UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2005

SIMON PROPERTY GROUP, L.P.

(Exact name of registrant as specified in its charter)

Delaware

(State of incorporation or organization)

33-11491

(Commission File No.)

34-1755769

(I.R.S. Employer Identification No.)

National City Center

115 West Washington Street, Suite 15 East

Indianapolis, Indiana 46204

(Address of principal executive offices)

(317) 636-1600

(Registrant’s telephone number, including area code)

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.        YES    x        NO    o

Indicate by check mark whether Registrant is an accelerated filer (as defined by Rule 12b-2 of the Exchange Act).        YES    o        NO    x

Indicate by check mark whether Registrant is a shell company (as defined by Rule 12b-2 of the Exchange Act).        YES    o        NO    x

SIMON PROPERTY GROUP, L.P. AND SUBSIDIARIES

FORM 10-Q

INDEX

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Simon Property Group, L.P. and Subsidiaries
Consolidated Balance Sheets
(Dollars in thousands, except unit amounts)

The accompanying notes are an integral part of these statements.

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Simon Property Group, L.P. and Subsidiaries
Unaudited Consolidated Statements of Operations and Comprehensive Income
(Dollars in thousands, except per unit amounts)

The accompanying notes are an integral part of these statements.

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Simon Property Group, L.P. and Subsidiaries
Unaudited Consolidated Statements of Cash Flows
(Dollars in thousands)

The accompanying notes are an integral part of these statements.

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Simon Property Group, L.P. and Subsidiaries
Condensed Notes to Consolidated Financial Statements
(Unaudited)

(Dollars in thousands, except unit and per unit amounts and where indicated as in millions or billions)

1.   Organization

Simon Property Group, L.P. (the “Operating Partnership”), a Delaware limited partnership, is a majority owned subsidiary of Simon Property Group, Inc. (“Simon Property”), a Delaware corporation. Simon Property is a self-administered and self-managed real estate investment trust (“REIT”) under the Internal Revenue Code of 1986, as amended (the “Code”). In these notes, the terms “we”, “us” and “our” refer to the Operating Partnership and its subsidiaries.

We are engaged in the ownership, development and management of retail real estate, primarily regional malls, Premium Outlet® centers and community/lifestyle centers. As of September 30, 2005, we owned or held an interest in 295 income-producing properties in the United States, which consisted of 172 regional malls, 33 Premium Outlet centers, 71 community/lifestyle centers, and 19 other shopping centers in 40 states and Puerto Rico (collectively, the “Properties”, and individually, a “Property”). We also own interests in eleven parcels of land held for future development (together with the Properties, the “Portfolio”). Finally, we have ownership interests in 51 European shopping centers (in France, Italy, Poland and Portugal), five Premium Outlet centers in Japan, one Premium Outlet center in Mexico, and one shopping center in Canada.

2.   Basis of Presentation

The accompanying unaudited consolidated financial statements of the Operating Partnership include the accounts of all majority-owned subsidiaries, and all significant inter-company amounts have been eliminated. Due to the seasonal nature of certain operational activities, including overage rent revenues and property operating expenses, the results for the interim period ended September 30, 2005 are not necessarily indicative of the results that may be obtained for the full fiscal year.

These consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and include all of the information and disclosures required by accounting principles generally accepted in the United States (GAAP) for interim reporting. Accordingly, they do not include all of the disclosures required by GAAP for complete financial statements. In the opinion of management, all adjustments necessary for fair presentation (including normal recurring accruals) have been included. The consolidated financial statements in this Form 10-Q should be read in conjunction with the audited consolidated financial statements and related notes contained in our 2004 Form 10-K.

As of September 30, 2005, of our 353 properties we consolidate 208 wholly-owned properties and consolidate 20 additional properties that are less than wholly-owned which we control or for which we are the primary beneficiary. We account for the remaining 125 properties using the equity method of accounting (joint venture properties). We manage the day-to-day operations of 58 of the 125 joint venture properties.

We allocate our net operating results after preferred distributions based on our partners’ respective weighted average ownership interests. In addition, Simon Property owns certain of our preferred units. Simon Property’s weighted average ownership interest in the Operating Partnership was 78.7% and 77.6% for the nine months ended September 30, 2005 and 2004, respectively. As of September 30, 2005 and December 31, 2004, Simon Property’s ownership interest in us was 78.8% and 78.2%, respectively. We adjust the limited partners’ interest at the end of each period to reflect changes in their ownership interests in the Operating Partnership.

We made certain reclassifications of prior period amounts in the financial statements to conform to the 2005 presentation. These reclassifications have no impact on net income previously reported. Also, the statements of operations and comprehensive income for the periods ended September 30, 2004 have been reclassified to reflect significant dispositions of properties sold during 2004 and 2005.

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3.   Significant Accounting Policies

Cash and Cash Equivalents

During 2005, an independent bank assumed responsibility for the gift card program. We collect gift card funds at the point of sale and then remit those funds onto the bank for further processing. As a result, significantly all of the cash collected from gift card sales are now held by the bank, and the related liability for funds will be owed by the bank to retailers which honor a gift card for tender of goods and services. Cash and cash equivalents as of September 30, 2005 includes $43.4 million related to the co-branded gift card and our former gift certificate program, which we do not consider available for general working capital purposes.

Deferred Costs and Other Assets

The following summarizes the recorded amounts, net of related amortization, of deferred costs and other assets on the consolidated balance sheets:

Intangible Assets.   Intangible assets that are included in deferred costs and other assets on the accompanying consolidated balance sheets principally relate to amounts allocated as a component of our acquisitions and are based on our preliminary valuations and will be finalized within one year of the related acquisition.

We record intangible liabilities which are included in accounts payable, accrued expenses, intangibles, and deferred revenues on the consolidated balance sheets related to the fair value of below market leases. The unamortized amounts as of September 30, 2005 and December 31, 2004 are $290.8 million and $337.6 million, respectively. The weighted average remaining life of these intangibles approximates 6 years.

4.   Per Unit Data

We determine basic earnings per unit based on the weighted average number of units outstanding during the period. We determine diluted earnings per unit based on the weighted average number of units outstanding combined with the incremental weighted average units that would have been outstanding assuming all potentially dilutive units were converted into units at the earliest date possible. The following table sets forth the computation for our basic and diluted earnings per unit.

Potentially dilutive securities include the stock options of Simon Property and certain preferred units which are exchangeable for units. The only potentially dilutive security that had a dilutive effect for the three and nine months ended September 30, 2005 and 2004 were stock options of Simon Property.

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5.   Investment in Unconsolidated Entities

Real Estate Joint Ventures

Joint ventures are common in the real estate industry. We use joint ventures to finance properties, develop new properties, and diversify our risk in a particular property or portfolio. We held joint venture ownership interests in 67 Properties as of September 30, 2005 and December 31, 2004. We also held interests in two joint ventures which owned 51 European shopping centers as of September 30, 2005 and December 31, 2004. We also held an interest in five joint venture properties in Japan and one joint venture property in Mexico, through our ownership of CPG Partners L.P. which we acquired in our 2004 acquisition of Chelsea, and one additional joint venture property in Canada. We account for these properties using the equity method of accounting.

During 2005, we and our joint venture partner completed the construction of, obtained permanent financing for, and opened St. Johns Town Center (St. Johns). Prior to the completion of construction and opening of the center, we were responsible for 85% of the development costs, and guaranteed this same percentage of the outstanding construction debt. As a result, we consolidated St. Johns during its construction phase. Upon obtaining permanent financing, the guarantee was released, and our partner’s and our ownership percentages were each adjusted to 50%. We received a distribution from the partnership of $15.7 million in repayment of our capital contributions to equalize our ownership interests, and this Property is now accounted for using the equity method of accounting. Total investment property of St. Johns at the date of refinancing was approximately $136 million.

On June 1, 2005, we refinanced Westchester Mall, a joint venture Property, with a $500.0 million, 4.86% fixed-rate mortgage that matures on June 1, 2010. The balances of the two previous mortgages, which were repaid, were $142.0 million and $50.1 million and bore interest at fixed rates of 8.74% and 7.20%, respectively. Both were scheduled to mature on September 1, 2005. We received our share of the excess refinancing proceeds of approximately $120 million on the closing of the new mortgage loan.

Substantially all of our joint venture Properties are subject to rights of first refusal, buy-sell provisions, or other sale rights for partners which are customary in real estate joint venture agreements and the industry. Our partners in these joint ventures may initiate these provisions at any time (subject to any applicable lock up or similar restrictions), which will result in either the sale of our interest or the use of available cash or borrowings to acquire the joint venture interest.

European Joint Venture Investments

The carrying amount of our total combined investment in the two European joint venture investments, European Retail Enterprises, B.V. (“ERE”) and Gallerie Commerciali Italia (“GCI”), was $291.4 million and $320.6 million as of September 30, 2005 and December 31, 2004, respectively, net of the related cumulative translation adjustments, including subordinated debt in ERE. The Operating Partnership has a 34.7% ownership in ERE and a 49% ownership in GCI.

On October 20, 2005, Ivanhoe Cambridge, Inc. (“Ivanhoe”), an affiliate of Caisse de dépôt et placement du Québec, effectively acquired our former partner’s 39.5% ownership interest in ERE. ERE owns Group B.E.G. (“BEG”), a Paris-based developer, owner and manager of retail properties. In the future, we and Ivanhoe will equalize our ownership positions in ERE through the purchase of additional interests from ERE’s founders.

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Summary financial information of the joint ventures and a summary of our investment in and share of income from such joint ventures follow. We condensed into separate line items major captions of the statements of operations for joint venture interests sold or consolidated. Consolidation occurs when we acquire an additional interest in the joint venture and, as a result, gain unilateral control of the Property or are determined to be the primary beneficiary. We reclassify these line items into “Discontinued Joint Venture Interests” and “Consolidated Joint Venture Interests” on the balance sheets and statements of operations, if material, so that we may present comparative results of operations for those joint venture interests held as of September 30, 2005.

“Excess Investment” represents the unamortized difference of our investment over our share of the equity in the underlying net assets of the joint ventures acquired. We amortize excess investment over the life of the related Properties, typically no greater than 35 years, and the amortization is included in the reported amount of income from unconsolidated entities.

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The 2005 gain on disposal or sale of discontinued operations, net, above represents the gain on sale of Metrocenter on January 11, 2005. Our share of the gain of $11,415, net of the write-off of the related investment, is included in the Gain/(Loss) on Sales of Assets and Other, Net, in the 2005 consolidated statements of operations. Our share of the proceeds from the sale of Metrocenter was $62.6 million.

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6.   Debt

Unsecured Debt

On January 11, 2005, we refinanced our unsecured revolving credit facility (the “Credit Facility”) expanding the facility from $1.25 billion to $2.0 billion. The Credit Facility has a maturity date of January 11, 2008, with an additional one-year extension available at our option. The facility can also be increased to $2.5 billion within the first two years of closing at our option. The Credit Facility bears interest at LIBOR plus 55 basis points with an additional 15 basis point facility fee on the entire facility and provides for variable grid pricing based upon our corporate credit rating. In addition, the Credit Facility has a $500 million U.S. dollar equivalent multi-currency tranche for Euro, Yen or Sterling borrowings. The Credit Facility contains financial covenants relating to capitalization value and leverage criteria, minimum EBITDA and unencumbered EBITDA coverage ratio requirements and a minimum equity value.

On June 7, 2005, we issued two tranches of senior unsecured notes to institutional investors pursuant to Rule 144A totaling $1.0 billion at a weighted average fixed interest rate of 4.90%. The first tranche is $400.0 million at a fixed interest rate of 4.60% due June 15, 2010 and the second tranche is $600.0 million at a fixed interest rate of 5.10% due June 15, 2015. We received net proceeds of $993.0 million. We used $358.0 million of the net proceeds to reduce borrowings on our Credit Facility, $600.0 million to reduce a $1.8 billion term loan we used to finance part of our acquisition of Chelsea (the “Acquisition Facility”), and the remaining portion was used for general working capital purposes. All of the Rule 144A notes were exchanged in July of 2005 in a transaction registered under the Securities Act of 1933 for notes having the same economic terms and conditions.

Credit Facility.   Other significant activity on the Credit Facility during the nine-month period ended September 30, 2005 was as follows:

Other amounts drawn on the Credit Facility were for general working capital purposes. The total amount repaid on the Credit Facility during the nine month period ended September 30, 2005 was $910.2 million. The total outstanding balance of the Credit Facility was $1.031 billion as of September 30, 2005. During the first nine months of 2005, the maximum amount outstanding under the Credit Facility was $1.034 billion and the weighted average amount outstanding was $788.0 million.

Acquisition Facility.   We borrowed the $1.8 billion Acquisition Facility in 2004 to finance the cash portion of our acquisition of Chelsea. As of September 30, 2005, $1.2 billion remained outstanding. The Acquisition Facility matures on October 12, 2006 and has remaining principal payments of two equal installments each due on April 12, 2006 and at maturity. The Acquisition Facility bears interest at LIBOR plus 55 basis points with an additional 15 basis point facility fee on all loans outstanding, and provides for variable grid pricing based upon our credit rating.

Secured Debt

Total secured indebtedness was $4.6 billion and $5.0 billion at September 30, 2005 and December 31, 2004, respectively.

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During the nine-month period ended September 30, 2005, we repaid $109.7 million in mortgage loans, unencumbering five separate properties.

On June 1, 2005, we repaid a $110 million mortgage related to our disposition of Riverway, which bore interest at LIBOR plus 115 basis points, and had a maturity date of October 1, 2006.

7.   Partners’ Equity

On January 1, 2005, Simon Property assigned the economic rights of Ocean County Mall, the only Property held directly by Simon Property, to the Operating Partnership in exchange for 1,602,821 units and the settlement of an $88.8 million note receivable. The Property is now consolidated with the Operating Partnership. The assignment was a final step to align the ownership interests in the properties acquired as a result of the merger with Corporate Property Investors, Inc. in 1998 and the acquisition of the Northshore Mall in 1999.

On March 11, 2005, we issued 407,200 units to Simon Property at a fair value of $60.57 per share. On May 11, 2005, we issued 7,400 units to Simon Property at a fair value of $68.40 per share, and on June 1, 2005, we issued 1,000 units to Simon Property at a fair value of $69.91 per share. All of these units were issued in conjunction with Simon Property’s issuance of shares of restricted stock that were awarded under The Simon Property Group 1998 Stock Incentive Plan. The fair market value of the restricted stock awarded has been deferred and is being amortized over a four-year vesting period. The issuance of the restricted stock utilized existing shares held by Simon Property as treasury shares.

During the first nine months of 2005, eleven limited partners exchanged 1,761,775 units for a like number of shares of common stock of Simon Property.

During the first quarter of 2005, Simon Property repurchased 2,000,000 shares of common stock in the open market under its $250 million Board approved share repurchase program at an average price of $61.88. The program permitted Simon Property to acquire shares through May 6, 2005. In total, Simon Property has repurchased 2,317,300 shares as part of this program. As a result of these share repurchases, we have repurchased a like number of our units from Simon Property.

On May 11, 2005, Simon Property’s Board of Directors authorized a new common stock repurchase program under which Simon Property may purchase up to 6,000,000 shares of our common stock subject to a maximum aggregate purchase price of $250 million over the next twelve months as market conditions warrant. Simon Property may repurchase the shares in the open market or in privately negotiated transactions. During the third quarter of 2005, Simon Property repurchased 815,400 shares in the open market at an average price of $71.93 as part of this program. In connection with these repurchases of common stock, we concurrently repurchased an identical number of units from Simon Property. The program has 5,184,600 shares, limited to $191.4 million, remaining for Simon Property’s repurchase.

Preferred units whose redemption is outside of our control have been classified as temporary equity in the accompanying balance sheets.

8.   Commitments and Contingencies

Litigation

On November 15, 2004, the Attorneys General of Massachusetts, New Hampshire and Connecticut filed complaints in their respective state Superior Courts against us and our affiliate, SPGGC, Inc., alleging that the sale of co-branded, bank-issued gift cards sold in certain of its Portfolio Properties violated gift certificate statutes and consumer protection laws in those states. Each of these suits seeks injunctive relief, unspecified civil penalties and disgorgement of any fees determined to be improperly charged to consumers.

In addition, we are a defendant in three other proceedings relating to the gift card program. Each of the three proceedings has been brought by a private plaintiff as a purported class action and alleges violation of state consumer protection laws, state abandoned property and contract laws or state statutes regarding gift certificates or gift cards and seeks a variety of remedies including unspecified damages and injunctive relief.

We believe that we have viable defenses under both state and federal laws to the above gift card actions. Although it is not possible to provide any assurance of the ultimate outcome of any of these pending actions,

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management does not believe that an adverse outcome would have a material adverse effect on our financial position, results of operations or cash flow.

Triple Five of Minnesota, Inc., a Minnesota corporation, v. Melvin Simon, et al.   On or about November 9, 1999, Triple Five of Minnesota, Inc. commenced an action in the District Court for the state of Minnesota, Fourth Judicial District, against, among others, Mall of America, certain members of the Simon family and entities allegedly controlled by such individuals, and us. The action was later removed to federal court. On September 10, 2003, the court issued its decision in a Memorandum and Order (the “Order”). In the Order, the court found that certain entities and individuals breached their fiduciary duties to Triple Five. The court did not award Triple Five damages but instead awarded Triple Five equitable and other relief and imposed a constructive trust on that portion of the Mall of America owned by us. Specifically, as it relates to us, the court ordered that Triple Five was entitled to purchase from us the one-half partnership interest that we purchased in October 1999, provided Triple Five remits to us the sum of $81.38 million within nine months of the Order. On August 6, 2004, Triple Five closed on its purchase of our one-half partnership interest. The court further held that we must disgorge all “net profits” that we received as a result of our ownership interest in the Mall from October 1999 to the present.

As a result of the Order, we initially recorded a $6.0 million charge for our share of the estimated loss in 2003. In the first quarter of 2004, as a result of the May 3, 2004 memorandum issued by the court appointed mediator, which has now been affirmed by the court, we recorded an additional $13.5 million charge for our share of the loss that is included in “(Loss) gain on sales of assets and other, net” in the accompanying consolidated statements of operations and comprehensive income. We ceased recording any contribution to net income from the results of operations of Mall of America as of September 1, 2003.

We appealed the Order to the United States Court of Appeals for the Eighth Circuit. On April 21, 2005, the Court of Appeals issued its opinion, affirming in part and reversing in part the Order of the trial court. The Appellate Court opinion changes the equitable remedy contained in the Order and requires that the one-half partnership interest Triple Five acquired from us pursuant to the Order must instead be offered, for the same price, to Mall of America Associates, a general partnership in which Triple Five and an entity affiliated with the Simon family are 50/50 partners (“MOAA”). If MOAA refuses to purchase the interest, then Triple Five must transfer back to us one-half of the interest it acquired from us in August, 2004. Triple Five, as managing partner of MOAA, has elected to cause MOAA to acquire the one-half partnership interest. In addition, Triple Five has asked the Trial Court to grant it additional relief, namely to cause the Simon family partner in MOAA to be dissociated from that partnership and to terminate the existing management contract for the Mall with our subsidiary. The trial court has not yet determined whether it will consider these requests for additional relief. It is not possible to provide any assurance of the ultimate outcome of this litigation.

We are involved in various other legal proceedings that arise in the ordinary course of our business. We believe that such routine litigation, claims and administrative proceedings will not have a material adverse impact on our financial position or our results of operations. We record a liability when a loss is considered probable and the amount can be reasonably estimated.

Guarantees of Indebtedness

Joint venture debt is the liability of the joint venture, and is typically secured by the joint venture Property, which is non-recourse to us. As of September 30, 2005, we have guaranteed or have provided letters of credit to support our share of $88.1 million of our total $2.9 billion share of joint venture mortgage and other indebtedness in the event that the joint venture partnership defaults under the terms of the mortgage or other indebtedness. The mortgages and other indebtedness guaranteed are secured by the property of the joint venture partnership which could be sold in order to satisfy the outstanding obligation.

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9.   Real Estate Acquisitions and Dispositions

During the nine-month period ended September 30, 2005, we had significant dispositions of properties summarized as follows (dollars in millions):

The majority of the net proceeds from the sale, net of repayment of outstanding debt, of Riverway and O’Hare International Center are held in escrow for reinvestment in qualifying replacement properties pursuant to Section 1031 of the Internal Revenue Code and related regulations. Proceeds from the disposition of Grove at Lakeland Square were used for general working capital purposes.

We had no property acquisitions during the nine-month period ended September 30, 2005.

10.   New Accounting Pronouncements

In December 2004, the FASB issued SFAS No. 153, “Exchanges of Nonmonetary Assets — an amendment of APB Opinion No. 29.” This statement requires exchanges of productive assets to be accounted for at fair value, rather than at carryover basis, unless (a) neither the asset received nor the asset surrendered has a fair value that is determinable within reasonable limits, or (b) the transactions lack commercial substance. SFAS No. 153 is effective for nonmonetary asset exchanges occurring in fiscal periods beginning after June 15, 2005. The adoption of this statement is not anticipated to have a material impact on our financial position or results of operations.

In June 2005, the FASB ratified its consensus in EITF Issue 04-05, “Determining Whether a General Partner, or the General Partners as a Group, Controls a Limited Partnership or Similar Entity When the Limited Partners Have Certain Rights” (Issue 04-05). The effective date for Issue 04-05 is June 29, 2005 for all new or modified partnerships and January 1, 2006 for all other partnerships for the applicable provisions. The adoption of the provisions of EITF 04-05 is not anticipated to have a material impact on our financial position or results of operations.

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Item 2.   Management’s Discussion and Analysis of Financial Condition and Results of Operations

You should read the following discussion in conjunction with the financial statements and notes thereto that are included in this report. Certain statements made in this section or elsewhere in this report may be deemed “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Although we believe the expectations reflected in any forward-looking statements are based on reasonable assumptions, we can give no assurance that our expectations will be attained, and it is possible that our actual results may differ materially from those indicated by these forward-looking statements due to a variety of risks and uncertainties. Those risks and uncertainties include, but are not limited to: international, national, regional and local economic climates, competitive market forces, changes in market rental rates, trends in the retail industry, the inability to collect rent due to the bankruptcy or insolvency of tenants or otherwise, risks associated with acquisitions, the impact of terrorist activities, environmental liabilities, pending litigation, maintenance of REIT status, changes in applicable laws, rules and regulations, changes in market rates of interest and exchange rates for foreign currencies. We undertake no duty or obligation to update or revise these forward-looking statements, whether as a result of new information, future developments, or otherwise.

Overview

Simon Property Group, L.P. (the “Operating Partnership”), a Delaware limited partnership, is a majority owned subsidiary of Simon Property Group, Inc. (“Simon Property”). Simon Property is our general partner and a self-administered and self-managed real estate investment trust (“REIT”) under the Internal Revenue Code of 1986, as amended (the “Code”). In this discussion, the terms “we”, “us” and “our” refer to the Operating Partnership and its subsidiaries.

We are engaged in the ownership, development and management of retail real estate, primarily regional malls, Premium Outlet® centers and community/lifestyle centers. As of September 30, 2005, we owned or held an interest in 295 income-producing properties in the United States, which consisted of 172 regional malls, 71 community/lifestyle centers, 33 Premium Outlet centers and 19 other shopping centers or outlet centers in 40 states plus Puerto Rico (collectively, the “Properties”, and individually, a “Property”). We also own interests in eleven parcels of land held in the United States for future development (together with the Properties, the “Portfolio”). Finally, we have ownership interests in 51 European shopping centers (France, Italy, Poland and Portugal); five Premium Outlet centers in Japan; one Premium Outlet center in Mexico; and one shopping center in Canada.

Operating Fundamentals

We generate the majority of revenues from leases with retail tenants including:

·        Base minimum rents, cart and kiosk rentals,

·        Overage and percentage rents based on tenants’ sales volume, and

·        Recoveries of a significant amount of our recoverable expenditures, which consist of property operating, real estate tax, repairs and maintenance, and advertising and promotional expenditures.

Revenues of the Management Company, after intercompany eliminations, consist primarily of management fees that are typically based upon the revenues of the property being managed.

We seek growth in our earnings and cash flows by enhancing the profitability of our operation of our regional malls, Premium Outlet centers, community/lifestyle centers, and international investments. We seek to accomplish this growth through the following:

·        Focusing on leasing to increase revenues and utilization of economies of scale to reduce operating expenses.

·        Expansion and re-tenanting existing franchise locations at competitive market rates.

·        The addition of mixed-use elements to our Portfolio through our land intensification initiatives. This includes such elements as multifamily, condominiums, hotel and self-storage to selected locations.

·        The sale of non-core assets.

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We also grow by generating supplemental revenues in our existing real estate portfolio, from outlot parcel sales and, due to our size and tenant relationships, from the following:

·        Simon Brand Ventures (“Simon Brand”) mall marketing initiatives, including the sale of co-branded gift cards under the Simon brand. Simon Brand revenues also include payment services, national media contracts, a national beverage contract and other contracts with national companies.

·        Simon Business Network (“Simon Business”) property operating services to our tenants and others resulting from its relationships with vendors.

Further, we strive to develop high quality real estate across the retail real estate spectrum. We pursue strategic expansion and renovation activity to enhance existing assets’ profitability and market share when we believe the investment of our capital meets our risk-reward criteria. We selectively develop new properties in major metropolitan areas that exhibit strong population and economic growth.

Additionally, we acquire high quality retail real estate within our three domestic platforms. As part of our acquisition strategy, we review and evaluate a number of acquisition opportunities and evaluate each based on its complement to our Portfolio.

Lastly, we selectively expand our international presence. Our strategy to investing internationally includes partnering with established real estate companies and financing international investments with local currency to minimize foreign exchange risk.

To support our overall growth goals, we employ a three-fold capital strategy:

·        Provide the capital necessary to fund growth.

·        Maintain sufficient flexibility to access capital in many forms, both public and private.

·        Manage our overall financial structure in a fashion that preserves our investment grade ratings.

Results Overview

Diluted earnings per unit increased $0.37 during the first nine months of 2005, or 39.8%, to $1.30 from $0.93 for the same period last year. This increase was the result of net gains from sales of real estate and results of operations of discontinued operations which increased from the previous period by $0.46. Excluding the effect of net gains from sales of real estate and results of operations from discontinued operations, diluted earnings per unit from continuing operations decreased $0.09 to $0.82 per unit for the nine months as compared to the prior period. This decrease is primarily the result of increases in depreciation resulting from our 2004 acquisitions.

Our core business fundamentals remained healthy during the first nine months of 2005. Regional mall comparable sales per square foot (“psf”) strengthened during the first nine months of 2005, increasing 5.5% to $444 psf from $421 psf for the same period in 2004 as a result of strong retail demand by consumers. Our regional mall average base rents increased 3.7% to $34.30 psf as of September 30, 2005 from $33.07 psf as of September 30, 2004 and our regional mall leasing spreads were $7.26 psf as of September 30, 2005 compared to $6.38 psf as of September 30, 2004. Finally, regional mall occupancy increased 0.8% to 92.6% as of September 30, 2005 from 91.8% due to strong demand for retail space and less tenant bankruptcy activity.

During the first nine months of 2005 we disposed of five properties as follows:

·        On January 11, 2005, Metrocenter, a regional mall located in Phoenix, Arizona was sold and we recorded a gain on disposition of $11.4 million. We held a 50% interest in Metrocenter.

·        On March 31, 2005, we sold Lakeland Factory Outlet, located in Lakeland, Tennessee. There was no gain or loss on the sale of this property.

·        On June 1, 2005, we sold our Riverway and O’Hare International Center office building complexes, located in Rosemont, Illinois. We recorded a gain on the disposition of these two properties of $125.4 million.

·        On July 1, 2005, we sold Grove at Lakeland Square, located in Lakeland, Florida. We recorded an insignificant loss on this disposition.

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Our overall effective weighted average borrowing rate increased by 23 basis points as compared to our overall effective weighted average borrowing rate at December 31, 2004 due to increasing variable interest rates. However, as compared to the prior year period, our overall effective weighted average borrowing rate decreased 11 basis points. Our financing activities were highlighted by the following significant transactions:

·        On January 11, 2005, we refinanced the Credit Facility, increasing it to a maximum of $2.0 billion and extending the maturity to January 11, 2008, with an additional one-year extension available at our option. The Credit Facility can be increased to $2.5 billion within the first two years of closing at our option subject to a fee approximating 25 basis points. The Credit Facility bears interest at LIBOR plus 55 basis points with an additional 15 basis point facility fee on the entire $2.0 billion facility and provides for variable grid pricing based upon our corporate credit rating. In addition, the new facility has a $500 million multi-currency tranche for Euro, Yen or Sterling borrowings and also includes a money market competitive bid option program that allows us to hold auctions to obtain lower pricing for short-term funds for up to $1.0 billion.

·        We paid off a $110 million mortgage that bore interest at LIBOR plus 115 basis points, as a result of our disposition of the property (Riverway).

·        We issued two tranches of senior unsecured notes totaling $1.0 billion at a weighted average fixed interest rate of 4.90%, and used $358 million to repay borrowings on the Credit Facility and $600 million to repay borrowings on the loan we incurred to finance a portion of our acquisition of Chelsea Property Group, Inc. and its affiliates (collectively “Chelsea”) in 2004.

·        We repaid $510 million in unsecured borrowings which bore interest at fixed rates ranging from 6.75% to 7.625%, and $250 million in unsecured borrowings that bore a variable rate of LIBOR plus 65 basis points.

·        We repaid $50 million of Chelsea unsecured borrowings which bore interest at a fixed rate of 8.375%.

·        We paid off two mortgages totaling $62 million that bore interest at fixed rates of 7.13% and 7.77%, respectively.

Portfolio Data

The Portfolio data discussed in this overview includes the following key operating statistics: occupancy, average base rent per square foot, and comparable sales per square foot for our three domestic platforms. We include acquired Properties in this data beginning in the year of acquisition and we do not include any Properties located outside of the United States. The following table sets forth these key operating statistics for:

·        Properties that we consolidate in our consolidated financial statements,

·        Properties that we account for under the equity method as unconsolidated joint ventures, and

·        the foregoing two categories of Properties on a total Portfolio basis.

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