and the shares of Simon common stock to be reserved for issuance upon the exercise of Simon options issued in exchange for Chelsea options to be approved for listing, upon official notice of issuance, on the New York Stock Exchange. Simon will file a supplemental listing application with the New York Stock Exchange after the date of this proxy statement/prospectus.

        Simon does not intend to list the Simon 83/8% Preferred Stock on any national securities exchange or to seek the admission thereof for trading on any automated dealer quotation system. The Simon 83/8% Preferred Stock is expected to be eligible for trading in the PORTAL market, the National Association of Securities Dealer's screen-based automated market for trading of securities eligible for resale under Rule 144A.

        The Chelsea common stock will be delisted from the New York Stock Exchange following consummation of the REIT Merger.

Resale of Simon Securities

        The Simon common stock, Simon 6% Convertible Preferred Stock and Simon 83/8% Preferred Stock issued in or issuable as a result of the REIT Merger will not be subject to any restrictions on transfer arising under the Securities Act, except for shares issued to any Chelsea stockholder who may be deemed to be an "affiliate" of Simon or Chelsea for purposes of Rule 144 or Rule 145 under the Securities Act. It is expected that each affiliate will enter into an agreement with Simon providing that the affiliate will not transfer any Simon common stock, Simon 6% Convertible Preferred Stock or Simon 83/8% Preferred Stock received in the REIT Merger except in compliance with the Securities Act.

        This document does not constitute a registration statement covering resales of shares of Simon common stock, Simon 6% Convertible Preferred Stock or Simon 83/8% Preferred Stock by persons who are otherwise restricted from selling their shares of Simon common stock, Simon 6% Convertible Preferred Stock or Simon 83/8% Preferred Stock pursuant to Rule 144 or Rule 145 of the Securities Act.

Certain Litigation Relating to the Mergers

        On June 24, 2004, an action was commenced by Janey McConnell against Chelsea and the seven members of Chelsea's board of directors in the Court of Chancery in Essex County, New Jersey. McConnell's suit is styled as a class action purportedly on behalf of all holders of Chelsea common stock (other than the defendants and any person, firm, trust, corporation or other entity related to or affiliated with the defendants). The complaint alleges that the members of the Chelsea board of directors have violated fiduciary duties of care, loyalty, candor and independence owed to Chelsea

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public shareholders. The complaint further alleges that the consideration to be paid to the class members in the REIT Merger is unfair and inadequate because the transaction will be taxable as to the class members, but not taxable as to the holders of common units in the Chelsea Operating Partnership, including four of the seven Chelsea board members. The complaint further alleges that the Chelsea board members structured the REIT Merger to benefit the holders of common units at the expense of the common stockholders, refused to negotiate in good faith with other potential purchasers of Chelsea, failed to maximize shareholder value and provided certain Chelsea insiders with preferential treatment, including employment contracts with Simon, all at the expense of Chelsea and its public stockholders, and in so doing breached their fiduciary duties. The complaint also alleges that Simon and the defendants agreed to the following benefits to Chelsea insiders and deal provisions, which allegedly operate to the benefit of the Chelsea insiders, at the expense of its public stockholders and allegedly inhibit open-market forces on the terms of the sale for the maximization of stockholder value:

        The plaintiff seeks relief:

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        Chelsea believes that the allegations contained in the complaint are without merit and intends to vigorously defend the action.

Recent Developments

        On August 11, 2004, Simon issued two tranches of senior unsecured notes to institutional investors pursuant to Rule 144A totaling $900.0 million at a weighted average fixed interest rate of 5.29%. The first tranche consists of $400.0 million at a fixed interest rate of 4.88% due August 15, 2010 and the second tranche consists of $500.0 million at a fixed interest rate of 5.63% due August 15, 2014. Simon will use the net proceeds of approximately $891 million to repay maturing senior notes, unencumber two properties, reduce the balance of its $1.25 billion unsecured revolving credit facility and for general working capital purposes.

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THE MERGER AGREEMENT AND RELATED AGREEMENTS

        This proxy statement/prospectus contains a brief summary of the merger agreement, the voting agreements and the put agreement. This summary is qualified in its entirety by reference to the full texts of such agreements, which are included as Appendices A, B and C hereto and which are incorporated herein by reference.

Merger Agreement

        The following summary of the merger agreement is qualified in its entirety by reference to the complete text of the merger agreement, which is attached as Appendix A to this document. We urge you to read the entire merger agreement because it is the legal document governing the Mergers.

        Simon Acquisition I, LLC, a direct wholly owned subsidiary of the Simon Operating Partnership, will merge with and into Chelsea, with Chelsea continuing as the surviving corporation and a direct wholly owned subsidiary of the Simon Operating Partnership.

        At the effective time of the REIT Merger, each issued and outstanding share of Chelsea common stock (other than shares owned by Chelsea, Simon or their direct or indirect wholly owned subsidiaries) shall be converted into the right to receive:

        In the event that the average of ten randomly selected (in a manner reasonably acceptable to Simon and Chelsea) closing prices of Simon common stock on the New York Stock Exchange during the period of the 30 most recent trading days ending on the fifth business day prior to the Closing Date (the "Closing Date Reference Price") is greater than $58.75, then the Common Exchange Ratio shall be adjusted to equal 0.2936 multiplied by a fraction, the numerator of which will be $58.75, and the denominator of which will be the Closing Date Reference Price, and in the event that the Closing Date Reference Price is less than $43.43, then the Base Cash Consideration shall be increased by an amount equal to the product of (x) an amount equal to (1) 0.2936 multiplied by a fraction, the numerator of which will be $43.43, and the denominator of which will be the Closing Date Reference Price less (2) 0.2936 multiplied by (y) the Closing Date Reference Price, rounded to the nearest cent.

        If, between the date of the merger agreement and the effective time of the REIT Merger, Simon or Chelsea, as the case may be, should split, combine or otherwise reclassify the Simon common stock or the Chelsea common stock, or pay a stock dividend or other stock distribution in Simon common stock or Chelsea common stock, as applicable, or otherwise change the Simon common stock or Chelsea common stock into any other securities, or make any other such stock dividend or distribution in capital stock of Simon or Chelsea in respect of the Simon common stock or the Chelsea common stock, respectively, then any number or amount contained in the merger agreement which is based upon the price of the Simon common stock or the number of shares of Chelsea common stock or Simon common stock, as the case may be (including but not limited to the cash consideration, the Common Exchange Ratio and the Preferred Exchange Ratio), will be appropriately adjusted to reflect such split, combination, dividend or other distribution or change.

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        At the effective time of the REIT Merger, each issued and outstanding share of Chelsea Series A Preferred Stock (other than shares owned by Chelsea, Simon or their direct or indirect wholly owned subsidiaries) shall be converted into the right to receive one fully paid nonassessable share of Simon 83/8% Preferred Stock.

        Chelsea will redeem any outstanding shares of its 9% Series B Cumulative Redeemable Preferred Stock prior to the effective time of the REIT Merger.

        Unless the parties agree otherwise, the closing of the REIT Merger shall occur on the second business day following the satisfaction or waiver of the closing conditions. See "—Conditions to Completion of the REIT Merger." The REIT Merger shall become effective at such time as the articles of merger are accepted for record by the State Department of Assessments and Taxation of Maryland, or at such later time as the parties shall agree and specify in the articles of merger. The parties intend to file the articles of merger as soon as practicable after the closing of the REIT Merger.

        Immediately following the effective time of the REIT Merger, Simon Acquisition II, LLC, an indirect wholly owned subsidiary of the Simon Operating Partnership, will merge with and into the Chelsea Operating Partnership, with the Chelsea Operating Partnership continuing as the surviving entity. Immediately after consummation of the Partnership Merger, the partners of the Chelsea Operating Partnership will be Chelsea (which at that point will be a subsidiary of the Simon Operating Partnership), Simon Acquisition Holdings II, LLC and, if any holders of common units in the Chelsea Operating Partnership elect to participate in the Optional Partnership Exchange Offer, the Simon Operating Partnership. Thereafter, Chelsea will adopt a plan of liquidation as provided in the merger agreement.

        If the holders of all of the outstanding common units of the Chelsea Operating Partnership elect to participate in the Optional Partnership Exchange Offer, there will be no need to consummate the Partnership Merger. See "—The Optional Partnership Exchange Offer."

        At the effective time of the Partnership Merger, each issued and outstanding common unit of the Chelsea Operating Partnership (excluding common units owned by Chelsea, the Chelsea Operating Partnership, Simon, the Simon Operating Partnership or their direct or indirect wholly owned subsidiaries which shall be cancelled in the Partnership Merger (other than any common units acquired by the Simon Operating Partnership in the Optional Partnership Exchange Offer, which shall remain outstanding after the Partnership Merger)) shall be converted into the right to receive:

        The common partnership interests in the Simon Operating Partnership to be issued in the Partnership Merger are exchangeable, at the request of the holder of such interests, for cash or, at Simon's option, for shares of Simon common stock on a one-for-one basis. The preferred partnership

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interests in the Simon Operating Partnership to be issued in the Partnership Merger will have the same economic terms as the Simon 6% Convertible Preferred Stock except that they shall be, at the request of the holder of such interests, (1) convertible into common partnership interests in the Simon Operating Partnership on the same terms as the Simon 6% Convertible Preferred Stock shall be convertible into Simon common stock and (2) exchangeable for cash or, at Simon's option, for shares of Simon 6% Convertible Preferred Stock on a one-for-one basis.

        In the event that the Closing Date Reference Price is greater than $58.75, then the Common Interest Exchange Ratio shall be adjusted to equal 0.6459 multiplied by a fraction, the numerator of which will be $58.75, and the denominator of which will be Closing Date Reference Price, and (ii) in the event that the Closing Date Reference Price is less than $43.43, then the Common Interest Exchange Ratio shall be adjusted to equal 0.6459 multiplied by a fraction, the numerator of which will be $43.43, and the denominator of which will be Closing Date Reference Price.

        The Series A Cumulative Redeemable Preferred Units shall be cancelled by virtue of the Partnership Merger.

        The Chelsea Operating Partnership will redeem any outstanding Series B Cumulative Redeemable Preferred Units prior to the effective time of the Partnership Merger.

        The closing of the Partnership Merger shall take place immediately after the effectiveness of the REIT Merger. See "—Conditions to Completion of the Partnership Merger." The Partnership Merger shall become effective at such time as the merger certificate is duly filed with the office of the Secretary of State of the State of Delaware, or at such later time as the parties shall agree and specify in the merger certificate. As discussed below, if the holders of all of the outstanding common units of the Chelsea Operating Partnership elect to participate in the Optional Partnership Exchange Offer, there will be no need to consummate the Partnership Merger.

        Holders of common units in the Chelsea Operating Partnership may elect to exchange their common units with the Simon Operating Partnership for the Partnership Merger Consideration immediately prior to the effective time of the Partnership Merger.

        If the holders of all of the outstanding common units of the Chelsea Operating Partnership elect to participate in the Optional Partnership Exchange Offer, there will be no need to consummate the Partnership Merger. Instead, the Simon Operating Partnership will issue the Partnership Merger Consideration immediately after consummation of the REIT Merger to the holders of outstanding common units of the Chelsea Operating Partnership in exchange for such common units.

        Simon will deposit with Mellon Investor Services LLC or such other bank or trust company as Simon shall determine that is reasonably satisfactory to Chelsea, cash and certificates representing shares of Simon common stock and Simon 6% Convertible Preferred Stock to be paid to the holders of Chelsea common stock pursuant to the merger agreement and certificates representing shares of Simon 83/8% Preferred Stock to be paid to the holders of Chelsea Series A Preferred Stock pursuant to the merger agreement. Promptly after the effective time of the REIT Merger, each record holder of a

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certificate of stock of Chelsea shall be sent a letter of transmittal and instructions on how to surrender such certificate. Thereafter, each holder of Chelsea common stock who returns a duly executed transmittal letter and such other documents as are reasonably required by the exchange agent shall be entitled to receive a certificate or certificates representing the number of full shares of Simon common stock and Simon 6% Convertible Preferred Stock into which the aggregate number of shares of Chelsea common stock owned by such holder have been converted pursuant to the merger agreement and the cash consideration, plus any cash that such holder is entitled to in lieu of fractional shares of Simon common stock and Simon 6% Convertible Preferred Stock and in respect of any dividends or other distributions to which such holder is entitled. Each holder of Chelsea Series A Preferred Stock who returns a duly executed transmittal letter and such other documents as are reasonably required by the exchange agent shall be entitled to receive a certificate or certificates representing the number of full shares of Simon 83/8% Preferred Stock into which the aggregate number of shares of Chelsea Series A Preferred Stock have been converted pursuant to the merger agreement and the amount of cash that such holder is entitled to in respect of any dividends or other distributions to which such holder is entitled.

        Holders of unexchanged Chelsea common stock or Chelsea Series A Preferred Stock will not be entitled to receive any dividends or other distributions payable by Simon with respect to those shares of Simon common stock, Simon 6% Convertible Preferred Stock or Simon 83/8% Preferred Stock (as the case may be) into which such Chelsea common stock or Chelsea Series A Preferred Stock is to be converted pursuant to the merger agreement or cash in lieu of fractional shares of Simon common stock or Simon 6% Convertible Preferred Stock (to the extent applicable) until the applicable Chelsea certificate is surrendered. Upon surrender or transfer, those holders will receive, without interest, accumulated dividends and distributions together with cash in lieu of fractional shares.

        Each holder of shares of Chelsea common stock exchanged pursuant to the REIT Merger who would otherwise have been entitled to receive a fraction of a share of Simon common stock shall receive, in lieu thereof, cash in an amount equal to the product of (i) such fractional part of a share of Simon common stock multiplied by (ii) the average per share closing price of Simon common stock quoted on the New York Stock Exchange for the 10 trading days ending two days prior to the closing date of the REIT Merger. Each holder of shares of Chelsea common stock exchanged pursuant to the REIT Merger who would otherwise have been entitled to receive a fraction of a share of Simon 6% Convertible Preferred Stock shall receive, in lieu thereof, cash in an amount equal to the product of (i) such fractional part of a share of Simon 6% Convertible Preferred Stock multiplied by (ii) $50.00. As promptly as practicable after the determination of the amount of cash, if any, to be paid to holders of fractional interests, the exchange agent shall so notify Simon, and Simon shall cause the exchange agent to forward payments to such holders of fractional interests.

        Upon the making of an affidavit that a certificate representing shares of Chelsea common stock or Chelsea Series A Preferred Stock has been lost, stolen or destroyed, and at Simon's option upon the delivery of an indemnity bond, the exchange agent will issue the REIT Merger Consideration or the Simon 83/8% Preferred Stock (as applicable), any cash in lieu of fractional shares of Simon common stock or Simon 6% Convertible Preferred Stock (to the extent applicable) and any unpaid dividends or other distributions in respect of the shares of Simon common stock, Simon 6% Convertible Preferred Stock or Simon 83/8% Preferred Stock (as the case may be) represented by the lost, stolen or destroyed certificates to which the holder is entitled.

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        Simon and the Simon Operating Partnership generally shall be entitled to deduct and withhold from the consideration otherwise payable pursuant to the merger agreement to any holder of shares of Chelsea common stock, any holder of Chelsea Series A Preferred Stock, any holder of Chelsea common units and any holder of Chelsea options such amounts as it is required to deduct and withhold with respect to the making of such payment under the Internal Revenue Code and the rules and regulations promulgated thereunder, or any provision of state, local or foreign tax law.

        Each outstanding and unexercised option to purchase shares of Chelsea common stock granted under Chelsea's 1993 Stock Option Plan, as amended, and Chelsea's 2000 Stock Option Plan, as amended, whether or not exercisable or vested, will be converted at the effective time of the REIT Merger into a replacement option to purchase shares of Simon common stock on the same terms and conditions under which it was originally issued (but taking into account any changes thereto, including the acceleration thereof, provided for in, or required or permitted by, Chelsea's option plans, certain specified award agreements or other agreements or such option grant by reason of the merger agreement and the transactions contemplated thereby). Each new Simon option shall be exercisable for a number of shares of Simon common stock equal to (i) the number of shares of Chelsea common stock subject to the Chelsea option to which such new Simon option relates multiplied by (ii) the Option Exchange Ratio (as defined below), rounded to the nearest share. The per share exercise price of each new Simon option shall equal (A) the per share exercise price of the Chelsea option to which such new Simon option relates divided by (B) the Option Exchange Ratio, rounded to the nearest one-hundredth of a cent. The "Option Exchange Ratio" is equal to a fraction, the numerator of which is the per share dollar value of the REIT Merger Consideration on the closing date of the REIT Merger, and the denominator of which is the closing price of a share of Simon common stock quoted on the New York Stock Exchange on the closing date of the REIT Merger. All Chelsea stock options that have not vested under the Chelsea stock option plans will vest upon completion of the REIT Merger. Notwithstanding the foregoing, in the case of any Chelsea option to which Section 421 of the Internal Revenue Code as of the effective time of the REIT Merger (after taking into account the effect of any accelerated vesting thereof) applies by reason of its qualification under Section 422 of the Internal Revenue Code, the exercise price, the number of shares subject to such option and the terms and conditions of exercise of such option shall be determined in a manner consistent with the requirements of Section 424(a) of the Internal Revenue Code.

        Prior to the effective time of the REIT Merger and subject to the terms of the Chelsea option plans, Chelsea shall take all actions necessary and appropriate to allow each holder of a Chelsea option (whether or not exercisable or vested) to elect, in lieu of the treatment provided above, to convert each Chelsea option so held into the right to receive an amount of cash at the effective time of the REIT Merger equal to the product of (i) the excess, if any, of the per share dollar value of the REIT Merger Consideration on the closing date of the REIT Merger over the per share exercise price of such Chelsea option and (ii) the number of shares of Chelsea common stock subject to such Chelsea option (such payment to be net of all applicable withholding taxes). Under the provisions of their employment contracts, Messrs. David C. Bloom, Chao, Davis and Clarke are obligated to elect to receive cash for each of their Chelsea options.

        The merger agreement contains representations and warranties made by Chelsea and the Chelsea Operating Partnership to Simon and the Simon Operating Partnership. These representations and warranties relate to, among other things:

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        The merger agreement also contains representations and warranties made by Simon and the Simon Operating Partnership to Chelsea and the Chelsea Operating Partnership. These representations and warranties relate to, among other things:

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        Certain of these representations and warranties are qualified as to "materiality" or "material adverse effect". For purposes of the merger agreement, "material adverse effect" means with respect to Chelsea or Simon:

        The representations and warranties in the merger agreement do not survive the effective time of the Mergers and, except as described below under "—Termination, Fees; Effectiveness of Put Agreement; Other Expenses" if the agreement is validly terminated, neither party will have any liability or obligation for its representations and warranties, or otherwise under the merger agreement, unless the party has willfully breached any representation, warranty or covenant contained therein.

        Each of the parties has agreed to certain covenants in the merger agreement concerning the conduct of its respective businesses between the date the merger agreement was signed and the completion of the Mergers. The following summarizes the more significant of these covenants.

        Subject to specified exceptions, Chelsea has agreed that it and its subsidiaries shall conduct their respective businesses in the usual, regular and ordinary course in substantially the same manner as previously conducted and shall use their commercially reasonable best efforts to preserve their current business organizations, assets and technologies, keep available the services of their current officers and employees and maintain their relationships with customers, collaborators, suppliers, licensors, licensees, distributors and others having business dealings with them. Chelsea has also agreed that it and its

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subsidiaries shall not authorize, commit or agree to do the following, subject to certain exceptions set forth in the merger agreement, without the prior written consent of Simon:

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        Subject to specified exceptions, Simon has agreed that it and its subsidiaries shall use their commercially reasonable best efforts to preserve their current business organizations, assets and technologies, keep available the services of their current officers and employees and maintain their relationships with customers, collaborators, suppliers, licensors, licensees, distributors and others having business dealings with them. Simon and its subsidiaries shall not authorize, commit or agree to do the following, subject to certain exceptions set forth in the merger agreement, without the prior written consent of Chelsea:

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        The merger agreement requires Chelsea to call and hold a meeting of its stockholders to approve the REIT Merger and the merger agreement. Chelsea, however, is not required to hold a special meeting if the merger agreement is terminated. Additionally, subject to specified conditions related to its statutory duties discussed below, the board of directors of Chelsea has agreed to recommend that Chelsea's stockholders vote in favor of approval of the REIT Merger and the merger agreement. Chelsea has agreed, subject to certain exceptions, to give Simon two days' prior written notice of any withdrawal of its recommendation to its stockholders to approve the REIT Merger and the merger agreement.

        Chelsea and Simon have agreed to provide each other with reasonable and prompt access to its and its subsidiaries' respective properties, books, contracts, commitments, representatives and records, subject to applicable law and confidentiality obligations.

        The merger agreement precludes Chelsea and any of its subsidiaries from, directly or indirectly (through its officers, directors, employees, investment bankers, attorneys, accountants, auditors or other advisors or representatives):

        "Takeover Proposal" means any offer or proposal for any direct or indirect acquisition or purchase, in one transaction or a series of transactions, of 20% or more of the assets of Chelsea and its subsidiaries, taken as a whole, or 20% or more in voting power of the outstanding shares of Chelsea common stock or any class or series of equity or voting securities of Chelsea or any significant subsidiary (including without limitation the partnership units in the Chelsea Operating Partnership), any tender offer or exchange offer that if consummated would result in any person beneficially owning 20% or more in voting power of the outstanding shares of Chelsea common stock or any class or series of equity or voting securities of Chelsea or any significant subsidiary (including without limitation the partnership units in the Chelsea Operating Partnership), or any merger, consolidation, business combination, recapitalization, reclassification, share exchange, liquidation, dissolution or similar transaction or series of transactions involving Chelsea or any significant subsidiary.

        The merger agreement also requires Chelsea to notify Simon promptly after receipt or occurrence of (i) any Takeover Proposal, (ii) any request for information with respect to any Takeover Proposal, (iii) any inquiry, proposal, discussions or negotiation with respect to any Takeover Proposal and (iv) the material terms and conditions of any such Takeover Proposal, request for information, inquiry, proposal, discussion or negotiation and the identity of the person making any such Takeover Proposal,

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request for information, inquiry or proposal or with whom discussions or negotiations are taking place. Chelsea must promptly inform Simon of the status and details (including amendments or proposed amendments) of any such inquiry, request or Takeover Proposal.

        Nothing in the merger agreement prohibits Chelsea and the Chelsea board of directors from:

except that, other than pursuant to the merger agreement, Chelsea, the Chelsea board of directors or any committee of Chelsea may not withdraw (or modify in a manner adverse to Simon), or propose to withdraw (or modify in a manner adverse to Simon), its position with respect to the merger agreement, the related agreements or the Mergers or adopt, approve or recommend, or propose to adopt, approve or recommend, a Takeover Proposal.

        Before the REIT Merger becomes effective, Chelsea may negotiate and participate in discussions and negotiations with a person that has made an unsolicited written Takeover Proposal that has not resulted from a breach of the "No Solicitation" provision described above. In such a situation, Chelsea may furnish information concerning its business, properties or assets to such person pursuant to appropriate confidentiality agreements (on terms not less favorable to Chelsea than the confidentiality agreement between Simon and Chelsea); except that the Chelsea board of directors is allowed to take any such action if, and only if, prior to taking such action, the Chelsea board of directors has determined by the affirmative vote of a majority of all of the members of the Chelsea board of directors that (i) such Takeover Proposal would result in, or would reasonably be expected to result in, a Superior Proposal and (ii) after receiving advice from outside legal counsel, the failure to provide information or access or to engage in discussions or negotiations with such person would be reasonably likely to cause the Chelsea board of directors to breach its statutory duties to Chelsea under applicable law.

        "Superior Proposal" means a Takeover Proposal (as defined above, except that the references to "20%" in such definition shall be deemed to be a references to "50%") whereby the person making such proposal has on an unsolicited basis submitted a bona fide written proposal to Chelsea on terms that the Chelsea board of directors determines in its good faith judgment (after consultation with a nationally recognized financial advisor, taking into account all the terms and conditions of the Takeover Proposal, including any break-up fees, expense reimbursement provisions and conditions to consummation) are more favorable to Chelsea's stockholders, from a financial point of view, than the merger agreement and the REIT Merger, taken as a whole, and that is reasonably capable of being completed. Chelsea is prohibited from providing any nonpublic information regarding Chelsea, which was not previously provided to Simon, to any other person unless such information is simultaneously provided to Simon.

        If the Chelsea board of directors, after consultation with outside legal counsel, determines that failure to accept a Superior Proposal would likely cause a breach of the statutory duties of the Chelsea board of directors to Chelsea under applicable law, the Chelsea board of directors may inform the holders of Chelsea common stock that it no longer believes that the REIT Merger is advisable and no longer recommends approval. However, the Chelsea board of directors may only withdraw its recommendation before the Chelsea stockholders meeting to vote on the merger agreement and two business days after specifying the terms, conditions and identity of the Superior Proposal to Simon. In addition, the Chelsea board of directors may only withdraw its recommendation if (i) during the two business day period Simon does not make an offer that the Chelsea board of directors reasonably

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concludes in good faith (following consultation with its nationally recognized financial advisors and outside counsel) is as favorable to the Chelsea stockholders as such Superior Proposal and (ii) at the end of the two business day period, the Takeover Proposal continues to be a Superior Proposal. If Chelsea complies with these provisions, at any time after the two business day period following notification to Simon of Chelsea's consideration to do so (but in no event following approval of the REIT Merger and the merger agreement at the Chelsea special meeting), Chelsea may terminate the merger agreement and enter into an agreement with respect to the Superior Proposal; provided that prior to such termination Chelsea must pay to Simon the full amounts, if any, required under the section below entitled "—Termination Fees; Effectiveness of Put Agreement; Other Expenses" to be paid at that time.

        Each of the parties to the merger agreement has agreed to use its reasonable best efforts to take, or cause to be taken, all actions, and do, or cause to be done, and to assist and cooperate with the other parties in doing, all things necessary, proper or advisable to complete the REIT Merger, the Partnership Merger and the other transactions contemplated by the merger agreement in the most expeditious manner practicable, including using reasonable best efforts to obtain all necessary actions or nonactions, waivers, consents, approvals, orders and authorizations from governmental entities and to make all necessary registrations, declarations and filings (including filings with governmental entities, if any) and to take all steps as may be necessary to obtain an approval or waiver from, or to avoid an action or proceeding by, any governmental entity. However, in connection with using its reasonable best efforts, Simon will not be required to divest or hold separate or enter into any licensing or similar arrangement with respect to any assets (whether tangible or intangible) or any of Simon's, Chelsea's or any of their respective affiliates' businesses or cease to conduct business or operations in any jurisdiction in which Simon, Chelsea or any of their respective affiliates conducts business or operations as of the date of the merger agreement.

        Chelsea has also agreed to use its reasonable best efforts to obtain all consents of third parties necessary, proper or advisable to consummate the Mergers, to provide any notices to third parties required to be provided prior to the effective time of the REIT Merger and the Partnership Merger and to comply in all material respects with the terms of its insurance policies.

        In the merger agreement, Simon has agreed that following the Mergers, Simon will or will cause the surviving company, as applicable, or any subsidiary of either of them:

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        In the merger agreement, Chelsea has agreed to take all actions necessary and appropriate to ensure that:

        Simon has agreed that after the REIT Merger, Chelsea, as the surviving company, will indemnify and hold harmless Chelsea's current directors and officers. In addition, for a period of six years after the REIT Merger, Chelsea, as the surviving company, will (A) maintain in effect in its (or any successor's) charter and bylaws (or similar governing documents) provisions regarding elimination of liability of directors, indemnification of officers, directors and employees and advancement of expenses which are no less advantageous to the intended beneficiaries as those currently contained in the charter and bylaws of Chelsea and (B) maintain directors' and officers' insurance. See "The Mergers—Interests of Chelsea Directors and Officers in the Mergers."

        Simon has agreed to use its reasonable best efforts to cause the shares of Simon common stock and Simon 6% Convertible Preferred Stock to be issued in the REIT Merger, and the shares of Simon common stock to be reserved for issuance upon the exercise of Simon options issued in exchange for Chelsea options, to be approved for listing, upon official notice of issuance, on the New York Stock Exchange. Simon also intends to list on the New York Stock Exchange the shares of Simon common stock to be reserved for issuance upon the conversion of the Simon 6% Convertible Preferred Stock, the shares of Simon common stock to be issued upon exchange of the common partnership interests to be issued in the Partnership Merger and the shares of Simon 6% Convertible Preferred Stock to be issued upon exchange of the preferred partnership interests to be issued in the Partnership Merger.

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        The merger agreement prohibits Chelsea and the Chelsea Operating Partnership from making any distribution or dividend without the prior written consent of Simon. Permission is not required, however, for (i) distributions required for Chelsea to maintain its REIT status, (ii) quarterly distributions of up to $0.60 per share of Chelsea common stock, (iii) a distribution per common unit of the Chelsea Operating Partnership in the same amount as any dividend per share of Chelsea common stock permitted under the merger agreement, (iv) regular quarterly dividends on the Chelsea Series A Preferred Stock of up to $1.046875 per share and (v) regular quarterly dividends on the Series B Cumulative Redeemable Preferred Units of the Chelsea Operating Partnership of up to $1.125 per unit.

        Simon and Chelsea have agreed to coordinate setting the record and payment dates for each distribution with respect to the Chelsea common stock with the record and payment dates for quarterly dividends on the Simon common stock. However, this does not apply to Chelsea's regular second quarter 2004 dividend and Simon currently intends to consent to Chelsea not complying with this requirement with respect to coordinating Chelsea's regular third quarter dividend with Simon's next quarterly dividend currently anticipated to be paid in August 2004.

        The merger agreement also provides that Simon and Chelsea shall declare a partial closing dividend to their stockholders with a record date at the close of business on the day before the effective time of the REIT Merger in an amount equal to such party's most recent quarterly dividend rate, multiplied by the number of days since the last dividend record date through and including the effective date of the REIT Merger, and divided by the total number of days in the calendar quarter in which such dividend is declared.

        See "Questions and Answers About the Mergers" for a description of the dividends anticipated to be paid by Chelsea to holders of Chelsea common stock for periods prior to the effective date of the REIT Merger.

        In addition, Simon and Chelsea have agreed that immediately prior to the effective time of the REIT Merger, Chelsea shall pay any accumulated dividends on the Chelsea Series A Preferred Stock to the holders thereof for the period from the last preceding dividend payment date to but excluding the date of the closing of the REIT Merger.

        Chelsea has agreed to use its reasonable best efforts to redeem any outstanding 9% Series B Cumulative Redeemable Preferred Stock for cash in accordance with its charter before the REIT Merger. Chelsea has also agreed to use its reasonable best efforts to redeem all of the outstanding Series B Cumulative Redeemable Preferred Units of the Chelsea Operating Partnership for cash in accordance with the partnership agreement of the Chelsea Operating Partnership. As of August 9, 2004, there were no shares of Chelsea's 9% Series B Cumulative Redeemable Preferred Stock outstanding and 1,300,000 Series B Cumulative Redeemable Preferred Units of the Chelsea Operating Partnership outstanding.

        Simon has agreed to operate the business of Chelsea and its subsidiaries as a separate division after the closing of the Mergers.

        Simon has agreed to take all requisite actions to cause David C. Bloom to be appointed at the effective time of the REIT Merger as a non-voting advisory director to Simon's board of directors.

91


        Simon has agreed, subject to the receipt of certain information from Chelsea, to adopt resolutions prior to the effective time of the REIT Merger to exempt from Section 16(b) of the Exchange Act in accordance with Rule 16b-3 thereunder the acquisition of any Simon common stock, Simon 6% Convertible Preferred Stock, common or preferred partnership interests in the Simon Operating Partnership and options to purchase Simon common stock in the Mergers by each individual that is subject to the reporting requirements of Section 16(a) of the Exchange Act with respect to Chelsea.

        The merger agreement contains certain other covenants, including covenants relating to cooperation between Simon and Chelsea in the preparation of this proxy statement/prospectus, public announcements, assumption of indebtedness, assumption of obligations under registration rights agreements and certain tax matters.

        The obligations of each party to the merger agreement to complete the REIT Merger are subject to the satisfaction or waiver of the following conditions:


        The obligation of Simon to effect the REIT Merger is further subject to the satisfaction or waiver of the following conditions:

92



        The obligation of Chelsea to effect the REIT Merger is further subject to the satisfaction or waiver of the following conditions:


        Where the law permits, a party to the merger agreement may elect to waive a condition to its obligation to complete the REIT Merger that has not been satisfied. We cannot be certain when (or if) the conditions to the REIT Merger will be satisfied or waived or that the REIT Merger will be completed. We expect to complete the REIT Merger as promptly as practicable after all of the conditions have been satisfied or waived.

93


        The Partnership Merger is not subject to any conditions other than consummation of the REIT Merger. Since the REIT Merger is conditioned upon obtaining the approval of holders of a majority of the limited partnership interests of the Chelsea Operating Partnership, Simon expects to close the Partnership Merger immediately after consummation of the REIT Merger. As discussed below in "—Voting Agreements," holders of approximately 72% of the common units of the Chelsea Operating Partnership (consisting of certain directors and officers of Chelsea and their affiliates) have entered into voting agreements with Simon and the Simon Operating Partnership pursuant to which they have agreed to vote such common units in favor of the Partnership Merger if the REIT Merger is approved. Such holders have the right to vote sufficient limited partnership interests to approve the Partnership Merger without the affirmative vote of any other holders of limited partnership interests in the Chelsea Operating Partnership, thus ensuring approval of the Partnership Merger on behalf of the Chelsea Operating Partnership if the REIT Merger is approved by the holders of Chelsea common stock. Such holders, who own 0.7% of the outstanding Chelsea common stock, have also agreed to vote their Chelsea common stock in favor of the REIT Merger.

        Nevertheless, if the holders of all of the outstanding common units of the Chelsea Operating Partnership elect to participate in the Optional Partnership Exchange Offer, there will be no need to consummate the Partnership Merger. Instead, the Simon Operating Partnership will issue the Partnership Merger Consideration immediately after consummation of the REIT Merger to the holders of outstanding common units of the Chelsea Operating Partnership in exchange for such common units.

        The merger agreement may be terminated at any time before the effective time of the REIT Merger, whether before or after approval of the REIT Merger by the Chelsea stockholders, in any of the following ways:

94


        If the merger agreement is validly terminated, it will become void and have no effect, without any liability or obligation on the part of any party unless the party is in willful breach thereof. However, the provisions of the merger agreement relating to the effects of termination and the payment of termination fees and expenses, as well as the confidentiality agreement entered into between Chelsea and Simon, will continue in effect notwithstanding termination of the merger agreement.

        Chelsea has agreed to pay Simon a termination fee, and the put agreement shall become effective in accordance with its terms, if any of the following events occur:

95


        The termination fee shall be an amount equal to the lesser of

        In the event that Simon is not able to receive the full Base Amount on the date the termination fee is due, Chelsea shall place the amount by which the Base Amount exceeds the amount paid under clause (y)(A) of the preceding sentence above (the "Unpaid Base Amount") in escrow and shall not release any portion thereof to Simon unless and until Simon provides Chelsea with either one of the following: (A) a letter from Simon's independent accountants indicating the maximum portion of the Unpaid Base Amount that can be paid at that time to Simon without causing Simon to fail to meet the REIT Requirements or (B) a Termination Fee Tax Opinion, in either of which events Chelsea shall pay to Simon from the escrow the lesser of the Unpaid Base Amount and, if applicable, the maximum amount stated in the accountants' letter referred to in clause (A) of this sentence. Chelsea's obligation to pay any portion of the Unpaid Base Amount shall terminate three (3) years from the date of the merger agreement. Amounts remaining in escrow after such obligation terminates shall be released to Chelsea.

        In addition to the termination fee, Chelsea has agreed to pay Simon's out-of-pocket expenses (including all fees and expenses of counsel, accountants, investment bankers, experts and consultants) incurred in connection with the merger agreement and the transactions contemplated thereby in certain

96



circumstances where Simon is entitled to terminate the merger agreement. Likewise, Simon has agreed to pay Chelsea's out-of-pocket expenses (including all fees and expenses of counsel, accountants, investment bankers, experts and consultants) incurred in connection with the merger agreement and the transactions contemplated thereby in certain circumstances where Chelsea is entitled to terminate the merger agreement.

        Except as provided above or as otherwise provided in the merger agreement, all costs and expenses incurred in connection with the merger agreement will be paid by the party incurring such cost. However, each of Chelsea and Simon will pay 50% of any fees and expenses (other than attorneys' and accounting fees and expenses) incurred in connection with the printing, filing and mailing of the registration statement, this proxy statement/prospectus and the Chelsea limited partners solicitation materials.

        Any provision of the merger agreement may be amended before the effective time of the Mergers if, but only if, the amendment or waiver is in writing and signed by each party to the merger agreement. However, no amendment may be made after the Chelsea stockholders or the Chelsea Operating Partnership unitholders have approved the REIT Merger or the Partnership Merger (as the case may be) that requires the approval of the stockholders of Chelsea or the unitholders of the Chelsea Operating Partnership unless such required approval is obtained.

        At any time prior to the effective time of the Mergers, the parties to the merger agreement, by action taken or authorized by their respective boards of directors or managers (or other similar entity, as the case may be), may, to the extent legally allowed, (i) extend the time for the performance of any of the obligations or other acts of the other parties, (ii) waive any inaccuracies in the representations and warranties contained in the merger agreement or in any document delivered pursuant thereto and (iii) waive compliance with any of the agreements or conditions contained in the merger agreement. Any agreement on the part of a party to any such extension or waiver shall be valid only if set forth in a written instrument signed on behalf of such party. The failure of any party to assert any of its rights under the merger agreement or otherwise shall not constitute a waiver of those rights.

Voting Agreements

        In order to induce Simon and the Simon Operating Partnership to enter into the merger agreement, holders of approximately 72% of the common units of the Chelsea Operating Partnership (consisting of certain directors and officers of Chelsea and their affiliates) have entered into voting agreements with Simon and the Simon Operating Partnership pursuant to which they have agreed to vote such common units in favor of the Partnership Merger if the REIT Merger is approved. Such holders have the right to vote sufficient limited partnership interests to approve the Partnership Merger without the affirmative vote of any other holders of limited partnership interests in the Chelsea Operating Partnership, thus ensuring approval of the Partnership Merger on behalf of the Chelsea Operating Partnership if the REIT Merger is approved by the holders of Chelsea common stock. Such holders, who own 0.7% of the outstanding Chelsea common stock, have also agreed to vote their Chelsea common stock in favor of the REIT Merger.

        Pursuant to and during the term of the voting agreements, each holder shall, at every meeting of the stockholders of Chelsea called, and at every adjournment thereof, and on every action or approval by written consent of the stockholders of Chelsea, vote (or cause to be voted) all of the Chelsea common stock beneficially owned by such holder (a) in favor of (i) approval of the merger agreement and the REIT Merger, (ii) each of the transactions contemplated by the merger agreement and (iii) any incidental matter necessary to facilitate the consummation of the REIT Merger; and

97


(b) against (i) any Takeover Proposal, (ii) any merger (other than the merger agreement and the Mergers), reorganization, recapitalization, dissolution or winding up of or by Chelsea, (iii) any amendment to the organizational documents of Chelsea if such amendment would result in a breach of any covenant, representation or warranty of Chelsea under the merger agreement or would in any manner prevent or materially impede, interfere with or delay the Mergers, the merger agreement or any other transaction contemplated by the merger agreement, or (iv) any other matter that is inconsistent with the prompt consummation of the Mergers or any other transaction contemplated by the merger agreement.

        Pursuant to and during the term of the voting agreement, each holder shall, at every meeting of the unitholders of the Chelsea Operating Partnership called, and at every adjournment thereof, and on every action or approval by written consent of the unitholders of the Chelsea Operating Partnership, vote (or cause to be voted) all of the common units of the Chelsea Operating Partnership beneficially owned by such holder (a) in favor of (i) approval of the merger agreement and the Partnership Merger, (ii) each of the transactions contemplated by the merger agreement and (iii) any incidental matter necessary to facilitate the consummation of the Partnership Merger; and (b) against (i) any Takeover Proposal, (ii) any merger (other than the merger agreement and the Mergers), reorganization, recapitalization, dissolution or winding up of or by the Chelsea Operating Partnership, (iii) any amendment to the partnership agreement of the Chelsea Operating Partnership, which amendment would result in a breach of any covenant, representation or warranty of Chelsea or the Chelsea Operating Partnership under the merger agreement or would in any manner prevent or materially impede, interfere with or delay the Mergers, the merger agreement or any other transaction contemplated by the merger agreement, or (iv) any other matter that is inconsistent with the prompt consummation of the Mergers or any other transaction contemplated by the merger agreement.

        Each such holder granted and appointed James M. Barkley and Stephen Sterrett as such holder's sole and exclusive attorneys and proxies, with full power of substitution and re-substitution to vote the respective shares of Chelsea common stock and common units of the Chelsea Operating Partnership at every respective annual, special or adjourned meeting of the holders of Chelsea common stock and common units of the Chelsea Operating Partnership, respectively, and in every written consent in lieu of such meeting, as to the matters described in the immediately preceding two paragraphs.

        Each holder who has entered into a voting agreement has agreed that, other than by operation of law as part of the REIT Merger or the Partnership Merger or in any Optional Partnership Exchange Offer, such holder shall not cause or permit any Transfer (as defined below) of any of shares of Chelsea common stock or common units in the Chelsea Operating Partnership to be effected without Simon's prior written consent to such Transfer and unless each person to which any of such shares of Chelsea common stock or common units in the Chelsea Operating Partnership, or any interest in any of such shares of Chelsea common stock or common units in the Chelsea Operating Partnership, is or may be Transferred shall have: (a) executed a counterpart of the voting agreement and (b) agreed in writing to hold such shares of Chelsea common stock or common units in the Chelsea Operating Partnership (or interest in such shares of Chelsea common stock or common units in the Chelsea Operating Partnership) subject to all of the terms and provisions of the voting agreement, except that the consent of Simon shall not be required for a Transfer to an immediate family member (or trust for the benefit of an immediate family member). A person shall be deemed to have effected a "Transfer" of a security for purposes of the voting agreements if such person directly or indirectly: (i) sells, pledges, encumbers, grants an option with respect to, transfers or disposes of such security or any interest in such security; or (ii) enters into an agreement or commitment providing for the sale of, pledge of, encumbrance of, grant of an option with respect to, transfer of or disposition of such security or any interest therein. Notwithstanding the foregoing, Simon has consented to the transfer of 520,920

98


common units in the Chelsea Operating Partnership by Charles Bloom (the father of David C. and William D. Bloom) without requiring the transferee to execute a counterpart to the voting agreement or agree to hold such common units subject to all of the terms and provisions of the voting agreement.

        Each holder who has entered into a voting agreement also has agreed that such holder shall not, and shall use its reasonable best efforts to cause its affiliates or representatives not to, directly or indirectly (i) solicit, initiate, encourage or take any other action to facilitate (including by the furnishing of information) the submission of any inquiry, proposal or offer from any person (other than Simon or its affiliates) relating to, or that could reasonably be expected to lead to, any Takeover Proposal, (ii) agree to, approve or recommend any Takeover Proposal or enter into any agreement with respect to any Takeover Proposal or (iii) enter into, continue or otherwise participate in any discussions or negotiations regarding, or furnish to any person any information with respect to, or take any other action to facilitate any inquiries or the making of any proposal that constitutes, or could reasonably be expected to lead to, any Takeover Proposal; provided, however, that the foregoing prohibitions shall not restrict any holder that is a member of Chelsea's board of directors or an officer of Chelsea from taking any actions in such capacity to the extent permitted by the merger agreement. Each such holder also agreed to notify Simon promptly (but in any event within 24 hours) after receipt or occurrence of (i) any Takeover Proposal, (ii) any request for information with respect to any Takeover Proposal, (iii) any inquiry, proposal, discussions or negotiation with respect to any Takeover Proposal and (iv) the material terms and conditions of any such Takeover Proposal, request for information, inquiry, proposal, discussion or negotiation and the identity of the Person making any such Takeover Proposal, request for information, inquiry or proposal or with whom discussions or negotiations are taking place.

        Notwithstanding anything to the contrary contained in the voting agreements: (i) at any time prior to the Chelsea Operating Partnership obtaining approval of the Partnership Merger from its unitholders, each holder who has entered into a voting agreement shall be entitled to convert its common units in the Chelsea Operating Partnership into Chelsea common stock in accordance with the partnership agreement of the Chelsea Operating Partnership and Chelsea's organizational documents; provided, however, that such holder shall not be entitled to convert any common units in the Chelsea Operating Partnership into Chelsea common stock that, if so converted, would, when combined with all other conversions of common units in the Chelsea Operating Partnership into Chelsea common stock by any holder of common units during such period, result in Simon and the Simon Operating Partnership having secured the affirmative vote of less than 50.1% of the common units in the Chelsea Operating Partnership entitled to vote on the merger agreement and the Partnership Merger pursuant to the voting agreements; and (ii) at any time after the Chelsea Operating Partnership shall have obtained the approval of the Partnership Merger from its unitholders, each holder shall be entitled to convert its common units in the Chelsea Operating Partnership into Chelsea common stock in accordance with the partnership agreement of the Chelsea Operating Partnership and Chelsea's organizational documents.

        The voting agreements also contain provisions relating to, among other things, representations and warranties by each unitholder a party thereto and specific enforcement of the voting agreements. The voting agreements terminate upon termination of the merger agreement in accordance with its terms.

Put Agreement

        In order to induce Simon and the Simon Operating Partnership to enter into the merger agreement and to address Simon's objections to being a joint venture partner with a subsequent acquirer of Chelsea who is not acceptable to Simon, the Chelsea Operating Partnership entered into a

99



put agreement with the Simon Operating Partnership. The put agreement provides that, in the event the merger agreement is terminated and a termination fee is owed to Simon thereunder, the Simon Operating Partnership shall have the right, exercisable for 60 days thereafter, to require the Chelsea Operating Partnership to acquire its interests in two 50/50 joint ventures, Simon/Chelsea Las Vegas Development, LLC and Simon/Chelsea Chicago Development, LLC, for the fair market value of such interests, which will be determined either by agreement of the parties or, failing such agreement, through an appraisal procedure set forth in the put agreement. Simon/Chelsea Las Vegas Development, LLC owns and operates the 435,000 square-foot Las Vegas Premium Outlets which opened in August 2003 and Simon/Chelsea Chicago Development, LLC owns and operates the 438,000 square-foot Chicago Premium Outlets which opened in May 2004. The closing of the transactions contemplated by the put agreement shall occur 10 business days after the final determination of the fair market value.

100



UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION

        The following unaudited pro forma condensed combined financial information sets forth: (i) the historical financial information as of June 30, 2004 and for the six months then ended, as derived from the unaudited financial statements of Simon and Chelsea, and the historical financial information for the year ended December 31, 2003, as derived from the audited financial statements of Simon and Chelsea, and (ii) pro forma adjustments assuming the REIT Merger and the Partnership Merger, pursuant to which Chelsea and the Chelsea Operating Partnership will become indirect subsidiaries of Simon, were completed as of June 30, 2004 for purposes of the unaudited pro forma condensed combined balance sheet and as of January 1, 2003 and carried forward for purposes of the unaudited pro forma condensed combined statements of operations.

        The unaudited pro forma combined financial information should be read in conjunction with the notes thereto and with the historical consolidated financial statements of Simon and Chelsea, including the respective notes thereto, which are incorporated by reference in this proxy statement/prospectus, and the unaudited pro forma condensed combined per share financial information which appears elsewhere in this proxy statement/prospectus. These unaudited pro forma financial statements are presented for informational purposes only and are not necessarily indicative of the combined financial position or results of operations which would have been realized had the Mergers been effective as of or for the periods presented or the combined financial position or results of operations of the combined company in the future.

        The combined financial information as of and for the periods presented may have been different had the companies actually been combined as of or during those periods due to, among other factors, those factors discussed in "Risk Factors." See also "Cautionary Statement Concerning Forward-Looking Statements." The unaudited pro forma adjustments are based on available information and upon assumptions that we believe are reasonable.

101



Unaudited Pro Forma Condensed Combined

Balance Sheet

As of June 30, 2004

 
  Historical
Simon 2(A)

  Historical
Chelsea 2(A)

  Pro Forma
Adjustments
2(B)

  Consolidation of
Simon/Chelsea
Joint Ventures
and Other

  Notes
  Pro Forma
Combined

 
  (in thousands)

ASSETS:                                  
  Investment properties, at cost   $ 16,021,671   $ 2,100,179   $ 2,230,998   $ 309,867   2(C ) $ 20,662,715
  Less—accumulated depreciation     2,855,549     364,074     (364,074 )     2(C )   2,855,549
   
 
 
 
     
        13,166,122     1,736,105     2,595,072     309,867         17,807,166
  Cash and cash equivalents     519,070     18,046     (5,500 )   9,561   2(C )   541,177
  Tenant receivables and accrued revenue, net     285,756     30,912     (27,482 )   3,612   2(C )   292,798
  Investment in unconsolidated entities, at equity     1,641,205     130,058     478,942     (306,772 ) 2(C )   1,943,433
  Deferred costs, other assets, and minority interest, net     651,957     81,384     86,021     93   2(C )   819,455
   
 
 
 
     
    Total assets   $ 16,264,110   $ 1,996,505   $ 3,127,053   $ 16,361       $ 21,404,029
   
 
 
 
     

LIABILITIES:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 
  Mortgages and other indebtedness   $ 11,051,380   $ 1,202,951   $ 1,921,591   $       $ 14,175,922
  Accounts payable, accrued expenses, and deferred revenues     674,106     67,546         16,361   2(C )   758,013
  Cash distributions and losses in partnerships and joint ventures, at equity     24,532                     24,532
  Other liabilities, minority interest and accrued dividends     232,011     53,138     44,000             329,149
   
 
 
 
     
    Total liabilities     11,982,029     1,323,635     1,965,591     16,361         15,287,616

LIMITED PARTNERS' INTEREST IN THE OPERATING PARTNERSHIP

 

 

774,697

 

 

79,689

 

 

158,002

 

 

(29,841

)

2(D

)

 

982,547

LIMITED PARTNERS' PREFERRED INTEREST IN THE OPERATING PARTNERSHIP

 

 

258,220

 

 

63,315

 

 

174,376

 

 


 

 

 

 

495,911

STOCKHOLDERS' EQUITY:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 
 
All series of preferred stock

 

 

365,771

 

 

38,731

 

 

663,418

 

 


 

 

 

 

1,067,920
  All remaining net equity     2,883,393     491,135     165,666     29,841   2(D )   3,570,035
   
 
 
 
     
  Total stockholders' equity     3,249,164     529,866     829,084     29,841         4,637,955
   
 
 
 
     
    $ 16,264,110   $ 1,996,505   $ 3,127,053   $ 16,361       $ 21,404,029
   
 
 
 
     

See accompanying notes to unaudited pro forma condensed combined financial statements.

102



Unaudited Pro Forma Condensed Combined

Statement of Operations

For the Six Months ended June 30, 2004

 
  Historical
Simon 3(a)

  Historical
Chelsea 3(a)

  Consolidation of
Simon/Chelsea
Joint Ventures
3(b)

  Pro Forma
Adjustments

  Notes
  Pro Forma
Combined

 
 
  (in thousands, except per share data)

 
REVENUE:                                    
  Minimum and overage rent   $ 734,936   $ 143,050   $ 8,862   $ 5,500   3(c)    $ 892,348  
  Tenant reimbursements     351,868     42,470     2,703             397,041  
  Management fees, and other revenues and income     98,080     4,343     1,151             103,574  
   
 
 
 
     
 
  Total revenue     1,184,884     189,863     12,716     5,500         1,392,963  
   
 
 
 
     
 

EXPENSES:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 
  Property operating     366,997     50,839     2,943             420,779  
  Depreciation and amortization     283,607     35,754     2,165     38,833   3(d)      360,359  
  Home and regional office costs and general and administrative     49,255     7,721                 56,976  
  Other     16,602     3,083     111             19,796  
   
 
 
 
     
 
  Total operating expenses     716,461     97,397     5,219     38,833         857,910  
   
 
 
 
     
 

OPERATING INCOME

 

 

468,423

 

 

92,466

 

 

7,497

 

 

(33,333

)

 

 

 

535,053

 
 
Interest expense

 

 

310,332

 

 

37,937

 

 


 

 

9,543

 

3(e) 

 

 

357,812

 
   
 
 
 
     
 
  Income before minority interest     158,091     54,529     7,497     (42,876 )       177,241  
 
Minority interest

 

 

(4,681

)

 


 

 


 

 


 

 

 

 

(4,681

)
  Gain (loss) on sales of assets and other, net     (1,881 )                   (1,881 )
  Income tax expense of taxable REIT subsidiaries     (8,642 )                   (8,642 )
   
 
 
 
     
 
  Income before unconsolidated entities     142,887     54,529     7,497     (42,876 )       162,037  
  Loss from technology joint venture                          
  Income from unconsolidated entities     36,908     10,347     (7,497 )   (5,070 ) 3(f)      34,688  
   
 
 
 
     
 
  Income from continuing operations     179,795     64,876         (47,946 )       196,725  
 
Results of operations from discontinued operations

 

 

(770

)

 


 

 


 

 

770

 

3(g) 

 

 


 
  Gain on disposal or sale of discontinued operations, net     288             (288 ) 3(g)       
   
 
 
 
     
 
  Income before allocation to limited partners     179,313     64,876         (47,464 )       196,725  
LESS:                                    
  Limited partners' interest in the operating partnership     34,776     8,540         (10,743 ) 3(h)      32,573  
  Preferred distributions of the operating partnership     9,805     2,924         4,207   3(i)      16,936  
   
 
 
 
     
 
NET INCOME     134,732     53,412         (40,928 )       147,216  
  Preferred dividends     (15,670 )   (1,668 )       (19,869 ) 3(j)     (37,207 )
   
 
 
 
     
 
NET INCOME AVAILABLE TO COMMON STOCKHOLDERS   $ 119,062   $ 51,744   $   $ (60,797 )     $ 110,009  
   
 
 
 
     
 

BASIC EARNINGS PER SHARE OF COMMON STOCK:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 
  Income from continuing operations   $ 0.58                         $ 0.51  
   
                       
 
  Weighted average common shares outstanding     203,901,447                           216,864,901  
   
                       
 
DILUTED EARNING PER SHARE OF COMMON STOCK:                                    
  Income from continuing operations   $ 0.58                         $ 0.51  
   
                       
 
  Weighted average common shares outstanding     204,789,189                           217,752,643  
   
                       
 

See accompanying notes to unaudited pro forma condensed combined financial statements.

103



Unaudited Pro Forma Condensed Combined

Statement of Operations

For the year ended December 31, 2003

 
  Historical
Simon 3(a)

  Historical
Chelsea 3(a)

  Consolidation of
Simon/Chelsea
Joint Ventures
3(b)

  Pro Forma
Adjustments

  Notes
  Pro Forma
Combined

 
 
  (in thousands, except per share data)

 
REVENUE:                                    
  Minimum and overage rent   $ 1,420,378   $ 277,028   $ 5,817   $ 11,000   3(c ) $ 1,714,223  
  Tenant reimbursements     673,616     86,499     2,111             762,226  
  Management fees, and other revenues and income     215,310     8,738     (62 )           223,986  
   
 
 
 
     
 
  Total revenue     2,309,304     372,265     7,866     11,000         2,700,435  
   
 
 
 
     
 
EXPENSES:                                    
  Property operating     705,714     102,951     2,290             810,955  
  Depreciation and amortization     497,076     70,830     1,440     78,370   3(d )   647,716  
  Home and regional office costs and general and administrative     95,187     12,396                 107,583  
  Costs related to withdrawn tender offer     10,581                     10,581  
  Other     27,227     4,984     99             32,310  
   
 
 
 
     
 
  Total operating expenses     1,335,785     191,161     3,829     78,370         1,609,145  
   
 
 
 
     
 
OPERATING INCOME     973,519     181,104     4,037     (67,370 )       1,091,290  
 
Interest expense

 

 

602,510

 

 

69,779

 

 


 

 

19,634

 

3(e

)

 

691,923

 
   
 
 
 
     
 
  Income before minority interest     371,009     111,325     4,037     (87,004 )       399,367  
 
Minority interest

 

 

(7,277

)

 


 

 


 

 


 

 

 

 

(7,277

)
  Gain (loss) on sales of assets and other, net     (5,146 )                   (5,146 )
  Income tax expense of taxable REIT subsidiaries     (7,597 )                   (7,597 )
   
 
 
 
     
 
  Income before unconsolidated entities     350,989     111,325     4,037     (87,004 )       379,347  
  Loss from technology joint venture         (2,518 )               (2,518 )
  Income from unconsolidated entities     99,645     11,006     (4,037 )   (10,141 ) 3(f )   96,473  
   
 
 
 
     
 
  Income from continuing operations     450,634     119,813         (97,145 )       473,302  
 
Results of operations from discontinued operations

 

 

8,687

 

 

(980

)

 


 

 

(7,707

)

3(g

)

 


 
  Gain on disposal or sale of discontinued operations, net     22,394     5,625         (28,019 ) 3(g )    
   
 
 
 
     
 
  Income before allocation to limited partners     481,715     124,458         (132,871 )       473,302  
LESS:                                    
  Limited partners' interest in the operating partnership     100,956     17,082         (32,803 ) 3(h )   85,235  
  Preferred distributions of the operating partnership     12,044     5,848         8,413   3(i )   26,305  
   
 
 
 
     
 
NET INCOME     368,715     101,528         (108,481 )       361,762  
  Preferred dividends     (55,138 )   (3,336 )       (39,738 ) 3(j )   (98,212 )
   
 
 
 
     
 
NET INCOME AVAILABLE TO COMMON STOCKHOLDERS   $ 313,577   $ 98,192   $   $ (148,219 )       263,550  
   
 
 
 
     
 
BASIC EARNINGS PER SHARE OF COMMON STOCK:                                    
  Income from continuing operations   $ 1.53                         $ 1.30  
   
                       
 
  Weighted average common shares outstanding     189,475,124                           202,438,578  
   
                       
 
DILUTED EARNING PER SHARE OF COMMON STOCK:                                    
  Income from continuing operations   $ 1.53                         $ 1.30  
   
                       
 
  Weighted average common shares outstanding     190,298,656                           203,262,110  
   
                       
 

See accompanying notes to unaudited pro forma condensed combined financial statements.

104



Notes to the Unaudited Pro Forma

Condensed Combined Financial Information

1. Basis of Presentation

        Simon, the Simon Operating Partnership, Chelsea and the Chelsea Operating Partnership have agreed, pursuant to the merger agreement, to enter into the REIT Merger and the Partnership Merger subject to the terms and conditions set forth in the merger agreement, whereby Simon will acquire all of the outstanding common stock of Chelsea and common units in the Chelsea Operating Partnership. The Mergers will be accounted for as a purchase business combination. The fair market value of the consideration given by Simon will be used as the valuation basis for the Mergers. The consolidated assets and liabilities of Chelsea will be revalued by Simon to their respective fair market values at the effective date of the Mergers. The unaudited pro forma adjustments are based on available information and upon preliminary assumptions that Simon believes are reasonable. The purchase accounting allocations made by Simon's management in connection with the unaudited pro forma condensed combined financial information are based upon preliminary assumptions and estimates of Simon's management, and are subject to reallocation when the final purchase accounting takes place after the completion of the Mergers. The unaudited pro forma condensed combined financial information assumes that the Mergers were completed on June 30, 2004 for the purposes of the unaudited pro forma condensed combined balance sheet and as of January 1, 2003 and carried forward for purposes of the unaudited pro forma condensed combined statements of operations for the six months ended June 30, 2004 and the year ended December 31, 2003.

        The unaudited pro forma condensed combined financial statements are not necessarily indicative of the actual financial position as of June 30, 2004 or what the actual results of operations of Simon would have been assuming the Mergers were completed at the dates indicated, nor are they indicative of the results of operations of future periods.

        These pro forma condensed combined financial statements should be read in conjunction with the historical financial statements and notes thereto of Simon and Chelsea incorporated by reference in this proxy statement/prospectus. In Simon's opinion, all pro forma adjustments necessary to reflect the Mergers have been made.

2. Adjustments to the Pro Forma Condensed Combined Balance Sheet

(A)
Reflects Simon's and Chelsea's unaudited historical consolidated condensed balance sheet information as of June 30, 2004.

(B)
The holders of Chelsea common stock will receive in the REIT Merger an amount estimated at $66.00 for each share of Chelsea common stock. The holders of common units of the Chelsea Operating Partnership will receive in the Partnership Merger an amount estimated at $66.00 for each common unit of the Chelsea Operating Partnership.

105


106


 
  Amount
  Notes
 
 
  (in thousands)

   
 
Cash   $ 1,721,134   (B-1 )
Simon common stock (12,963,454 shares to be issued)     662,301   (B-2 )
Simon 6% Convertible Preferred Stock (13,246,036 shares to be issued)     662,302   (B-3 )
Common partnership interests in the Simon Operating Partnership (4,652,254 units to be issued)     237,691   (B-4 )
Preferred partnership interests in the Simon Operating Partnership (4,753,812 units to be issued)     237,691   (B-5 )
   
     
Shares and partnership interests acquired, net (53,350,283 times $66.00)     3,521,119      

Book value of mortgages and other indebtedness assumed

 

 

1,202,951

 

(B-6

)
Fair value of Chelsea Series A Preferred Stock     39,847   (B-7 )
Fair value of Series B Cumulative Redeemable Preferred Units of the Chelsea Operating Partnership to be redeemed     65,000   (B-8 )
Costs of Mergers and annuities     63,000   (B-9 )
Accounts payable and other liabilities assumed     120,684   (B-10 )

Reduction in historical Chelsea cash for special bonus payments pre-merger

 

 

(5,500

)

(B-11

)
Other intangible liability for fair value of below market in-place leases     44,000   (B-12 )
Fair value adjustment of debt premium/discount, net     72,457   (B-13 )
   
     
  Total assets per allocation of purchase price   $ 5,123,558      
   
     

107


 
  Allocation
of Purchase
Price

  Less
Chelsea
Historical

  Pro Forma
Adjustments

  Notes
 
 
  (in thousands)

 
ASSETS:                        
  Investment properties, net   $ 4,331,177   $ 1,736,105   $ 2,595,072      
  Cash and cash equivalents     12,546     18,046     (5,500 ) (B-11 )
  Tenant receivables and accrued revenue, net     3,430     30,912     (27,482 ) (B-14 )
  Investment in unconsolidated entities, at equity     609,000     130,058     478,942   (B-15 )
  Deferred costs, other assets and minority interest, net     167,405     81,384     86,021   (B-16 )
   
 
 
     
    Total assets   $ 5,123,558   $ 1,996,505   $ 3,127,053      
   
 
 
     
LIABILITIES:                        
 
Mortgages and other indebtedness

 

$

3,124,542

 

$

1,202,951

 

$

1,921,591

 

(B-17

)
  Accounts payable, accrued expenses, and deferred revenues     67,546     67,546          
  Other liabilities     97,138     53,138     44,000   (B-12 )
   
 
 
 
 
    Total liabilities     3,289,226     1,323,635     1,965,591      
 
Limited partners' common partnership interests in the Simon Operating Partnership

 

 

237,691

 

 

79,689

 

 

158,002

 

(B-18

)
  Limited partners' preferred partnership interests in the Simon Operating Partnership     237,691     63,315     174,376   (B-19 )

STOCKHOLDERS' EQUITY:

 

 

 

 

 

 

 

 

 

 

 

 
 
All series of preferred stock

 

 

702,149

 

 

38,731

 

 

663,418

 

(B-20

)
  All remaining net equity     656,801     491,135     165,666   (B-21 )
   
 
 
     
    Total stockholders' equity     1,358,950     529,866     829,084      
   
 
 
     
      Total liabilities and stockholders' equity   $ 5,123,558   $ 1,996,505   $ 3,127,053      
   
 
 
     

108


109



 
  (in thousands)
Advisory fees   $ 24,000
Legal, accounting and other     14,000
Non-compete funding     23,000
Transfer taxes     2,000
   
  Total merger costs   $ 63,000
   

110



 
  (in thousands)
 
Non-compete intangible:        
  David C. Bloom, Chelsea CEO(1)   $ 15,000  
  Thomas J. Davis, Chelsea President(1)     8,000  
Intangible lease costs(2)     69,000  
Write off historical deferred financing costs     (5,979 )
   
 
  Total pro forma deferred cost adjustment   $ 86,021  
   
 

111



 
  (in thousands)
Bridge loan to fund acquisition consisting of:      
  Cash to fund cash portion of REIT Merger Consideration at $36.00 per share   $ 1,721,134
  Cash to fund costs of Mergers and purchase of required annuities     63,000
  Cash to redeem Series B Cumulative Redeemable Preferred Units of the Chelsea Operating Partnership     65,000
   
    Total bridge loan     1,849,134
Fair value adjustment of Chelsea existing debt     72,457
   
    Total   $ 1,921,591
   
(C)
The pro forma adjustment reflects consolidation of Simon/Chelsea Las Vegas Development, LLC and Simon/Chelsea Chicago Development, LLC. Simon and Chelsea have historically accounted for their joint venture interests in these entities under the equity method of accounting. After the Mergers, Simon will own a 100% interest in both and will consolidate for financial reporting purposes. Simon will retain its historical carryover basis in 50% of the consolidated assets and liabilities of Simon/Chelsea Las Vegas Development, LLC and Simon/Chelsea Chicago Development, LLC. The 50% portion that Simon will acquire in connection with the Mergers will be adjusted to fair value.

112


(D)
The pro forma adjustment to reflect the limited partners' partnership interests in the Simon Operating Partnership as follows:

 
  (in thousands except percentages)
 
Pro forma common shareholders' equity including limited partners' common partnership interests   $ 4,552,582  
Less net assets owned directly by Simon     (114,538 )
   
 
Pro forma common equity of the Simon Operating Partnership   $ 4,438,044  
   
 
Limited partners' percentage     22.14 %
   
 
Limited partners' share   $ 982,547  
Unadjusted balance     1,012,388  
   
 
Pro forma limited partners' share adjustment   $ (29,841 )
   
 

3. Adjustments to the Pro Forma Condensed Combined Statements of Income

(a)
Reflects Simon and Chelsea's historical results of operations for the year ended December 31, 2003 and the six months ended June 30, 2004 (unaudited).

(b)
Reflects adjustments to consolidate Simon/Chelsea Las Vegas Development, LLC and Simon/Chelsea Chicago Development, LLC. Simon and Chelsea have historically accounted for these two entities under the equity method of accounting. After the Mergers, Simon will own 100% of these entities.

(c)
Reflects the adjustments to minimum rents for the amortization of below-market leases. The balance of $44.0 million amortized over the remaining non-cancelable term is $11.0 million for the year ended December 31, 2003 and $5.5 million for the six months ended June 30, 2004.

(d)
Reflects adjustments to depreciation and amortization expense. Buildings and improvements (including tenant allowances) are depreciated over 35 years or the lease life, respectively. Intangible lease costs are amortized over approximately 4 years which represents the average estimated remaining life of the leases.

 
  Year Ended
December 31,
2003

  Six Months Ended
June 30, 2004

 
 
  (in thousands)

 
Depreciation Expense              
Building and Improvements   $ 130,900   $ 66,387  
Intangible lease costs     18,300     8,200  
Less: Chelsea historical depreciation expense     (70,830 )   (35,754 )
   
 
 
  Pro forma adjustment   $ 78,370   $ 38,833  
   
 
 

113


(e)
Reflects the adjustments to interest expense resulting from approximately $1.8 billion of debt incurred to finance a portion of the purchase price.

 
  Year Ended
December 31,
2003

  Six Months Ended
June 30,
2004

 
 
  (in thousands)

 
Interest Expense              
Bridge loan to fund acquisition(1)   $ 36,983   $ 18,492  
Amortization of debt premium(2)     (15,817 )   (7,909 )
Eliminate historical amortization of deferred financing costs and debt premium/discount     (1,532 )   (1,040 )
   
 
 
  Total   $ 19,634   $ 9,543  
   
 
 
(f)
Reflects the amortization of the excess investment in joint ventures over 35 years.

(g)
To adjust pro formas to reflect income from continuing operations by eliminating historical amounts from discontinued operations for Simon and Chelsea.

(h)
The pro forma adjustment to the limited partners' partnership interests in the Simon Operating Partnership for the year ended December 31, 2003 of $32.8 million and for the six months ending June 30, 2004 of $10.7 million were calculated based on the pro forma weighted average ownership

114


 
  Year Ended
December 31,
2003

  Six Months Ended
June 30,
2004

 
 
  (in thousands, except percentages)

 
Pro forma income before allocation to limited partners   $ 473,302   $ 196,725  
  Less net income generated by Simon     (3,381 )   (55 )
   
 
 
Pro forma income before allocation to limited partners of Simon Operating Partnership     469,921     196,670  
Less pro forma preferred distributions and preferred dividends     (124,517 )   (54,143 )
   
 
 
Pro forma common income of the Simon Operating Partnership   $ 345,404   $ 142,527  
   
 
 
Limited partners' weighted average percentage     24.68 %   22.85 %

Limited partners' share

 

$

85,235

 

$

32,573

 
Unadjusted balance   $ 118,038   $ 43,316  
   
 
 
Pro forma adjustment of limited partners partnership interest in the Simon Operating Partnership   $ (32,803 ) $ (10,743 )
   
 
 
(i)
Reflects the preferred distributions to the unit holders for the newly issued preferred partnership interests of the Simon Operating Partnership of $14.3 million less the historical distributions on the Series B Cumulative Redeemable Preferred Units of the Chelsea Operating Partnership to be redeemed prior to consummation of the REIT Merger of $5.9 million for the year ended December 31, 2003. The amounts for the six month period ended June 30, 2004 were $7.1 million and $2.9 million, respectively.

(j)
Reflects the preferred dividends on the Simon 6% Convertible Preferred Stock to be issued in the REIT Merger.

115



MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES OF THE REIT MERGER, THE
PARTNERSHIP MERGER AND THE OPTIONAL PARTNERSHIP EXCHANGE OFFER

        The following is a general discussion of certain material U.S. federal income tax consequences of the REIT Merger, the Partnership Merger and participation in the Optional Partnership Exchange Offer. The portion of this discussion pertaining to the REIT Merger is limited to "U.S. Stockholders" and "Non-U.S. Stockholders" who hold their Chelsea common stock and Chelsea Series A Preferred Stock, and who will hold their shares of Simon stock received in the REIT Merger, as capital assets for U.S. federal income tax purposes (in general, as an asset held for investment). The portion of this discussion pertaining to the Partnership Merger and the Optional Partnership Exchange Offer is limited to "U.S. Unitholders." A "U.S. Stockholder" is a Chelsea stockholder that participates in the REIT Merger and that is (i) an individual who is a citizen or resident of the United States for U.S. federal income tax purposes; (ii) a corporation (or other entity taxable as a corporation for U.S. federal income tax purposes) created or organized in or under the laws of the United States or any state thereof or the District of Columbia; (iii) an estate, the income of which is subject to U.S. federal income taxation regardless of its source; or (iv) any trust if a court within the United States is able to exercise primary supervision over the administration of such trust and one or more U.S. fiduciaries have the authority to control all substantial decisions relating to the trust or a trust that has a valid election in effect under application U.S. federal income tax law to be treated as a United States person. A "Non-U.S. Stockholder" is a Chelsea stockholder that participates in the REIT Merger other than a U.S. Stockholder. A "U.S. Unitholder" is a holder of common units in the Chelsea Operating Partnership that participates in either the Partnership Merger or the Optional Partnership Exchange Offer and that is described in one of the categories of persons set forth above in clauses (i), (ii), (iii) or (iv) of the definition of U.S. Stockholder.

        This discussion considers neither the specific facts and circumstances that may be relevant to a particular stockholder or unitholder nor any U.S. state and local or non-U.S. tax consequences of the REIT Merger, the Partnership Merger or the Optional Partnership Exchange Offer. Moreover, except as provided herein, this discussion does not address special situations, such as the following:

        If a partnership or other entity taxable as a partnership for U.S. federal income tax purposes holds Chelsea common stock, Chelsea Series A Preferred Stock or common units in the Chelsea Operating Partnership, the U.S. federal income tax treatment of a partner will generally depend on the status of the partner and the activities of the partnership. Such partners are urged to consult their tax advisors. This discussion is based upon current provisions of the Internal Revenue Code, existing and proposed regulations thereunder and current administrative rulings and court decisions, all as in effect on the date hereof. All of the foregoing are subject to change, possibly on a retroactive basis, and any such change could affect the continuing validity of this discussion.

116



        ALL STOCKHOLDERS AND UNITHOLDERS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS REGARDING THE SPECIFIC TAX CONSEQUENCES TO THEM OF THE REIT MERGER, THE PARTNERSHIP MERGER AND THE OPTIONAL PARTNERSHIP EXCHANGE OFFER (AS APPLICABLE) INCLUDING THE APPLICABILITY AND EFFECT OF U.S. FEDERAL, STATE, LOCAL AND FOREIGN INCOME AND OTHER TAX LAWS TO THEIR PARTICULAR CIRCUMSTANCES.

Consequences to Chelsea's U.S. Stockholders of the REIT Merger

        In the REIT Merger, which is a fully taxable event for U.S. federal income tax purposes, U.S. Stockholders who own Chelsea common stock will exchange their shares for cash, Simon common stock and Simon 6% Convertible Preferred Stock, and U.S. Stockholders who own Chelsea Series A Preferred Stock will exchange their shares solely for Simon 83/8% Preferred Stock. As a result, each such stockholder will recognize capital gain or loss in the REIT Merger equal to the difference between the fair market value of the consideration received in the REIT Merger and the tax basis in their surrendered Chelsea stock, except that any such gain will constitute ordinary income to the extent of any dividends declared but unpaid in respect of such shares. Assuming that the Simon 83/8% Preferred Stock has a value equal to its liquidation preference, U.S. Stockholders whose tax basis in their Chelsea Series A Preferred Stock is equal to the liquidation preference of the Chelsea Series A Preferred Stock should not recognize any capital gain or loss on exchange of those shares for Simon 83/8% Preferred Stock. In general, capital gains and losses arising from the REIT Merger will be long-term if the Chelsea stock surrendered had been held for more than one year as of the effective time of the REIT Merger. U.S. Stockholders who are individuals will generally be subject to a maximum rate of 15% on long-term capital gain arising in the REIT Merger, unless they are subject to the alternative minimum tax, in which case, they may be taxed at a rate of 25% on some or all of their long-term capital gain. A U.S. stockholder who has held his or her Chelsea stock for six months or less at the effective time of the REIT Merger, taking into account the holding period rules of Section 246(c)(3) and (4) of the Internal Revenue Code, and who recognizes a capital loss with respect to those shares will be treated as recognizing a long-term, rather than short-term, capital loss to the extent of any capital gain dividends received from Chelsea with respect to those shares. The deductibility of capital losses, in general, is subject to limitations. In the case of stockholders who hold multiple blocks of Chelsea stock (i.e., the shares were acquired separately at different times and/or different prices), gain or loss must be calculated and accounted for separately for each block of shares.

        Chelsea will, immediately before the REIT Merger, pay a dividend to the holders of Chelsea common stock and Chelsea Series A Preferred Stock in the amounts set forth in "The Merger Agreement and Related Agreements—Merger Agreement—Principal Covenants—Coordination of Dividends." These dividends will be includable in the U.S. shareholder's taxable income in accordance with the normal rules applicable to dividends received from REITs.

        A Chelsea stockholder's tax basis in the shares of Simon stock received in the REIT Merger — Simon common stock, Simon 6% Convertible Preferred Stock and/or Simon 83/8% Preferred Stock, as the case may be — will be equal, for U.S. federal income tax purposes, to the fair market value of such shares on the effective date of the REIT Merger. The holding period with respect to such shares shall commence on the day after the effective date of the REIT Merger. A discussion of certain material U.S. federal income tax consequences of owning and disposing of shares of such Simon stock is presented below.

117


        Simon, like Chelsea, has elected to be taxed as a REIT under Sections 856 through 860 of the Internal Revenue Code. As a condition to the consummation of the REIT Merger, Baker & Daniels will deliver an opinion to Chelsea that Simon qualifies as a REIT as of the effective time of the REIT Merger. This opinion, however, will not be binding on the Internal Revenue Service or the courts. This opinion will rely on customary representations. If Simon did not qualify as a REIT in any of its prior taxable years, Simon would be subject to U.S. federal income tax at regular corporate rates and to potentially significant tax liabilities. For a description of the U.S. federal income tax requirements for qualification as a REIT and a summary of certain material consequences of losing REIT status, see the section titled "Important Federal Income Tax Considerations" in the Form S-3/A filed by Simon with the SEC on April 7, 2004 in connection with the registration and sale of its common stock.

Consequences to Chelsea's Non-U.S. Stockholders of the REIT Merger

        Non-U.S. Stockholders are generally not subject to U.S. federal income tax on gains from disposition of their Chelsea common stock and Chelsea Series A Preferred Stock unless such shares are a "U.S. real property interest" in the hands of such stockholder under the Foreign Investment in Real Property Tax Act of 1980, as amended, which we refer to in this proxy statement/prospectus as FIRPTA. Neither Chelsea common stock nor Chelsea Series A Preferred Stock constitute U.S. real property interests subject to tax under FIRPTA if Chelsea is a domestically-controlled REIT, that is, if at all times during the five-year period preceding the consummation of the REIT Merger less than 50% in value of the capital stock of Chelsea has been held directly or indirectly by Non-U.S. Stockholders. Chelsea believes, based on the available public information, that it is a domestically-controlled REIT. Since Chelsea common stock is publicly traded, however, no assurance can be given that Chelsea is a domestically-controlled REIT. Even if Chelsea is not a domestically-controlled REIT, since Chelsea common stock is regularly traded on an established securities exchange, Chelsea common stock is not a U.S. real property interest subject to tax under FIRPTA to a Non-U.S. Stockholder, unless such stockholder owns, actually or constructively under the attribution rules provided in the Internal Revenue Code, more than 5% of all of the shares of Chelsea common stock outstanding at any time during the shorter of the five-year period preceding the consummation of the transactions contemplated by the REIT Merger or such Non-U.S. Stockholder's holding period. However, as the Chelsea Series A Preferred Stock is not regularly traded on an established securities exchange, in the event that Chelsea is not a domestically-controlled REIT, each Non-U.S. Stockholder of Chelsea Series A Preferred Stock may be subject to tax under FIRPTA. If Simon or the exchange agent subsequently determined that Chelsea may, in fact, not be a domestically-controlled REIT, they may withhold 10% of any consideration to be received in the REIT Merger.

        Notwithstanding the foregoing, capital gain not subject to FIRPTA will be taxable to a Non-U.S. Stockholder if, among other conditions, the Non-U.S. Stockholder is a nonresident alien individual who is present in the United States for 183 days or more during the taxable year or is a former citizen or long-term resident of the United States subject to special rules that apply to expatriates. Gain from selling the shares may also be taxable to foreign corporations if such gain is effectively connected with their U.S. trade or business. The branch profits tax may also apply to such a foreign corporation's effectively connected income under certain circumstances.

        As noted above, Chelsea will, immediately before the REIT Merger, pay a dividend to the holders of Chelsea common stock and Chelsea Series A Preferred Stock in the amounts set forth in "The Merger Agreement and Related Agreements—Merger Agreement—Principal Covenants—Coordination of Dividends." Any such dividends will be subject to normal rules regarding withholding of U.S. tax from dividends.

118



Backup Withholding

        Under U.S. federal income tax laws, consideration to be received in the REIT Merger may be subject to a 28% backup withholding tax. Backup withholding generally will not apply to payments made to certain exempt recipients, such as a corporation or financial institution or to a stockholder who certifies such stockholder's taxpayer identification number and certain other required information or provides a certificate of foreign status. Backup withholding is not an additional tax. If backup withholding applies, the amount withheld will be allowed as a refund or a credit against such stockholder's U.S. federal income tax liability, provided the required information is furnished to the Internal Revenue Service on a timely basis.

Certain Material U.S. Federal Income Tax Consequences of Owning and Disposing of Simon Common Stock, Simon 6% Convertible Preferred Stock and Simon 83/8% Preferred Stock Received in the REIT Merger

        Distributions Generally.    As long as Simon qualifies as a REIT, distributions out of its current or accumulated earnings and profits (as determined under U.S. federal income tax principles), other than capital gain dividends discussed below, will constitute dividends taxable to its taxable U.S. Stockholders as ordinary income. These distributions will not be eligible for the dividends-received deduction in the case of U.S. Stockholders that are corporations. Furthermore, these distributions generally will not constitute "qualified dividend income" taxable at 15% capital gain rates. For purposes of determining whether distributions to holders of shares of Simon stock are out of current or accumulated earnings and profits, Simon's earnings and profits will be allocated first to the outstanding preferred stock and then to the common stock.

        To the extent that Simon makes distributions in excess of its current and accumulated earnings and profits, these distributions will be treated first as a tax-free return of capital to each U.S. Stockholder. This treatment will reduce the adjusted basis, but not below zero, which each U.S. Stockholder has in his or her shares of stock for tax purposes by the amount of the distribution in excess of current and accumulated earnings and profits. Such distributions in excess of a U.S. stockholder's adjusted basis in his or her shares will be taxable as capital gains, provided that the shares have been held as a capital asset, and will be taxable as long-term capital gain if the shares have been held for more than one year. Dividends declared in October, November, or December of any year and payable to a stockholder of record on a specified date in any of those months shall be treated as both paid by Simon and received by the stockholder on December 31 of that year, provided Simon actually pays the dividend on or before January 31 of the following calendar year. Stockholders may not include in their own income tax returns any of Simon's net operating losses or capital losses.

        Constructive Dividends With Respect To Simon 6% Convertible Preferred Stock.    Any increase in the conversion rate of the Simon 6% Convertible Preferred Stock may, depending upon the circumstances, be deemed to be a distribution to holders of such stock. Any deemed distribution will be taxed in the same manner as an actual distribution, as described in the subsection above titled "—Distributions Generally".

        Capital Gain Dividends.    Dividends to U.S. Stockholders that are properly designated by Simon as capital gain dividends will be treated as long-term capital gain to the extent they do not exceed Simon's actual net capital gain for the taxable year, without regard to the period for which the stockholder has held his or her stock. Dividends designated as capital gains will be taxed to each individual at a rate up to 25% depending on the tax characteristics of the assets which produced such gain and such individual's situation. Corporate stockholders, however, may be required to treat up to 20% of certain capital gain dividends as ordinary income.

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        Simon may elect to retain and pay income tax on some or all of its undistributed net capital gains, in which case Simon's stockholders will include such retained amount in their income. In that event, the stockholders would be entitled to a tax credit or refund in the amount of the tax paid by Simon on the undistributed gain allocated to the stockholders, and the stockholders would be entitled to increase their tax basis by the amount of undistributed capital gains allocated to such stockholders reduced by the amount of the credit.

        Passive Activity Losses and Investment Interest Limitations.    Dividends that Simon pays and gain arising from the sale or exchange by a U.S. Stockholder of shares will not be treated as passive activity income. As a result, U.S. Stockholders that are subject to the passive activity loss limitations generally will not be able to apply any "passive losses" against this income or gain. Dividends, to the extent they do not constitute a return of capital, generally will be treated as investment income for purposes of computing the investment interest limitation. Gain arising from the sale or other disposition of shares, however, will not be treated as investment income except to the extent the U.S. Stockholder elects to reduce the amount of his net capital gain eligible for the capital gains rate.

        Dispositions Generally.    A U.S. Stockholder will recognize gain or loss on the sale or exchange of shares of Simon common stock, Simon 6% Convertible Preferred Stock or Simon 83/8% Preferred Stock to the extent of the difference between the amount realized on such sale or exchange and the holders' adjusted tax basis in such shares. Such gain or loss generally will constitute long-term capital gain or loss if the holder has held such shares for more than one year. Individual taxpayers are generally subject to a maximum tax rate of 15% on long-term capital gain from the sale of securities, but stockholders subject to the alternative minimum tax may be taxed at a rate of 25% on some or all of their long-term capital gain. Losses incurred on the sale or exchange of shares of common stock held for six months or less, after applying certain holding period rules, however, will generally be deemed long-term capital loss to the extent of any long-term capital gain dividends received by the U.S. stockholder and undistributed capital gains allocated to such U.S. stockholder with respect to such shares. The deductibility of capital losses is, in general, subject to limitations.

        Redemption of Simon 83/8% Preferred Stock.    Redemption of all or a portion of a stockholder's Simon 83/8% Preferred Stock for cash will result in the recognition of capital gain or loss and the rules set forth in the previous paragraph will apply, provided that the redemption (i) is not essentially equivalent to a dividend, (ii) results in a complete termination of such stockholder's interest in Simon's stock (preferred and common) or (iii) is substantially disproportionate with respect to such stockholder (in each case, as determined under U.S. federal income tax principles). In determining whether this requirement is satisfied, Simon stock considered to be owned by a stockholder by reason of certain attribution rules must be taken into account. A redemption is not essentially equivalent to a dividend if the redemption results in a "meaningful reduction" in the stockholders' proportionate interest in the corporation. It may be more difficult for a person who owns, actually or constructively by operation of the attribution rules, any shares of Simon common stock to satisfy any of the above requirements, including the requirements that there be a meaningful reduction in the holder's proportionate interest in Simon.

        If the redemption does not satisfy the above requirements, then the entire amount received (without offset for such stockholder's tax basis in his or her preferred stock redeemed) will be treated as a distribution taxable as described in the subsection titled "—Distributions Generally" above. In such case, such stockholder's tax basis in his or her redeemed preferred stock will be allocated to his or her remaining stock in Simon, if any.

        Conversion of Simon 6% Convertible Preferred Stock.    The conversion of Simon 6% Convertible Preferred Stock into Simon common stock is generally a tax-free exchange for U.S. federal income tax

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purposes. A stockholder's aggregate tax basis in the Simon common stock received in the conversion will equal his or her aggregate tax basis in the shares of Simon 6% Convertible Preferred Stock surrendered. Also, such stockholder's holding period in the Simon common stock received in the conversion will include the holding period such holder had in his or her shares of Simon 6% Convertible Preferred Stock.

        The Internal Revenue Service has ruled that amounts distributed as dividends by a REIT do not constitute unrelated business taxable income when received by a tax-exempt pension trust and certain other tax-exempt entities. Based on that ruling, provided that a tax-exempt stockholder, except certain tax-exempt stockholders described below, has not held its shares as "debt financed property" within the meaning of the Internal Revenue Code and the shares are not otherwise used in an unrelated trade or business, such tax-exempt stockholder's dividend income from Simon will not be unrelated business taxable income to it. Generally, "debt financed property" means shares, the acquisition of which was financed through a borrowing by the tax-exempt stockholder. Similarly, income from the sale of shares will not constitute unrelated business taxable income unless a tax-exempt stockholder has held its shares as "debt financed property" within the meaning of the Internal Revenue Code or has used the shares in its unrelated trade or business.

        For tax-exempt stockholders which are social clubs, voluntary employee benefit associations, supplemental unemployment benefit trusts, and qualified group legal services plans exempt from federal income taxation under Internal Revenue Code sections 501(c)(7), (c)(9), (c)(17) and (c)(20), respectively, income from an investment in Simon's shares will constitute unrelated business taxable income unless the organization is able to properly deduct amounts set aside or placed in reserve for certain purposes so as to offset its dividend income. Tax-exempt stockholders of Chelsea are urged to consult their own tax advisors concerning these "set aside" and reserve requirements.

        Notwithstanding the above, however, a portion of the dividends paid by a "pension held REIT" are treated as unrelated business taxable income as to certain types of trusts which hold more than 10% (by value) of the interests in the REIT. A REIT will not be a "pension held REIT" if it is not "predominantly held" by tax-exempt pension trusts. We do not anticipate that Simon will be predominantly held by tax-exempt pension trusts within the meaning of the Internal Revenue Code and accordingly, believe that dividends paid by Simon to tax-exempt pension trusts should not be treated as unrelated business taxable income.

        In general, Non-U.S. Stockholders will be subject to regular U.S. federal income tax with respect to the Simon stock received in the REIT Merger if such stock is "effectively connected" with the Non-U.S. stockholder's conduct of a trade or business in the United States. A corporate Non-U.S. Stockholder that receives income that is, or is treated as, effectively connected with a United States trade or business may also be subject to the branch profits tax under section 884 of the Internal Revenue Code, which is payable in addition to regular U.S. corporate income tax. The following discussion will apply to Non-U.S. Stockholders whose investment in Simon is not so effectively connected. Simon expects to withhold U.S. federal income tax, as described below, on the gross amount of any distributions paid to a Non-U.S. Stockholder unless (i) the Non-U.S. Stockholder files an Internal Revenue Service Form W-8ECI with Simon claiming that the distribution is "effectively connected" or (ii) certain other exceptions apply.

        A distribution by Simon that is not attributable to gain from the sale or exchange by Simon of a United States real property interest and that is not designated by Simon as a capital gain dividend will be treated as an ordinary income dividend to the extent made out of current or accumulated earnings

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and profits. Generally, an ordinary income dividend will be subject to tax at the rate of 30% of the gross amount of the distribution unless such tax is reduced or eliminated by an applicable tax treaty. A distribution in cash in excess of Simon's earnings and profits will be treated first as a return of capital that will reduce a Non-U.S. Stockholder's basis in its shares of Simon stock, but not below zero, and then as gain from the disposition of such shares, the tax treatment of which is described under the rules discussed below with respect to the disposition of shares. Simon is required to withhold from distributions to Non-U.S. Stockholders, and to remit to the Internal Revenue Service, 30% of the amount of ordinary dividends. A distribution in excess of Simon's earnings and profits may be subject to 30% withholding if, at the time of the distribution, it cannot be determined whether the distribution will be in an amount in excess of Simon's current or accumulated earnings and profits.

        Distributions by Simon that are attributable to gain from the sale or exchange of a United States real property interest will be taxed to a Non-U.S. Stockholder under FIRPTA. Under FIRPTA, distribution amounts not subject to the tax treatment described in the preceding paragraph are taxed to a Non-U.S. Stockholder as if such distributions were gains "effectively connected" with a United States trade or business. Accordingly, a Non-U.S. Stockholder will be taxed at the normal capital gain rates applicable to a U.S. stockholder on such amounts, subject to any applicable alternative minimum tax and a special alternative minimum tax in the case of nonresident alien individuals. Distributions subject to FIRPTA may also be subject to a 30% branch profits tax in the hands of a corporate Non-U.S. Stockholder that is not entitled to treaty exemption.

        Simon will be required to withhold from distributions subject to FIRPTA, and remit to the Internal Revenue Service, 35% of designated capital gain dividends, or, if greater, 35% of the amount of any distributions that could be designated as capital gain dividends. In addition, if Simon designates prior distributions as capital gain dividends, subsequent distributions, up to the amount of such prior distributions not withheld against, will be treated as capital gain dividends for purposes of withholding. It should be noted that the 35% withholding tax rate on capital gain dividends currently corresponds to the maximum income tax rate applicable to corporations, but it is higher than the maximum rate on capital gains of individuals.

        Tax treaties may reduce Simon's withholding obligations. If the amount withheld by Simon with respect to a distribution exceeds the Non-U.S. Stockholder's tax liability, the Non-U.S. Stockholder may file for a refund of such excess from the Internal Revenue Service.

        Non-U.S. Stockholders will generally not be subject to U.S. federal income tax on gains from disposition of their Simon shares unless such shares are a "U.S. real property interest" in the hands of such stockholder under FIRPTA. Neither Simon common stock, nor Simon 6% Convertible Preferred Stock, nor Simon 83/8% Preferred Stock, constitute U.S. real property interests subject to tax under FIRPTA if Simon is a domestically-controlled REIT, that is, if at all times during the five-year period preceding the disposition of such shares less than 50% in value of the capital stock of Simon has been held directly or indirectly by Non-U.S. Stockholders. Simon believes, based on the available public information, that Simon is a domestically-controlled REIT. Since Simon common stock is, and Simon 6% Convertible Preferred Stock is anticipated to be, publicly traded, however, no assurance can be given that Simon is or will be a domestically-controlled REIT. Even if Simon is not a domestically-controlled REIT, since Simon common stock is, and Simon 6% Convertible Preferred Stock is anticipated to be, regularly traded on an established securities exchange, neither Simon common stock nor Simon 6% Convertible Preferred Stock will be a U.S. real property interest subject to tax under FIRPTA to a Non-U.S. Stockholder, unless such stockholder owns, actually or constructively under the attribution rules provided in the Internal Revenue Code, more than 5% of all of the shares of Simon common stock or of all of the shares of Simon 6% Convertible Preferred Stock outstanding at any time during the shorter of the five-year period preceding the disposition of such shares or such Non-U.S. Stockholder's holding period. However, as the Simon 83/8% Preferred Stock is not regularly traded on an established securities exchange, in the event that Simon is not a domestically-controlled REIT, each

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Non-U.S. Stockholder of Simon 83/8% Preferred Stock may be subject to tax under FIRPTA, and the consideration received for such shares may be subject to withholding under FIRPTA at a rate of 10%.

        Notwithstanding the foregoing, capital gain not subject to FIRPTA will be taxable to a Non-U.S. Stockholder if, among other conditions, the Non-U.S. Stockholder is a nonresident alien individual who is present in the United States for 183 days or more during the taxable year. Gain from selling the shares may also be taxable to foreign corporations if such gain is effectively connected with their U.S. trade or business. The branch profits tax may also apply to such a foreign corporation's effectively connected income under certain circumstances.

        Simon will report to its U.S. Stockholders and the Internal Revenue Service the amount of distributions paid during each calendar year and the amount of tax withheld, if any. Under certain circumstances, U.S. Stockholders may be subject to backup withholding (currently at a rate of 28%). Backup withholding will apply only if the stockholder (i) fails to furnish its taxpayer identification number, which, for an individual, would be his or her Social Security number, (ii) furnishes an incorrect taxpayer identification number, (iii) is notified by the Internal Revenue Service that it has failed properly to report payments of interest and dividends, or (iv) under certain circumstances, fails to certify, under penalty of perjury, that it has furnished a correct taxpayer identification number and has not been notified by the Internal Revenue Service that it is subject to backup withholding for failure to report interest and dividend payments.

        Backup withholding will not apply with respect to payments made to certain exempt recipients, such as corporations and tax-exempt organizations. U.S. Stockholders should consult their own tax advisors regarding their qualification for exemption from backup withholding and the procedure for obtaining such an exemption. Backup withholding is not an additional tax. Rather, the amount of any backup withholding with respect to a payment to a U.S. Stockholder will be allowed as a credit against such U.S. Stockholder's U.S. federal income tax liability and may entitle such U.S. stockholder to a refund, provided that the required information is furnished to the Internal Revenue Service.

        Additional issues may arise pertaining to information reporting and backup withholding with respect to Non-U.S. Stockholders. For example, we may be required to withhold a portion of any capital gain distributions to Non-U.S. Stockholders who fail to certify their foreign status to Simon on Form W-8BEN. Non-U.S. Stockholders should consult their tax advisors with respect to any such information reporting and backup withholding requirements.

Consequences to U.S. Unitholders of the Partnership Merger and/or the Optional Partnership Exchange Offer

        Generally, gain or loss is not recognized for U.S. federal income tax purposes upon the contribution of property to a partnership in exchange for interests in the partnership. U.S. Unitholders that participate in the Optional Partnership Exchange Offer will contribute their common units in the Chelsea Operating Partnership directly to the Simon Operating Partnership in exchange for common and preferred partnership interests in the Simon Operating Partnership. Accordingly, U.S. Unitholders that participate in the Optional Partnership Exchange Offer will not recognize gain or loss for U.S. federal income tax purposes as a result of such participation. Similarly, it is intended, and this discussion assumes, that if consummated, the Partnership Merger, together with the other transactions contemplated by the merger agreement, including the liquidation of Chelsea, will be treated for U.S. federal income tax purposes as a contribution by the U.S. Unitholders (other than those who fully participate in the Optional Partnership Exchange Offer) of their common units in the Chelsea Operating Partnership to the Simon Operating Partnership in exchange for common and preferred

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partnership interests in the Simon Operating Partnership. Accordingly, U.S. Unitholders that receive partnership interests in the Simon Operating Partnership pursuant to the Partnership Merger should not recognize gain or loss for U.S. federal income tax purposes upon the consummation of the Partnership Merger. Simon, Simon Operating Partnership and each U.S. Unitholder that will be a party to the tax protection agreement will agree to treat the transactions pursuant to the Optional Partnership Exchange Offer and the Partnership Merger consistent with the foregoing on all tax returns, reports and filings and for all calculations required to be made in connections with such returns, reports or filings. The above treatment assumes that the Simon Operating Partnership would not be an investment company if it were incorporated (which should be the case based on the composition of the assets of the Simon Operating Partnership), and further assumes that there will be no deemed taxable distributions to the U.S. Unitholders on account of the Partnership Merger and the Optional Partnership Exchange Offer, as described below under "Potential for Taxable Gain Resulting from Contributions of Chelsea Operating Partnership Common Units and the Reduction of a U.S. Unitholder's Share of Liabilities."

        If and to the extent a U.S. Unitholder elects not to participate in either the Partnership Merger or the Optional Partnership Exchange Offer, but instead chooses to exchange its common units in the Chelsea Operating Partnership for Chelsea common stock (the "Chelsea OP Unit Conversion"), such U.S. Unitholder will recognize gain or loss for U.S. federal income tax purposes equal to the excess of the value of the Chelsea common stock received (increased by such U.S. Unitholder's "share" of liabilities of the Chelsea Operating Partnership, which is discussed below) over its tax basis in the common units exchanged therefor. Such gain or loss generally will constitute long-term capital gain or loss if the holder has held such common units for more than one year, but in certain circumstances (e.g., to the extent of recapture) a portion of any such gain may constitute ordinary income or be taxed at a 25% rate instead of the 15% rate generally applicable to long-term capital gain. Such U.S. Unitholder's initial tax basis in the Chelsea common stock received in the Chelsea OP Unit Conversion will be equal to the fair market value of such stock on the effective date of the Chelsea OP Unit Conversion and such U.S. Unitholder's holding period in that Chelsea common stock shall commence the day after the Chelsea OP Unit Conversion. U.S. Unitholders who choose to convert their common units in the Chelsea Operating Partnership for Chelsea common stock may participate in the REIT Merger like the other Chelsea stockholders, the U.S. federal income tax consequences of which are described above.

        Each U.S. Unitholder will have an initial basis in the Simon Operating Partnership common and preferred partnership interests it receives in the Partnership Merger or the Optional Partnership Exchange Offer, as the case may be, equal to its basis in the Chelsea Operating Partnership common units it contributed to the Simon Operating Partnership in exchange therefor. Such basis shall be increased by the U.S. Unitholder's allocable share of income of, and any additional capital contributions of money made (or deemed made) by the U.S. Unitholder to, the Simon Operating Partnership, and decreased by the U.S. Unitholder's allocable share of losses of and distributions made (or deemed made) to the U.S. Unitholder by the Simon Operating Partnership. For purposes of determining the amount of any contributions to or distributions from the Simon Operating Partnership, an increase in a U.S. Unitholder's "share" of liabilities of the Simon Operating Partnership or the amount of any liabilities which are treated as assumed by a U.S. Unitholder will be treated as a contribution by such U.S. Unitholder of money to the Simon Operating Partnership and a reduction in a U.S. Unitholder's "share" of liabilities and the amount of direct or indirect liabilities to which property (including the Chelsea Operating Partnership common units) contributed by a U.S. Unitholder is subject will be treated as a distribution of money to such U.S. Unitholder. A U.S. Unitholder's "share" of liabilities is determined based on the nature of the liabilities and, in certain cases, the application of a three-tier allocation scheme set forth in applicable Treasury Regulations. Certain

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potentially adverse tax consequences to a U.S. Unitholder resulting from the application of these rules are described in the next paragraph.

        If cash is distributed (including in certain circumstances, distributions of certain "marketable securities" treated as cash distributions) to a partner in any year, including for this purpose any reduction in that partner's share of the liabilities of the partnership, and the distribution exceeds that partner's share of the taxable income of the partnership for that year, the excess will reduce the partner's tax basis in its partnership interests and any distribution, or reduction in liabilities, in excess of such basis will result in taxable gain. To the extent a U.S. Unitholder's net "share" of liabilities is reduced in connection with its contribution of Chelsea Operating Partnership common units to the Simon Operating Partnership or is subsequently reduced (such as to reflect the elimination of any "Book-Tax Difference" pertaining to its contributed Chelsea Operating Partnership common units, in a manner consistent with Section 704(c), as described below under "Tax Allocations with Respect to Contributed Chelsea Operating Partnership Common Units"), such net reductions in liabilities can, depending on the amount of the U.S. Unitholder's other income allocations and remaining tax basis, result in taxable gain to the U.S. Unitholder. Under the tax protection agreement, Simon and the Simon Operating Partnership have agreed to make available to U.S. Unitholders the opportunity to guaranty indebtedness or enter into similar arrangements providing limited protection from the recognition of such taxable gain. Each U.S. Unitholder is urged to consult with its own tax advisors regarding the potential for recognizing taxable gain as a result of decreases in such U.S. Unitholder's share of liabilities and whether such U.S. Unitholder might benefit from the above described provisions in the tax protection agreement.

        Each U.S. Unitholder will have a initial holding period in the Simon Operating Partnership common and preferred partnership interests it receives in the Partnership Merger or the Optional Partnership Exchange Offer, as the case may be, equal to the holding period in the Chelsea Operating Partnership common units it contributed to the Simon Operating Partnership in exchange therefor. To the extent the U.S. Unitholder had a fragmented holding period in its Chelsea Operating Partnership common units, it will continue to have a fragmented holding period in the Simon Operating Partnership common and preferred partnership interests it receives in exchange for those common units. In such case, any capital gain or loss upon the sale of the Simon Operating Partnership common or preferred partnership interests or a taxable exchange of such interests for Simon stock would generally be divided between long-term and short-term capital gain or loss in the same proportions as the holding period of the Simon Operating Partnership common and preferred partnership interests is divided between the portion of those interests having a holding period of more than one year and the portion of those interests having a holding period of one year or less, which proportions may vary over time depending, among other things, on the timing of the U.S. Unitholder's future contributions to and distributions from (including certain deemed contributions to and distributions from) the Simon Operation Partnership.

        Pursuant to Section 704(c) of the Code, income, gain, loss and deduction attributable to appreciated or depreciated property that is contributed to a partnership in exchange for an interest in the partnership must be allocated in a manner such that the contributing partner is charged with, or benefits from, the unrealized gain or unrealized loss inherent in such property at the time of the contribution. The amount of such unrealized gain or unrealized loss is generally equal to the difference

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between the fair market value and the adjusted tax basis of the contributed property at the time of contribution (the "Book-Tax Difference"). Such allocations are solely for U.S. federal income tax purposes and do not affect the book capital accounts or other economic or legal arrangements among the partners. Because the U.S. Unitholders will have contributed appreciated property (i.e., their Chelsea Operating Partnership common units) to the Simon Operating Partnership, allocations with respect to the contributed Chelsea Operating Partnership common units must be made in a manner consistent with Section 704(c) of the Code.

        The special allocation rules under Section 704(c) may cause a U.S. Unitholder to recognize taxable income in excess of the cash distributed to such U.S. Unitholder. Simon and the Simon Operating Partnership have agreed in the tax protection agreement to take (or refrain from taking) certain designated actions that will ameliorate the potential adverse effects to the U.S. Unitholders of the above described allocations under Section 704(c). For example, Simon and the Simon Operating Partnership have agreed not to sell, transfer, exchange or otherwise dispose of, except in tax-deferred transactions, six specified properties that are held by the Chelsea Operating Partnership. These restrictions on sale do not cover all the properties currently held by the Chelsea Operating Partnership and have a duration of 15 years for one property and 10 years for the five other properties.

Disposition of Simon Operating Partnership Common and Preferred Interests

        A U.S. Unitholder generally should not recognize any gain or loss upon the conversion of its Simon Operating Partnership preferred partnership interests into Simon Operating Partnership common partnership interests. A U.S. Unitholder will recognize gain or loss upon a disposition of its Simon Operating Partnership common partnership interests or preferred partnership interests, including a redemption of such interests or exchange of such interests for shares of Simon stock, equal to the excess of any cash and the value of any Simon stock or other property received (increased by such U.S. Unitholder's "share" of the liabilities of the Simon Operating Partnership) over its tax basis in the interests exchanged or otherwise disposed. Such gain or loss generally will constitute long-term capital gain or loss if the holder has held such Simon Operating Partnership partnership interests for more than one year, but in certain circumstances (e.g., to the extent of recapture) a portion of any such gain may constitute ordinary income or be taxed at a 25% rate instead of the 15% rate generally applicable to long-term capital gain. A U.S. Unitholder's initial tax basis in any Simon stock received in exchange for Simon Operating Partnership common or preferred partnership interests will be equal to the fair market value of such stock on the day received and such U.S. Unitholder's holding period in that stock shall commence on the following day.

        Under U.S. federal income tax laws, consideration to be received in the Partnership Merger, the Optional Partnership Exchange Offer and/or the Chelsea OP Unit Conversion may be subject to a backup withholding tax (currently at a rate of 28%). Backup withholding generally will not apply to payments made to certain exempt recipients, such as a corporation or financial institution or to a person who certifies such person's taxpayer identification number and certain other required information or provides a certificate of foreign status. Backup withholding is not an additional tax. If backup withholding applies, the amount withheld will be allowed as a refund or a credit against the U.S. federal income tax liability of the party whose consideration was subject to the backup withholding, provided the required information is furnished to the Internal Revenue Service on a timely basis.

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DESCRIPTION OF SIMON CAPITAL STOCK

Authorized Stock

        Simon has the authority to issue 750,000,000 shares of capital stock, par value $0.0001 per share, consisting of the following:

        Of the 100,000,000 authorized shares of Simon preferred stock, the following have been designated:


        In addition, in connection with the Mergers, Simon will designate                        shares of Simon 6% Series I Convertible Perpetual Stock and                        shares of Simon 83/8% Series J Cumulative Redeemable Preferred Stock.

        As of June 30, 2004, there were 1,000,000 shares of Simon Series E Cumulative Redeemable Preferred Stock, 8,000,000 shares of Simon Series F Cumulative Redeemable Preferred Stock and 3,000,000 shares of Simon Series G Cumulative Step-Up Premium Rate Preferred Stock outstanding. As of June 30, 2004, there were no shares of Simon Series A Convertible Preferred Stock, Simon Series A Excess Preferred Stock, Simon Series B Convertible Preferred Stock, Simon Series B Excess Preferred Stock, Simon Series C Convertible Preferred Stock, Simon Series D Cumulative Redeemable Preferred Stock or Simon Series H Variable Rate Preferred Stock outstanding.

Description of Common Stock

        The holders of shares of Simon common stock:

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        The shares of Simon common stock currently outstanding are, and the shares to be issued in the REIT Merger will be, validly issued, fully paid and non-assessable. There are no redemption or sinking fund provisions applicable to the Simon common stock.

        As of June 30, 2004, Simon had 8,000 shares of Class B common stock outstanding and 4,000 shares of Simon Class C common stock outstanding. Holders of Simon Class B common stock and Simon Class C common stock:


        If Simon is liquidated, each outstanding share of Simon common stock, Simon Class B common stock and Simon Class C common stock, including shares of Simon excess common stock, if any, will be entitled to participate pro rata in the assets remaining after payment of, or adequate provision for, all of Simon's known debts and liabilities, subject to the right of the holders of Simon preferred stock, including any Simon excess preferred stock into which shares such series has been converted, to receive preferential distributions.

        All outstanding shares of Simon Class B common stock are held in a voting trust in which Melvin, Herbert and David Simon are the voting trustees. The holders of Simon Class B common stock are entitled to elect four of Simon's 13 directors. However, they will be entitled to elect only two directors if their portion of the aggregate equity interest of Simon, including Simon common stock, Simon Class B common stock and units of limited partnership interests of the Simon Operating Partnership considered on an as-converted basis decreases to less than 50% of the amount that they owned as of August 9, 1996.

        Shares of Simon Class B common stock may be converted at the holder's option into an equal number of shares of Simon common stock. If the aggregate equity interest of the Simon family in Simon on a fully diluted basis has been reduced to less than 5%, the outstanding shares of Simon Class B common stock convert automatically into an equal number of shares of Simon common stock. Shares of Simon Class B common stock also convert automatically into an equal number of shares of Simon common stock upon the sale or transfer thereof to a person not affiliated with the Simon family. Holders of shares of Simon common stock and Simon Class B common stock have no sinking fund rights, redemption rights or preemptive rights to subscribe for any of Simon's securities.

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        All outstanding shares of Class C common stock are held by the DeBartolo family. Except with respect to the right to elect directors, as summarized below, each share of Simon Class C common stock has the same rights and restrictions as a share of Simon Class B common stock.

        The holders of Simon Class C common stock are entitled to elect two of Simon's 13 directors, one of whom must be an "independent director" as defined in Simon's charter. However, they will be entitled to elect only one director if their portion of the aggregate equity interest of Simon, including Simon common stock, Simon Class B common stock and units of limited partnership interest in the Simon Operating Partnership considered on an as-converted basis, decreases to less than 50% of the amount that they owned as of August 9, 1996. Shares of Simon Class C common stock may be converted at the holder's option into an equal number of shares of Simon common stock. If the aggregate equity interest of the DeBartolos in Simon on a fully diluted basis is reduced to less than 5%, the outstanding shares of Simon Class C common stock convert automatically into an equal number of shares of Simon common stock. Shares of Simon Class C common stock also convert automatically into an equal number of shares of Simon common stock upon the sale or transfer thereof to a person not affiliated with the DeBartolos. Holders of shares of Simon Class C common stock have no sinking fund rights, redemption rights or preemptive rights to subscribe for any of Simon's securities.

        Under Simon's charter, so long as any shares of both Simon Class B common stock and Simon Class C common stock are outstanding, the number of members of the Simon board of directors shall be 13. The Simon charter further provides that so long as any shares of Simon Class B common stock, but no Simon Class C common stock, are outstanding, or if any shares of Simon Class C common stock, but no shares of Simon Class B common stock, are outstanding, the number of members of the Simon board of directors shall be nine. Finally, the Simon charter provides that if no shares of Simon Class B common stock or Simon Class C common stock are outstanding, the number of members of the Simon board of directors shall be fixed by the Simon board of directors from time to time. Under the Simon charter, at least a majority of the directors shall be independent directors. The Simon charter further provides that, subject to any separate rights of holders of Simon preferred stock or as described below, any vacancies on the Simon board of directors resulting from death, disability, resignation, retirement, disqualification, removal from office, or other cause of a director shall be filled by a vote of the stockholders or a majority of the directors then in office provided that:

        The Simon charter provides that, subject to the right of holders of any class or series separately entitled to elect one or more directors, if any such right has been granted, directors may be removed with or without cause upon the affirmative vote of holders of at least a majority of the voting power of all the then outstanding shares entitled to vote generally in the election of directors, voting together as a single class.

        Mellon Investor Services LLC is the transfer agent for the shares of Simon common stock.

Description of Simon 6% Convertible Preferred Stock

        Immediately prior to the effective time of the REIT Merger, Simon shall file a Certificate of Powers, Designations, Preferences and Rights with the Secretary of State of the State of Delaware to

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create the Simon 6% Convertible Preferred Stock. The following summary of the terms and provisions of the Simon 6% Convertible Preferred Stock does not purport to be complete and is qualified in its entirety by reference to the pertinent sections of the Certificate of Designations creating the Simon 6% Convertible Preferred Stock, the form of which is attached to this proxy statement/prospectus as Appendix D.

        The Simon 6% Convertible Preferred Stock, with respect to dividend rights and upon liquidation, winding up and dissolution, will rank:

        The term "senior stock" includes warrants, rights, calls or options exercisable for or convertible into that type of stock.

        Holders of the shares of Simon 6% Convertible Preferred Stock will be entitled to receive, when, as and if declared by the Simon board of directors, out of funds legally available for payment, cumulative cash dividends on each outstanding share of Simon 6% Convertible Preferred Stock at the annual rate of 6% of the liquidation preference per share. The dividend rate will initially be equivalent to $3.00 per share annually. The right of holders of the shares of Simon 6% Convertible Preferred Stock to receive dividend payments will be subject to the rights of any holders of shares of senior stock and parity stock.

        Dividends will be payable quarterly in arrears on February 28, May 31, August 31 and November 30 of each year, beginning on the first such date to occur after the initial issuance of the Simon 6% Convertible Preferred Stock. If any of those dates is not a business day, then dividends will be payable on the next succeeding business day. Dividends will accumulate from the most recent date as to which dividends will have been paid or, if no dividends have been paid, from the date of original issuance of the Simon 6% Convertible Preferred Stock. Dividends will be payable to holders of record as they appear in Simon's stock records at the close of business on a record date that shall be fixed by the Simon board of directors and that will be not more than 60 days nor fewer than 10 days before the applicable quarterly dividend payment date. Dividends will be cumulative from each quarterly dividend payment date, whether or not Simon has funds legally available for the payment of those dividends.

        Dividends payable on the shares of Simon 6% Convertible Preferred Stock for any period shorter than a full quarterly period will be computed on the basis of a 360-day year consisting of twelve 30-day

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months. Dividends on the shares of Simon 6% Convertible Preferred Stock will be payable in cash. Accumulated unpaid dividends will cumulate at the annual rate of 6% and will be payable in the manner provided above.

        For so long as shares of Simon 6% Convertible Preferred Stock are outstanding, (1) Simon will not declare, pay or set apart funds for the payment of any dividend or other distribution with respect to any junior stock or parity stock and (2) neither Simon, nor any of its subsidiaries, will redeem, purchase or otherwise acquire for consideration junior stock or parity stock through a sinking fund or otherwise, in each case unless Simon has paid or set apart funds for the payment of all accumulated and unpaid dividends with respect to the shares of Simon 6% Convertible Preferred Stock and any parity stock for all preceding dividend periods. As an exception to clause (2), Simon will be able to redeem, purchase or otherwise acquire for consideration parity stock pursuant to a purchase or exchange offer made on the same terms to all holders of Simon 6% Convertible Preferred Stock and such parity stock.

        Holders of Simon 6% Convertible Preferred Stock will not have any right to receive dividends that Simon may declare on Simon common stock, Simon Class B common stock or Simon Class C common stock. The right to receive dividends declared on Simon common stock will be realized only after conversion of such holder's shares of Simon 6% Convertible Preferred Stock into shares of Simon common stock.

        Upon any voluntary or involuntary liquidation, dissolution or winding up of Simon resulting in a distribution of assets to the holders of any class or series of Simon's capital stock, each holder of shares of Simon 6% Convertible Preferred Stock will be entitled to payment out of Simon's assets available for distribution of an amount equal to the liquidation preference per share of Simon 6% Convertible Preferred Stock held by that holder, plus all accumulated and unpaid dividends on those shares to the date of that liquidation, dissolution, or winding up, before any distribution is made on any junior stock, including Simon common stock, but after any distributions on any of Simon's indebtedness. After payment in full of the liquidation preference and all accumulated and unpaid dividends to which holders of shares of Simon 6% Convertible Preferred Stock are entitled, holders will not be entitled to any further participation in any distribution of Simon's assets. If, upon any voluntary or involuntary liquidation, dissolution or winding up of Simon, the amounts payable with respect to shares of Simon 6% Convertible Preferred Stock and all other parity stock are not paid in full, holders of shares of Simon 6% Convertible Preferred Stock and holders of the parity stock will share equally and ratably in any distribution of Simon's assets in proportion to the liquidation preference and all accumulated and unpaid dividends to which each such holder is entitled.

        Neither the voluntary sale, conveyance, exchange or transfer, for cash, shares of stock, securities or other consideration, of all or substantially all of Simon's property or assets nor the consolidation, merger or amalgamation of Simon with or into any corporation or the consolidation, merger or amalgamation of any corporation with or into Simon will be deemed to be a voluntary or involuntary liquidation, dissolution or winding up of Simon.

        Simon is not required to set aside any funds to protect the liquidation preference of the shares of Simon 6% Convertible Preferred Stock, although the liquidation preference will be substantially in excess of the par value of the shares of Simon 6% Convertible Preferred Stock.

        Holders of Simon 6% Convertible Preferred Stock will be entitled to convert such shares into fully paid and nonassessable shares of Simon common stock upon the occurrence of a conversion triggering event (as further described below) at a conversion rate of 0.783 of a share of common stock per $50.00 liquidation preference of Simon 6% Convertible Preferred Stock, subject to adjustments as described

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under "—Adjustments to the Conversion Rate." This represents an initial conversion price of $63.857 per share of Simon 6% Convertible Preferred Stock.

        A holder will be entitled to convert shares of Simon 6% Convertible Preferred Stock into shares of Simon common stock upon the occurrence of any of the following conversion triggering events:

        For the purposes of the above and the remainder of this description of the Simon 6% Convertible Preferred Stock:

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