**UNITED STATES**

**SECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

**FORM 10-Q**

**QUARTERLYREPORT PURSUANT TO SECTION 13 OR 15 (d) OFTHE SECURITIES EXCHANGE ACT OF 1934**

For the quarterly periodended March 31, 2006

**SIMON PROPERTY GROUP, L.P.**

(Exact name of registrantas specified in its charter)

Delaware

(State of incorporation ororganization)

33-11491

(Commission File No.)

34-1755769

(I.R.S. EmployerIdentification No.)

National City Center

115 West Washington Street, Suite 15 East

Indianapolis, Indiana 46204

(Address of principalexecutive offices)

(317) 636-1600

(Registrant’s telephonenumber, including area code)

Indicate by check markwhether the Registrant (1) has filed all reports required to be filed by Section 13or 15(d) of the Securities Exchange Act of 1934 during the preceding 12months (or for such shorter period that the Registrant was required to filesuch reports), and (2) has been subject to such filing requirements forthe past 90 days. Yes   þ       No   o

Indicate by check markwhether the registrant is a large accelerated filer, an accelerated filer, or anon-accelerated filer:

| Large accelerated filer þ            Accelerated  filer o            Non-accelerated  filer o |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

 

Indicateby check mark whether Registrant is a shell company (as defined by Rule 12b-2of the Exchange Act). Yes   o       No   þ

 

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**Simon PropertyGroup, L.P. and Subsidiaries**

**Form 10-Q**

**INDEX**
|                                                   |     | **Page**                                                                                                                 |
|---------------------------------------------------|----------|--------------------------------------------------------------------------------------------------------------------------|
| **Part I — Financial Information** |     |                                                                                                                     |
|                                              | Item 1.  | Consolidated Financial  Statements (Unaudited)                                                                           |   |   |
|                                              |     | Consolidated Balance Sheets  as of March 31, 2006 and December 31, 2005                                        |   | 3 |
|                                              |     | Consolidated Statements of  Operations and Comprehensive Income for the three months ended March 31,  2006 and 2005 |   | 4 |
|                                              |     | Consolidated Statements of  Cash Flows for the three months ended March 31, 2006 and 2005                           |   | 5 |
|                                              |     | Condensed Notes to  Consolidated Financial Statements                                                                    |   | 6 |
|                                              | Item 2.  | Management’s Discussion and  Analysis of Financial Condition and Results of Operations                              |   | 15 |
|                                              | Item 3.  | Qualitative and Quantitative  Disclosure About Market Risk                                                               |   | 27 |
|                                              | Item 4.  | Controls and Procedures                                                                                                  |   | 27 |
| **Part II — Other Information**    |     |                                                                                                                     |
|                                              | Item 1.  | Legal Proceedings                                                                                                        |   | 27 |
|                                              | Item 1A. | Risk Factors                                                                                                             |   | 28 |
|                                              | Item 5.  | Other Information                                                                                                        |   | 28 |
|                                              | Item 6.  | Exhibits                                                                                                                 |   | 28 |
| **Signatures**                                    |     | 29                                                                                                                       |

 

2

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**SimonProperty Group, L.P. and Subsidiaries***Unaudited ConsolidatedBalance Sheets(Dollars in thousands, except unit amounts)*

| ** **                                                                                                                               | ** ** | **March 31,** | ** **     | **December 31,** | ** ** |
|------------------------------------------------------------------------------------------------------------------------------------------|------------|--------------------|----------------|-----------------------|------------|
| ** **                                                                                                                               | ** ** | **2006**           | ** **     | **2005**              | ** ** |
| **ASSETS:**                                                                                                                              |       |               |           |                  |       |   |   |
| Investment  properties, at cost                                                                                                          | ** ** | **$**              | **21,827,364** |                  |       | $ | 21,745,309 |   |   |
| Less — accumulated  depreciation                                                                                                    | ** ** | **3,978,222**      |           |                  | 3,809,293  |   |   |
| ** **                                                                                                                               | ** ** | **17,849,142**     |           |                  | 17,936,016 |   |   |
| Cash and cash  equivalents                                                                                                               | ** ** | **299,037**        |           |                  | 337,048    |   |   |
| Tenant receivables  and accrued revenue, net                                                                                             | ** ** | **323,107**        |           |                  | 357,079    |   |   |
| Investment in  unconsolidated entities, at equity                                                                                        | ** ** | **1,567,230**      |           |                  | 1,562,595  |   |   |
| Deferred costs and  other assets                                                                                                         | ** ** | **978,451**        |           |                  | 938,301    |   |   |
| **Total  assets**                                                                                                                        | ** ** | **$**              | **21,016,967** |                  |       | $ | 21,131,039 |   |   |
| **LIABILITIES:**                                                                                                                         |       |               |           |                  |       |   |   |
| Mortgages and  other indebtedness                                                                                                        | ** ** | **$**              | **14,139,261** |                  |       | $ | 14,106,117 |   |   |
| Accounts payable,  accrued expenses, intangibles, and deferred revenue                                                                   | ** ** | **1,013,283**      |           |                  | 1,092,334  |   |   |
| Cash distributions  and losses in partnerships and joint ventures, at equity                                                             | ** ** | **205,983**        |           |                  | 194,476    |   |   |
| Other liabilities,  minority interest, and accrued distributions                                                                         | ** ** | **157,926**        |           |                  | 163,524    |   |   |
| **Total  liabilities**                                                                                                                   | ** ** | **15,516,453**     |           |                  | 15,556,451 |   |   |
| COMMITMENTS AND  CONTINGENCIES                                                                                                           |       |               |           |                  |       |   |   |
| 7.75%/8.00%  Cumulative Redeemable Preferred Units, 850,698 units issued and outstanding,  respectively, at liquidation value            | ** ** | **85,070**         |           |                  | 85,070     |   |   |
| **PARTNERS’  EQUITY:**                                                                                                              |       |               |           |                  |       |   |   |
| Preferred units,  32,874,470 and 32,900,856 units outstanding, respectively. Liquidation values  $1,397,524 and $1,398,263, respectively | ** ** | **1,395,926**      |           |                  | 1,396,679  |   |   |
| General Partner,  220,863,356 and 220,361,581 units outstanding, respectively                                                            | ** ** | **3,164,957**      |           |                  | 3,227,274  |   |   |
| Limited Partners,  58,493,442 and 58,522,624 units outstanding, respectively                                                             | ** ** | **854,561**        |           |                  | 865,565    |   |   |
| **Total  partners’ equity**                                                                                                         | ** ** | **5,415,444**      |           |                  | 5,489,518  |   |   |
| **Total liabilities and partners’  equity**                                                                                         | ** ** | **$**              | **21,016,967** |                  |       | $ | 21,131,039 |   |   |

 

*The accompanying notes arean integral part of these statements.*

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**SimonProperty Group, L.P. and Subsidiaries***Unaudited ConsolidatedStatements of Operations and Comprehensive Income(Dollars in thousands, except per unit amounts)*

| ** **                                                                                                                        | ** ** | **For the Three Months  Ended March 31,** | ** **  |
|-----------------------------------------------------------------------------------------------------------------------------------|------------|--------------------------------------------------------------------|-------------|
| ** **                                                                                                                        | ** ** | **2006**                                                           | ** **  | **2005** | ** ** |
| **REVENUE:**                                                                                                                      | ** ** | ** **                                                         | ** **  | ** ** | ** ** |
| Minimum rent                                                                                                                      |       | **$**                                                              | **488,088** |   | $ | 463,151 |   |
| Overage rent                                                                                                                      |       | **16,059**                                                         |        | 13,345 |   |
| Tenant reimbursements                                                                                                             |       | **221,035**                                                        |        | 210,233 |   |
| Management fees and other revenues                                                                                                |       | **20,169**                                                         |        | 19,680 |   |
| Other income                                                                                                                      |       | **42,298**                                                         |        | 35,561 |   |
| **Total revenue**                                                                                                                 | ** ** | **787,649**                                                        |        | 741,970 |   |
| **EXPENSES:**                                                                                                                     | ** ** | ** **                                                         | ** **  | ** ** | ** ** |
| Property operating                                                                                                                |       | **105,947**                                                        |        | 100,375 |   |
| Depreciation and amortization                                                                                                     |       | **209,447**                                                        |        | 210,298 |   |
| Real estate taxes                                                                                                                 |       | **81,805**                                                         |        | 71,494 |   |
| Repairs and maintenance                                                                                                           |       | **25,955**                                                         |        | 27,984 |   |
| Advertising and promotion                                                                                                         |       | **17,402**                                                         |        | 18,121 |   |
| (Recovery  of) provision for credit losses                                                                                        |       | **(6**                                                             | **)**       | 2,300 |   |
| Home  and regional office costs                                                                                                   |       | **30,336**                                                         |        | 27,190 |   |
| General  and administrative                                                                                                       |       | **4,493**                                                          |        | 3,787 |   |
| Other                                                                                                                             |       | **13,066**                                                         |        | 10,826 |   |
| **Total operating expenses**                                                                                                      | ** ** | **488,445**                                                        |        | 472,375 |   |
| **OPERATING INCOME**                                                                                                              | ** ** | **299,204**                                                        |        | 269,595 |   |
| Interest  expense                                                                                                                 | ** ** | **204,072**                                                        |        | 195,204 |   |
| **Income before minority interest**                                                                                               | ** ** | **95,132**                                                         |        | 74,391 |   |
| Minority  interest                                                                                                                | ** ** | **(925**                                                           | **)**       | (3,307 | ) |
| Income  tax expense of taxable REIT subsidiaries                                                                                  | ** ** | **(1,639**                                                         | **)**       | (4,686 | ) |
| **Income before unconsolidated entities**                                                                                         | ** ** | **92,568**                                                         |        | 66,398 |   |
| Income  from unconsolidated entities                                                                                              | ** ** | **19,692**                                                         |        | 17,927 |   |
| Gain  on sales of interests in unconsolidated entities                                                                            | ** ** | **34,350**                                                         |        | 10,473 |   |
| Income  from beneficial interests, net                                                                                            | ** ** | **10,231**                                                         |        | — |   |
| **Income from continuing operations**                                                                                             | ** ** | **156,841**                                                        |        | 94,798 |   |
| Results  of operations from discontinued operations                                                                               | ** ** | **191**                                                            |        | 3,165 |   |
| (Loss)  gain on disposal or sale of discontinued operations, net                                                                  | ** ** | **(28**                                                            | **)**       | 88 |   |
| **NET INCOME**                                                                                                                    | ** ** | **157,004**                                                        |        | 98,051 |   |
| Preferred  unit requirement                                                                                                       | ** ** | **(25,399**                                                        | **)**       | (25,321 | ) |
| **NET INCOME AVAILABLE TO UNITHOLDERS**                                                                                           | ** ** | **$**                                                              | **131,605** |   | $ | 72,730 |   |
| **NET  INCOME AVAILABLE TO UNITHOLDERS ATTRIBUTABLE TO:**                                                                         | ** ** | ** **                                                         | ** **  | ** ** | ** ** |
| General  Partner                                                                                                                  |       | **$**                                                              | **104,017** | ** ** | $ | 57,067 |   |
| Limited  Partners                                                                                                                 |       | **27,588**                                                         | ** **  | 15,663 |   |
| **Net income**                                                                                                                    | ** ** | **$**                                                              | **131,605** | ** ** | $ | 72,730 |   |
| **BASIC  EARNINGS PER UNIT:**                                                                                                     | ** ** | ** **                                                         | ** **  | ** ** | ** ** |
| Income  from continuing operations                                                                                                |       | **$**                                                              | **0.47**    | ** ** | $ | 0.25 |   |
| Discontinued  operations                                                                                                          |       | **—**                                                         | ** **  | 0.01 |   |
| **Net income**                                                                                                                    | ** ** | **$**                                                              | **0.47**    | ** ** | $ | 0.26 |   |
| **DILUTED  EARNINGS PER UNIT:**                                                                                                   | ** ** | ** **                                                         | ** **  | ** ** | ** ** |
| Income  from continuing operations                                                                                                |       | **$**                                                              | **0.47**    | ** ** | $ | 0.25 |   |
| Discontinued  operations                                                                                                          |       | **—**                                                         | ** **  | 0.01 |   |
| **Net income**                                                                                                                    | ** ** | **$**                                                              | **0.47**    | ** ** | $ | 0.26 |   |
| **Net Income**                                                                                                                    | ** ** | **$**                                                              | **157,004** | ** ** | $ | 98,051 |   |
| Unrealized  gain on interest rate hedge agreements                                                                                |       | **3,316**                                                          |        | 602 |   |
| Net  income on derivative instruments reclassified from accumulated other  comprehensive income (loss) into interest expense |       | **301**                                                            |        | (612 | ) |
| Currency  translation adjustments                                                                                                 |       | **(2,296**                                                         | **)**       | (1,953 | ) |
| Other  loss                                                                                                                       |       | **(53**                                                            | **)**       | (471 | ) |
| **Comprehensive  Income**                                                                                                         | ** ** | **$**                                                              | **158,272** |   | $ | 95,617 |   |

 

*The accompanying notes arean integral part of these statements.*

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**SimonProperty Group, L.P. and Subsidiaries***Unaudited ConsolidatedStatements of Cash Flows(Dollars in thousands)*

| ** **                                                                                    | ** ** | **For the Three Months  Ended March 31,** | ** **  |
|-----------------------------------------------------------------------------------------------|------------|--------------------------------------------------------------------|-------------|
| ** **                                                                                    | ** ** | **2006**                                                           | ** **  | **2005** | ** ** |
| **CASH FLOWS FROM OPERATING ACTIVITIES:**                                                     | ** ** | ** **                                                         | ** **  | ** ** | ** ** |
| **Net  income**                                                                               | ** ** | **$**                                                              | **157,004** |   | $ | 98,051 |   |
| Adjustments to reconcile  net income to net cash provided by operating activities — |       |                                                               |        |   |   |
| Depreciation and  amortization                                                                |       | **199,747**                                                        | ** **  | 206,072 |   |
| Loss on sales of assets  and other, net                                                       |       | **(34,350**                                                        | **)**       | (10,473 | ) |
| Loss (gain) on disposal  or sale of discontinued operations, net                              |       | **28**                                                             |        | (88 | ) |
| Straight-line rent                                                                            |       | **(3,673**                                                         | **)**       | (4,164 | ) |
| Minority interest                                                                             |       | **925**                                                            |        | 3,307 |   |
| Minority interest  distributions                                                              |       | **(5,578**                                                         | **)**       | (7,195 | ) |
| Equity in income of  unconsolidated entities                                                  |       | **(19,692**                                                        | **)**       | (17,927 | ) |
| Distributions of income  from unconsolidated entities                                         |       | **19,131**                                                         |        | 22,515 |   |
| **Changes  in assets and liabilities —**                                            | ** ** | ** **                                                         | ** **  | ** ** | ** ** |
| Tenant receivables and  accrued revenue, net                                                  |       | **37,741**                                                         |        | 43,940 |   |
| Deferred costs and other  assets                                                              |       | **(55,339**                                                        | **)**       | (11,893 | ) |
| Accounts payable, accrued  expenses, intangibles, deferred revenues and other liabilities     |       | **(42,126**                                                        | **)**       | (213,627 | ) |
| **Net cash  provided by operating activities**                                                | ** ** | **253,818**                                                        |        | 108,518 |   |
| **CASH FLOWS FROM INVESTING ACTIVITIES:**                                                     | ** ** | ** **                                                         | ** **  | ** ** | ** ** |
| Capital expenditures, net                                                                     |       | **(136,293**                                                       | **)**       | (171,273 | ) |
| Cash impact from the  de-consolidation of a property                                          |       | **—**                                                         | ** **  | (8,951 | ) |
| Net proceeds from sale of  partnership interest, other assets and discontinued operations     |       | **53,864**                                                         | ** **  | 62,619 |   |
| Investments in  unconsolidated entities                                                       |       | **(79,554**                                                        | **)**       | (8,020 | ) |
| Distributions of capital  from unconsolidated entities and other                              |       | **71,647**                                                         |        | 45,410 |   |
| **Net cash  used in investing activities**                                                    | ** ** | **(90,336**                                                        | **)**       | (80,215 | ) |
| **CASH FLOWS FROM FINANCING ACTIVITIES:**                                                     | ** ** | ** **                                                         | ** **  | ** ** | ** ** |
| Partnership contributions  and issuance of units                                              |       | **1,891**                                                          |        | 2,217 |   |
| Purchase of preferred  units, partnership units, and treasury units                           |       | **(2,671**                                                         | **)**       | (125,613 | ) |
| Preferred Unit  redemptions                                                                   |       | **—**                                                         |        | (191 | ) |
| Partnership distributions                                                                     |       | **(237,356**                                                       | **)**       | (222,180 | ) |
| Mortgage and other  indebtedness proceeds, net of transaction costs                           |       | **1,262,180**                                                      |        | 926,767 |   |
| Mortgage and other  indebtedness principal payments                                           |       | **(1,225,537**                                                     | **)**       | (845,330 | ) |
| **Net cash  used in financing activities**                                                    | ** ** | **(201,493**                                                       | **)**       | (264,330 | ) |
| **DECREASE IN CASH AND CASH EQUIVALENTS**                                                     | ** ** | **(38,011**                                                        | **)**       | (236,027 | ) |
| **CASH AND CASH EQUIVALENTS, beginning of year**                                              | ** ** | **337,048**                                                        |        | 519,556 |   |
| **CASH AND CASH EQUIVALENTS, end of period**                                                  | ** ** | **$**                                                              | **299,037** |   | $ | 283,529 |   |

 

*Theaccompanying notes are an integral part of these statements.*

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**SimonProperty Group, L.P. and SubsidiariesCondensed Notes to Consolidated Financial Statements(Unaudited)**

**(Dollarsin thousands, except unit and per unit amounts and where indicated as inmillions or billions)**

**1.**                 Organization

Simon Property Group, L.P.(the “Operating Partnership”), a Delaware limited partnership, is a majorityowned subsidiary of Simon Property Group, Inc. (“Simon Property”), aDelaware corporation. Simon Property is a self-administered and self-managedreal estate investment trust (“REIT”) under the Internal Revenue Code of 1986,as amended (the “Code”). In these condensed notes to the unaudited consolidatedfinancial statements, the terms “we”, “us” and “our” refer to the OperatingPartnership and its subsidiaries. We areengaged primarily in the ownership, development, and management of retail realestate, primarily regional malls, Premium Outlet® centers andcommunity/lifestyle centers. As of March 31, 2006, we owned or held aninterest in 286 income-producing properties in the United States, whichconsisted of 171 regional malls, 71 community/lifestyle centers, 34 PremiumOutlet centers and 10 other shopping centers or outlet centers in 39 states andPuerto Rico (collectively, the “Properties”, and individually, a “Property”).We also own interests in ten parcels of land held in the United States forfuture development (together with the Properties, the “Portfolio”). Finally, wehave ownership interests in 51 European shopping centers (France, Italy, andPoland); five Premium Outlet centers in Japan; and one Premium Outlet center in Mexico.

**2.**                 Basis ofPresentation

The accompanying unaudited consolidated financialstatements of the Operating Partnership include the accounts of all majority-ownedsubsidiaries, and all significant inter-company amounts have beeneliminated. Due to the seasonal nature of certain operational activities,including overage rent revenues and property operating expenses, the resultsfor the interim period ended March 31, 2006 are not necessarily indicativeof the results that may be obtained for the full fiscal year.

These consolidated financial statements have beenprepared in accordance with the instructions to Form 10-Q andinclude all of the information and disclosures required by accountingprinciples generally accepted in the United States (GAAP) for interimreporting. Accordingly, they do not include all of the disclosures required byGAAP for complete financial statements. In the opinion of management, alladjustments necessary for fair presentation (including normal recurringaccruals) have been included. The consolidated financial statements in this Form 10-Qshould be read in conjunction with the audited consolidated financialstatements and related notes contained in our 2005 Annual Report on Form 10-K.

As of March 31, 2006, of our 343 properties weconsolidated 197 wholly-owned properties and 20 additionalproperties that are less than wholly-owned, which we control or for whichwe are the primary beneficiary. We account for the remaining 126 propertiesusing the equity method of accounting (joint venture properties). We manage theday-to-day operations of 59 of the 126 joint venture properties but havedetermined that our partner or partners have substantive participating rightsin regards to the assets and operations of these joint venture properties.

We allocate our net operating results after preferreddistributions based on our partners’ respective weighted average ownership. Inaddition, Simon Property owns certain of our preferred units. Simon Property’sweighted average ownership interest in the Operating Partnership was 79.0% and78.5% for the three months ended March 31, 2006 and 2005, respectively. Asof March 31, 2006 and December 31, 2005, Simon Property’s ownershipinterest us was 79.1% and 79.0%, respectively. We adjust the limited partners’interest at the end of each period to reflect changes in their respectiveownership interest in the Operating Partnership.

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We made certainreclassifications of prior period amounts in the financial statements toconform to the 2006 presentation. These reclassifications have no impact on netincome previously reported. Also, the statements of operations andcomprehensive income for the periods ended March 31, 2005 have beenreclassified to reflect significant dispositions of properties sold during2005.

**3.**                 SignificantAccounting Policies

***Cash and Cash Equivalents***

For the bank-issuedco-branded gift card programs that we administer, we collect funds at the pointof sale and then remit those funds to the banks for further processing. As aresult, cash and cash equivalents as of March 31, 2006 includes$52.0 million related to these gift card programs, which we do notconsider available for general working capital purposes.

***Accounting for Beneficial Interests in Mall of America***

As discussed in Note 8 tothese condensed notes to consolidated financial statements, a portion of thelitigation relating to Mall of America was resolved in January 2006, and as aresult, a partnership interest in Mall of America previously transferred to anaffiliate of Triple Five of Minnesota, Inc. was transferred to Mall ofAmerica Associates (“MOAA”), a general partnership in which members of theSimon family have a 50% ownership interest. Subsequent to that transfer, theSimon family entity assigned to us the right to receive cash flow, capitaldistributions, and related profits and losses with respect to the Simon family’sportion of that interest. As a result of this assignment, we recognized a $10.2million gain in the first quarter of 2006, including the proportionate share ofearnings of the partnership since August 2004 through the first quarter of2006. This gain has been reported as “income from beneficial interests, net” inour consolidated results of operations for the three months ended March 31,2006. We are accounting for our beneficial interests in this entity under theequity method of accounting.

**4.**                 PerUnit Data

Wedetermine basic earnings per unit of limited partnership interest based on theweighted average number of units outstanding during the period. We determinediluted earnings per unit based on the weighted average number of unitsoutstanding combined with the incremental weighted average units that wouldhave been outstanding assuming all dilutive potential common units wereconverted into units at the earliest date possible. The following table setsforth the computation of our basic and diluted earnings per unit.

| ** **                                                               | ** ** | **For the Three Months Ended  March 31,** | ** ** |
|--------------------------------------------------------------------------|------------|--------------------------------------------------------------------|------------|
| ** **                                                               | ** ** | **2006**                                                           | ** ** | **2005** | ** ** |
| **Income from continuing  operations, after preferred unit requirement** | ** ** | **  $       131,442** |       |   $         69,477 |   |
| Discontinued operations                                                  | ** ** | **163**                                                            |       | 3,253 |   |
| **Net  Income available to Unitholders - Basic & Diluted**      | ** ** | **  $       131,605** |       |   $         72,730 |   |
| Weighted Average Units  Outstanding - Basic                              | ** ** | **279,083,336**                                                    |       | 280,808,793 |   |
| Effect of stock options  of Simon Property                               | ** ** | **973,102**                                                        |       | 895,020 |   |
| **Weighted Average Units Outstanding - Diluted**                         | ** ** | **280,056,438**                                                    |       | 281,703,813 |   |

 

For the three monthsending March 31, 2006, potentially dilutive securities include the stockoptions of Simon Property and certain preferred units. The only potentiallydilutive security that had a dilutive effect for the three months ended March 31,2006, and 2005 were stock options of Simon Property. When stock options areexercised we issue an equal number of units to Simon Property. Units may beexchanged 

7

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forshares of Simon Property common stock, on a one-for one basis, in certaincircumstances. We accrue distributions when they are declared.

**5.**                 Investment inUnconsolidated Entities

**Real Estate JointVentures**

Joint ventures are common in the real estate industry.We use joint ventures to finance properties, develop new properties, anddiversify our risk in a particular property or portfolio. We held joint ventureownership interests in 69 Properties in the United States as of March 31,2006 and December 31, 2005. We also held interests in two joint ventureswhich owned 51 European shopping centers as of March 31, 2006 and December 31,2005. We also held an interest in five joint venture properties in Japan andone joint venture property in Mexico. We account for these Properties using theequity method of accounting

Substantially all of ourjoint venture Properties are subject to rights of first refusal, buy-sellprovisions, or other sale rights for partners which are customary in realestate joint venture agreements and the industry. Our partners in these jointventures may initiate these provisions at any time (subject to any applicablelock up or similar restrictions), which will result in either the sale of ourinterest or the use of available cash or borrowings to acquire the jointventure interest.

**International JointVenture Investments**

We conduct our international operations in Europethrough our two European joint venture investment entities; Simon IvanhoeB.V./S.à.r.l. (“Simon Ivanhoe”), formerly known as European Retail EnterprisesB.V./S.à.r.l (“ERE”), and Gallerie Commerciali Italia (“GCI”), The carryingamount of our total combined investment in these two joint venture investmentsis $333.6 million and $287.4 million as of March 31, 2006 and December 31,2005, respectively, net of the related cumulative translation adjustments. TheOperating Partnership has a 50% ownership in Simon Ivanhoe and a 49% ownershipin GCI as of March 31, 2006.

On October 20, 2005, Ivanhoe Cambridge, Inc. (“Ivanhoe”),an affiliate of Caisse de dépôt et placement du Québec, effectively acquiredour former partner’s 39.5% ownership interest in ERE. On February 13,2006, pursuant to the terms of our October 20, 2005 transaction withIvanhoe, we sold a 10.5% interest in this joint venture to Ivanhoe for €45.2 million,or $53.9 million, and recorded a gain on the disposition of $34.4 million.This gain is reported in “gain on sales of interests in unconsolidatedentities, net” in the consolidated statements of operations. We then settledall remaining share purchase commitments from the founders of ERE, includingthe early settlement of some commitments, by purchasing an additional 25.8%interest for €55.1 million,or $65.5 million. The result of these transactions equalized our andIvanhoe’s ownership in Simon Ivanhoe to 50% each.

We conduct our international Premium Outlet operationsin Japan through joint venture partnerships with Mitsubishi EstateCo., Ltd. and Sojitz Corporation (formerly known as Nissho IwaiCorporation). The carrying amount of our investment in these Japanese PremiumOutlet joint ventures is $285.0 million and $287.7 million as of March 31,2006 and December 31, 2005, respectively, net of the related cumulativetranslation adjustments. The Operating Partnership has a 40% ownership in theseJapanese Premium Outlet joint ventures.

8

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Summary financialinformation of the joint ventures and a summary of our investment in and shareof income from such joint ventures follow. We condensed into separate lineitems major captions of the statements of operations for joint ventureinterests sold or consolidated. Consolidation occurs when we acquire anadditional interest in the joint venture and, as a result, gain unilateralcontrol of the Property or are determined to be the primary beneficiary. Wereclassify these line items into “Discontinued Joint Venture Interests” and “ConsolidatedJoint Venture Interests” on the balance sheets and statements of operations, ifmaterial, so that we may present comparative results of operations for thosejoint venture interests held as of March 31, 2006.

| ** **                                                | ** ** | **March 31,**                                                       | ** ** | **December 31,**                                                | ** ** |
|-----------------------------------------------------------|------------|--------------------------------------------------------------------------|------------|----------------------------------------------------------------------|------------|
| ** **                                                | ** ** | **2006**                                                                 | ** ** | **2005**                                                             | ** ** |
| **BALANCE  SHEETS**                                       | ** ** |                                                                     |       |                                                                 |       |
| **Assets:**                                               |       |                                                                     |       |                                                                 |       |
| Investment properties, at cost                            | ** ** | **  $   10,065,405**                            |       |   $     9,915,521                 |       |
| Less - accumulated depreciation                           | ** ** | **2,036,103**                                                            |       | 1,951,749                                                            |       |
| ** **                                                | ** ** | **8,029,302**                                                            |       | 7,963,772                                                            |       |
| Cash and cash equivalents                                 | ** ** | **325,320**                                                              |       | 334,714                                                              |       |
| Tenant receivables                                        | ** ** | **200,569**                                                              |       | 207,153                                                              |       |
| Investment in unconsolidated entities                     | ** ** | **149,696**                                                              |       | 135,914                                                              |       |
| Deferred costs and other assets                           | ** ** | **327,057**                                                              |       | 304,825                                                              |       |
| Total assets                                              | ** ** | **  $     9,031,944**                 |       |   $     8,946,378                 |       |
| **Liabilities and Partners’ Equity:**                |       | ** **                                                               |       |                                                                 |       |
| Mortgages and other indebtedness                          | ** ** | **  $     7,699,129**                 |       |   $     7,479,359                 |       |
| Accounts payable, accrued expenses, and deferred  revenue | ** ** | **396,070**                                                              |       | 403,390                                                              |       |
| Other liabilities                                         | ** ** | **196,169**                                                              |       | 189,722                                                              |       |
| Total liabilities                                         | ** ** | **8,291,368**                                                            |       | 8,072,471                                                            |       |
| Preferred units                                           | ** ** | **67,450**                                                               |       | 67,450                                                               |       |
| Partners’ equity                                     | ** ** | **673,126**                                                              |       | 806,457                                                              |       |
| Total liabilities and partners’ equity               | ** ** | **  $     9,031,944**                 |       |   $     8,946,378                 |       |
| **Our Share of:**                                         |       | ** **                                                               |       |                                                                 |       |
| Total assets                                              | ** ** | **  $     3,885,827**                 |       |   $     3,765,258                 |       |
| Partners’ equity                                     | ** ** | **  $        442,292** |       |   $        429,942 |       |
| Add:   Excess Investment                        | ** ** | **918,955**                                                              |       | 938,177                                                              |       |
| Our net Investment in Joint Ventures                      | ** ** | **  $     1,361,247**                 |       |   $     1,368,119                 |       |
| Mortgages and  other indebtedness                         | ** ** | **  $     3,306,031**                 |       |   $     3,169,662                 |       |

 

9

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| ** **                                                       | ** ** | **For the Three Months Ended  March 31,** | ** ** |
|------------------------------------------------------------------|------------|--------------------------------------------------------------------|------------|
| ** **                                                       | ** ** | **2006**                                                           | ** ** | **2005** | ** ** |
| **STATEMENTS  OF OPERATIONS**                                    |       |                                                               |       |   |   |
| **Revenue:**                                                     |       |                                                               |       |   |   |
| Minimum rent                                                     | ** ** | **  $    264,761**                   |       |   $    251,914 |   |
| Overage rent                                                     | ** ** | **14,354**                                                         |       | 11,966 |   |
| Tenant reimbursements                                            | ** ** | **128,655**                                                        |       | 126,561 |   |
| Other income                                                     | ** ** | **32,754**                                                         |       | 24,449 |   |
| Total revenue                                                    | ** ** | **440,524**                                                        |       | 414,890 |   |
| **Operating Expenses:**                                          |       |                                                               |       |   |   |
| Property operating                                               | ** ** | **87,701**                                                         |       | 80,724 |   |
| Depreciation and amortization                                    | ** ** | **76,163**                                                         |       | 75,658 |   |
| Real estate taxes                                                | ** ** | **34,010**                                                         |       | 32,684 |   |
| Repairs and maintenance                                          | ** ** | **21,030**                                                         |       | 21,491 |   |
| Advertising and promotion                                        | ** ** | **7,142**                                                          |       | 7,701 |   |
| Provision for credit losses                                      | ** ** | **595**                                                            |       | 3,357 |   |
| Other                                                            | ** ** | **23,877**                                                         |       | 24,386 |   |
| Total operating expenses                                         | ** ** | **250,518**                                                        |       | 246,001 |   |
| **Operating Income**                                             | ** ** | **190,006**                                                        |       | 168,889 |   |
| Interest expense                                                 | ** ** | **107,934**                                                        |       | 96,805 |   |
| **Income Before Gain on Sale of Asset**                          | ** ** | **82,072**                                                         |       | 72,084 |   |
| Gain on sale of asset                                            | ** ** | **94**                                                             |       | - |   |
| **Income Before Unconsolidated Entities**                        | ** ** | **82,166**                                                         |       | 72,084 |   |
| Loss from unconsolidated entities                                | ** ** | **-**                                                              |       | (1,255 | ) |
| **Income from Continuing Operations**                            | ** ** | **82,166**                                                         |       | 70,829 |   |
| Income (loss) from discontinued joint venture  interests         | ** ** | **67**                                                             |       | (61 | ) |
| (Loss) gain on disposal or sale of discontinued  operations, net | ** ** | **(447**                                                           | **)**      | 98,393 |   |
| **Net Income**                                                   | ** ** | **  $      81,786**        |       |   $    169,161 |   |
| **Third-Party Investors’ Share of Net Income**              | ** ** | **  $      49,576**        |       |   $      91,762 |   |
| **Our Share of Net Income**                                      | ** ** | **32,210**                                                         |       | 77,399 |   |
| **Amortization of Excess Investment**                            | ** ** | **12,518**                                                         |       | 10,276 |   |
| **Write-off of Investment Related to Properties  Sold**          | ** ** | **-**                                                              |       | 38,723 |   |
| **Our Share of Net Gain Related to Properties Sold**             | ** ** | **-**                                                              |       | 10,473 |   |
| **Income  from Unconsolidated Entities**                         | ** ** | **  $      19,692**        | ** ** | **  $      17,927** | ** ** |

 

On January 11, 2005, Metrocenter, a joint ventureregional mall property was sold. We recognized our share of the gain of $11.8million, net of the write-off of the related investment and received$62.6 million representing our share of the proceeds from this disposition.

“Excess Investment” represents the unamortizeddifference of our investment over our share of the equity in the underlying netassets of the joint ventures acquired. We amortize excess investment over thelife of the related Properties, typically no greater than 40 years, andthe amortization is included in the reported amount of income fromunconsolidated entities.

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**6.**   Debt

**Unsecured Debt**

On March 31, 2006, Standard & Poor’sRating Services raised its corporate credit rating for us to ‘A-’from ‘BBB+’ which resulted in a decrease in the interest rate applicable toborrowings on our unsecured revolving $3 billion credit facility (the “CreditFacility”) to 37.5 basis points over LIBOR from 42.5 basis points over LIBOR. Therevision to our rating also decreased the facility fee on the Credit Facilityto 12.5 basis points from 15 basis points.

On May 9, 2006, the Operating Partnership enteredinto an underwriting agreement with respect to the issuance of two new tranchesof senior unsecured notes totaling $800 million at a weighted average fixedinterest rate of 5.925%. The first tranche of $400 million is at a fixedinterest rate of 5.75% due May 1, 2012 (6 year notes), and the secondtranche of $400 million is at a fixed interest rate of 6.10% due May 1,2016 (10 year notes). The Operating Partnership expects to receive net proceedsof approximately $794 million from the issuance of these notes and will use theproceeds to reduce borrowings on the Credit Facility. Prior to the issuance ofthese notes, the Operating Partnership entered into forward-starting swaparrangements on $500 million of these borrowings as of an earlier date, therebyreducing the effective weighted average borrowing rate on the 6 year notes and10 year notes to 5.71% and 5.91%, respectively.

***Credit Facility.******  ***Significantactivity on the Credit Facility during the three-month period ended March 31,2006 was as follows:

| ***Draw  Date*** | *** *** | ***Draw  Amount*** | *** *** | ***Use of Credit Line Proceeds***                                                                                     | *** ***                                                               |
|------------------|--------------|--------------------|--------------|-------------------------------------------------------------------------------------------------------------------------------------------|----------------------------------------------------------------------------|
| 01/03/06         |         | $                  | 59,075       |                                                                                                                                      | Repayment  of a Term Loan (CPG Partners, L.P.), which had a rate of 7.26%. |   |
| 01/06/06         |         | 140,000            |         | Repayment  of a mortgage, which had a rate of LIBOR plus 138 basis points.                                                                |                                                                       |
| 01/20/06         |         | 300,000            |         | Repayment  of unsecured notes, which had a fixed rate of 7.375%.                                                                          |                                                                       |
| 03/27/06         |         | 600,000            |         | Early repayment of the $1.8 billion facility we used  to finance our acquisition of  Chelsea Property Group, Inc. (Chelsea) in 2004. |                                                                       |
|                  |              |                    |              |                                                                                                                                           |                                                                            |  |

                                                                                                                                                

Other amounts drawn on the Credit Facility wereprimarily for general working capital purposes. The total aggregate amount ofour repayments on the Credit Facility during the three month period ended March 31,2006 was $110.0 million. The total outstanding balance on the CreditFacility as of March 31, 2006, and the maximum amount outstanding duringthe quarter, was approximately $2.0 billion. During the first three monthsof 2006, the weighted average outstanding balance on the Credit Facility wasapproximately $1.3 billion.

***Acquisition Facility.******  ***Weborrowed $1.8 billion in 2004 to finance the cash portion of ouracquisition of Chelsea. On March 27, 2006, we made the final principalpayment due on this facility. The facility bore interest at LIBOR plus 55 basispoints with an additional 15 basis point facility fee on all loans outstandingand provided for variable grid pricing based upon our credit rating.

**Secured Debt**

Total secured indebtednesswas $4.4 billion and $4.6 billion at March 31, 2006 and December 31,2005, respectively. During the three-month period ended March 31, 2006, werepaid $140.0 million in mortgage loans, unencumbering one property.

**7.**   Partners’ Equity

Under The Simon Property Group 1998 Stock IncentivePlan, on February 21, 2006, Simon Property Group’s Compensation Committeeof the Board of Directors awarded 426,750 shares of Simon Property at afair value of $83.48 per share. The fair market value of the restricted stockawarded has been deferred and is being amortized over a four-year vestingperiod. The issuance of these 2006 restricted stock awards 

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utilized existing sharesheld by Simon Property as treasury shares.  As a result, we issued a like number of unitsto Simon Property in accordance with our partnership agreement.

During the first three months of 2006, four limitedpartners exchanged 16,800 units for a like number of shares of commonstock of Simon Property, increasing Simon Property’s interest in us.

On May 11, 2005, Simon Property’s Board ofDirectors authorized a common stock repurchase program under which SimonProperty may purchase up to 6,000,000 shares of its common stock subjectto a maximum aggregate purchase price of $250 million over the next twelvemonths as market conditions warrant. Simon Property may repurchase the sharesin the open market or in privately negotiated transactions. As shares arerepurchased, the number of outstanding units is reduced on an equivalent basis.The program has 5,184,600 shares, limited to $191.4 million, remaining forrepurchase. There were no purchases under this program during the first quarterof 2006.

Holders of  our Series I6% Convertible Perpetual Preferred Units (“Series I Preferred Units”) andSimon Property’s Series I 6% Convertible Perpetual Preferred Stock (“Series IPreferred Stock”) have the right to convert their securities during the quarterbeginning on April 3, 2006 and ending on June 30, 2006. The Series IPreferred Units are convertible into units in the Operating Partnership and theSeries I Preferred Stock are convertible into shares of Simon Propertycommon stock. The conversion right is the result of the closing sale price ofSimon Property’s common stock exceeding the trigger price of $79.59 for aperiod of 20 consecutive trading days in the last 30 trading days of thequarter. At the current conversion price, each Series I Preferred Unit isconvertible into .7853 of a unit and each share of Series I Preferred Stockis convertible into 0.7853 of a share of common stock. If holders of a Series IPreferred Unit converts into units, then the holder may also elect to convertthose units into common stock on a one-for-one basis in accordance with ourpartnership agreement. To the extent holders of Series I Preferred Stockconvert their shares into common stock, Simon Property would convert a likenumber of its Series I Preferred Units into units.

Preferred units whoseredemption is outside of our control have been classified as temporary equityin the accompanying balance sheets.

**8.**   Commitments and Contingencies

**Litigation**

Except as described in the following paragraph, therehave not been any material developments in the legal proceedings we describedin our Annual Report on From 10-K for the year ended December 31, 2005.

As previously disclosed in our 2005 Annual Report on Form 10-K,we are a defendant in a suit filed on November 9, 1999 in the DistrictCourt for the State of Minnesota, Fourth Judicial District (*Triple Five of Minnesota, Inc., a Minnesota corporation, v. MelvinSimon, et al*.). In January 2006,**and as morefully described in our 2005 Annual Report on Form 10-K, we resolveda portion of the litigation between Triple Five of Minnesota, Inc. (“TripleFive”) and, among others, the Mall of America, certain members of the Simonfamily and entities allegedly controlled by such individuals, and us. In April 2005,the federal Appellate Court modified the remedy in the Mall of America case,requiring that the transfer of a partnership interest originally purchased fromTeachers’ Insurance and Annuity of America in 1999 and transferred to TripleFive in August, 2004, should have been transferred to Mall of AmericaAssociates (“MOAA”), a partnership in which members of the Simon family have aninterest. In January, 2006, the transfer of this interest from Triple Five toMOAA was completed. The result on our consolidated financial statements isdiscussed in Note 3 to these condensed notes to consolidated financial statements.This transfer resolved a portion of the Mall of America litigation. It is notpossible to provide any assurance as to the outcome of the remaining litigationrelated to the Mall of America.

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

**Guarantees ofIndebtedness**

Joint venture debt is theliability of the joint venture, and is typically secured by the joint ventureProperty, which is non-recourse to us. As of March 31, 2006, we have loanguarantees and other guarantee obligations of $33.0 million and $45.6million, respectively, to support our total $3.3 billion share of joint venturemortgage and other indebtedness in the event that the joint venture partnershipdefaults under the terms of the underlying arrangement. Mortgages which areguaranteed by us are secured by the property of the joint venture partnershipand could be sold in order to satisfy the outstanding obligation.

**9.**   Real Estate Acquisitions andDispositions

We had no propertyacquisitions or dispositions during the three months ended March 31, 2006.

**10.**   Recent Financial Accounting Standards

In June 2005, the Financial Accounting StandardsBoard (“FASB”) ratified its consensus in EITF Issue 04-05, “DeterminingWhether a General Partner, or the General Partners as a Group, Controls aLimited Partnership or Similar Entity When the Limited Partners Have CertainRights” (Issue 04-05). The effective date for Issue 04-05is June 29, 2005 for all new or modified partnerships and January 1,2006 for all other partnerships for the applicable provisions. The adoption ofthe provisions of EITF 04-05 did not have a material impact on ourfinancial position or results of operations.

In December 2004, the FASB issued SFAS No. 153,“Exchanges of Nonmonetary Assets – an amendment of Accounting Principles Board(“APB”) Opinion No. 29.” This Statement requires exchanges of productiveassets to be accounted for at fair value, rather than at carryover basis,unless: (a) neither the asset received nor the asset surrendered has afair value that is determinable within reasonable limits; or (b) thetransactions lack commercial substance. SFAS No. 153 is effective fornonmonetary asset exchanges occurring in fiscal periods beginning after June 15,2005. The adoption of this Statement did not have a material impact on ourfinancial position or results of operations.

In November 2005, the FASB issued FASB StaffPosition (“FSP”) No. SFAS 115-1 and SFAS 124-1, “The Meaningof Other-Than-Temporary Impairment and Its Application to Certain Investments.”This FSP amends SFAS No. 115, “Accounting for Certain Investments in Debtand Equity Securities,” and SFAS No. 124, “Accounting for CertainInvestments Held by Not-for-Profit Organizations,” and APB Opinion No. 18,“The Equity Method of Accounting for Investments in Common Stock.” This FSPprovides guidance on the determination of when an investment is consideredimpaired, whether that impairment is other-than-temporary and the measurementof an impairment loss. This FSP also requires disclosure about unrealizedlosses that have not been recognized as other-than-temporary impairments. Theguidance in this FSP is effective in reporting periods beginning after December 15,2005. The adoption of this FSP did not have a material impact on our financialposition or results of operations.

In May 2005, the FASB issued SFAS No. 154, “AccountingChanges and Error Corrections.” SFAS No. 154 is a replacement of APB OpinionNo. 20, “Accounting Changes” and SFAS No. 3, “Reporting AccountingChanges in Interim Financial Statements.” This Statement requires voluntarychanges in accounting to be accounted for retrospectively and all prior periodsto be restated as if the newly adopted policy had always been used, unless itis impracticable. APB Opinion No. 20 previously required most voluntarychanges in accounting to be recognized by including the cumulative effect ofthe change in accounting in net income in the period of change. This Statementalso requires a change in method of depreciation, amortization or depletion fora long-lived asset be accounted for as a change in estimate that 

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is affected by a change inaccounting principle. SFAS No. 154 is effective for fiscal years beginningafter December 15, 2005. The adoption of this Statement did not have amaterial impact on our financial position or results of operations.

In December 2004, the FASB issued SFAS No. 123(R),“Share-Based Payment,” which revises SFAS No. 123, “Accounting forStock-Based Compensation.” SFAS No. 123(R) supersedes APB Opinion No. 25,“Accounting for Stock Issued to Employees,” and amends SFAS No. 95, “Statementof Cash Flows.” This Statement requires that a public entity measure the costof equity-based service awards based on the grant date fair value of the award.All share-based payments to employees, including grants of employee stockoptions, are required to be recognized in the income statement based on theirfair value. SFAS No. 123(R) is effective as of the beginning of thefirst annual reporting period after June 15, 2005. Other than thereclassification of the unamortized portion of our restricted stock awards tocapital in excess of par in the consolidated balance sheets, the adoption ofthis Statement did not have a material impact on our financial position orresults of operations. This is as a resultof our changing our method of accounting for stock-based compensation during2002 whereby we began expensing the vested portion of the award to therecipients in the consolidated statements of operations.

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**Item 2.   Management’sDiscussion and Analysis of Financial Condition and Results of Operations**

You should read thefollowing discussion in conjunction with the financial statements and notesthereto that are included in this report. Certain statements made in thissection or elsewhere in this report may be deemed “forward-lookingstatements” within the meaning of the Private Securities Litigation Reform Actof 1995. Although we believe the expectations reflected in any forward-lookingstatements are based on reasonable assumptions, we can give no assurance thatour expectations will be attained, and it is possible that our actual resultsmay differ materially from those indicated by these forward-lookingstatements due to a variety of risks and uncertainties. Those risks anduncertainties include, but are not limited to: international, national,regional and local economic climates, competitive market forces, changes inmarket rental rates, trends in the retail industry, the inability to collectrent due to the bankruptcy or insolvency of tenants or otherwise, risksassociated with acquisitions, the impact of terrorist activities, environmentalliabilities, pending litigation, maintenance of REIT status, changes inapplicable laws, rules and regulations, changes in market rates ofinterest and exchange rates for foreign currencies. We discussed some importantrisks and uncertainties under the heading “Risk Factors” in our most recentAnnual Report on Form 10-K that we believe could cause our actualresults to differ materially from the forward-looking statements that we make. Wemay update that discussion in this or subsequent quarterly reports, butotherwise we undertake no duty or obligation to update or revise these forward-lookingstatements, whether as a result of new information, future developments, orotherwise.

**Overview**

Simon Property Group, L.P.(the “Operating Partnership”), a Delaware limited partnership, is a majorityowned subsidiary of Simon Property Group, Inc. (“Simon Property”). SimonProperty is our general partner and a self-administered and self-managed realestate investment trust (“REIT”) under the Internal Revenue Code of 1986, asamended (the “Code”). In this discussion, the terms “we”, “us” and “our” referto the Operating Partnership and its subsidiaries. We are engaged in the ownership, development, and management of retailreal estate properties, primarily regional malls, Premium Outlet® centers andcommunity/lifestyle centers. As of March 31, 2006, we owned or held aninterest in 286 income-producing properties in the United States,which consisted of 171 regional malls, 71 community/lifestyle centers, 34Premium Outlet centers and 10 other shopping centers or outlet centers in 39 statesplus Puerto Rico (collectively, the “Properties”, and individually, a “Property”).We also own interests in ten parcels of land held in the United States forfuture development (together with the Properties, the “Portfolio”). Finally, wehave ownership interests in 51 European shopping centers (France, Italy, andPoland); five Premium Outlet centers in Japan; and one Premium Outlet center inMexico.

***Operating Fundamentals***

We generate themajority of revenues from leases with retail tenants including:

·                    Baseminimum rents and cart and kiosk rentals,

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

·                    Recoveriesof a significant amount of our recoverable expenditures, which consist ofproperty operating, real estate tax, repairs and maintenance, and advertisingand promotional expenditures.

Revenues of our management company, after intercompanyeliminations, consist primarily of management fees that are typically basedupon the revenues of the property being managed.

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We seek growth inour earnings, and cash flows by enhancing the profitability and operation ofour regional malls, Premium Outlet centers, community/lifestyle centers, andinternational investments. We seek to accomplish this growth through thefollowing:

·                    Focusingon leasing to increase revenues and utilization of economies of scale to reduceoperating expenses,

·                    Expandingand re-tenanting existing franchise locations at competitive market rates,

·                    Addingmixed-use elements to our Portfolio through our land intensificationinitiatives. This may include adding elements such as multifamily,condominiums, hotel and self-storage at selected locations, and

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

·                    SimonBrand Ventures (“Simon Brand”) mall marketing initiatives, including feesderived from the issuance of bank-issued co-branded gift cards. Simon Brandrevenues also include payment services, national media contracts, a nationalbeverage contract and other contracts with national companies.

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

We strive to develop high quality real estate acrossthe retail real estate spectrum. We pursue strategic expansion and renovationactivity to enhance existing assets’ profitability and market share when webelieve the investment of our capital meets our risk-reward criteria. Weselectively develop new properties in major metropolitan areas that exhibitstrong population and economic growth.

We also seek to acquire high quality retail realestate within each of our three domestic platforms. As part of our acquisitionstrategy, we review and evaluate a number of acquisition opportunities based ontheir complement to our Portfolio.

Lastly, we are selectively expanding our internationalpresence. Our strategy to investing internationally includes partnering withestablished real estate companies and financing international investments withlocal currency to minimize foreign exchange risk.

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

·                    Providethe capital necessary to fund growth.

·                    Maintainsufficient flexibility to access capital in many forms, both public andprivate.

·                    Manage ouroverall financial structure in a fashion that preserves our investment graderatings.

***Results Overview***

Diluted earnings per common unit increased $0.21during the first three months of 2006, or 80.8%, to $0.47 from $0.26 for thesame period last year. This increase included a $34.4 million gain (or $0.16per diluted unit) from the sale of partnership interests in one of our Europeanjoint ventures to our new partner, IvanhoeCambridge, Inc. (“Ivanhoe”), an affiliate of Caisse de dépôt et placementdu Québec. Also in the first quarter of 2006, we recognized a $10.2million gain (or $0.05 per diluted unit) related to beneficial interests thatwere contributed to us, representing the right to receive cash flow, capitaldistributions, and related profits and losses of Mall of America Associates (“MOAA”).This represents our share of the net operating results of the partnership thatowns the Mall of America (“MOAP”) for the period of August 2004 through March 31,2006. We received these beneficial interests as a result of resolving certainlitigation matters in January, 2006, more fully described in the condensednotes to consolidated financial statements as of and for the three months endedMarch 31, 2006 in this Form 10-Q and in our 2005 Annual Reporton Form 10-K.

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Our core business fundamentals remained strong duringthe first three months of 2006. Regional mall comparable sales per square foot(“psf”) strengthened during the first three months of 2006, increasing 6.0% to$461 psf from $435 psf for the same period in 2005 reflecting robust retail demand and thedisposition of non-core properties. Our regional mall average base rentsincreased 2.7% to $34.83 psf as of March 31, 2006 from$33.90 psf as of March 31, 2005. In addition, we maintained strong regional mall leasing spreadsof $10.66 psf as of March 31, 2006 compared to $8.88 psf as of March 31,2005. Finally, regional mall occupancy increased by ten basis points to 91.6%as of March 31, 2006 from 91.5% as of March 31, 2005. Fundamentals ofthe Premium Outlet centers and community/lifestyle centers were also positivecontributors to the increase in operating results for the quarter as seen inthe following section entitled Portfolio Data.

Regarding financingactivities, despite significantly increasing rate environments resulting anapproximate 196 basis point increase in LIBOR (4.83% at March 31, 2006versus 2.87% at March 31, 2005), our effective overall borrowing rate forthe three months ended March 31, 2006 increased only 32 basis points ascompared to the three months ended March 31, 2005. Further, from December 31,2005 to March 31, 2006, our effective overall borrowing rate decreased sixbasis points due to repayment of higher rate debt. Our financing activities forthe quarter were highlighted by the following:

·                    Werepaid $300 million in unsecured notes that bore interest at 7.38%, and a $59.1million term loan that bore interest at 7.26%.

·                    Wepaid off one mortgage totaling $140.0 million that bore interest at LIBOR plus138 basis points.

·                    Werepaid the final $600 million payment on the facility we used to fund the cashportion of our 2004 acquisition of Chelsea Property Group, Inc.

·                    Borrowingson the Credit facility increased to approximately $2.0 billion during the threemonths ended March 31, 2006, principally as a result of the aboverepayments.

·                    On March 31,2006, Standard & Poor’s Rating Services raised its corporate creditrating for us to ‘A-’ from ‘BBB+’ which resulted in a decrease in the interestrate applicable to borrowings on our unsecured revolving $3 billion creditfacility (the “Credit Facility”) to 37.5 basis points over LIBOR from 42.5basis points over LIBOR. The revision to our rating also decreased the facilityfee on the Credit Facility to 12.5 basis points from 15 basis points.

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***Portfolio Data***

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

·                    Propertiesthat we consolidate in our consolidated financial statements,

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

·                    theforegoing two categories of Properties on a total Portfolio basis.

| ** **                               | ** ** | **March 31,  2006** | ** ** | **%/basis  point  Change(1)** | ** **   | **March 31,  2005** | ** ** | **%/basis  point  Change(1)** | ** ** |
|------------------------------------------|------------|--------------------------|------------|-------------------------------|--------------|--------------------------|------------|-------------------------------|------------|
| **Regional  Malls:**                     |       |                     |       |                          |         | ** **               |       |                          |       |   |   |
| ***Occupancy***                          | ** ** | ** **               | ** ** | ** **                    |         | ** **               |       |                          |       |   |   |
| Consolidated                             | ** ** | ** **               | **91.6%**  | ** **                    | **+30 bps**  | ** **               |       | 91.3%                         |       | +70  bps |   |
| Unconsolidated                           | ** ** | ** **               | **91.7%**  | ** **                    | **-10 bps**  | ** **               |       | 91.8%                         |       | — |   |
| **Total  Portfolio**                     | ** ** | ** **               | **91.6%**  | ** **                    | **+10 bps**  | ** **               |       | 91.5%                         |       | +40  bps |   |
| ***Average  Base Rent per Square Foot*** | ** ** | ** **               | ** ** | ** **                    | ** **   | ** **               |       |                          |       |   |   |
| Consolidated                             | ** ** | ** **               | **$34.44** | ** **                    | **3.6%**     | ** **               |       | $33.24                        |       | 4.5% |   |
| Unconsolidated                           | ** ** | ** **               | **$35.53** | ** **                    | **1.1%**     | ** **               |       | $35.13                        |       | 2.7% |   |
| **Total  Portfolio**                     | ** ** | ** **               | **$34.83** | ** **                    | **2.7%**     | ** **               |       | $33.90                        |       | 3.5% |   |
| ***Comparable  Sales Per Square Foot***  | ** ** | ** **               | ** ** | ** **                    | ** **   | ** **               |       |                          |       |   |   |
| Consolidated                             | ** ** | ** **               | **$448**   | ** **                    | **6.7%**     | ** **               |       | $420                          |       | 6.9% |   |
| Unconsolidated                           | ** ** | ** **               | **$487**   | ** **                    | **5.0%**     | ** **               |       | $464                          |       | 6.2% |   |
| **Total  Portfolio**                     | ** ** | ** **               | **$461**   | ** **                    | **5.5%**     | ** **               |       | $437                          |       | 6.3% |   |
| **Premium Outlet Centers:**              | ** ** | ** **               | ** ** | ** **                    | ** **   | ** **               |       |                          |       |   |   |
| Occupancy                                | ** ** | ** **               | **99.3%**  | ** **                    | **+30 bps**  | ** **               |       | 99.0%                         |       | — |   |
| Average Base Rent  per Square Foot       | ** ** | ** **               | **$23.85** | ** **                    | **3.9%**     | ** **               |       | $22.95                        |       | — |   |
| Comparable Sales  Per Square Foot        | ** ** | ** **               | **$444**   | ** **                    | **5.0%**     | ** **               |       | $423                          |       | — |   |
| **Community/Lifestyle Centers:**         | ** ** | ** **               | ** ** | ** **                    | ** **   | ** **               |       |                          |       |   |   |
| ***Occupancy***                          | ** ** | ** **               | ** ** | ** **                    | ** **   | ** **               |       |                          |       |   |   |
| Consolidated                             | ** ** | ** **               | **87.6%**  | ** **                    | **-210 bps** | ** **               |       | 89.7%                         |       | +700  bps |   |
| Unconsolidated                           | ** ** | ** **               | **96.0%**  | ** **                    | **+20 bps**  | ** **               |       | 95.8%                         |       | +80  bps |   |
| **Total  Portfolio**                     | ** ** | ** **               | **90.3%**  | ** **                    | **-130 bps** | ** **               |       | 91.6%                         |       | +160  bps |   |
| ***Average  Base Rent per Square Foot*** | ** ** | ** **               | ** ** | ** **                    | ** **   | ** **               |       |                          |       |   |   |
| Consolidated                             | ** ** | ** **               | **$11.77** | ** **                    | **2.2%**     | ** **               |       | $11.51                        |       | 4.6% |   |
| Unconsolidated                           | ** ** | ** **               | **$10.89** | ** **                    | **3.5%**     | ** **               |       | $10.52                        |       | 2.6% |   |
| **Total  Portfolio**                     | ** ** | ** **               | **$11.47** | ** **                    | **2.7%**     | ** **               |       | $11.17                        |       | 3.9% |   |
| ***Comparable  Sales Per Square Foot***  | ** ** | ** **               | ** ** | ** **                    | ** **   | ** **               |       |                          |       |   |   |
| Consolidated                             | ** ** | ** **               | **$224**   | ** **                    | **1.8%**     | ** **               |       | $220                          |       | 0.9% |   |
| Unconsolidated                           | ** ** | ** **               | **$200**   | ** **                    | **(1.0%)**   | ** **               |       | $202                          |       | (1.9%) |   |
| **Total Portfolio**                      | ** ** | ** **               | **$216**   | ** **                    | **0.5%**     | ** **               |       | $215                          |       | 0.9% |   |

----

(1)                       Percentagesmay not recalculate due to rounding.

***Occupancy Levelsand Average Base Rent Per Square Foot.******  ***Occupancy and average baserent are based on mall and freestanding Gross Leaseable Area (“GLA”) owned byus (“Owned GLA”) in the regional malls, all tenants at the Premium Outletcenters, and all tenants at community/lifestyle centers. We believe 

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the continued growth inregional mall occupancy is primarily the result of the overall quality of ourPortfolio. The result of the growth in occupancy is an increase in nearly everycategory of revenue. Our Portfolio has maintained stable occupancy andincreased average base rents despite the uncertain economic climate.

***Comparable Sales Per Square Foot.******  ***Comparable sales includetotal reported retail tenant sales at Owned GLA (for mall and freestandingstores with less than 10,000 square feet) in the regional malls and allreporting tenants at the Premium Outlet centers and community/lifestyle centers.Retail sales at Owned GLA affect revenue and profitability levels because salesdetermine the amount of minimum rent that can be charged, the percentage rentrealized, and the recoverable expenses (common area maintenance, real estatetaxes, etc.) that tenants can afford to pay.

***International Property Data***

Thefollowing key operating statistics are provided for our internationalproperties, which are accounted for using the equity method of accounting. Discussionregarding our results of operations for our investment in unconsolidatedentities is included in our year-over-year comparisons which follow.

| ** **                                  | ** ** | **March 31,  2006** | ** ** | **%/basis  points  Change** | ** ** | **March 31,  2005** | ** ** | **%/basis**pointChange | ** ** |
|---------------------------------------------|------------|---------------------|------------|-----------------------------|------------|--------------------------|------------|------------------------|------------|
| **European  Shopping Centers**:             |       | ** **          |       |                        |       |                     |       |                   |       |
| Occupancy                                   | ** ** | **97.2%**           | ** ** | **+20 bps**                 |       | 97.0%                    |       | -220 bps               |       |
| Comparable sales  per square foot           | ** ** | **€379**       | ** ** | **-0.8%**                   |       | €382                |       | —                 |       |
| Average base rent  per square foot (2) | ** ** | **€26.52**     | ** ** | **4.9%**                    |       | €25.27              |       | 1.4%                   |       |
| **International Premium Outlets (1)**       | ** ** | ** **          | ** ** | ** **                  |       |                     |       |                   |       |
| Occupancy                                   | ** ** | **100%**            | ** ** | **0 bps**                   |       | 100%                     |       | —                 |       |
| Comparable sales  per square foot           | ** ** | **¥87,994**    | ** ** | **2.0%**                    |       | ¥86,250             |       | —                 |       |
| Average base rent  per square foot (2) | ** ** | **¥4,634**     | ** ** | **3.1%**                    |       | ¥4,447              |       | —                 |       |

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(1)          Doesnot include our center in Mexico (Premium Outlets Punta Norte), which opened December 2004.

(2)          Amountsrecorded for our international investment entities transactions utilizeconversion factors, as appropriate, of:   USD:Euro of 0.832 and 0.762, andUSD:Yen of 116.90 and 104.55, both for 2006 and 2005, respectively.

**Results ofOperations**

In addition to theactivity discussed in the Results Overview, the following acquisitions,dispositions, and openings affected our consolidated results from continuingoperations in the comparative periods:

·                    OnDecember 28, 2005, the deed for Biltmore Square was surrendered to thebank in full consideration of the $26 million mortgage on the property,which bore interest at a fixed rate of 7.95%, and had an anticipated maturitydate of December 11, 2010.

·                    OnNovember 17, 2005, we sold our interest in Cheltenham Square for$71.5 million and recognized a gain on its disposition of$19.7 million.

·                    InNovember 2005, we opened Rockaway Plaza, a 450,000 square foot communitycenter located in Rockaway, New Jersey, adjacent to our Rockaway Townsquare.

·                    OnOctober 7, 2005, we opened Firewheel Town Center, a 785,000 square footopen-air regional mall located 15 miles northeast of downtown Dallas inGarland, Texas

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·                    OnJuly 15, 2005, we opened Wolf Ranch, a 600,000 square foot open-aircommunity center located in Georgetown, Texas.

·                    OnJune 1, 2005, we sold the Riverway and O’Hare International Center officebuilding complexes, in Rosemont, Illinois for $257.3 million andrecognized a gain on their disposition of $125.1 million

·                    OnMay 6, 2005, we opened Seattle Premium Outlets.

·                    OnMarch 15, 2005, we and our joint venture partner completed theconstruction of, obtained permanent financing for, and opened St. Johns TownCenter (St. Johns), a 1.5 million square foot open-air retail project inJacksonville, Florida. Prior to the completion, we consolidated St. Johns as wewere responsible for 85% of the development cost. At permanent financing, wereceived a distribution from the partnership of $15.7 million, and theownership percentages were each adjusted to 50%. We now account for St. Johnsusing the equity method of accounting.

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

·                    OnNovember 18, 2005, we purchased a 37.99% interest in Springfield Mall inSpringfield, Pennsylvania for approximately $39.3 million, including theissuance of our share of debt of $29.1 million.

·                    OnNovember 21, 2005, we purchased a 50% interest in Coddingtown Mall inSanta Rosa, California for approximately $37.1 million, including theassumption of our share of debt of $10.5 million.

·                    InMarch 2005, we opened Toki Premium Outlets in Japan.

·                    OnJanuary 11, 2005, Metrocenter, a regional mall located in Phoenix,Arizona, was sold. We held a 50% interest in Metrocenter.

Ourconsolidated discontinued operations reflect results of the followingsignificant property dispositions. We had no dispositions in the first quarterof 2006.

| **Property**                               | ** ** | **Date of Disposition** | ** ** |
|--------------------------------------------|------------|-------------------------|------------|
| Riverway (office)                          |       | June 1, 2005       |       |
| O’Hare  International Center (office) |       | June 1, 2005       |       |
| Grove at Lakeland  Square                  |       | July 1, 2005       |       |
| Cheltenham Square                          |       | November 17,  2005 |       |
| Southgate Mall                             |       | November 28,  2005 |       |
| Eastland Mall  (Tulsa, OK)                 |       | December 16,  2005 |       |
| Biltmore Square                            |       | December 28,  2005 |       |

 

For the purposes of thefollowing comparison between the three months ended March 31, 2006 and2005, the above transactions are referred to as the Property Transactions. In the following discussions of our results ofoperations, “comparable” refers to Properties open and operating throughout thefirst quarter in both 2006 and 2005.

***Three Months Ended March 31, 2006 vs. ThreeMonths Ended March 31, 2005***

Minimum rents, excluding rents from our consolidatedSimon Brand and Simon Business initiatives, increased $24.5 million duringthe period, of which the Property Transactions accounted for $4.0 millionof the increase. Total amortization of the fair market value of in-place leasesincreased minimum rents by $3.6 million over that of the first quarter of2005. Comparable rents, excluding rents from Simon Brand and Simon Business,increased $20.5 million, or 4.5%. This was primarily due to the leasing ofspace at 

20

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higher rents that resultedin an increase in minimum rents of $18.2 million. In addition, rents fromcarts, kiosks, and other temporary tenants increased comparable rents by$0.4 million.

Total overage rents increased $2.7 million, or20.3%, reflecting the increases in tenants’ sales.

Tenant reimbursements, excluding Simon Businessinitiatives, increased $10.1 million, of which the Property Transactionsaccounted for $1.8 million. The remainder of the increase of$8.3 million, or 4.0%, was in comparable Properties and was due toinflationary increases in property operating costs.

Total other income,excluding Simon Brand and Simon Business initiatives, increased $5.4 million,and was the result of:

·                    $6.3million in increased lease settlement activity for the quarter;

·                    $1.8million in increased interest income driven by increasing depository rates;

·                    $1.5million in collections on a note receivable which had been previously reservedfor;

·                    $1.2million in gains on the sale of air rights at a property in Texas to aresidential joint venture;

·                    offsetby a $4.7 million decrease in land sale activity and decreases of $0.7 millionin other net activity on comparable Properties.

Revenues from SimonBrand and Simon Business initiatives increased $2.5 million to$34.4 million from $31.9 million. The increase in revenues isprimarily due to:

·                    increasedrevenue from the bank-issued co-branded gift card programs,

·                    increasedrents and fees from service providers,

·                    increasedadvertising rentals, and

·                    increasedevent and sponsorship income.

Simon Brand and Simon Business expenses decreased$2.4 million, primarily as a result of decreases in operating expenses ofthe co-branded gift card programs, which are included in total propertyoperating expenses.

Property operating expenses increased$5.6 million, $4.6 million from comparable properties (representingan increase of 4.6%) principally as a result of inflationary increases, and theremainder from new openings.

Real estate taxes increased $10.3 million dueprincipally to a $6.5 million multi-year assessment settlement at a Propertyand increases in expenses at our other comparable properties of $3.7 million,or 5.2%, driven by reassessments and rate increases.

Repairs and maintenance decreased $2.0 million asa result of decreased comparable property repair needs.

Provision for credit losses decreased$2.3 million from the prior period due principally to a recovery ofreceivables from prior bankruptcies that were previously fully reserved for.

Home office and regional costs increased$3.1 million due to incremental personnel costs as a result of accrualsnecessitated by an additional pay period in the first quarter of 2006 versusthat of 2005.

Other expenses increased $2.2 million primarilydue to ground rent expenses of $1.6 million and increased professional fees.

Interest expense increased $8.9 million due tothe following factors:

·                    theimpact of increases in our average borrowing rates for our variable rate debtoffset by a decrease in variable rate debt of approximately $1.2 billion due torepayment activity; and

·                    theimpact of increased fixed rate debt of $803 million, which are generally athigher rates than our variable rate debt, due to the issuances of unsecurednotes in June and November of 2005.

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The minority interest increase was the result of ourallocating to our minority interest partner their share of the aforementionedmulti-year real estate tax assessment settlement on a Property in which we holda 53% interest.

Werecorded a $34.4 million gain on the sale of a 10.5% interest in ERE to Ivanhoeand also recorded a $10.2 million gain related to the receipt ofbeneficial interests in MOAA. The transaction and related accounting are morefully described in the condensed notes to consolidated financial statements inthis Form 10-Q.

**Liquidity andCapital Resources**

Because we generate revenues primarily from long-termleases, our financing strategy relies primarily on long-term fixed rate debt. Wemanage our floating rate debt to be approximately 15–25% of total outstandingindebtedness by setting interest rates for each financing or refinancing basedon current market conditions. We also enter into interest rate protectionagreements as appropriate to assist in managing our interest rate risk. Wederive most of our liquidity from leases that generate positive net cash flowfrom operations and distributions of capital from unconsolidated entities thattotaled $325.5 million during the first three months of 2006. In addition,our Credit Facility provides an alternative source of liquidity as our cashneeds vary from time to time.

Our balance of cash and cash equivalents decreased$38.0 million during 2006 to $299.0 million as of March 31, 2006. The March 31,2006 balances includes $52.0 million related to our co-branded gift cardprograms, which we do not consider available for general working capitalpurposes.

On March 31, 2006, the Credit Facility hadavailable borrowing capacity of approximately $1.0 billion net of outstandingborrowings of $2.0 billion and letters of credit of $23.1 million. During thefirst three months of 2006, the maximum amount outstanding under the CreditFacility was $2.0 billion and the weighted average amount outstanding was $1.3billion. The weighted average interest rate was 4.53% for the period ended March 31,2006.

We and the OperatingPartnership also have access to public equity and long term unsecured debtmarkets and access to private equity from institutional investors at theProperty level. Our current senior unsecured debt ratings are A- by Standard &Poor’s and Baa1 by Moody’s Investors Service.

**Cash Flows**

Our net cash flowfrom operating activities and distributions of capital from unconsolidatedentities for the three months ended March 31, 2006 totaled $325.5 million.We also received proceeds of $53.9 million from the sale of partnershipinterests during the first three months of 2006. In addition, we had a net useof cash from all of our debt financing and repayment activities in this periodof $36.6 million. These activities are further discussed below inFinancing and Debt. We also:

·                    repurchasedunits and preferred units amounting to $2.7 million,

·                    paiddistributions on units of $212.0 million,

·                    paiddistributions on preferred units totaling $25.4 million,

·                    fundedconsolidated capital expenditures of $136.3 million. These capitalexpenditures include development costs of $64.3 million, renovation andexpansion costs of $55.1 million, and tenant costs and other operationalcapital expenditures of $16.9 million, and

·                    fundedinvestments in unconsolidated entities of $79.6 million.

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In general, weanticipate that cash generated from operations will be sufficient to meetoperating expenses, monthly debt service, recurring capital expenditures, anddistributions to stockholders necessary to maintain Simon Property’s REITqualification for 2006 and on a long-term basis. In addition, we expect to beable to obtain capital for nonrecurring capital expenditures, such asacquisitions, major building renovations and expansions, as well as forscheduled principal maturities on outstanding indebtedness, from:

·       excess cash generated from operatingperformance and working capital reserves,

·       borrowings on our Credit Facility,

·       additional secured or unsecured debtfinancing, or

·       additional equity raised by SimonProperty in the public or private markets and contributed to us in exchange forunits.

**Financing and Debt**

***Unsecured Debt***

On May 9, 2006, the Operating Partnership agreedto issue $800 million of senior unsecured notes as more fully described in thecondensed notes to consolidated financial statements in this Form 10-Q. Proceedsfrom the issuance of the notes will be used to reduce borrowings on the CreditFacility.

***Credit Facility.******  ***Significantactivity on the Credit Facility during the three-month period ended March 31,2006 was as follows:

| ***Draw  Date*** | ** ** | ***Draw    Amount  *** | ** ** | ***Use of Credit Line Proceeds*** | ** ** |
|------------------|------------|--------------------------------------------|------------|-------------------------------------------------------|------------|
| 01/03/06         |       |                                       | $          | 59,075                                                |       |   | Repayment  of a Term Loan (CPG Partners, L.P.), which had a rate of 7.26%. |   |
| 01/06/06         |       |                                       | 140,000    |                                                  |       | Repayment  of a mortgage, which had a rate of LIBOR plus 138 basis points. |   |
| 01/20/06         |       |                                       | 300,000    |                                                  |       | Repayment  of unsecured notes, which had a fixed rate of 7.375%. |   |
| 03/27/06         |       |                                       | 600,000    |                                                  |       | Early repayment of the $1.8 billion facility we used  to finance our acquisition of Chelsea Property Group, Inc. (Chelsea) in  2004. |   |

 

Other amounts drawn on the Credit Facility wereprimarily for general working capital purposes. The total aggregate amount ofour repayments on the Credit Facility during the three month period ended March 31,2006 was $110.0 million. The total outstanding balance on the CreditFacility as of March 31, 2006, and the maximum amount outstanding, wasapproximately $2.0 billion. During the first three months of 2006, theweighted average outstanding balance on the Credit Facility was approximately$1.3 billion.

***Acquisition Facility.******  ***Weborrowed $1.8 billion to finance the cash portion of our acquisition ofChelsea in 2004. On March 27, 2006, we made the final principal paymentdue on this facility. The facility bore interest at LIBOR plus 55 basis pointswith an additional 15 basis point facility fee on all loans outstanding, andprovided for variable grid pricing based upon our credit rating.

***Secured Debt***

Total secured indebtednesswas $4.4 billion and $4.6 billion at March 31, 2006 and December 31,2005, respectively. During the three-month period ended March 31, 2006, werepaid $140.0 million in mortgage loans, unencumbering one property. Duringthe three-month period ended March 31, 2006, we exercised our option toextend the maturity of several mortgages, which resulted in changes toscheduled or anticipated debt maturities on a consolidated basis. The repaymentof these mortgages will now be in years beyond 2006.

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***Summary of Financing***

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

| ** **                    | ** ** | **Adjusted**       | ** ** | ** **             | ** ** | **Adjusted**          | ** **  | ** **             | ** ** |
|-------------------------------|------------|--------------------|------------|------------------------|------------|-----------------------|-------------|------------------------|------------|
| ** **                    | ** ** | **Balance**        | ** ** | **Effective**          | ** ** | **Balance**           | ** **  | **Effective**          | ** ** |
| ** **                    | ** ** | **as of**     | ** ** | **Weighted**           | ** ** | **as of**        | ** **  | **Weighted**           | ** ** |
| ** **                    | ** ** | **March 31,** | ** ** | **Average**            | ** ** | **December 31,** | ** **  | **Average**            | ** ** |
| **Debt Subject to** | ** ** | **2006**           | ** ** | **Interest Rate** | ** ** | **2005**              | ** **  | **Interest Rate** | ** ** |
| **Fixed  Rate**               | ** ** | **$11,526,796**    | ** ** | **6.18%**              |       |                  | $11,908,050 |                   | 6.22%      |   |
| **Variable  Rate**            | ** ** | **2,612,465**      | ** ** | **5.01%**              |       |                  | 2,198,067   |                   | 4.95%      |   |
|                          | ** ** | **$14,139,261**    | ** ** | **5.96%**              |       |                  | $14,106,117 |                   | 6.02%      |   |

 

As of March 31, 2006, we had interest rate capprotection agreements on $303.7 million of consolidated variable rate debt. Wealso hold $370.0 million of notional amount variable rate swap agreements thathave a weighted average variable pay rate of 5.08% and a weighted average fixedreceive rate of 3.72%. As of March 31, 2006, the net effect of theseagreements effectively converted $370.0 million of fixed rate debt to variablerate debt.

***Contractual Obligations and Off-Balance SheetArrangements.******  ***There have been no material changes in ouroutstanding capital expenditure commitments since December 31, 2005, aspreviously disclosed in our 2005 Annual Report on Form 10-K. Thefollowing table summarizes the material aspects of our future obligations as ofMarch 31, 2006 for the remainder of 2006 and subsequent years thereafter(dollars in thousands):

| *** ***                                | *** *** | ***        2006        *** | *** *** | ***2007-2008*** | *** *** | ***2009-2011*** | *** *** | ***After 2011*** | *** *** | ***Total*** | *** *** |
|---------------------------------------------|--------------|------------------------------------------------------------------------------------------------------------|--------------|-----------------|--------------|-----------------|--------------|-----------------------|--------------|-------------|--------------|
| **Long  Term Debt**                         | ** **   |                                                                                                       | ** **   | ** **      |         | ** **      | ** **   | ** **            | ** **   | ** **  | ** **   | ** ** | ** ** |
| Consolidated (1)                            |         |                                                                                                       | $            | 357,581         | ** **   |            | $            | 2,602,091             |         | $           | 6,766,935    |   | $ | 4,336,852 |   | $ | 14,063,459 |   |
| **Pro rata  share of Long-Term Debt:**      | ** **   |                                                                                                       | ** **   | ** **      |         | ** **      | ** **   | ** **            | ** **   | ** **  | ** **   | ** ** | ** ** |
| Consolidated (2)                            |         |                                                                                                       | $            | 355,278         | ** **   |            | $            | 2,549,186             |         | $           | 6,707,608    |   | $ | 4,261,090 |   | $ | 13,873,162 |   |
| Joint Ventures (2)                          |         |                                                                                                       | 392,817      | ** **      |         | 517,092         |         | 1,270,551             |         | 1,126,795   |         | 3,307,255 |   |
| **Total Pro Rata Share of Long-Term  Debt** |         |                                                                                                       | $            | 748,095         | ** **   |            | $            | 3,066,278             |         | $           | 7,978,159    |   | $ | 5,387,885 |   | $ | 17,180,417 |   |

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(1)             Represents principal maturities and therefore, excludesnet premiums and discounts and fair value swaps of $75,802.

(2)             Represents our pro rata share of principalmaturities and excludes net premiums and discounts.

Our off-balance sheetarrangements consist primarily of our investments in real estate joint ventureswhich are common in the real estate industry and are described in Note 5of the notes to the accompanying financial statements. Joint venture debt isthe liability of the joint venture, is typically secured by the joint ventureProperty, and is non-recourse to us. As of March 31, 2006, we have loanguarantees and other guarantee obligations of $33.0 million and $45.6million, respectively, to support our total $3.3 billion share of joint venturemortgage and other indebtedness presented in the table above.

**Acquisitions andDispositions**

Buy/sell provisions are common in real estatepartnership agreements. Most of our partners are institutional investors whohave a history of direct investment in regional mall properties. Our partnersin our joint ventures may initiate these provisions at any time and if wedetermine it is in our unitholders’ best interests for us to purchase the jointventure interest, we believe we have adequate liquidity to execute thepurchases of the interests without hindering our cash flows or liquidity.Should we decide to sell any of our 

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joint venture interests,we would expect to use the net proceeds from any such sale to reduceoutstanding indebtedness.

***Acquisitions.******  ***Althoughthe acquisition of high quality individual properties or portfolios ofproperties remain an integral component of our growth strategies, we did notacquire any properties during the first three months of 2006.

***Dispositions.******  ***Weexpect to sell Properties and other assets that no longer meet our strategiccriteria. However, we did not dispose of any properties during the first threemonths of 2006.

**DevelopmentActivity**

***New Developments.******  ***The following describes ournew development projects, the estimated total cost, and our share of theestimated total cost and our share of the construction in progress balance asof March 31, 2006 (dollars in millions):

| ***Property***                     | *** *** | ***Location***            | *** *** | ***Gross  Leasable  Area*** | *** *** | ***Estimated  Total  Cost (a)*** | *** *** | ***Our Share of  Estimated  Total Cost*** | *** *** | ***Our Share of  Construction  in Progress*** | *** *** | ***Estimated  Opening Date*** | *** *** |
|------------------------------------|--------------|---------------------------|--------------|-----------------------------|--------------|---------------------------------------|--------------|----------------------------------------------------------|--------------|--------------------------------------------------------------|--------------|------------------------------------|--------------|
| **Under Construction:**            | ** **   | ** **                | ** **   | ** **                  | ** **   |                                  | ** **   | ** **                                               |         |                                                         | ** **   | ** **                         |         |   | ** ** | ** ** |   | ** ** | ** ** |
| Coconut Point                      |         | Estero/Bonita Springs, FL |         | 1,200,000                   | ** **   |                                  | $            | 213                                                      | ** **   |                                                         |         | $                                  | 107          | ** ** |   |   | $ | 66 | ** ** |   | 2nd Quarter  2006(b) |   |
| The Domain                         |         | Austin, TX                |         | 700,000                     | ** **   |                                  | 195          | ** **                                               |         |                                                         | 195          | ** **                         |         |   | 97 | ** ** |   | 1st Quarter 2007 |   |
| Rio  Grande Valley Premium Outlets |         | Mercedes, TX              |         | 404,000                     | ** **   |                                  | 59           | ** **                                               |         |                                                         | 59           | ** **                         |         |   | 24 | ** ** |   | 4th Quarter 2006 |   |
| Round  Rock Premium Outlets        |         | Round Rock (Austin), TX   |         | 433,000                     | ** **   |                                  | 106          | ** **                                               |         |                                                         | 106          | ** **                         |         |   | 65 | ** ** |   | 3rd Quarter 2006 |   |
| The  Shops at Arbor Walk           |         | Austin, TX                |         | 460,000                     | ** **   |                                  | 52           | ** **                                               |         |                                                         | 52           | ** **                         |         |   | 20 | ** ** |   | 1st Quarter 2007 |   |
| The Village at SouthPark           |         | Charlotte, NC             |         | 81,000                      | ** **   |                                  | 26           | ** **                                               |         |                                                         | 26           | ** **                         |         |   | 5 | ** ** |   | 1st Quarter 2007 |   |
|                                    |              |                           |              |                             |              |                                       |              |                                                          |              |                                                              |              |                                    |              |  |  |  |  |  |  |  |  |  |

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(a)              Represents the project costs net of land sales, tenantreimbursements for construction, and other items (where applicable).

(b)              The estimated opening date representsPhase I only. Phase II estimated opening date is 4th quarter 2006. 

We expect to fund these capital projects withavailable cash flow from operations, borrowings from our Credit Facility, orproject specific construction loans. We expect our share of the total 2006 newdevelopment costs remaining for the year to be approximately $450 million.

***Strategic Expansions and Renovations.******  ***The following describes oursignificant renovation and/or expansion projects currently under construction,the estimated total cost, our share of the estimated total cost and our shareof the construction in progress balance as of March 31, 2006 (dollars inmillions):

| ***Property***          | *** *** | ***Location***            | *** *** | ***Incremental  Gross  Leasable  Area*** | *** *** | ***Estimated  Total  Cost (a)*** | *** *** | ***Our Share of  Estimated  Total Cost*** | *** *** | ***Our Share of  Construction  in Progress*** | *** *** | ***Estimated  Opening Date*** | *** *** |
|-------------------------|--------------|---------------------------|--------------|------------------------------------------|--------------|---------------------------------------|--------------|----------------------------------------------------------|--------------|--------------------------------------------------------------|--------------|------------------------------------|--------------|
| **Under Construction:** | ** **   | ** **                | ** **   |                                     | ** **   | ** **                            |         |                                                     | ** **   | ** **                                                   |         |                               | ** **   | ** ** |   |   | ** ** | ** ** |   | ** ** | ** ** |
| Lenox  Square           |         | Atlanta, GA               |         |                                     | 1,590,000    | ** **                            |         |                                                     | $            | 44                                                           | ** **   |                               |         | $ | 44 | ** ** |   |   | $ | 5 | ** ** |   | 4th Quarter 2007 |   |
| Northgate Mall          |         | Seattle, WA               |         |                                     | 1,110,000    | ** **                            |         |                                                     | 42           | ** **                                                   |         |                               | 42           | ** ** |   |   | 4 | ** ** |   | 2nd Quarter 2007 |   |
| Smith Haven Mall        |         | Lake Grove (New York), NY |         |                                     | 1,340,000    | ** **                            |         |                                                     | 65           | ** **                                                   |         |                               | 16           | ** ** |   |   | 4 | ** ** |   | 2nd Quarter 2007 |   |
|                         |              |                           |              |                                          |              |                                       |              |                                                          |              |                                                              |              |                                    |              |  |  |  |  |  |  |  |  |  |  |  |

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*(*a)              Represents the project costs net of land sales, tenantreimbursements for construction, and other items (where applicable).

We expect to fund these capital projects withavailable cash flow from operations or borrowings from the Credit Facility. Wehave other renovation and/or expansion projects currently under construction orin preconstruction development and expect to invest a total of approximately$225 million (our share) on expansion and renovation activities for theremainder of 2006.

***International.******  ***Part of ourinternational expansion strategy is to reinvest net cash flow to fund otherfuture international developments. We believe that reinvesting the cash flowsderived overseas in foreign denominated development and redevelopment projectsmitigates some of the risk to our initial investment and to changes in foreigncurrencies. In addition, to date we have funded the majority of our European 

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investments withEuro-denominated borrowings that act as a natural hedge against local currencyfluctuations. This has also been the case with our Premium Outlet jointventures in Japan and Mexico where we use Yen and Peso denominated financing. Currently,our net income exposure to changes in the volatility of the Euro, Yen, and Pesois not material. In addition, since cash flow from operations is currentlybeing reinvested in other development projects, we do not expect to repatriateforeign denominated earnings in the near term.

The carrying amount of our total combined investmentin Simon Ivanhoe B.V./S.à.r.l.(“Simon Ivanhoe”) and Gallerie Commerciali Italia(“GCI”) as of March 31, 2006, net of the related currency translationadjustment, was $333.6 million. Our investments in Simon Ivanhoe and GCI areaccounted for using the equity method of accounting. Currently seven Europeandevelopments are under construction, which will add approximately4.4 million square feet of GLA for a total net cost of approximately €690 million,of which our share is approximately €192 million.

On October 20, 2005, Ivanhoe Cambridge, Inc.(“Ivanhoe”), an affiliate of Caisse de dépôt et placement du Québec,effectively acquired our former partner’s 39.5% ownership interest in ERE. On February 13,2006, pursuant to the terms of our October 20, 2005 transaction withIvanhoe, we sold a 10.5% interest in this joint venture to Ivanhoe for €45.2 million,or $53.9 million and recorded a gain on the disposition of $34.4 million. Thisgain is reported in “gain on sales of interests in unconsolidated entities” inthe consolidated statements of operations. We then settled all remaining sharepurchase commitments from the founders of ERE, including the early settlementof some commitments by purchasing an additional 25.8% interest for €55.1 million,or $65.5 million. The result of these transactions equalized our andIvanhoe’s ownership in Simon Ivanhoe to 50% each. 

As of March 31, 2006, the carrying amount of our40% joint venture investment in the five Japanese Premium Outlet centers net ofthe related cumulative translation adjustment was $285.0 million. We beganexpansion in Nagoya, Japan which will add incremental  GLA of 53,000 square feet for a totalprojected net cost of ¥1.8 billion, of which our share is approximately¥0.7 billion, or $6.1 million based on current Yen:USD exchange rates.

In addition to thedevelopments in Europe and Japan, a new development, Yeoju Premium Outlets, wasstarted near Seoul, South Korea. The project will contain 253,000 square feetfor a total projected net cost of KRW 78.2 billion, of which our share isapproximately KRW 39.1 billion, or approximately $39.7 million based oncurrent KRW:USD exchange rates. 

**Distributions**

The Board of Directors of Simon Property, our generalpartner, declared and we paid a distribution of $0.76 per unit in the firstquarter of 2006. We are required to make distributions to maintain SimonProperty’s status as a REIT. Our distributions typically exceed our net incomegenerated in any given year primarily because of depreciation, which is a “non-cash”expense. Our future distributions and the dividends of Simon Property will bedetermined by Simon Property’s Board of Directors based on actual results ofoperations, cash available distributions, and what may be required to maintainSimon Property’s status as a REIT.

On May 11, 2005, theBoard of Directors of Simon Property authorized a common stock repurchaseprogram under which Simon Property may purchase up to $250 million of itscommon stock over the next twelve months as market conditions warrant. SimonProperty may repurchase the shares in the open market or in privately negotiatedtransactions. As shares are repurchased, the number of outstanding units isreduced on an equivalent basis. The program has 5,184,600 shares, limited to$191.4 million, remaining for repurchase. Therewere no purchases under this program during the first quarter of 2006.

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**Item 3.**                        Qualitativeand Quantitative Disclosure About Market Risk

***Sensitivity Analysis.******  ***Acomprehensive qualitative and quantitative analysis regarding market risk isdisclosed in our Management’s Discussion and Analysis of Financial Conditionand Results of Operations included in our Annual Report on Form 10-Kfor the year ended December 31, 2005. There have been no material changesin the assumptions used or results obtained regarding market risk since December 31, 2005.

**Item 4.**                        Controlsand Procedures

***Evaluation ofDisclosure Controls and Procedures.******  ***Wecarried out an evaluation under the supervision and with participation ofmanagement, including the Chief Executive Officer and Chief Financial Officer,of the effectiveness of the design and operation of our “disclosure controlsand procedures” (as defined in Rule 13a-15(e) under theSecurities Exchange Act of 1934 (the “Exchange Act”)) as of the end of theperiod covered by this Quarterly Report on Form 10-Q. Based uponthat evaluation, the Chief Executive Officer and Chief Financial Officer haveconcluded that our disclosure controls and procedures were effective as of March 31,2006.

***Changes in Internal Control Over Financial Reporting.******  ***Therehave not been any changes in our internal control over financial reporting (asdefined in Rule 13a-15(f)) that occurred during the quarter ended March 31,2006 that have materially affected, or are reasonably likely to materiallyaffect, our internal control over financial reporting.

**Part II —Other Information**

**Item 1.**                       LegalProceedings

Except as described in the following paragraph, therehave not been any material developments in the legal proceedings we describedin our Annual Report on From 10-K for the year ended December 31, 2005.

As previously disclosed in our 2005 Annual Report on Form 10-K,we are a defendant in a suit filed on November 9, 1999 in the DistrictCourt for the State of Minnesota, Fourth Judicial District (*Triple Five of Minnesota, Inc., a Minnesota corporation, v. MelvinSimon, et al*.). In January 2006,**andas more fully described in our 2005 Annual Report on Form 10-K, weresolved a portion of the litigation between Triple Five of Minnesota, Inc.(“Triple Five”) and, among others, the Mall of America, certain members of theSimon family and entities allegedly controlled by such individuals, and us. In April 2005,the federal Appellate Court modified the remedy in the Mall of America case,requiring that the transfer of a partnership interest in the Mall of Americaoriginally purchased from Teachers’ Insurance and Annuity of America) in 1999and transferred to Triple Five in August 2004, should have been transferred toMall of America Associates (“MOAA”), a partnership in which members of theSimon family have an interest. In January 2006, the transfer of thisinterest from Triple Five to MOAA was completed. The result on our consolidatedfinancial statements is discussed in Note 3 to these condensed notes toconsolidated financial statements. Although this transfer settled a portion ofthe litigation involving the Mall of America and its owners, legal proceedingsare still underway which may affect our interests with respect to the Mall ofAmerica. It is not possible to provide any assurance as to the outcome of theremaining Mall of America litigation.

We are involved in variousother legal proceedings that arise in the ordinary course of our business. Webelieve that such routine litigation, claims and administrative proceedings willnot have a material adverse impact on our financial position or our results ofoperations. We record a liability when a loss is considered probable and theamount can be reasonably estimated.

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**Item 1A.**                RiskFactors

During the quarter ended March 31,2006, there were no significant changes to the Risk Factors disclosed in “Part I,Item 1: Business” of our 2005 Annual Report on Form 10-K.

**Item 5.**                       OtherInformation

During the quarter covered by this report, the AuditCommittee of our Board of Directors of Simon Property, did not approve Ernst &Young, LLP, the Company’s independent registered public accounting firm, toperform non-audit services. This disclosure is made pursuant to Section 10A(i)(2) ofthe Securities Exchange Act of 1934, as added by Section 202 of theSarbanes-Oxley Act of 2002.

**Item6.**                       Exhibits
| *Exhibit  Number* | *** *** | ***Exhibit Descriptions***                                                                                                                                                                                   |
|-------------------|--------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 31.1              |         | Certification by the  Chief Executive Officer pursuant to rule 13a-14(a)/15d-14(a) of  the Securities Exchange Act of 1934, as adopted pursuant to Section 302  of the Sarbanes-Oxley Act of 2002. |
| 31.2              |         | Certification by  the Chief Financial Officer pursuant to rule 13a-14(a)/15d-14(a) of  the Securities Exchange Act of 1934, as adopted pursuant to Section 302  of the Sarbanes-Oxley Act of 2002. |
| 32                |         | Certification by the  Chief Executive Officer and Chief Financial Officer pursuant to  18 U.S.C. Section 1350, as adopted pursuant to Section 906 of  the Sarbanes-Oxley Act of 2002.              |

 

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**SIGNATURES**

Pursuantto the requirements of the Securities Exchange Act of 1934, the registrant hasduly caused this report to be signed on its behalf by the undersigned thereuntoduly authorized.

|        | **SIMON PROPERTY GROUP, L.P.**                       |
|--------|------------------------------------------------------|
|   | **By: Simon Property  Group, Inc.,**            |
|   | **General Partner**                                  |
|   | /s/ Stephen E. Sterrett                              |
|   | Stephen E. Sterrett                             |
|   | Executive Vice President and Chief Financial Officer |
|   | Date: May 12, 2006                              |

 

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