You should read the following discussion in conjunction with the financial statements and notes thereto 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, directly or indirectly, 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, 2009, we owned or held an interest in 325 income-producing properties in the United States, which consisted of 163 regional malls, 41 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. Internationally, we have ownership interests in 51 European shopping centers (France, Italy and Poland), eight Premium Outlet centers in Japan, one Premium Outlet center in Mexico, one Premium Outlet center in South Korea, and three shopping centers 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 and a 32.5% interest in one additional shopping center under construction 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, 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:

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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 cards), national marketing alliances, static and digital media initiatives, business development, sponsorship, and events,

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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:

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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 $0.50 during the first nine months of 2009, or 40.7%, to $0.73 from $1.23 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 related to our investment in Liberty International, PLC, or Liberty, a U.K. REIT. We recorded the other-than-temporary charge in the second quarter 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 nine months ended September 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 three and nine month periods, we also had additional dilution to earnings per share from our 2009 equity offerings of approximately $0.06 and $0.12 per diluted share, respectively.

Core business fundamentals were affected by the difficult economic environment during the first nine months of 2009. Regional mall comparable sales per square foot, or psf, declined 11.2% during the first nine months of 2009 to $438 psf from $493 psf for the same period in 2008. However, our regional mall average base rents increased 2.0% to $40.05 psf as of September 30, 2009, from $39.26 psf as of September 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 $4.04 psf as of September 30, 2009, representing a 10.6% increase over expiring rents. Regional mall occupancy was 91.4% as of September 30, 2009, as compared to 92.5% as of September 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 nine month period as occupancy of the portfolio remained high at 97.5% while comparable sales psf decreased 4.5% to $492 as consumers continued to prefer retail value, offset by the impact of the economic downturn. Premium Outlet leasing spreads were $9.25, or 32.0% above expiring rents.

As of September 30, 2009, our effective overall borrowing rate decreased two basis points to 5.62% as compared to September 30, 2008. This is a result of a significant decrease in the base LIBOR rate applicable to a majority of our floating rate debt (0.25% at September 30, 2009, versus 3.93% at September 30, 2008). This decrease was partially offset by an increase of our fixed rate debt of $1.4 billion ($16.9 billion at September 30, 2009 versus $15.4 billion at September 30, 2008), which increased the weighted average rate 34 basis points as compared to September 30, 2008. Financing activities for the nine months ended September 30, 2009 included:

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º decreasing borrowings on the Operating Partnership's $3.5 billion unsecured credit facility, or Credit Facility, to approximately $456.2 million as of September 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 $1.1 billion in 6.75% senior unsecured notes due 2014. We used the proceeds of the offering for general corporate purposes.

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º redeeming five series of maturing unsecured notes totaling $900.0 million which had fixed rates ranging from 3.50% to 8.63%. º •
º borrowing $400.0 million on a loan which matures on August 1, 2016 and bears interest at a fixed rate of 8.00%. This loan is secured by cross-collateralized, cross-defaulted mortgages on Greenwood Park Mall, South Park Mall, and Walt Whitman Mall.

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:

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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,     September 30,     %/basis point
                                         2009              2008            Change(1)
Regional Malls:
Occupancy
Consolidated                                  91.6%             92.9%          -130 bps
Unconsolidated                                90.9%             91.7%           -80 bps
Total Portfolio                               91.4%             92.5%          -110 bps
Average Base Rent per Square Foot
Consolidated                        $         38.51   $         38.09              1.1%
Unconsolidated                      $         43.18   $         41.58              3.8%
Total Portfolio                     $         40.05   $         39.26              2.0%
Comparable Sales Per Square Foot
Consolidated                        $           418   $           466            -10.3%
Unconsolidated                      $           481   $           553            -13.0%
Total Portfolio                     $           438   $           493            -11.2%
Premium Outlet Centers:
Occupancy                                     97.5%             98.8%          -130 bps
Average Base Rent per Square Foot   $         32.95   $         27.12             21.5%
Comparable Sales per Square Foot    $           492   $           515             -4.5%
The Mills®:
Occupancy                                     92.4%             94.4%          -200 bps
Average Base Rent per Square Foot   $         19.66   $         19.46              1.0%
Comparable Sales per Square Foot    $           369   $           378             -2.4%
Mills Regional Malls:
Occupancy                                     88.9%             87.6%          +130 bps
Average Base Rent per Square Foot   $         35.64   $         37.19             -4.2%
Comparable Sales per Square Foot    $           388   $           442            -12.2%
Community/Lifestyle Centers:
Occupancy                                     88.9%             91.5%          -260 bps
Average Base Rent per Square Foot   $         13.34   $         13.00              2.6%


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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.

                                     September 30,     September 30,     %/basis point
                                         2009              2008             Change
European Shopping Centers:
Occupancy                                     95.8%             98.1%          -230 bps
Comparable Sales per Square Foot    €           409   €           429             -5.4%
Average Base Rent per Square Foot   €         32.56   €         30.11              5.1%
International Premium Outlets(1)
Occupancy                                     99.7%             98.9%           +80 bps
Comparable Sales per Square Foot    ¥        93,930   ¥        94,387             -0.5%
Average Base Rent per Square Foot   ¥         4,711   ¥         4,651              1.3%


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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:

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º On August 6, 2009, we opened Cincinnati Premium Outlets, a 400,000 square foot outlet center located in Warren County, Ohio, north of Cincinnati. 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 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:

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º On September 28, 2009, we opened Suzhou In City Plaza, a 750,000 square foot center located in Suzhou, China. We hold a 32.5% ownership interest in this center. º •
º On September 25, 2009, we opened Zhengzhou In City Plaza, a 465,000 square foot center located in Zhengzhou, China. We hold a 32.5% ownership interest in this center. º •
º On July 9, 2009, 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 Ami Premium Outlets located in Ami, Japan.

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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, opened Sendai-Izumi Premium Outlets located in Izumi Park Town, Japan. We hold a 40% ownership interest in Chelsea Japan. º •
º On August 25, 2008, Gallerie Commerciali Italia, or GCI, one of our European joint ventures in which we hold a 49% ownership interest, 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. We hold a 32.5% ownership interest in this center. 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% ownership interest in this center.

For the purposes of the following comparison between the nine months ended September 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.

Three Months Ended September 30, 2009 vs. Three Months Ended September 30, 2008

Minimum rents increased $2.2 million during the period. The property transactions accounted for a $6.9 million increase offset by a decrease in comparable minimum rents of $4.7 million, or 0.9%. The decrease in comparable minimum rents was primarily attributable to a $2.7 million decline in the fair market value of in-place lease amortization, a $2.9 million decrease in straight-line rents, and a $0.8 million decrease in base minimum rents, offset by a $1.7 million increase in comparable rents from carts, kiosks, and other temporary tenants.

Overage rents decreased $6.5 million, or 25%, as a result of a reduction in tenant sales for the period as compared to the prior year.

Tenant reimbursements increased $2.0 million, due to a $3.1 million increase attributable to the property transactions offset by a $1.1 million, or 0.4%, 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 $3.4 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 $5.0 million, and was principally the result of a $5.8 million net decrease in interest income, primarily attributable to lower reinvestment rates and the lower rate applicable to our loan facility with SPG-FCM (the joint venture that acquired Mills in 2007).

Property operating costs decreased $13.7 million, or 10.7%, primarily related to our cost control and cost reduction initiatives.

Depreciation and amortization expense increased $14.2 million due to the impact of our prior year openings and expansion activity and acceleration of depreciation for certain properties scheduled for redevelopment.

The provision for bad debts, net of recoveries, decreased $4.7 million primarily due to the recovery of receivables which had been previously reserved.

Home and regional office expense decreased $7.4 million primarily due to decreased personnel costs attributable to our cost control initiatives and lower incentive compensation levels.

Interest expense increased $17.9 million primarily related to the Operating Partnership's issuance of $500 million of unsecured notes on August 11, 2009, $600 million of senior unsecured notes on May 15, 2009 and $650 million of senior unsecured notes on March 25, 2009, offset by decreased interest expense on our Credit Facility due to the payoff of the US tranche.

Income from unconsolidated entities decreased $12.7 million primarily due to the gain recognized in 2008 from our disposition of an investment in a 50% owned multi-family residential facility adjacent to one of our regional mall operating properties.

Net income attributable to noncontrolling interests decreased $8.5 million primarily due to a decrease in the income of the Operating Partnership.

Preferred dividends decreased $4.7 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.

Nine Months Ended September 30, 2009 vs. Nine Months Ended September 30, 2008

Minimum rents increased $24.3 million during the period, of which the property transactions accounted for $22.5 million of the increase. Comparable minimum rents increased $1.8 million, or 0.1%. This was primarily due to a $11.5 million increase in minimum rents due to releasing of space, a $3.2 million increase in rents from carts, kiosks, and other temporary tenants, offset by a $12.9 million decrease in comparable property activity, primarily attributable to a decline in the fair market value of in-place lease amortization.

Overage rents decreased $15.0 million, or 25%, as a result of a reduction in tenant sales for the period as compared to the prior year.

Tenant reimbursements increased $8.2 million, due to a $9.2 million increase attributable to the property transactions offset by a $1.0 million decrease in the comparable properties as a result of a decrease in expenditures allocable to tenants paying common area maintenance on a proportionate basis.

Management fees and other revenues decreased $10.6 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 $13.7 million, and was the result of a $14.6 million net decrease in interest income primarily attributable to lower reinvestment rates and the lower rate applicable to our loan facility with SPG-FCM offset by an increase of net other activity of $0.9 million.

Property operating costs decreased $25.4 million, or 7.2%, primarily related to our cost control and cost reduction initiatives.

Depreciation and amortization expense increased $57.6 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 $13.3 million primarily due to our cost savings efforts.

Home and regional office expense decreased $29.0 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 charge of $140.5 million representing the other-than-temporary impairment in the fair value below the carrying value of our investment in Liberty. 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 an other-than-temporary impairment, which established a new cost basis of our investment in Liberty.

Interest expense increased $26.2 million primarily related to the Operating Partnership's issuance of $500 million of unsecured notes on August 11, 2009, $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 $2.6 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, offset by the gain recognized in 2008 from our disposition of an investment in a 50% owned multi-family residential facility adjacent to one of our regional mall operating properties.

Net income attributable to noncontrolling interests decreased $31.6 million primarily due to a decrease in the income of the Operating Partnership.

Preferred dividends decreased $14.4 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 9.7% 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 $1.5 billion during the first nine months 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 $3.0 billion during the first nine months of 2009 to $3.7 billion as of September 30, 2009. Our balance of cash and cash equivalents as of September 30, 2009, and December 31, 2008, includes $30.9 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 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, redevelopment capital, and to refinance maturing debt. The turmoil in the capital markets that began in 2008 and which now shows signs of abating had an impact on many businesses', including ours, ability to access debt and equity . . .