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 March 31, 2009, we owned or held an interest in 324 income-producing properties in the United States, which consisted of 163 regional malls, 40 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 four are community centers. We also own interests in four parcels of land held in the United States for future development. In the United States, we have one new property currently under development aggregating approximately 0.4 million square feet which will open during 2009. Internationally, we have ownership interests in 52 European shopping centers (France, Italy and Poland); seven Premium Outlet centers in Japan; one Premium Outlet center in Mexico; one Premium Outlet center in South Korea; and one shopping center in China. Also, through joint venture arrangements we have ownership interests in the following properties under development internationally: a 24% interest in two shopping centers in Italy, a 40% interest in a Premium Outlet Center in Japan, and a 32.5% interest in three additional shopping centers under construction in China.

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

º •
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:

º •
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, º •
º Selectively 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:

º •
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 cards), national marketing alliances, static and digital media initiatives, business development, sponsorship, and events, º •
º Offering property operating services to our tenants and others, including waste handling and facility services, and the sale of energy, and º •
º Selling or leasing land adjacent to our shopping center properties, commonly referred to as "outlots" or "outparcels."

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:

º •
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 increased $0.06 during the first quarter of 2009, or 15.4%, to $0.45 from $0.39 for the same period last year. The increase was the result of lease termination settlement income, lower interest expense driven by lower levels of debt and declining LIBOR rates, and reductions in property operating and home office and regional expenses as a result of cost control and cost reduction measures, partially offset by an increase in the provision for credit losses and increases in depreciation and amortization expense.

Core business fundamentals were affected by the unfavorable economic environment during the first quarter of 2009. Regional mall comparable sales per square foot, or psf, declined 7.3% during the first quarter of 2009 to $455 psf from $491 psf for the same period in 2008. However, our regional mall average base rents increased 6.8% to $40.29 psf as of March 31, 2009, from $37.73 psf as of March 31, 2008 due to releasing of space at higher rents. We were able to release available square feet at higher rents than the expiring rental rates in the regional mall portfolio resulting in a leasing spread of $8.46 psf as of March 31, 2009, representing a 25.0% increase over expiring rents. Regional mall occupancy was 90.8% as of March 31, 2009, as compared to 91.7% as of March 31, 2008 driven by higher bankruptcies and lease terminations. The favorable operating fundamentals of the Premium Outlet centers contributed to the positive operating results for the three month period as occupancy of the portfolio remained high at 96.9%. Premium Outlet comparable sales psf decreased only modestly 0.8% to $507 reflecting the consumer's preference for value, offset by the impact of the economic downturn. Premium Outlet leasing spreads were strong at $8.58, or 33.5% above expiring rents.

As of March 31, 2009, our effective overall borrowing rate increased 13 basis points to 5.50% as compared to March 31, 2008. This was primarily a result of an increase of our fixed rate debt of $800 million ($15.5 billion at March 31, 2009 versus $14.7 billion at March 31, 2008), which increased the weighted average rate 23 basis points as compared to March 31, 2008. This increase was partially offset by a decrease in the base LIBOR rate applicable to a majority of our floating rate debt (0.55% at March 31, 2009, versus 2.70% at March 31, 2008). Our financing activities for the quarter ended March 31, 2009 included:

º •
º decreasing borrowings on our $3.5 billion unsecured credit facility, or Credit Facility, to approximately $417.0 million as of March 31, 2009. The ending balance is entirely comprised of the U.S. dollar equivalent of Euro and Yen-denominated borrowings. º •
º issuing $650.0 million in 10.35% senior unsecured due 2019. We used the proceeds of the offering to reduce borrowings on the Credit Facility. º •
º redeeming three series of maturing unsecured notes totaling $700.0 million which had fixed rates of 3.75%, 7.13% and 3.50%.

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.

                                         March 31,     %/basis point     March 31,
                                           2009          Change(1)         2008
    Regional Malls:
    Occupancy
    Consolidated                              90.7%          -120 bps         91.9%
    Unconsolidated                            90.8%           -40 bps         91.2%
    Total Portfolio                           90.8%           -90 bps         91.7%
    Average Base Rent per Square Foot
    Consolidated                        $     38.79              5.4%   $     36.79
    Unconsolidated                      $     43.32              9.3%   $     39.64
    Total Portfolio                     $     40.29              6.8%   $     37.73
    Comparable Sales Per Square Foot
    Consolidated                        $       436             -6.2%   $       465
    Unconsolidated                      $       495             -9.3%   $       546
    Total Portfolio                     $       455             -7.3%   $       491
    Premium Outlet Centers:
    Occupancy                                 96.9%          -100 bps         97.9%
    Average base rent per square foot   $     29.21             11.0%   $     26.32
    Comparable sales per square foot    $       507             -0.8%   $       511
    The Mills®:
    Occupancy                                 89.7%          -450 bps         94.2%
    Average base rent per square foot   $     19.78              2.8%   $     19.25
    Comparable sales per square foot    $       373             -1.3%   $       379
    Mills Regional Malls:
    Occupancy                                 87.4%           +60 bps         86.8%
    Average base rent per square foot   $     37.14              0.2%   $     37.05
    Comparable sales per square foot    $       410             -9.1%   $       450
    Community/Lifestyle Centers:
    Occupancy
    Consolidated                              85.7%          -640 bps         92.1%
    Unconsolidated                            90.9%          -500 bps         95.9%
    Total Portfolio                           87.4%          -590 bps         93.3%
    Average Base Rent per Square Foot
    Consolidated                        $     13.89              8.3%   $     12.82
    Unconsolidated                      $     12.39              4.9%   $     11.81
    Total Portfolio                     $     13.37              7.2%   $     12.47


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   º (1)

Occupancy Levels and Average Base Rent Per Square Foot. Occupancy and average base rent are based on mall gross leasable area, or GLA, owned by us in the regional malls, all tenants at the Premium Outlet centers, all tenants in the Mills portfolio, and all tenants at community/lifestyle centers. Our portfolio has maintained stable occupancy and increased average base rents.

     International Property Data

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

                                         March 31,     %/basis point    March 31,
                                            2009          Change           2008
     European Shopping Centers:
     Occupancy                                98.5%            +0 bps        98.5%
     Comparable sales per square foot       €   409             -3.6%      €   424
     Average base rent per square foot      € 30.86              4.0%      € 29.68
     International Premium Outlets(1)
     Occupancy                                99.9%          +160 bps        98.3%
     Comparable sales per square foot       ¥91,492             -2.8%      ¥94,134
     Average base rent per square foot      ¥ 4,705              0.3%      ¥ 4,691


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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:

º •
º On November 13, 2008, we opened Jersey Shore Premium Outlets, a 435,000 square foot outlet center with 120 designer and name-brand outlet stores located in Tinton Falls, New Jersey. º •
º On November 6, 2008, we opened the second phase of Orlando Premium Outlets, a 114,000 square foot expansion that is 100% leased and adds 40 new merchants, located in Orlando, Florida. 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.

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:

º •
º On December 30, 2008, Cincinnati Mills, one of the properties we acquired in the Mills acquisition, was sold. We held a 50% interest the shopping center. º •
º On October 16, 2008, Chelsea Japan Company, Ltd., or Chelsea Japan, the joint venture which operates the Japanese Premium Outlet Centers in which we have a 40% ownership interest, opened Sendai-Izumi Premium Outlets. º •
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.

For the purposes of the following comparison between the quarter ended March 31, 2009, and 2008, 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 2009 and 2008.

Minimum rents increased $20.7 million during the period, of which the property transactions accounted for $10.8 million of the increase. Comparable rents increased $9.9 million, or 1.8%. This was primarily due to an increase in minimum rents of $12.9 million and a $0.9 million increase in straight-line rents, offset by a $3.0 million decrease in comparable property activity, primarily attributable to a decline in the fair market value of in-place lease amortization. In addition, decreased rents from carts, kiosks, and other temporary tenants decreased comparable rents by $0.9 million.

Overage rents decreased $4.2 million, or 25%, as a result of a reduction in tenant sales for the period as compared to the prior year.

Tenant reimbursements increased $8.5 million, due to a $4.0 million increase attributable to the property transactions and a $4.5 million, or 1.8%, increase 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 methodology for common area maintenance costs.

Management fees and other revenues decreased $2.4 million principally as a result of decreased earned premiums of our wholly-owned captive insurance entities.

Total other income increased $0.5 million, and was principally the result of the following:

º •
º a $5.6 million increase in lease settlement income, and º •
º a $1.9 million increase in net other activity, offset by º •
º a $5.7 million net decrease in interest income primarily related to the repayment activity and lower interest rates on our loans made to SPG-FCM, and º •
º a $1.3 million decrease in net land sale activity,

Property operating costs decreased $6.6 million, or 5.8%, primarily related to our cost control and cost reduction initiatives.

Depreciation and amortization expense increased $28.3 million due to the impact of our prior year openings and expansion activity and acceleration of depreciation for certain properties scheduled for redevelopment.

Repairs and maintenance decreased $6.4 million primarily due to our cost savings efforts.

Provision for credit losses increased $6.4 million due to an increase in the reserve for tenants in default and an increased number of tenants entering bankruptcy proceedings.

Home and regional office expense decreased $13.4 million primarily due to decreased personnel costs attributable to our cost control initiatives and lower incentive compensation levels.

Preferred dividends decreased $4.8 million as a result of the conversion of approximately 6.4 million Series I preferred shares into common shares during 2008.

Liquidity and Capital Resources

Because we generate revenues primarily from long-term leases, our financing strategy relies primarily on long-term fixed rate debt. We manage our floating rate debt to be at or below 15-25% of total outstanding indebtedness. Floating rate debt currently comprises only approximately 11% of our total consolidated debt. We also enter into interest rate protection agreements as appropriate to assist in managing our interest rate risk. We derive most of our liquidity from leases that generate positive net cash flow from operations and distributions of capital from unconsolidated entities that totaled $472.7 million during the first quarter of 2009. In addition, the Credit Facility provides an alternative source of liquidity as our cash needs vary from time to time.

Our balance of cash and cash equivalents increased $124.8 million during the first quarter of 2009 to $898.3 million as of March 31, 2009. Our balance of cash and cash equivalents as of March 31, 2009, and December 31, 2008, includes $34.4 million and $29.8 million, respectively, related to our co-branded gift card programs, which we do not consider available for general working capital purposes.

Our business model requires us to regularly access the debt and equity capital markets to raise funds for acquisition and development activity, redevelopment capital, and to refinance maturing debt. We are currently seeing

Acquisition of The Mills Corporation by SPG-FCM

On February 16, 2007, SPG-FCM, a 50/50 joint venture between an affiliate of the Operating Partnership and funds managed by Farallon Capital Management, L.L.C., or Farallon, entered into a definitive merger agreement to acquire all of the outstanding common stock of Mills for $25.25 per common share in cash. The acquisition of Mills and its interest in the 36 properties that remain at March 31, 2009 was completed in April 2007. As of March 31, 2009, we and Farallon had each funded $650.0 million into SPG-FCM to acquire all of the common stock of Mills. As part of the transaction, the Operating Partnership also made loans to SPG-FCM and Mills primarily at rates of LIBOR plus 270-275 basis points. These funds were used by SPG-FCM and Mills to repay loans and other obligations of Mills, including the redemption of Mills' preferred stock. As of March 31, 2009, the outstanding balance of our remaining loan to SPG-FCM was $536.0 million. During the first quarter of 2009 and 2008, we recorded approximately $2.2 million and $4.5 million in interest income (net of inter-entity eliminations), respectively, related to this loan. The loan facility bears interest at a rate of LIBOR plus 275 basis points and matures on June 7, 2009, with three available one-year extensions.

Cash Flows

Our net cash flow from operating activities and distributions of capital from unconsolidated entities for the quarter ended March 31, 2009, totaled $472.7 million. In addition, we had net repayments from all of our debt financing and repayment activities in this period of $629.5 million. These activities are further discussed below in "Financing and Debt." During the 2009 period we also:

º •
º sold 17,250,000 shares of common stock resulting in total proceeds of $525.7 million, º •
º paid stockholder dividends and unitholder distributions of $25.9 million in cash and $243.3 million in common stock and units, º •
º paid preferred stock dividends and preferred unit distributions totaling $10.7 million, º •
º funded consolidated capital expenditures of $137.1 million (these capital expenditures include development costs of $58.1 million, renovation and expansion costs of $59.6 million, and tenant costs and other operational capital expenditures of $19.4 million), and º •
º funded investments in unconsolidated entities of $8.1 million.

In general, we anticipate that cash generated from operations will be sufficient to meet operating expenses, monthly debt service, recurring capital expenditures, and the cash portion of distributions to stockholders necessary to maintain our REIT qualification for 2009. In addition, we expect to be able to obtain capital for nonrecurring capital expenditures, such as acquisitions, major building renovations and expansions, as well as for scheduled principal maturities on outstanding indebtedness, from excess cash generated from operations and working capital reserves, and from borrowings on our Credit Facility.

Financing and Debt

Unsecured Debt

Our unsecured debt currently consists of $10.7 billion of senior unsecured notes of the Operating Partnership and the Credit Facility. The Credit Facility bears interest at LIBOR plus 37.5 basis points and an additional facility fee of 12.5 basis points. The Credit Facility matures January 11, 2010 and may be extended one year at our option.

During the three months ended March 31, 2009, we drew amounts from our $3.5 billion Credit Facility to fund the redemption of $600.0 million in maturing series of unsecured notes. We repaid a total of $1.2 billion on our Credit Facility during the quarter ended March 31, 2009. The total outstanding balance of the Credit Facility as of March 31, 2009 was $417.0 million, all of which was comprised of the U.S. dollar equivalent of Euro and Yen-denominated borrowings. The maximum outstanding balance during the quarter ended March 31, 2009 was approximately $1.6 billion. During the quarter ended March 31, 2009, the weighted average outstanding balance on the Credit Facility was approximately $1.4 billion.

Total secured indebtedness was $6.3 billion at March 31, 2009, and December 31, 2008.

Summary of Financing

      Our consolidated debt, adjusted to reflect outstanding derivative
instruments, and the effective weighted average interest rates as of March 31,
2009, and December 31, 2008, consisted of the following (dollars in thousands):

                                                                  Adjusted
                                                                   Balance
                       Adjusted Balance        Effective            as of           Effective
                            as of           Weighted Average    December 31,     Weighted Average
Debt Subject to         March 31, 2009       Interest Rate          2008          Interest Rate
Fixed Rate            $       15,487,021                 6.00 % $  15,424,318                 5.76 %
Variable Rate                  1,898,025                 1.42 %     2,618,214                 1.31 %

                      $       17,385,047                 5.50 % $  18,042,532                 5.12 %

As of March 31, 2009, we had interest rate cap agreements on approximately $91.3 million of consolidated variable rate debt. We also hold $595.0 million of notional amount fixed rate swap agreements that have a weighted average fixed pay rate of 2.73% and a weighted average variable receive rate of 0.51%. As of March 31, 2009, the net effect of these agreements effectively converted $595.0 million of variable rate debt to fixed rate debt.

Contractual Obligations and Off-Balance Sheet Arrangements. There have been no material changes to our outstanding capital expenditure commitments previously disclosed in our 2008 Annual Report on Form 10-K. The following table summarizes the material aspects of our future obligations as of March 31, 2009, for the remainder of 2009 and subsequent years thereafter (dollars in thousands):

                                2009        2010-2011     2012-2014    After 2014       Total
Long Term Debt
    Consolidated(1)          $   629,977   $ 4,720,395   $ 6,336,749   $ 5,699,244   $ 17,386,365

Pro rata share of
. . .