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 June 30, 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 an interest in one parcel of land held in the United States for future development. In the United States, we have one new property currently under development aggregating approximately 400,000 square feet which will open during 2009. Internationally, we have ownership interests in 51 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 focus on high quality real estate across the retail real estate spectrum. We expand or renovate 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 metropolitan areas that exhibit strong population and economic growth.

We routinely review and evaluate acquisition opportunities based on their ability to complement our portfolio. 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 decreased $0.39 during the first six months of 2009, or 53.4%, to $0.34 from $0.73 for the same period last year. The decrease in diluted earnings per share was attributable to a $140.5 million, or $0.45 per diluted share, other-than-temporary impairment charge relate to our investment in Liberty International, PLC, or Liberty, a U.K. REIT. We recorded the other-than-temporary charge in the first six months of 2009 due to the significance and duration of the decline in quoted fair value, including related currency exchange component, below the carrying value of the securities. During the six months ended June 30, 2008, we recorded a $20.3 million loss on extinguishment of debt related to our redemption of the 7% MandatOry Par Put Remarketed Securities, or MOPPRS. For the quarterly and six-month periods, we also had additional dilution to earnings per share from our 2009 equity offerings of approximately $0.05 per diluted share.

Core business fundamentals were affected by the difficult economic environment during the first six months of 2009. Regional mall comparable sales per square foot, or psf, declined 10.5% during the first six months of 2009 to $442 psf from $494 psf for the same period in 2008. However, our regional mall average base rents increased 3.8% to $40.29 psf as of June 30, 2009, from $38.81 psf as of June 30, 2008 due to releasing of space at higher rents. We were able to lease available square feet at higher rents than the expiring rental rates in the regional mall portfolio resulting in a leasing spread of $6.27 psf as of June 30, 2009, representing a 17.0% increase over expiring rents. Regional mall occupancy was 90.9% as of June 30, 2009, as compared to 91.8% as of June 30, 2008 driven by higher bankruptcies and lease terminations. The more stable operating fundamentals of the Premium Outlet centers contributed to the positive operating results for the six month period as occupancy of the portfolio remained high at 97.0% while comparable sales psf decreased 5.0% to $493 as consumers continued to prefer retail value, offset by the impact of the economic downturn. Premium Outlet leasing spreads were $9.57, or 34.6% above expiring rents.

As of June 30, 2009, our effective overall borrowing rate increased five basis points to 5.57% as compared to June 30, 2008. This was primarily a result of an increase of our fixed rate debt of $400 million ($16.2 billion at June 30, 2009 versus $15.8 billion at June 30, 2008), which increased the weighted average rate 26 basis points as compared to June 30, 2008. This increase was partially offset by a decrease in the base LIBOR rate applicable to a majority of our floating rate debt (0.31% at June 30, 2009, versus 2.46% at June 30, 2008). Financing activities for the six months ended June 30, 2009 included:

º •
º decreasing borrowings on the Operating Parntership's $3.5 billion unsecured credit facility, or Credit Facility, to approximately $433.5 million as of June 30, 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 notes due 2019. We used the proceeds of the offering to reduce borrowings on the Credit Facility. º •
º issuing $600.0 million in 6.75% senior unsecured notes due 2014. We used the proceeds of the offering for general corporate purposes. 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.

                                          June 30,     June 30,     %/basis point
                                            2009         2008         Change(1)
     Regional Malls:
     Occupancy
     Consolidated                             90.9%        92.0%          -110 bps
     Unconsolidated                           90.9%        91.4%           -50 bps
     Total Portfolio                          90.9%        91.8%           -90 bps
     Average Base Rent per Square Foot
     Consolidated                        $    38.74   $    37.70              2.8%
     Unconsolidated                      $    43.41   $    41.04              5.8%
     Total Portfolio                     $    40.29   $    38.81              3.8%
     Comparable Sales Per Square Foot
     Consolidated                        $      424   $      468             -9.4%
     Unconsolidated                      $      481   $      552            -12.9%
     Total Portfolio                     $      442   $      494            -10.5%
     Premium Outlet Centers:
     Occupancy                                97.0%        98.3%          -130 bps
     Average base rent per square foot   $    32.74   $    26.66             22.8%
     Comparable sales per square foot    $      493   $      519             -5.0%
     The Mills®:
     Occupancy                                90.9%        94.4%          -350 bps
     Average base rent per square foot   $    19.77   $    19.43              1.7%
     Comparable sales per square foot    $      369   $      380             -2.9%
     Mills Regional Malls:
     Occupancy                                88.4%        87.1%          +130 bps
     Average base rent per square foot   $    36.77   $    37.23             -1.2%
     Comparable sales per square foot    $      397   $      449            -11.6%
     Community/Lifestyle Centers:
     Occupancy                                88.5%        93.2%          -470 bps
     Average Base Rent per Square Foot   $    13.37   $    12.68              5.4%


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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.

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.

                                                                        %/basis
                                               June 30,    June 30,      point
                                                 2009        2008       Change
       European Shopping Centers:
       Occupancy                                   96.0%       98.4%        -240
                                                                             bps
       Comparable sales per square foot        €     409   €     427       -4.2%
       Average base rent per square foot       €   31.78   €   29.81        6.6%
       International Premium Outlets(1)
       Occupancy                                   99.8%      100.0%         -20
                                                                             bps
       Comparable sales per square foot                ¥           ¥       -2.5%
                                                  91,528      93,847
       Average base rent per square foot               ¥           ¥        1.7%
                                                   4,723       4,644


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   º (1)

Results of Operations

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

º •
º On April 23, 2009, we opened The Promenade at Camarillo Premium Outlets, a 220,000 square foot expansion located in Ventura County, north of Los Angeles. 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, 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 dispositions and property 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 six months ended June 30, 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 $1.4 million during the period, of which the property transactions accounted for $6.4 million of the increase. Comparable minimum rents decreased $5.0 million, or 0.9%. This was primarily attributable to a decline in the fair market value of in-place lease amortization of $7.2 million and a $6.5 million decrease in straight-line rents, offset by an increase in base minimum rents of $6.5 million and an increase in comparable rents from carts, kiosks, and other temporary tenants of $2.2 million.

Overage rents decreased $4.3 million, or 24%, as a result of a reduction in tenant sales for the period as compared to the prior year.

Tenant reimbursements decreased $2.3 million, due to a $2.4 million increase attributable to the property transactions offset by a $4.7 million, or 1.9%, decrease in the comparable properties as a result of a decrease in expenditures allocable to tenants paying common area maintenance on a proportionate basis. We continue to migrate our tenants' payments of common area maintenance contributions to a fixed-payment methodology, which serves to offset the variability of this revenue in relation to variability in the underlying expenses.

Management fees and other revenues decreased $4.8 million principally as a result of decreased earned premiums of our wholly-owned captive insurance entities and lower fee revenue due to the reduction in development, leasing and joint venture property refinancing activity.

Total other income decreased $9.3 million, and was principally the result of the following:

º •
º a $4.6 million decrease in net land sale activity, º •
º a $3.1 million net decrease in interest income, primarily attributable to lower reinvestment rates and the lower rate applicable to our loan facility with SPG-FCM (the joint venture that acquired Mills in 2007), and º •
º a $1.6 million decrease in lease settlement and other miscellaneous income.

Property operating costs decreased $5.1 million, or 4.5%, primarily related to our cost control and cost reduction initiatives.

Depreciation and amortization expense increased $15.1 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 $5.7 million primarily due to our cost savings efforts.

Home and regional office expense decreased $8.2 million primarily due to decreased personnel costs attributable to our cost control initiatives and lower incentive compensation levels.

During the quarter ended June 30, 2009, we recognized a non-cash impairment charge of $140.5 million, or $0.42 per diluted share, representing the other-than-temporary decline in the fair value below the carrying value of our investment in Liberty. As of June 30, 2009, we owned 35.4 million shares at a weighted average cost per share of £5.74. As of June 30, 2009, Liberty's quoted market price was £3.97 per share. We recorded the charge to earnings due to the significance and duration of the decline in the total share price, including currency revaluations. As a result, the decline in value was deemed other-than-temporary, which established a new cost basis of our investment in Liberty.

Interest expense increased $12.1 million primarily related to the Operating Partnership's issuance of $600 million senior unsecured notes on May 15, 2009 and $650 million senior unsecured notes on March 25, 2009, offset by decreased interest expense on our Credit Facility due to the payoff of the US tranche.

We recognized a loss on extinguishment of debt of $20.3 million in the second quarter of 2008 related to the redemption of the $200 million outstanding principal amount of MOPPRS. We extinguished this debt because the remarketing reset base rate of the MOPPRS was above the rate for 30-year U.S. Treasury securities at the time of redemption.

Income from unconsolidated entities increased $16.9 million as a result of our 2008 joint venture openings and expansion activity, interest rate savings from favorable interest rates and debt refinancings, and additional depreciation provisions related to the finalization of purchase accounting on asset basis step-ups in the 2008 period associated with the acquisition of Mills.

Net income attributable to noncontrolling interests decreased $26.3 million primarily due to a decrease in the income of the Operating Partnership.

Preferred dividends decreased $4.8 million as a result of the conversion of approximately 6.4 million shares of our Series I 6% Convertible Perpetual Preferred Stock, or Series I preferred stock, into common shares during 2008.

Minimum rents increased $22.2 million during the period, of which the property transactions accounted for $15.7 million of the increase. Comparable rents increased $6.5 million, or 0.6%. This was primarily due to an increase in minimum rents of $20.7 million due to releasing of space, offset by a $10.2 million decrease in comparable property activity, primarily attributable to a decline in the fair market value of in-place lease amortization, and a $5.5 million decrease in straight-line rents. In addition, increased rents from carts, kiosks, and other temporary tenants increased comparable rents by $1.5 million.

Overage rents decreased $8.5 million, or 25%, as a result of a reduction in tenant sales for the period as compared to the prior year.

Tenant reimbursements increased $6.2 million, due to a $6.1 million increase attributable to the property transactions, and the remainder of the increase of $0.1 million attributable to our ongoing initiative to convert our leases to a fixed reimbursement methodology for common area maintenance costs.

Management fees and other revenues decreased $7.2 million principally as a result of decreased earned premiums of our wholly-owned captive insurance entities and lower fee revenue due to the reduction in development, leasing and joint venture property refinancing activity.

Total other income decreased $8.8 million, and was the result of an $8.8 million net decrease in interest income primarily attributable to lower reinvestment rates and the lower rate applicable to our loan facility with SPG-FCM.

Property operating costs decreased $11.7 million, or 5.2%, primarily related to our cost control and cost reduction initiatives.

Depreciation and amortization expense increased $43.4 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 $12.1 million primarily due to our cost savings efforts.

Provision for credit losses increased $6.7 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 $21.6 million primarily due to decreased personnel costs attributable to our cost control initiatives and lower incentive compensation levels.

As noted above in the quarterly period discussion, we recognized a $140.5 million other-than-temporary impairment charge related to our investment in Liberty.

Interest expense increased $8.2 million primarily related to the Operating Partnership's issuance of $600 million senior unsecured notes on May 15, 2009 and $650 million senior unsecured notes on March 25, 2009, offset by decreased interest expense on our Credit Facility due to the payoff of the US tranche and other property debt refinancings.

We recognized a loss on extinguishment of debt of $20.3 million in the second quarter of 2008 related to the redemption of the $200 million outstanding principal amount of MOPPRS. We extinguished this debt because the remarketing reset base rate of the MOPPRS was above the rate for 30-year U.S. Treasury securities at the time of redemption.

Income from unconsolidated entities increased $15.3 million as a result of our 2008 joint venture openings and expansion activity, interest rate savings from favorable interest rates and debt refinancings, and additional depreciation provisions related to the finalization of purchase accounting on asset basis step-ups in the 2008 period associated with the acquisition of Mills.

Net income attributable to noncontrolling interests decreased $23.1 million primarily due to a decrease in the income of the Operating Partnership.

Preferred dividends decreased $9.6 million as a result of the conversion of approximately 6.4 million shares of our Series I preferred stock 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 10% 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 $956.1 million during the first half 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 $1.9 billion during the first six months of 2009 to $2.6 billion as of June 30, 2009. Our balance of cash and cash equivalents as of June 30, 2009, and December 31, 2008, includes $31.4 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. The excess cash is being held in a number of financial institutions and is generally invested in overnight investment funds and is available to us as an immediate source of liquidity.

Our business model requires us to regularly access the debt and equity capital markets to raise funds for acquisition and development activity, . . .