You should read the following discussion in conjunction with the financial statements and notes thereto that are included in this report.

Overview

Simon Property Group, Inc., or Simon Property, is a Delaware corporation that operates as a self-administered and self-managed real estate investment trust, or REIT, under the Internal Revenue Code. To qualify as a REIT, among other things, a company must distribute at least 90 percent of its taxable income to its stockholders annually. Taxes are paid by stockholders on ordinary dividends received and any capital gains distributed. Most states also follow this federal treatment and do not require REITs to pay state income tax. Simon Property Group, L.P., or the Operating Partnership, is a majority-owned partnership subsidiary of Simon Property that owns all of our real estate properties. In this discussion, the terms "we", "us" and "our" refer to Simon Property, the Operating Partnership, and their subsidiaries.

We own, develop, and manage retail real estate properties, primarily regional malls, Premium Outlet® centers, The Mills®, and community/lifestyle centers. As of September 30, 2008, we owned or held an interest in 324 income-producing properties in the United States, which consisted of 164 regional malls, 39 Premium Outlet centers, 70 community/lifestyle centers, 36 properties acquired in the 2007 acquisition of The Mills Corporation, or Mills, and 15 other shopping centers or outlet centers in 41 states plus Puerto Rico. Of the 36 properties in the Mills portfolio, 16 of these properties are The Mills, 16 are regional malls, and 4 are community centers. We also own interests in three parcels of land held in the United States for future development. In the United States, we have two new properties currently under development aggregating approximately 0.8 million square feet which will open during 2008 and 2009. Internationally, we have ownership interests in 52 European shopping centers (France, Italy and Poland); six Premium Outlet centers in Japan; one Premium Outlet center in Mexico; one Premium Outlet center in South Korea; and one shopping center in China.

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

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º Base minimum rents, º •
º Overage and percentage rents based on tenants' sales volume, and º •
º Recoveries of substantially all of our recoverable expenditures, which consist of property operating, real estate taxes, repair and maintenance, and advertising and promotional expenditures.

Revenues of our 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 earnings, funds from operations, or FFO, and cash flows by enhancing the profitability and operation of our properties and investments. We seek to accomplish this growth through the following:

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º Focusing on leasing to increase revenues and utilization of economies of scale to reduce operating expenses, º •
º Expanding and re-tenanting existing franchise locations at competitive market rates, º •
º Adding mixed-use elements to properties through our asset intensification initiatives, including the addition of multifamily housing, condominiums, hotels, office, and self-storage facilities, º •
º Acquiring high quality real estate assets or portfolios of assets, and º •
º Selling non-core assets.

We also grow by generating supplemental revenues from the following activities:

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º Establishing our malls as leading market resource providers for retailers and other businesses and consumer-focused corporate alliances, including: payment systems (including handling fees relating to the sales of bank-issued prepaid gift cards), national marketing alliances, static and digital media initiatives, business development, sponsorship, and events, º •
º Offering usual and customary property operating services to our tenants and others, including waste handling and facility services, as well as major capital expenditures such as roofing, parking lots and energy systems, º •
º Leasing or selectively selling land adjacent to our shopping center properties, commonly referred to as "outlots" or "outparcels," and, º •
º Generating interest income on cash deposits and loans made to related entities.

We routinely review and evaluate acquisition opportunities based on their ability to complement our portfolio. Lastly, we are selectively expanding our international presence. Our international strategy includes partnering with established real estate companies and financing international investments with local currency to minimize foreign exchange risk.

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

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º Provide the capital necessary to fund growth, º •
º Maintain sufficient flexibility to access capital in many forms, both public and private, and º •
º Manage our overall financial structure in a fashion that preserves our investment grade credit ratings.

Diluted earnings per common share decreased $0.22 during the first nine months of 2008, or 15.2%, to $1.23 from $1.45 for the same period last year. The decrease is primarily due to the recognition in 2007of our share of the gain on the sale of assets in Poland of $90.6 million, or $0.32 per common share. Also contributing to the decrease in earnings per common share were a $15.2 million decrease in lease termination income in 2008, a reduced level of interest income derived on loans made to SPG-FCM Ventures, LLC, or SPG-FCM, the joint venture we formed to acquire Mills, and the impact of our 50% share of the additional depreciation expense related to the Mills portfolio. During 2008, we also realized a $20.3 million loss on extinguishment of debt related to our redemption of the 7% MandatOry Par Put Remarketed Securities, or MOPPRS. These decreases were offset in part by the positive full year effect of our 2008 and 2007 openings and expansion activities, the releasing of space at higher rates, and the additional management fees derived from the Mills portfolio, which we began receiving in July 2007.

Despite the current unfavorable economic environment, core business fundamentals were relatively stable during the third quarter of 2008. Regional mall comparable sales per square foot, or psf, continued to increase during the third quarter of 2008, increasing 0.4% to $493 psf from $491 psf for the same period in 2007. Our regional mall average base rents increased 6.3% to $39.26 psf as of September 30, 2008, from $36.92 psf as of September 30, 2007. Regional mall occupancy was 92.5% as of September 30, 2008, as compared to 92.7% as of September 30, 2007. In addition, our regional mall leasing spreads were $8.65 psf as of September 30, 2008, representing a 23.6% increase over expiring rents. The operating fundamentals of the Premium Outlet centers also contributed to our positive operating results for the nine month period, with that portion of the portfolio nearly fully occupied at 98.8%, with comparable sales psf increasing 4.2% to $520, and leasing spreads at $13.02, or 49.4% above expiring rents.

During the first nine months of 2008, our effective overall borrowing rate for the nine months ended September 30, 2008, decreased 22 basis points as compared to the nine months ended September 30, 2007. This was a result of a significant decrease in the base LIBOR rate applicable to a majority of our floating rate debt (3.93% at September 30, 2008, versus 5.12% at September 30, 2007) and also the issuance of new unsecured and secured debt at favorable rates. Our financing activities for the nine months ended September 30, 2008, included:

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º decreasing our borrowings on our $3.5 billion unsecured credit facility, or Credit Facility, to approximately $965.4 million during the nine months ended September 30, 2008. The amount outstanding includes $460.4 million (U.S. dollar equivalent) in Euro and Yen-denominated borrowings. º •
º borrowing $735 million on a term loan that matures March 5, 2012 and bears a rate of LIBOR plus 70 basis points. This loan is secured by the cash flow distributed from six properties and has additional availability of $115 million through the maturity date. º •
º issuing two tranches of senior unsecured notes in May totaling $1.5 billion at a weighed average fixed interest rate of 5.74%. We used the proceeds of the offering to reduce borrowings on the Credit Facility and for general working capital purposes. º •
º redeeming the $200.0 million MOPPRS that bore interest at 7.00%, and, as discussed above, resulted in our recognizing a $20.3 million charge to earnings in the second quarter related to this extinguishment of debt. º •
º redeeming a $150.0 million unsecured note that bore interest at a fixed rate of 5.38%.

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 domestic asset platforms. We include acquired properties in this data beginning in the year of acquisition and remove properties sold in the year disposed. We do not include any properties located outside of the United States. The following table sets forth these key operating statistics for:

º •
º properties that are consolidated in our consolidated financial statements, º •
º properties we account for under the equity method of accounting as joint ventures, and º •
º the foregoing two categories of properties on a total portfolio basis.

                                     September 30,     %/basis point     September 30,     %/basis point
                                         2008            Change(1)           2007            Change(1)
Regional Malls:
Occupancy
Consolidated                                  92.9%           -10 bps             93.0%           +60 bps
Unconsolidated                                91.7%           -50 bps             92.2%           -60 bps
Total Portfolio                               92.5%           -20 bps             92.7%           +20 bps
Average Base Rent per Square Foot
Consolidated                        $         38.09              5.8%   $         35.99              3.6%
Unconsolidated                      $         41.58              7.4%   $         38.71              7.2%
Total Portfolio                     $         39.26              6.3%   $         36.92              4.8%
Comparable Sales Per Square Foot
Consolidated                        $           466             -1.5%   $           473              2.8%
Unconsolidated                      $           553              4.3%   $           530              6.0%
Total Portfolio                     $           493              0.4%   $           491              3.8%
Premium Outlet Centers:
Occupancy                                     98.8%           -80 bps             99.6%           +30 bps
Average base rent per square foot   $         27.12              6.6%   $         25.45              5.8%
Comparable sales per square foot    $           520              4.2%   $           499              8.0%
The Mills®:(2)
Occupancy                                     94.4%           +30 bps             94.1%                 -
Average base rent per square foot   $         19.46              3.4%   $         18.82                 -
Comparable sales per square foot    $           378              1.3%   $           373                 -
Mills Regional Malls:(2)
Occupancy                                     87.6%           -90 bps             88.5%                 -
Average base rent per square foot   $         37.19              6.0%   $         35.10                 -
Comparable sales per square foot    $           442             -2.0%   $           451                 -
Community/Lifestyle Centers:
Occupancy
Consolidated                                  90.4%           -60 bps             91.0%          +290 bps
Unconsolidated                                93.6%          -290 bps             96.5%           -10 bps
Total Portfolio                               91.5%          -130 bps             92.8%          +210 bps
Average Base Rent per Square Foot
Consolidated                        $         13.43              8.9%   $         12.33              3.1%
Unconsolidated                      $         12.18              3.4%   $         11.78              5.9%
Total Portfolio                     $         13.00              7.0%   $         12.15              3.9%


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   º (1)

Comparable Sales Per Square Foot. Comparable sales include total reported retail tenant sales at owned GLA (for mall and freestanding stores with less than 10,000 square feet) in the regional malls and all reporting tenants at the Premium Outlet centers and the Mills portfolio. Retail sales at Owned GLA affect revenue and profitability levels because sales determine the amount of minimum rent that can be charged, the percentage rent realized, and the recoverable expenses (common area maintenance, real estate taxes, etc.) that tenants can afford to pay.

     International Property Data

      The following key operating statistics are provided for our international
properties, which we account for using the equity method of accounting.

                                     September 30,     %/basis point     September 30,     %/basis point
                                         2008             Change             2007             Change
European Shopping Centers:
Occupancy                                     98.1%           -80 bps             98.9%          +200 bps
Comparable sales per square foot            €   429              4.4%           €   411              6.5%
Average base rent per square foot           € 30.11              4.5%           € 28.81              9.7%
International Premium Outlets(1)
Occupancy                                     98.9%           -90 bps             99.8%                 -
Comparable sales per square foot            ¥94,387              2.8%           ¥91,791              2.3%
Average base rent per square foot           ¥ 4,651             -0.5%           ¥ 4,674             -0.3%


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   º (1)

Results of Operations

In addition to the activity discussed above in the Results Overview section, the following acquisitions, property openings, and other activity affected our consolidated results from continuing operations in the comparative periods:

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º On September 12, 2008, we acquired an additional 3.2% interest in White Oaks Mall. º •
º On May 1, 2008, we opened Pier Park, a 900,000 square foot, open-air lifestyle center located in Panama City, Florida. º •
º On March 27, 2008, we opened Houston Premium Outlets, a 427,000 square foot outlet center located approximately 30 miles west of Houston in Cypress, Texas. º •
º On January 1, 2008 we acquired an additional 1.8% interest in Oxford Valley Mall and Lincoln Plaza. º •
º On November 15, 2007, we opened Palms Crossing, a 396,000 square foot community center, located adjacent to the new McAllen Convention Center in McAllen, Texas. º •
º On November 8, 2007, we opened Philadelphia Premium Outlets, a 425,000 square foot outlet center located 35 miles northwest of Philadelphia in Limerick, Pennsylvania. º •
º On November 1, 2007, we acquired an additional 6.5% interest in Montgomery Mall. º •
º On August 23, 2007, we acquired Las Americas Premium Outlets, a 560,000 square foot upscale outlet center located in San Diego, California, for $283.5 million, including the assumption of its $180.0 million mortgage. º •
º On July 13, 2007, we acquired an additional 1% interest in Bangor Mall. º •
º On March 29, 2007, we acquired an additional 25% interest in two regional malls (Town Center at Cobb and Gwinnett Place) acquired as part of the Mills portfolio and now consolidate those properties. º •
º On March 28, 2007, we acquired a 100% interest in The Maine Outlet, a 112,000 square foot outlet center located in Kittery, Maine for a purchase price of $45.2 million. The center is 99% occupied. º •
º On March 9, 2007, we opened The Domain, in Austin, Texas, which combines 700,000 square feet of luxury fashion and restaurant space, 75,000 square feet of Class A office space and 390 apartments.

In addition to the activities discussed in "Results Overview," the following acquisitions, dispositions, and openings affected our income from unconsolidated entities in the comparative periods:

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º On August 25, 2008, Gallerie Commerciali Italia, or GCI, one of our European joint ventures, opened Monza, a 211,600 square foot shopping center in Monza, Italy. º •
º On June 5, 2008, we opened Changshu IN CITY Plaza, a 487,000 square foot retail center located in Changshu, China. The center is anchored by Wal-Mart and has approximately 140 other retail shops. º •
º On May 2, 2008, we opened Hamilton Town Center, a 950,000 square foot open-air retail center in Noblesville, Indiana. We hold a 50% interest in this center. º •
º On December 6, 2007, GCI opened Nola, a 876,000 square foot shopping center in Naples, Italy. º •
º On October 17, 2007, we acquired an 18.75% interest in Denver West Village in Lakewood, Colorado through our ownership in SPG-FCM. º •
º On September 27, 2007, GCI opened Cinisello, located in Milan, Italy. º •
º On July 26, 2007, GCI opened Porta di Roma, a 1.3 million square foot shopping center in Rome, Italy. º •
º On July 5, 2007, Simon Ivanhoe S.à.r.l, or Simon Ivanhoe, our other European joint venture, sold its interest in five assets located in Poland, for which we recorded our share of the gain of $90.6 million. º •
º On July 5, 2007, we opened the 195,000 square foot first phase of Kobe-Sanda Premium Outlets, located just north of downtown Kobe, Japan. º •
º On June 1, 2007, we opened Yeoju Premium Outlets, a 250,000 square foot center in South Korea.

For the purposes of the following comparison between the nine months ended September 30, 2008, and 2007, the above transactions are referred to as the "property transactions". In the following discussions of our results of operations, "comparable" refers to properties open and operating throughout the periods in both 2008 and 2007.

Three Months Ended September 30, 2008 vs. Three Months Ended September 30, 2007

Minimum rents increased $31.6 million during the period, of which the property transactions accounted for $16.1 million of the increase. Comparable rents increased $15.5 million, or 3.1%. This was primarily due to the leasing of space at higher rents that resulted in an increase in minimum rents of $20.0 million and a $0.7 million increase in straight-line rents, offset by a $5.9 million decrease in comparable property activity, primarily attributable to lowered amounts of fair market value of in-place lease amortization. In addition, rents from carts, kiosks, and other temporary tenants increased comparable rents by $0.7 million.

Overage rents decreased $0.8 million or 2.8%, reflecting moderating tenant sales for the quarter as compared to the prior year.

Tenant reimbursements increased $4.4 million, due to a $5.8 million increase attributable to the property transactions offset by a $1.4 million net decrease in the comparable properties as a result of an increase in reimbursements due to our ongoing initiative to convert our leases to a fixed reimbursement with an annual escalation provision for common area maintenance costs offset by decreases in reimbursable common area improvement costs.

Management fees and other revenues decreased $1.6 million principally as a result of decreased earned premiums of our wholly-owned captive insurance entities.

Total other income decreased $5.2 million, and was principally the result of the following:

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º a $1.9 million net decrease in interest income, comprised of a $3.8 million decrease on income from loans made to SPG-FCM and Mills due to repayments and lower LIBOR rates, lower interest on invested cash of $2.0 million due primarily to lower investment rates, partially offset by dividend income of $3.9 million received as a result of our investment in Liberty International, a UK-based REIT, º •
º a $1.4 million decrease in loan financing fees from loans to SPG-FCM and Mills due to lower refinancing activity, º •
º a $1.0 million decrease in lease settlement income, and º •
º a $0.9 million decrease in net land sale activity.

Depreciation and amortization expense increased $11.3 million primarily due to the impact of our 2007 and 2008 acquisition, expansion and renovation activity and the accelerated depreciation of tenant improvements for tenant leases terminated during the period and for properties scheduled for redevelopment.

Real estate taxes increased $6.2 million from the prior period, $2.2 million of which is related to the property transactions, and $4.0 million from our comparable properties due to the effect of increases resulting from reassessments, higher tax rates, and the effect of expansion and renovation activities.

Repairs and maintenance decreased $5.9 million primarily due to our cost savings efforts.

Home and regional office expense increased $1.3 million primarily due to increased personnel costs.

Other expense increased $3.0 million primarily due to increased professional and legal costs.

Income from unconsolidated entities increased $8.8 million, due primarily to the gain from our disposition of an investment in a 50% owned multi-family residential facility adjacent to one of our regional mall operating properties.

The gain on sale of assets and interests in unconsolidated entities of $91.1 million in 2007 was primarily the result of Simon Ivanhoe selling its interest in assets located in Poland.

Preferred dividends decreased $3.0 million as a result of the redemption of the Series G preferred stock in the fourth quarter of 2007.

Nine Months Ended September 30, 2008 vs. Nine Months Ended September 30, 2007

Minimum rents increased $115.5 million during the period, of which the property transactions accounted for $52.9 million of the increase. Comparable rents increased $62.6 million, or 4.2%. This was primarily due to the leasing of space at higher rents that resulted in an increase in minimum rents of $64.0 million and an $8.6 million increase in straight-line rents, offset by a $10.5 million decrease in comparable property activity, primarily attributable to lowered amounts of fair market value of in-place lease amortization.

Overage rents decreased $2.8 million or 4.4%, reflecting moderating tenant sales for the period as compared to the prior year.

Tenant reimbursements increased $45.9 million, due to a $21.4 million increase attributable to the property transactions and a $24.5 million, or 3.4%, increase in the comparable properties due to our ongoing initiative to convert our leases to a fixed reimbursement with an annual escalation provision for common area maintenance costs.

Management fees and other revenues increased $27.9 million principally as a result of additional management fees derived from managing the properties in the Mills portfolio, and additional leasing and development fees as a result of incremental joint venture property activity.

Total other income decreased $47.8 million, and was principally the result of the following:

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º a $23.9 million decrease in interest income primarily due to the repayment of loans made to SPG-FCM and Mills, combined with decreased interest earned on investments due to lower excess cash balances and interest rates in 2008, º •
º a $15.2 million decrease in lease settlement income as a result of settlements received from two department stores in 2007, and º •
º a $9.8 million decrease in loan financing fees related to Mills-related loans.

These decreases were offset in part by a $1.3 million increase in net land sale activity.

Property operating costs increased $9.1 million primarily related to increased energy rates resulting in higher utility expenses.

Depreciation and amortization expense increased $30.0 million primarily due to the impact of our 2007 and 2008 acquisition, expansion and renovation activity and the accelerated depreciation of tenant improvements for tenant leases terminated during the period and for properties scheduled for redevelopment.

Repairs and maintenance decreased $8.8 million due to our cost savings efforts.

Provision for credit losses increased $12.3 million primarily due to an . . .