Exhibit 99.1





Unaudited Consolidated Financial StatementsLehigh Valley Associates and SubsidiaryAs of December 31, 2018 and 2017, and for the Two Years Ended December 31, 2018








1


---




Exhibit 99.1





Lehigh Valley Associates and Subsidiary


Unaudited Consolidated Financial Statements


As of December 31, 2018 and 2017, and for the Two Years Ended December 31, 2018


Contents


Consolidated Balance Sheets3Consolidated Statements of Operations4Consolidated Statements of Partners' Deficit5Consolidated Statements of Cash Flows6Notes to Consolidated Financial Statements7


























2


---




Exhibit 99.1





Lehigh Valley Associates and Subsidiary


Unaudited Consolidated Balance Sheets








December 31December 3120182017AssetsInvestment property, at cost$92,216,066$89,159,958Less accumulated depreciation53,545,55853,392,59438,670,50835,767,364Cash and cash equivalents7,056,7532,711,025Tenant receivables, net of allowance for credit losses of $198,208 and $176,248, respectively727,936498,265Accrued straight-line rent2,742,7252,554,277Deferred costs, net1,296,7081,025,918Other assets2,249,6321,823,741Total assets$52,744,262$44,380,590Liabilities and partners’ deficitMortgage notes payable, net$195,422,419$198,441,376Accounts payable and accrued expenses4,810,5083,802,309Capital expenditures payable3,309,3141,453,524Total liabilities203,542,241203,697,209Partners’ deficit(150,797,979)(159,316,619)Total liabilities and partners’ deficit$52,744,262$44,380,590





The accompanying notes are an integral part of these unaudited consolidated statements.








3


---




Exhibit 99.1





Lehigh Valley Associates and Subsidiary


Unaudited Consolidated Statements of Operations


For the Years EndedDecember 3120182017Revenue:Minimum rent$22,119,638$21,674,741Overage rent356,643213,035Tenant reimbursements12,104,44112,585,144Other income1,081,513320,482Total revenue35,662,23534,793,402Expenses:Property operating3,764,7473,777,334Depreciation and amortization2,820,9643,611,259Real estate taxes3,284,4573,259,024Repairs and maintenance873,773974,013Advertising and promotion694,919814,961Provision for credit losses41,986(269,468)Other354,440321,689Total expenses11,835,28612,488,812Operating income23,826,94922,304,590Prepayment penalty for early payoff of debt—3,114,407Interest expense8,222,3097,792,506Net income$15,604,640$11,397,677





The accompanying notes are an integral part of these unaudited consolidated statements.











4


---




Exhibit 99.1





Lehigh Valley Associates and Subsidiary


Unaudited Consolidated Statements of Partners' Deficit


For the Years Ended December 31, 2018 and 2017


PREITKravco SimonAssociates, L.P.Investments, L.P.and Affiliateand Affiliate(General Partner(General Partnerand Limitedand LimitedPartner)Partner)TotalPartners’ percentage equity interest50.0%50.0%100.0%Partners’ deficit at January 1, 2017$(41,654,041)$(41,654,053)$(83,308,094)Distributions(43,703,101)(43,703,101)(87,406,202)Net income5,698,8385,698,83911,397,677Partners’ deficit at December 31, 2017$(79,658,304)$(79,658,315)$(159,316,619)Distributions(3,543,000)(3,543,000)(7,086,000)Net income7,802,3207,802,32015,604,640Partners’ deficit at December 31, 2018$(75,398,984)$(75,398,995)$(150,797,979)





The accompanying notes are an integral part of these unaudited consolidated statements.











5


---




Exhibit 99.1





Lehigh Valley Associates and Subsidiary


Unaudited Consolidated Statements of Cash Flows











For the Years EndedDecember 3120182017Cash flows from operating activities$15,604,640$11,397,677Net incomeAdjustments to reconcile net income to netcash provided by operating activities:Straight-line rent(188,448)194,851Depreciation and amortization2,924,5313,817,535Amortization of tenant inducements123,381127,017Provision for credit losses41,986(269,468)Prepayment penalty—3,114,407Changes in assets and liabilities:Tenant receivables(271,657)229,452Deferred costs and other assets(643,951)(309,231)Accounts payable and accrued expenses1,008,199(1,548,130)Net cash provided by operating activities18,598,68116,754,110Cash flows from investing activitiesCapital expenditures(5,526,992)(1,805,636)Change in capital escrow reserves(373,228)(690,201)Change in capital expenditures payable1,855,790751,709Net cash used in investing activities(4,044,430)(1,744,128)Cash flows from financing activitiesProceeds from new mortgage, net of deferredfinancing costs of $1,035,668—198,964,332Repayment of previous mortgage note payable—(124,576,276)Prepayment penalty—(3,114,407)Mortgage principal payments(3,122,523)(2,673,163)Distributions to partners(7,086,000)(87,406,202)Net cash used in financing activities(10,208,523)(18,805,716)Increase (Decrease) in cash and cash equivalents4,345,728(3,795,734)Cash and cash equivalents, beginning of year2,711,0256,506,759Cash and cash equivalents, end of year$7,056,753$2,711,025














6


---




Lehigh Valley Associates and Subsidiary
 
 Notes  to Unaudited Consolidated Financial Statements
 
 As of December 31, 2018 and 2017, and for the Two Years Ended December 31, 2018








1. General


Lehigh Valley Associates (the Partnership) is a Pennsylvania limited partnership. On June 2, 2006, the Partnership formed Mall at Lehigh Valley, L.P. (the Mall), a Delaware limited partnership. The Partnership transferred all the assets and liabilities related to its regional shopping center and an office building (the Property), located in Whitehall, Pennsylvania, to the Mall in exchange for 100% ownership therein. The Partnership also entered into a lease agreement for the Property with its wholly owned subsidiary. The intercompany lease is eliminated in the accompanying consolidated financial statements. The Property leases space to retailers (national and international chains and locally owned stores) in the ordinary course of business.


The Partnership will terminate on December 31, 2073, unless terminated earlier as provided for in the agreement. Income, losses, and distributions are allocated to the partners in proportion to their respective ownership interests.


The Partnership is owned 50% by PREIT Associates, L.P. and its wholly owned subsidiary (general and limited partner), 49.5% by Kravco Simon Investments, L.P. (KSI, limited partner), and 0.5% by Delta Ventures, Inc. (DV, general partner). DV is a wholly owned subsidiary of KSI. KSI is owned by Simon Property Group, L.P. (SPG, L.P.).


Simon Property Group, Inc. (SPG), a publicly traded real estate investment trust (REIT), owned a controlling 86.8% and 86.9% of SPG, L.P. at December 31, 2018 and 2017, respectively.


2. Summary of Significant Accounting Policies


Consolidation


The accompanying consolidated financial statements include the accounts of the Partnership and its wholly owned subsidiary, the Mall. All significant intercompany balances and transactions have been eliminated. Hereafter, references to the Partnership include Lehigh Valley Associates and its wholly owned subsidiary, Mall at Lehigh Valley, L.P.


Use of Estimates


The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (GAAP). GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and








7


---

Lehigh Valley Associates and Subsidiary
 
 Notes  to Unaudited Consolidated Financial Statements
 
 As of December 31, 2018 and 2017, and for the Two Years Ended December 31, 2018





2. Summary of Significant Accounting Policies (continued)


liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements, and revenues and expenses during the reported periods. Actual results could differ from these estimates.


Investment Property


Investment property is recorded at cost. Investment property includes costs of acquisition, development, predevelopment and construction, tenant allowances and improvements, and interest and real estate taxes incurred during construction. Certain improvements and replacements from repairs and maintenance are capitalized when they extend the useful life, increase capacity, or improve the efficiency of the asset. All other repair and maintenance items are expensed as incurred. Depreciation on building and improvements is provided utilizing the straight-line method over an estimated original useful life, which is generally 10 to 35 years. Depreciation on tenant allowances and improvements is provided utilizing the straight-line method over the term of the related lease or occupancy term of the tenant, if shorter. Depreciation on equipment and fixtures is provided utilizing the straight-line method over five to ten years.


Investment property is reviewed for impairment whenever events or changes in circumstances indicate that the carrying value of investment property may not be recoverable. These circumstances include, but are not limited to, declines in cash flows, ending occupancy, and comparable sales per square foot. Impairment of investment property is measured when estimated undiscounted operating income before depreciation and amortization plus its residual value is less than the carrying value of the property. To the extent that impairment has occurred, the excess of carrying value of the property over its estimated fair value is charged to expense.


Deferred Costs, Net


Deferred costs consist primarily of leasing commissions and related costs, and tenant inducements. Deferred leasing costs are amortized on a straight-line basis over the terms of the related leases. Tenant inducements represent payments to tenants that do not qualify as tenant allowances or improvements. Tenant inducements are amortized as a reduction to minimum rent on a straight-line basis over the term of the related lease.








8


---

Lehigh Valley Associates and Subsidiary
 
 Notes  to Unaudited Consolidated Financial Statements
 
 As of December 31, 2018 and 2017, and for the Two Years Ended December 31, 2018





2. Summary of Significant Accounting Policies (continued)


Deferred costs, net, consist of the following at December 31:


20182017Leasing costs and other$2,005,941$1,428,140Tenant inducements1,486,8411,526,8413,492,7822,954,981Less accumulated amortization2,196,0741,929,063$1,296,708$1,025,918





Depreciation and amortization in the accompanying Consolidated Statements of Operations includes amortization of deferred leasing costs of $249,780 and $227,479 for the years ended December 31, 2018 and 2017, respectively. Minimum rent in the accompanying Consolidated Statements of Operations is reduced by amortization of tenant inducements of $123,381 and $127,017 for the years ended December 31, 2018 and 2017, respectively.


Revenue Recognition


The Partnership, as a lessor, has retained substantially all of the risks and benefits of ownership of the Property and accounts for its leases as operating leases. Minimum rents are accrued on a straight-line basis over the terms of their respective leases. Substantially all of the retail tenants are also required to pay overage rents based on sales over a stated base amount during the lease year. The Partnership recognizes overage rents only when each tenant’s sales exceed its sales threshold.


Leases are typically structured to allow the Partnership to recover a significant portion of property operating and repairs and maintenance expenses (referred to herein as CAM), as well as other expenses such as real estate taxes and advertising and promotion expenses from the tenants. Such property operating expenses typically include utility, insurance, security, janitorial, landscaping, food court, and other administrative expenses. The Partnership accrues reimbursements from tenants for recoverable portions of all of these expenses as revenue in the period the applicable expenditures are incurred. The Partnership receives a fixed payment from most tenants for the CAM component, which is recorded as revenue when earned.








9


---

Lehigh Valley Associates and Subsidiary
 
 Notes  to Unaudited Consolidated Financial Statements
 
 As of December 31, 2018 and 2017, and for the Two Years Ended December 31, 2018





2. Summary of Significant Accounting Policies (continued)


The Partnership receives payments for these reimbursements from substantially all tenants throughout the year. This reduces the risk of loss on uncollectible accounts once the Partnership performs the final year-end billings for recoverable expenditures. Differences between actual and estimated tenant reimbursements are recognized in the subsequent year. Advertising and promotion costs are expensed as incurred.


Allowance for Credit Losses


A provision for credit losses is recorded based on management’s judgment of tenant creditworthiness, ability to pay, and probability of collection. Accounts are written off when they are deemed to be no longer collectible. In addition, the retail sector in which the tenant operates and the historical collection experience in cases of bankruptcy are considered, if applicable.


Income Taxes


As a partnership, the allocated share of the operating results for each period is includable in the income tax returns of the partners; accordingly, income taxes are not reflected in the Partnership’s consolidated financial statements. Management evaluates the potential that the Partnership may be subject to income taxes in the future. As of December 31, 2018 and 2017, there were no uncertain tax positions that had a material impact on the Partnership’s consolidated financial statements.


Fair Value Measurements


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








10


---

Lehigh Valley Associates and Subsidiary
 
 Notes  to Unaudited Consolidated Financial Statements
 
 As of December 31, 2018 and 2017, and for the Two Years Ended December 31, 2018





2. Summary of Significant Accounting Policies (continued)


Cash and Cash Equivalents


All highly liquid investments purchased with an original maturity of 90 days or less are considered cash and cash equivalents. Cash equivalents are carried at cost, which approximates market value. However, at certain times, such cash and cash equivalents may be in excess of Federal Deposit Insurance Corporation and Securities Investor Protection Corporation insurance limits.


Cash paid for interest by the Partnership was $7,451,764 and $8,126,352 during 2018 and 2017, respectively.


New Accounting Pronouncements


In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2014-09, Revenue From Contracts With Customers . ASU 2014-09 amends the existing accounting standards for revenue recognition. The new standard provides accounting guidance for all revenue arising from contracts with customers and affects all entities that enter into contracts to provide goods or services to their customers. The guidance also provides a model for the measurement and recognition of gains and losses on the sale of certain nonfinancial assets, such as property, including real estate.


The Partnership’s revenues impacted by this standard primarily include other ancillary income earned. Upon adoption of the new guidance, the amount and timing of revenue recognition will be consistent with the prior treatment. The Partnership adopted the standard using the modified retrospective approach on January 1, 2018, and there was no cumulative effect adjustment to recognize.


In February 2016, the FASB issued ASU 2016-02, Leases , which will result in lessees recognizing most leased assets and corresponding lease liabilities on the balance sheet. Lessor accounting will remain substantially similar to the current accounting; however, certain refinements were made to conform the standard with the recently issued revenue recognition guidance in ASU 2014-09, specifically related to the allocation and recognition of contract consideration earned from lease and non-lease revenue components.








11


---

Lehigh Valley Associates and Subsidiary
 
 Notes  to Unaudited Consolidated Financial Statements
 
 As of December 31, 2018 and 2017, and for the Two Years Ended December 31, 2018





2. Summary of Significant Accounting Policies (continued)


Substantially all of the Partnership’s revenues are earned from arrangements that are within the scope of ASU 2016-02. Upon adoption of ASU 2016-02, consideration related to non-lease components identified in the Partnership’s lease arrangements will be accounted for using the guidance in ASU 2014-09, which would (i) necessitate that management reallocate consideration received under many of the lease arrangements between the lease and non-lease component, (ii) result in recognizing revenue allocated to the primary non-lease component (consideration received from fixed common area maintenance arrangements) on a straight-line basis, and (iii) require separate presentation of revenue recognized from lease and non-lease components on the statement of operations. However, on July 30, 2018, the FASB issued ASU 2018-11, which created a practical expedient that provides lessors an option not to separate lease and non-lease components when certain criteria are met and instead account for those components as a single lease component. The Partnership determined that its lease arrangements will meet the criteria under the practical expedient to account for lease and non-lease components as a single lease component, which alleviates the requirement upon adoption of ASU 2016-02 that the Partnership reallocate or separately present lease and non-lease components. As a result, the Partnership will recognize consideration received from fixed common area maintenance arrangements on a straight-line basis as this consideration is attributed to the lease component. The Partnership adopted ASU 2016-02 and any subsequent amendments beginning in 2019.


Subsequent Events


Subsequent events have been evaluated by the Partnership through March 28, 2019, the date the consolidated financial statements were available to be issued.





3. Investment Property


Investment property consists of the following at December 31:


20182017Land$5,738,037$5,738,037Building and improvements84,058,06681,221,937Total land, building, and improvements89,796,10386,959,974Furniture, fixtures, and equipment2,419,9632,199,984Investment property, at cost92,216,06689,159,958Less accumulated depreciation53,545,55853,392,594Investment property, at cost, net$38,670,508$35,767,364








12


---

Lehigh Valley Associates and Subsidiary
 
 Notes  to Unaudited Consolidated Financial Statements
 
 As of December 31, 2018 and 2017, and for the Two Years Ended December 31, 2018





3. Investment Property (continued)


Investment property includes $580,622 and $1,777,503 of work-in-progress at December 31, 2018 and 2017, respectively.


4. Mortgage Notes Payable, Net


The Partnership, through its subsidiary the Mall, had a mortgage note payable with an original principal balance of $140,000,000 (the Old Note), which bore interest at a fixed rate of 5.88% and required monthly principal and interest payments of $828,600 through its maturity date of July 5, 2020.


On October 13, 2017, the Mall refinanced the loan for a $200,000,000 mortgage note (the New Note), which bears interest at a fixed rate of 4.056% and requires monthly principal and interest payments of $961,299 through its maturity date of November 1, 2027. The majority of the proceeds from the New Note were used to pay down the outstanding balance of the Old Note and accrued interest, including a prepayment penalty of $3,114,407, which is reflected in the 2017 Consolidated Statement of Operations. The remaining proceeds were distributed to the partners. As of December 31, 2018 and 2017, the principal amount outstanding on the New Note was $196,328,416 and $199,450,939, respectively.











13


---

Lehigh Valley Associates and Subsidiary
 
 Notes  to Unaudited Consolidated Financial Statements
 
 As of December 31, 2018 and 2017, and for the Two Years Ended December 31, 2018





4. Mortgage Notes Payable, Net (continued)


The New Note is secured by the investment property and related rents and leases of the Partnership. The New Note also requires a monthly rollover reserve escrow deposit until a reserve cap of $2,994,258 is met. The escrow balance as of December 31, 2018 and 2017, was $1,063,429 and $690,201, respectively.


If a trigger event occurs (debt service coverage ratio, as defined, falls below 1.5 to 1 for two consecutive quarters based upon the trailing four quarters), the Partnership will be required to establish a cash management account under the sole dominion and control of the lender. As of December 31, 2018, no such triggering event has occurred.


As of December 31, 2018, scheduled principal repayments on the mortgage note, over the next five years and thereafter, are as follows:


2019$3,528,19520203,653,71520213,829,16920223,989,64020234,156,835Thereafter177,170,862Mortgage note payable196,328,416Deferred financing costs, net(905,997)Mortgage note payable, net$195,422,419





Financing fees incurred to obtain long-term financing are recorded as a reduction to the related debt obligation. These deferred financing costs are amortized to interest expense in the accompanying Consolidated Statements of Operations on a straight-line basis over the term of the respective debt agreement. As of December 31, 2018 and 2017, the balance of the mortgage note payable  is net of unamortized deferred financing costs of $905,997 and $1,009,564, respectively.





14


---

Lehigh Valley Associates and Subsidiary
 
 Notes  to Unaudited Consolidated Financial Statements
 
 As of December 31, 2018 and 2017, and for the Two Years Ended December 31, 2018





4. Mortgage Notes Payable, Net (continued)


During the years ended December 31, 2018 and 2017, amortization of deferred financing costs totaled $103,567 and $206,276, respectively.


Based on the borrowing rates currently available to the Partnership for loans with similar terms and maturities, the fair value of the mortgage note at December 31, 2018 and 2017, was approximately $188,300,000 and $197,700,000, respectively, and the estimated discount rate was 4.69% and 4.41%, respectively.


5. Rentals Under Operating Leases


The Partnership receives rental income from the leasing of retail space under operating leases. The leases also provide for the tenants to pay electricity charges to an affiliate of KSI. Future minimum rentals to be received under noncancelable operating leases for each of the next five years and thereafter, excluding tenant reimbursements of operating expenses and percentage rent based on tenant sales volume, as of December 31, 2018, are as follows:


2019$16,691,236202015,168,493202113,536,390202211,188,74320236,782,402Thereafter11,264,712$74,631,976





6. Commitments and Contingencies


Litigation


The Partnership currently is not subject to any material litigation nor to management’s knowledge is any material litigation currently threatened against the Partnership other than routine litigation, claims, and administrative proceedings arising in the ordinary course of business. Management believes that such routine litigation, claims, and administrative





15


---

Lehigh Valley Associates and Subsidiary
 
 Notes  to Unaudited Consolidated Financial Statements
 
 As of December 31, 2018 and 2017, and for the Two Years Ended December 31, 2018





6. Commitments and Contingencies (continued)


proceedings will not have a material adverse impact on the Partnership’s consolidated financial position or results of operations.





7. Related-Party Transactions


The Partnership has a management agreement with an affiliate of SPG, L.P. A management fee based on rental income, as defined by the agreement, is charged for management services and is included in property operating expenses in the accompanying Consolidated Statements of Operations. In addition, the affiliate is compensated for other services provided beyond the scope of the management fees, including leasing, consulting, legal, technical, and other services, which are also included in property operating expenses in the accompanying Consolidated Statements of Operations, unless capitalized. Certain commercial general liability and property damage insurance is provided to the Partnership by affiliates of SPG, L.P. Insurance premiums charged to the Partnership are included in property operating expenses in the accompanying Consolidated Statements of Operations. Also, certain national advertising and promotion programs are provided to the Partnership by affiliates of SPG, L.P., and these charges are included in advertising and promotion expense in the accompanying Consolidated Statements of Operations.


A summary of the transactions described above and charged by affiliates is as follows:


Related-Party Activity20182017Management fees$1,010,650$986,159Insurance279,223294,455Advertising and promotion313,075362,763Other services316,134226,941Total fees and compensation expense1,919,0821,870,318Capitalized leasing and other fees423,135287,168Total fees and compensation$2,342,217$2,157,486





During 2018 and 2017, the Partnership was charged $297,737 and $253,390, respectively, for electricity usage by an affiliate of SPG, L.P. These charges are included in property operating expenses in the accompanying Consolidated Statements of Operations.


At December 31, 2018 and 2017, $403,083 and $289,003, respectively, were payable to SPG, L.P. and its affiliates.  The amounts owed are included in accounts payable and accrued expenses in the accompanying Consolidated Balance Sheets.





16