**UNITED STATES**

**SECURITIES AND EXCHANGECOMMISSION**

**Washington, D.C. 20549**

**FORM 10-Q**

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

**For thequarterly period ended September 30, 2005**

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

**(Exact nameof registrant as specified in its charter)**

**Delaware**

**(State ofincorporation or organization)**

**33-11491**

**(CommissionFile No.)**

**34-1755769**

**(I.R.S.Employer Identification No.)**

**National City Center**

**115 West Washington Street, Suite 15East**

**Indianapolis, Indiana 46204**

**(Addressof principal executive offices)**

**(317) 636-1600**

**(Registrant’stelephone number, including area code)**

Indicate by check mark whether the Registrant (1) hasfiled all reports required to be filed by Section 13 or 15(d) of theSecurities Exchange Act of 1934 during the preceding 12 months (or for suchshorter period that the Registrant was required to file such reports), and (2) hasbeen subject to such filing requirements for the past 90 days.        **YES    ****x****        NO    ****o**

Indicate by check mark whether Registrant is anaccelerated filer (as defined by Rule 12b-2 of the Exchange Act).        **YES    ****o****        NO    ****x**

Indicateby check mark whether Registrant is a shell company (as defined by Rule 12b-2of the Exchange Act).        **YES    ****o****        NO    ****x**

 

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

**FORM 10-Q**

**INDEX**

|                                                    | *** *** | *** ***                                                                                                                                 | ***Page*** |
|----------------------------------------------------|--------------|----------------------------------------------------------------------------------------------------------------------------------------------|------------|
| **Part I — Financial  Information** |         |
|                                               | Item 1.      | Consolidated Financial Statements (Unaudited)                                                                                                |       |
|                                               |         | Consolidated Balance Sheets as of  September 30, 2005 and December 31, 2004                                                        | 3          |
|                                               |         | Consolidated  Statements of Operations and Comprehensive Income for the three months and  nine months ended September 30, 2005 and 2004 | 4          |
|                                               |         | Consolidated  Statements of Cash Flows for the nine months ended September 30, 2005  and 2004                                           | 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                                                                                   | 30         |
|                                               | Item 4.      | Controls and Procedures                                                                                                                      | 30         |
| **Part II —  Other Information**    |         |
|                                               | Item 1.      | Legal Proceedings                                                                                                                            | 31         |
|                                               | Item 5.      | Other Information                                                                                                                            | 32         |
|                                               | Item 6.      | Exhibits                                                                                                                                     | 32         |
| **Signatures**                                     | 33           |
|                                                    |              |                                                                                                                                              |            |  |  |

 

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

| *** ***                                                                                                                                   | *** *** | ***September 30,  2005*** | *** ***   | ***December 31,  2004*** | *** *** |
|------------------------------------------------------------------------------------------------------------------------------------------------|--------------|--------------------------------|----------------|-------------------------------|--------------|
| *** ***                                                                                                                                   | *** *** | ***(Unaudited)***              | *** ***   | *** ***                  | *** *** |
| **ASSETS:**                                                                                                                                    | ** **   |                           | ** **     | ** **                    |         |   |   |   |   |
| Investment properties, at cost                                                                                                                 | ** **   |                           | **$**          | **21,600,472**                | ** **   |   |   | $ | 21,085,693 |   |   |
| Less — accumulated depreciation                                                                                                      | ** **   |                           | **3,638,179**  | ** **                    |         |   | 3,136,195 |   |   |
|                                                                                                                                           | ** **   |                           | **17,962,293** | ** **                    |         |   | 17,949,498 |   |   |
| Cash and cash equivalents                                                                                                                      | ** **   |                           | **422,791**    | ** **                    |         |   | 519,556 |   |   |
| Tenant receivables and accrued revenue, net                                                                                                    | ** **   |                           | **306,897**    | ** **                    |         |   | 358,990 |   |   |
| Investment in unconsolidated entities, at  equity                                                                                              | ** **   |                           | **1,598,391**  | ** **                    |         |   | 1,920,983 |   |   |
| Deferred costs and other assets                                                                                                                | ** **   |                           | **1,049,512**  | ** **                    |         |   | 1,172,875 |   |   |
| **Total  assets**                                                                                                                              | ** **   |                           | **$**          | **21,339,884**                | ** **   |   |   | $ | 21,921,902 |   |   |
| **LIABILITIES:**                                                                                                                               | ** **   |                           | ** **     | ** **                    |         |   |   |   |   |
| Mortgages and other indebtedness                                                                                                               | ** **   |                           | **$**          | **14,330,200**                | ** **   |   |   | $ | 14,586,393 |   |   |
| Accounts payable, accrued expenses,  intangibles, and deferred revenues                                                                        | ** **   |                           | **1,098,773**  | ** **                    |         |   | 1,111,481 |   |   |
| Cash distributions and losses in  partnerships and joint ventures, at equity                                                                   | ** **   |                           | **116,213**    | ** **                    |         |   | 37,739 |   |   |
| Other liabilities, minority interest, and  accrued distributions                                                                               | ** **   |                           | **178,367**    | ** **                    |         |   | 324,160 |   |   |
| **Total  liabilities**                                                                                                                         | ** **   |                           | **15,723,553** | ** **                    |         |   | 16,059,773 |   |   |
| COMMITMENTS AND CONTINGENCIES                                                                                                                  | ** **   |                           | ** **     | ** **                    |         |   |   |   |   |
| 7.75%/8.00% Cumulative Redeemable Preferred  Units, 850,698 and 822,588 units issued and outstanding, respectively,  at liquidation value | ** **   |                           | **85,070**     | ** **                    |         |   | 82,259 |   |   |
| **PARTNERS’ EQUITY:**                                                                                                                     | ** **   |                           | ** **     | ** **                    |         |   |   |   |   |
| Preferred units, 32,904,154 and 33,042,122  units outstanding, respectively. Liquidation values $1,398,428 and  $1,402,330, respectively       | ** **   |                           | **1,396,821**  | ** **                    |         |   | 1,393,269 |   |   |
| General Partner, 219,825,199 and  218,702,347 units outstanding, respectively                                                             | ** **   |                           | **3,286,492**  | ** **                    |         |   | 3,516,902 |   |   |
| Limited Partners, 59,110,302 and  60,876,619 units outstanding, respectively                                                              | ** **   |                           | **883,728**    | ** **                    |         |   | 980,316 |   |   |
| Note receivable from Simon Property  (interest at 7.8%, due 2009)                                                                              | ** **   |                           | **—**     | ** **                    |         |   | (88,804 | ) |   |
| Unamortized restricted stock award                                                                                                             | ** **   |                           | **(35,780**    | **)**                         |         |   | (21,813 | ) |   |
| **Total  partners’ equity**                                                                                                               | ** **   |                           | **5,531,261**  | ** **                    |         |   | 5,779,870 |   |   |
| **Total liabilities and partners’ equity**                                                                                                | ** **   |                           | **$**          | **21,339,884**                | ** **   |   |   | $ | 21,921,902 |   |   |

 

*The accompanying notes are an integral part of these statements.*

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**Simon Property Group, L.P. and Subsidiaries***Unaudited Consolidated Statements of Operations and ComprehensiveIncome(Dollars in thousands, except per unit amounts)*

| *** ***                                                                                                                | *** *** | ***For the Three Months  Ended September 30,*** | *** *** | ***For the Nine Months  Ended September 30,*** | *** *** |
|-----------------------------------------------------------------------------------------------------------------------------|--------------|--------------------------------------------------------------------------|--------------|-------------------------------------------------------------------------|--------------|
| *** ***                                                                                                                | *** *** | ***2005***                                                               | *** *** | ***2004***                                                              | *** *** | ***2005*** | *** *** | ***2004*** | *** *** |
| **REVENUE:**                                                                                                                |         |                                                                     |         |                                                                    |         |   |   |   |   |
| Minimum rent                                                                                                                | ** **   | **$**                                                                    | **478,631**  |                                                                    | $            | 360,125 | ** ** | **$** | **1,415,183** |   | $ | 1,057,517 |   |
| Overage rent                                                                                                                | ** **   | **18,506**                                                               |         | 11,898                                                                  | ** **   | **46,237** |   | 29,781 |   |
| Tenant reimbursements                                                                                                       | ** **   | **226,972**                                                              |         | 185,165                                                                 | ** **   | **652,345** |   | 526,992 |   |
| Management fees and other revenues                                                                                          | ** **   | **19,746**                                                               |         | 17,932                                                                  | ** **   | **56,931** |   | 54,335 |   |
| Other income                                                                                                                | ** **   | **42,914**                                                               |         | 31,166                                                                  | ** **   | **119,678** |   | 95,561 |   |
| **Total revenue**                                                                                                           | ** **   | **786,769**                                                              |         | 606,286                                                                 | ** **   | **2,290,374** |   | 1,764,186 |   |
| **EXPENSES:**                                                                                                               | ** **   | ** **                                                               |         |                                                                    | ** **   | ** ** |   |   |   |
| Property operating                                                                                                          | ** **   | **116,994**                                                              |         | 93,129                                                                  | ** **   | **319,510** |   | 259,569 |   |
| Depreciation and amortization                                                                                               | ** **   | **204,106**                                                              |         | 142,202                                                                 | ** **   | **621,990** |   | 417,293 |   |
| Real estate taxes                                                                                                           | ** **   | **74,776**                                                               |         | 59,918                                                                  | ** **   | **218,615** |   | 175,632 |   |
| Repairs and maintenance                                                                                                     | ** **   | **22,877**                                                               |         | 24,203                                                                  | ** **   | **76,101** |   | 65,697 |   |
| Advertising and promotion                                                                                                   | ** **   | **21,003**                                                               |         | 11,543                                                                  | ** **   | **57,861** |   | 36,536 |   |
| Provision for credit losses                                                                                                 | ** **   | **2,868**                                                                |         | 3,413                                                                   | ** **   | **3,697** |   | 9,994 |   |
| Home and regional office costs                                                                                              | ** **   | **27,068**                                                               |         | 19,579                                                                  | ** **   | **85,060** |   | 61,811 |   |
| General and administrative                                                                                                  | ** **   | **4,993**                                                                |         | 3,615                                                                   | ** **   | **13,243** |   | 10,635 |   |
| Other                                                                                                                       | ** **   | **12,486**                                                               |         | 7,197                                                                   | ** **   | **34,439** |   | 23,717 |   |
| **Total operating expenses**                                                                                                | ** **   | **487,171**                                                              |         | 364,799                                                                 | ** **   | **1,430,516** |   | 1,060,884 |   |
| **OPERATING INCOME**                                                                                                        | ** **   | **299,598**                                                              |         | 241,487                                                                 | ** **   | **859,858** |   | 703,302 |   |
| Interest expense                                                                                                            | ** **   | **202,530**                                                              |         | 160,506                                                                 | ** **   | **598,238** |   | 469,239 |   |
| **Income before minority interest**                                                                                         | ** **   | **97,068**                                                               |         | 80,981                                                                  | ** **   | **261,620** |   | 234,063 |   |
| Minority interest                                                                                                           | ** **   | **(3,174**                                                               | **)**        | (2,209                                                                  | )            | **(8,734** | **)** | (6,890 | ) |
| Gain (loss) on sales of assets and other, net                                                                               | ** **   | **(55**                                                                  | **)**        | 1,121                                                                   | ** **   | **12,552** |   | (760 | ) |
| Income tax expense of taxable REIT subsidiaries                                                                             | ** **   | **(3,796**                                                               | **)**        | (2,197                                                                  | )            | **(11,216** | **)** | (10,839 | ) |
| **Income before unconsolidated entities**                                                                                   | ** **   | **90,043**                                                               |         | 77,696                                                                  | ** **   | **254,222** |   | 215,574 |   |
| Income from unconsolidated entities                                                                                         | ** **   | **18,662**                                                               |         | 23,902                                                                  | ** **   | **51,045** |   | 60,810 |   |
| **Income from continuing operations**                                                                                       | ** **   | **108,705**                                                              |         | 101,598                                                                 | ** **   | **305,267** |   | 276,384 |   |
| Results of operations from discontinued operations                                                                          | ** **   | **5,315**                                                                |         | 2,436                                                                   | ** **   | **9,610** |   | 6,554 |   |
| Gain (loss) on disposal or sale of discontinued  operations, net                                                            | ** **   | **5,605**                                                                |         | (502                                                                    | )            | **125,385** |   | (214 | ) |
| **NET INCOME**                                                                                                              | ** **   | **119,625**                                                              |         | 103,532                                                                 | ** **   | **440,262** |   | 282,724 |   |
| Preferred unit requirement                                                                                                  | ** **   | **(25,407**                                                              | **)**        | (12,739                                                                 | )            | **(76,485** | **)** | (38,214 | ) |
| **NET INCOME AVAILABLE TO UNITHOLDERS**                                                                                     | ** **   | **$**                                                                    | **94,218**   |                                                                    | $            | 90,793 | ** ** | **$** | **363,777** |   | $ | 244,510 |   |
| **NET INCOME AVAILABLE TO UNITHOLDERS ATTRIBUTABLE  TO:**                                                                   | ** **   | ** **                                                               |         |                                                                    | ** **   | ** ** |   |   |   |
| General Partner                                                                                                             | ** **   | **$**                                                                    | **74,358**   |                                                                    | $            | 70,888 | ** ** | **$** | **286,236** |   | $ | 189,844 |   |
| Limited Partners                                                                                                            | ** **   | **19,860**                                                               |         | 19,905                                                                  | ** **   | **77,541** |   | 54,666 |   |
| **Net income**                                                                                                              | ** **   | **$**                                                                    | **94,218**   |                                                                    | $            | 90,793 | ** ** | **$** | **363,777** |   | $ | 244,510 |   |
| **BASIC EARNINGS PER UNIT:**                                                                                                | ** **   | ** **                                                               |         |                                                                    | ** **   | ** ** |   |   |   |
| Income from continuing operations                                                                                           | ** **   | **$**                                                                    | **0.30**     |                                                                    | $            | 0.34 | ** ** | **$** | **0.82** |   | $ | 0.92 |   |
| Discontinued operations                                                                                                     | ** **   | **0.04**                                                                 |         | 0.01                                                                    | ** **   | **0.48** |   | 0.02 |   |
| **Net income**                                                                                                              | ** **   | **$**                                                                    | **0.34**     |                                                                    | $            | 0.35 | ** ** | **$** | **1.30** |   | $ | 0.94 |   |
| **DILUTED EARNINGS PER UNIT:**                                                                                              | ** **   | ** **                                                               |         |                                                                    | ** **   | ** ** |   |   |   |
| Income from continuing operations                                                                                           | ** **   | **$**                                                                    | **0.30**     |                                                                    | $            | 0.34 | ** ** | **$** | **0.82** |   | $ | 0.91 |   |
| Discontinued operations                                                                                                     | ** **   | **0.04**                                                                 |         | 0.01                                                                    | ** **   | **0.48** |   | 0.02 |   |
| **Net income**                                                                                                              | ** **   | **$**                                                                    | **0.34**     |                                                                    | $            | 0.35 | ** ** | **$** | **1.30** |   | $ | 0.93 |   |
| **Net Income**                                                                                                              | ** **   | **$**                                                                    | **119,625**  |                                                                    | $            | 103,532 | ** ** | **$** | **440,262** |   | $ | 282,724 |   |
| Unrealized (loss) gain on interest rate hedge  agreements                                                                   | ** **   | **(1,385**                                                               | **)**        | 1,372                                                                   | ** **   | **(10,212** | **)** | 4,819 |   |
| Net income on derivative instruments reclassified  from accumulated other comprehensive income (loss) into interest expense | ** **   | **152**                                                                  |         | (1,596                                                                  | )            | **(1,139** | **)** | (4,332 | ) |
| Currency translation adjustments                                                                                            | ** **   | **(2,277**                                                               | **)**        | (4,784                                                                  | )            | **(3,923** | **)** | 1,919 |   |
| Other (loss) income                                                                                                         | ** **   | **(104**                                                                 | **)**        | 71                                                                      | ** **   | **(421** | **)** | (583 | ) |
| **Comprehensive Income**                                                                                                    | ** **   | **$**                                                                    | **116,011**  |                                                                    | $            | 98,595 | ** ** | **$** | **424,567** |   | $ | 284,547 |   |

 

*The accompanying notes are an integral partof these statements.*

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

| *** ***                                                                                  | *** *** | ***For the Nine Months  Ended September 30,*** | *** *** |
|-----------------------------------------------------------------------------------------------|--------------|-------------------------------------------------------------------------|--------------|
| *** ***                                                                                  | *** *** | ***2005***                                                              | *** *** | ***2004*** | *** *** |
| **CASH FLOWS FROM OPERATING ACTIVITIES:**                                                     | ** **   | ** **                                                              |         |   |   |
| **Net  income**                                                                               | ** **   | **$**                                                                   | **440,262**  |   | $ | 282,724 |   |
| Adjustments to reconcile net income to net  cash provided by operating activities — | ** **   | ** **                                                              |         |   |   |
| Depreciation and amortization                                                                 | ** **   | **593,240**                                                             |         | 435,892 |   |
| (Gain) loss on sales of assets and other,  net                                                | ** **   | **(12,552**                                                             | **)**        | 760 |   |
| (Gain) loss on disposal or sale of  discontinued operations, net                              | ** **   | **(125,385**                                                            | **)**        | 214 |   |
| Straight-line rent                                                                            | ** **   | **(15,317**                                                             | **)**        | (3,646 | ) |
| Minority interest                                                                             | ** **   | **8,734**                                                               |         | 6,890 |   |
| Minority interest distributions                                                               | ** **   | **(16,135**                                                             | **)**        | (41,812 | ) |
| Equity in income of unconsolidated entities                                                   | ** **   | **(51,045**                                                             | **)**        | (60,810 | ) |
| Distributions of income from unconsolidated  entities                                         | ** **   | **62,367**                                                              |         | 64,987 |   |
| **Changes in  assets and liabilities —**                                            | ** **   | ** **                                                              | ** **   | ** ** |   |
| Tenant receivables and accrued revenue                                                        | ** **   | **68,229**                                                              |         | 19,908 |   |
| Deferred costs and other assets                                                               | ** **   | **(121,653**                                                            | **)**        | 34,826 |   |
| Accounts payable, accrued expenses,  intangibles, deferred revenues, and other liabilities    | ** **   | **(101,724**                                                            | **)**        | (95,046 | ) |
| **Net cash  provided by operating activities**                                                | ** **   | **729,021**                                                             |         | 644,887 |   |
| **CASH FLOWS FROM INVESTING ACTIVITIES:**                                                     | ** **   | ** **                                                              |         |   |   |
| Acquisitions                                                                                  | ** **   | **—**                                                              |         | (500,325 | ) |
| Capital expenditures, net                                                                     | ** **   | **(420,400**                                                            | **)**        | (367,565 | ) |
| Cash from acquisitions                                                                        | ** **   | **—**                                                              |         | 3,966 |   |
| Cash impact from the consolidation and  de-consolidation of properties                        | ** **   | **(8,951**                                                              | **)**        | 2,507 |   |
| Net proceeds from sale of partnership  interest, other assets and discontinued operations     | ** **   | **330,187**                                                             |         | 39,653 |   |
| Investments in unconsolidated entities                                                        | ** **   | **(17,426**                                                             | **)**        | (115,968 | ) |
| Distributions of capital from  unconsolidated entities and other                              | ** **   | **228,098**                                                             |         | 113,797 |   |
| **Net cash  provided by (used) in investing activities**                                      | ** **   | **111,508**                                                             |         | (823,935 | ) |
| **CASH FLOWS FROM FINANCING ACTIVITIES:**                                                     | ** **   | ** **                                                              |         |   |   |
| Partnership contributions and issuance of  units                                              | ** **   | **813**                                                                 |         | 3,772 |   |
| Purchase of preferred units, partnership  units, and treasury units                           | ** **   | **(176,939**                                                            | **)**        | (10,105 | ) |
| Preferred Unit redemptions                                                                    | ** **   | **(579**                                                                | **)**        | **—** | ** ** |
| Minority interest contributions                                                               | ** **   | **—**                                                              |         | 35,333 |   |
| Partnership distributions                                                                     | ** **   | **(664,772**                                                            | **)**        | (548,112 | ) |
| Mortgage and other indebtedness proceeds,  net of transaction costs                           | ** **   | **2,941,901**                                                           |         | 3,501,024 |   |
| Mortgage and other indebtedness principal  payments                                           | ** **   | **(3,037,718**                                                          | **)**        | (2,845,682 | ) |
| **Net cash  (used in) provided by financing activities**                                      | ** **   | **(937,294**                                                            | **)**        | 136,230 |   |
| **DECREASE  IN CASH AND CASH EQUIVALENTS**                                                    | ** **   | **(96,765**                                                             | **)**        | (42,818 | ) |
| **CASH AND  CASH EQUIVALENTS, beginning of year**                                             | ** **   | **519,556**                                                             |         | 529,036 |   |
| **CASH AND CASH EQUIVALENTS, end of period**                                                  | ** **   | **$**                                                                   | **422,791**  |   | $ | 486,218 |   |

 

*The accompanying notes are an integral part of these statements.*

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**Simon Property Group, L.P. andSubsidiariesCondensed Notes to Consolidated Financial Statements(Unaudited)**

(Dollars in thousands, except unit and per unitamounts and where indicated as in millions or billions)

**1.**   Organization

Simon PropertyGroup, L.P. (the “Operating Partnership”), a Delaware limited partnership, is amajority owned subsidiary of Simon Property Group, Inc. (“Simon Property”),a Delaware 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 notes, 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, primarily regional malls, Premium Outlet® centers andcommunity/lifestyle centers. As of September 30, 2005, we owned or held aninterest in 295 income-producing properties in the United States, whichconsisted of 172 regional malls, 33 Premium Outlet centers, 71community/lifestyle centers, and 19 other shopping centers in 40 statesand Puerto Rico (collectively, the “Properties”, and individually, a “Property”).We also own interests in eleven parcels of land held for future development(together with the Properties, the “Portfolio”). Finally, we have ownershipinterests in 51 European shopping centers (in France, Italy, Poland andPortugal), five Premium Outlet centers in Japan, one Premium Outlet center inMexico, and one shopping center in Canada.

**2.**   Basisof Presentation

Theaccompanying unaudited consolidated financial statements of the OperatingPartnership include the accounts of all majority-owned subsidiaries, andall significant inter-company amounts have been eliminated. Due to theseasonal nature of certain operational activities, including overage rentrevenues and property operating expenses, the results for the interim periodended September 30, 2005 are not necessarily indicative of the resultsthat may be obtained for the full fiscal year.

Theseconsolidated financial statements have been prepared in accordance with theinstructions to Form 10-Q and include all of the information anddisclosures required by accounting principles generally accepted in the UnitedStates (GAAP) for interim reporting. Accordingly, they do not include all ofthe disclosures required by GAAP for complete financial statements. In theopinion of management, all adjustments necessary for fair presentation(including normal recurring accruals) have been included. The consolidatedfinancial statements in this Form 10-Q should be read in conjunctionwith the audited consolidated financial statements and related notes containedin our 2004 Form 10-K.

As of September 30,2005, of our 353 properties we consolidate 208 wholly-owned properties andconsolidate 20 additional properties that are less than wholly-owned which wecontrol or for which we are the primary beneficiary. We account for theremaining 125 properties using the equity method of accounting (joint ventureproperties). We manage the day-to-day operations of 58 of the 125 joint ventureproperties.

We allocate ournet operating results after preferred distributions based on our partners’respective weighted average ownership interests. In addition, Simon Property ownscertain of our preferred units. Simon Property’s weighted average ownershipinterest in the Operating Partnership was 78.7% and 77.6% for the nine monthsended September 30, 2005 and 2004, respectively. As of September 30,2005 and December 31, 2004, Simon Property’s ownership interest in us was78.8% and 78.2%, respectively. We adjust the limited partners’ interest at theend of each period to reflect changes in their ownership interests in theOperating Partnership.

We made certain reclassifications of prior period amounts in thefinancial statements to conform to the 2005 presentation. Thesereclassifications have no impact on net income previously reported. Also, thestatements of operations and comprehensive income for the periods ended September 30,2004 have been reclassified to reflect significant dispositions of propertiessold during 2004 and 2005.

6

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**3.**   Significant Accounting Policies

***Cashand Cash Equivalents***

During 2005, an independent bank assumed responsibility for the giftcard program. We collect gift card funds at the point of sale and then remitthose funds onto the bank for further processing. As a result, significantlyall of the cash collected from gift card sales are now held by the bank, andthe related liability for funds will be owed by the bank to retailers whichhonor a gift card for tender of goods and services. Cash and cash equivalentsas of September 30, 2005 includes $43.4 million related to theco-branded gift card and our former gift certificate program, which we do notconsider available for general working capital purposes.

***Deferred Costsand Other Assets***

The following summarizes the recordedamounts, net of related amortization, of deferred costs and other assets on theconsolidated balance sheets:

| *** ***                                                                  | *** *** | ***As of  September 30,  2005*** | *** *** | ***As of  December 31,  2004*** | *** *** |
|-------------------------------------------------------------------------------|--------------|--------------------------------------------|--------------|-------------------------------------------|--------------|
| Deferred financing and lease costs, net                                       | ** **   |                                       | **$**        | **174,126**                               |         |   |   | $ | 179,689 |   |   |
| In-place lease intangibles                                                    | ** **   |                                       | **139,694**  |                                      |         |   | 173,224 |   |   |
| Fair market value of acquired above market  lease intangibles                 | ** **   |                                       | **109,963**  |                                      |         |   | 126,338 |   |   |
| Marketable securities of our captive  insurance companies                     | ** **   |                                       | **98,128**   |                                      |         |   | 95,493 |   |   |
| Goodwill                                                                      | ** **   |                                       | **20,098**   |                                      |         |   | 20,098 |   |   |
| Minority interests                                                            | ** **   |                                       | **57,912**   |                                      |         |   | 51,412 |   |   |
| Prepaids, notes receivable, other assets,  and tenant relationship intangible | ** **   |                                       | **449,591**  |                                      |         |   | 526,621 |   |   |
|                                                                          | ** **   |                                       | **$**        | **1,049,512**                             |         |   |   | $ | 1,172,875 |   |   |

 

***Intangible Assets.******  ***Intangible assets that areincluded in deferred costs and other assets on the accompanying consolidatedbalance sheets principally relate to amounts allocated as a component of ouracquisitions and are based on our preliminary valuations and will be finalizedwithin one year of the related acquisition.

We recordintangible liabilities which are included in accounts payable, accruedexpenses, intangibles, and deferred revenues on the consolidated balance sheetsrelated to the fair value of below market leases. The unamortized amounts as ofSeptember 30, 2005 and December 31, 2004 are $290.8 million and$337.6 million, respectively. The weighted average remaining life of theseintangibles approximates 6 years.

**4.   PerUnit Data**

We determine basic earnings per unit based onthe weighted average number of units outstanding during the period. Wedetermine diluted earnings per unit based on the weighted average number ofunits outstanding combined with the incremental weighted average units thatwould have been outstanding assuming all potentially dilutive units wereconverted into units at the earliest date possible. The following table setsforth the computation for our basic and diluted earnings per unit.

| *** ***                                               | *** *** | ***For the three months ended  September 30,*** | *** *** | ***For the nine months ended  September 30,*** | *** *** |
|------------------------------------------------------------|--------------|--------------------------------------------------------------------------|--------------|-------------------------------------------------------------------------|--------------|
|                                                       | ** **   | ***2005***                                                               | *** *** | ***2004***                                                              | *** *** | ***2005*** | *** *** | ***2004*** | ** ** |
| **Weighted Average Units Outstanding —  Basic**  | ** **   | **279,728,163**                                                          |         | 261,532,184                                                             | ** **   | **280,095,303** |   | 261,395,375 |   |
| Effect of stock options                                    | ** **   | **932,289**                                                              |         | 840,621                                                                 | ** **   | **906,661** |   | 854,180 |   |
| **Weighted Average Units Outstanding — Diluted** | ** **   | **280,660,452**                                                          |         | 262,372,805                                                             | ** **   | **281,001,964** |   | 262,249,555 |   |

 

Potentiallydilutive securities include the stock options of Simon Property and certainpreferred units which are exchangeable for units. The only potentially dilutivesecurity that had a dilutive effect for the three and nine months ended September 30,2005 and 2004 were stock options of Simon Property.

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**5.   Investmentin Unconsolidated Entities**

**Real Estate JointVentures**

Joint venturesare common in the real estate industry. We use joint ventures to financeproperties, develop new properties, and diversify our risk in a particularproperty or portfolio. We held joint venture ownership interests in67 Properties as of September 30, 2005 and December 31, 2004. Wealso held interests in two joint ventures which owned 51 European shoppingcenters as of September 30, 2005 and December 31, 2004. We also heldan interest in five joint venture properties in Japan and one joint ventureproperty in Mexico, through our ownership of CPG Partners L.P. which weacquired in our 2004 acquisition of Chelsea, and one additional joint ventureproperty in Canada. We account for these properties using the equity method ofaccounting.

During 2005, weand our joint venture partner completed the construction of, obtained permanentfinancing for, and opened St. Johns Town Center (St. Johns). Prior tothe completion of construction and opening of the center, we were responsiblefor 85% of the development costs, and guaranteed this same percentage of theoutstanding construction debt. As a result, we consolidated St. Johns duringits construction phase. Upon obtaining permanent financing, the guarantee wasreleased, and our partner’s and our ownership percentages were each adjusted to50%. We received a distribution from the partnership of $15.7 million inrepayment of our capital contributions to equalize our ownership interests, andthis Property is now accounted for using the equity method of accounting. Totalinvestment property of St. Johns at the date of refinancing wasapproximately $136 million.

On June 1,2005, we refinanced Westchester Mall, a joint venture Property, with a$500.0 million, 4.86% fixed-rate mortgage that matures on June 1,2010. The balances of the two previous mortgages, which were repaid, were$142.0 million and $50.1 million and bore interest at fixed rates of8.74% and 7.20%, respectively. Both were scheduled to mature on September 1,2005. We received our share of the excess refinancing proceeds of approximately$120 million on the closing of the new mortgage loan.

Substantially all of our joint venture Properties are subject to rightsof first refusal, buy-sell provisions, or other sale rights for partners whichare customary in real estate joint venture agreements and the industry. Ourpartners in these joint ventures may initiate these provisions at any time(subject to any applicable lock up or similar restrictions), which will resultin either the sale of our interest or the use of available cash or borrowingsto acquire the joint venture interest.

**European JointVenture Investments**

The carryingamount of our total combined investment in the two European joint ventureinvestments, European Retail Enterprises, B.V. (“ERE”) and Gallerie CommercialiItalia (“GCI”), was $291.4 million and $320.6 million as of September 30,2005 and December 31, 2004, respectively, net of the related cumulativetranslation adjustments, including subordinated debt in ERE. The OperatingPartnership has a 34.7% ownership in ERE and a 49% ownership in GCI.

On October 20,2005, Ivanhoe Cambridge, Inc. (“Ivanhoe”), an affiliate of Caisse de dépôtet placement du Québec, effectively acquired our former partner’s 39.5%ownership interest in ERE. ERE owns Group B.E.G. (“BEG”), a Paris-baseddeveloper, owner and manager of retail properties. In the future, we and Ivanhoewill equalize our ownership positions in ERE through the purchase of additionalinterests from ERE’s founders.

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Summary financial information of the jointventures and a summary of our investment in and share of income from such jointventures follow. We condensed into separate line items major captions of thestatements of operations for joint venture interests sold or consolidated.Consolidation occurs when we acquire an additional interest in the jointventure and, as a result, gain unilateral control of the Property or aredetermined to be the primary beneficiary. We reclassify these line items into “DiscontinuedJoint Venture Interests” and “Consolidated Joint Venture Interests” on thebalance sheets and statements of operations, if material, so that we maypresent comparative results of operations for those joint venture interestsheld as of September 30, 2005.

| ***BALANCE SHEETS***                                | *** *** | ***September 30,  2005*** | *** ***  | ***December 31,  2004*** | *** *** |
|----------------------------------------------------------|--------------|--------------------------------|---------------|-------------------------------|--------------|
| **Assets:**                                              |         |                           |          |                          |         |   |   |   |   |
| Investment properties, at cost                           | ** **   | ** **                     | **$**         | **9,505,099**                 |         |   |   | $ | 9,429,465 |   |   |
| Less — accumulated depreciation                | ** **   | ** **                     | **1,913,878** |                          |         |   | 1,745,498 |   |   |
| ** **                                               |         |                           | **7,591,221** |                          |         |   | 7,683,967 |   |   |
| Cash and cash equivalents                                | ** **   | ** **                     | **334,733**   |                          |         |   | 292,770 |   |   |
| Tenant receivables                                       | ** **   | ** **                     | **193,625**   |                          |         |   | 209,040 |   |   |
| Investment in unconsolidated entities                    | ** **   | ** **                     | **134,394**   |                          |         |   | 167,182 |   |   |
| Deferred costs and other assets                          | ** **   | ** **                     | **346,002**   |                          |         |   | 322,660 |   |   |
| Total assets                                             | ** **   | ** **                     | **$**         | **8,599,975**                 |         |   |   | $ | 8,675,619 |   |   |
| **Liabilities and Partners’ Equity:**               |         |                           |          |                          |         |   |   |   |   |
| Mortgages and other indebtedness                         | ** **   | ** **                     | **$**         | **6,731,408**                 |         |   |   | $ | 6,398,312 |   |   |
| Accounts payable, accrued expenses, and deferred revenue | ** **   | ** **                     | **416,301**   |                          |         |   | 373,887 |   |   |
| Other liabilities                                        | ** **   | ** **                     | **204,404**   |                          |         |   | 179,443 |   |   |
| Total liabilities                                        | ** **   | ** **                     | **7,352,113** |                          |         |   | 6,951,642 |   |   |
| Preferred units                                          | ** **   | ** **                     | **67,450**    |                          |         |   | 67,450 |   |   |
| Partners’ equity                                    | ** **   | ** **                     | **1,180,412** |                          |         |   | 1,656,527 |   |   |
| Total liabilities and partners’ equity              | ** **   | ** **                     | **$**         | **8,599,975**                 |         |   |   | $ | 8,675,619 |   |   |
| **Our Share of:**                                        |         |                           |          |                          |         |   |   |   |   |
| Total assets                                             | ** **   | ** **                     | **$**         | **3,601,577**                 |         |   |   | $ | 3,619,969 |   |   |
| Partners’ equity                                    | ** **   | ** **                     | **$**         | **555,119**                   |         |   |   | $ | 779,252 |   |   |
| Add: Excess Investment                                   | ** **   | ** **                     | **927,059**   |                          |         |   | 1,103,992 |   |   |
| Our net Investment in Joint Ventures                     | ** **   | ** **                     | **$**         | **1,482,178**                 |         |   |   | $ | 1,883,244 |   |   |
| Mortgages and other  indebtedness                        | ** **   | ** **                     | **$**         | **2,905,061**                 |         |   |   | $ | 2,750,327 |   |   |

 

“Excess Investment” represents theunamortized difference of our investment over our share of the equity in theunderlying net assets of the joint ventures acquired. We amortize excessinvestment over the life of the related Properties, typically no greater than35 years, and the amortization is included in the reported amount ofincome from unconsolidated entities.

 

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|                                                                    | *** *** | ***For the Three Months Ended  September 30,*** | *** *** | ***For the Nine Months Ended  September 30,*** | *** *** |
|--------------------------------------------------------------------|--------------|--------------------------------------------------------------------------|--------------|-------------------------------------------------------------------------|--------------|
| *** ***                                                       | *** *** | ***2005***                                                               | *** *** | ***2004***                                                              | *** *** | ***2005*** | *** *** | ***2004*** | *** *** |
| **STATEMENTS OF OPERATIONS**                                       |         |                                                                     |         |                                                                    |         |   |   |   |   |
| **Revenue:**                                                       |         |                                                                     |         |                                                                    |         |   |   |   |   |
| Minimum rent                                                       | ** **   | **$**                                                                    | **264,315**  |                                                                    | $            | 231,848 | ** ** | **$** | **779,602** |   | $ | 684,819 |   |
| Overage rent                                                       | ** **   | **17,072**                                                               |         | 6,315                                                                   | ** **   | **48,693** |   | 15,074 |   |
| Tenant  reimbursements                                             | ** **   | **135,181**                                                              |         | 118,827                                                                 | ** **   | **393,364** |   | 351,484 |   |
| Other income                                                       | ** **   | **38,992**                                                               |         | 14,363                                                                  | ** **   | **96,655** |   | 43,101 |   |
| Total revenue                                                      | ** **   | **455,560**                                                              |         | 371,353                                                                 | ** **   | **1,318,314** |   | 1,094,478 |   |
| **Operating Expenses:**                                            |         |                                                                     |         |                                                                    |         |   |   |   |   |
| Property  operating                                                | ** **   | **101,145**                                                              |         | 70,417                                                                  | ** **   | **273,929** |   | 206,541 |   |
| Depreciation  and amortization                                     | ** **   | **82,299**                                                               |         | 68,461                                                                  | ** **   | **243,175** |   | 203,116 |   |
| Real estate  taxes                                                 | ** **   | **33,625**                                                               |         | 31,801                                                                  | ** **   | **99,718** |   | 95,334 |   |
| Repairs and  maintenance                                           | ** **   | **19,199**                                                               |         | 15,662                                                                  | ** **   | **59,071** |   | 49,577 |   |
| Advertising  and promotion                                         | ** **   | **7,957**                                                                |         | 7,316                                                                   | ** **   | **23,793** |   | 23,830 |   |
| Provision for  credit losses                                       | ** **   | **2,924**                                                                |         | 1,852                                                                   | ** **   | **8,024** |   | 6,481 |   |
| Other                                                              | ** **   | **29,317**                                                               |         | 18,392                                                                  | ** **   | **83,208** |   | 50,825 |   |
| Total  operating expenses                                          | ** **   | **276,466**                                                              |         | 213,901                                                                 | ** **   | **790,918** |   | 635,704 |   |
| **Operating  Income**                                              | ** **   | **179,094**                                                              |         | 157,452                                                                 | ** **   | **527,396** |   | 458,774 |   |
| Interest  expense                                                  | ** **   | **104,633**                                                              |         | 92,123                                                                  | ** **   | **301,598** |   | 277,740 |   |
| **Income  Before Minority Interest and   Unconsolidated Entities** | ** **   | **74,461**                                                               |         | 65,329                                                                  | ** **   | **225,798** |   | 181,034 |   |
| Loss from  Unconsolidated Entities                                 | ** **   | **—**                                                               |         | (1,534                                                                  | )            | **(1,892** | **)** | (3,835 | ) |
| **Income  from Continuing Operations**                             | ** **   | **74,461**                                                               |         | 63,795                                                                  | ** **   | **223,906** |   | 177,199 |   |
| Income from  Consolidated Joint Venture Interests                  | ** **   | **—**                                                               |         | 7,956                                                                   | ** **   | **—** |   | 18,290 |   |
| Income from  Discontinued Joint Venture Interests                  | ** **   | **(28**                                                                  | **)**        | 6,455                                                                   | ** **   | **976** |   | 13,015 |   |
| Gain on  disposal or sale of Discontinued Operations, net          | ** **   | **—**                                                               |         | —                                                                  | ** **   | **98,359** |   | 4,704 |   |
| **Net  Income**                                                    | ** **   | **$**                                                                    | **74,433**   |                                                                    | $            | 78,206 | ** ** | **$** | **323,241** |   | $ | 213,208 |   |
| **Third-Party  Investors’ Share of Net Income**               | ** **   | **$**                                                                    | **45,578**   |                                                                    | $            | 48,174 | ** ** | **$** | **186,617** |   | $ | 134,025 |   |
| **Our  Share of Net Income**                                       | ** **   | **28,855**                                                               |         | 30,032                                                                  | ** **   | **136,624** |   | 79,183 |   |
| **Amortization  of Excess Investment**                             | ** **   | **10,221**                                                               |         | 6,130                                                                   | ** **   | **36,400** |   | 18,373 |   |
| **Write-off  of Investment Related to Property Sold**              | ** **   | **(14**                                                                  | **)**        | —                                                                  | ** **   | **37,764** |   | — |   |
| **Our  Share of Net Gain Related to Property Sold**                | ** **   | **(14**                                                                  | **)**        | —                                                                  | ** **   | **11,415** | ** ** | — | ** ** |
| **Income from Unconsolidated Entities**                            | ** **   | **$**                                                                    | **18,662**   | ** **                                                              | $            | 23,902 | ** ** | **$** | **51,045** | ** ** | $ | 60,810 | ** ** |

 

The 2005 gainon disposal or sale of discontinued operations, net, above represents the gainon sale of Metrocenter on January 11, 2005. Our share of the gain of$11,415, net of the write-off of the related investment, is included in theGain/(Loss) on Sales of Assets and Other, Net, in the 2005 consolidatedstatements of operations. Our share of the proceeds from the sale ofMetrocenter was $62.6 million.

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**6.**   Debt

**Unsecured Debt**

On January 11,2005, we refinanced our unsecured revolving credit facility (the “CreditFacility”) expanding the facility from $1.25 billion to $2.0 billion.The Credit Facility has a maturity date of January 11, 2008, with anadditional one-year extension available at our option. The facility can also beincreased to $2.5 billion within the first two years of closing at ouroption. The Credit Facility bears interest at LIBOR plus 55 basis points withan additional 15 basis point facility fee on the entire facility and providesfor variable grid pricing based upon our corporate credit rating. In addition,the Credit Facility has a $500 million U.S. dollar equivalent multi-currencytranche for Euro, Yen or Sterling borrowings. The Credit Facility containsfinancial covenants relating to capitalization value and leverage criteria,minimum EBITDA and unencumbered EBITDA coverage ratio requirements and aminimum equity value.

On June 7,2005, we issued two tranches of senior unsecured notes to institutionalinvestors pursuant to Rule 144A totaling $1.0 billion at a weightedaverage fixed interest rate of 4.90%. The first tranche is $400.0 millionat a fixed interest rate of 4.60% due June 15, 2010 and the second trancheis $600.0 million at a fixed interest rate of 5.10% due June 15,2015. We received net proceeds of $993.0 million. We used$358.0 million of the net proceeds to reduce borrowings on our CreditFacility, $600.0 million to reduce a $1.8 billion term loan we usedto finance part of our acquisition of Chelsea (the “Acquisition Facility”), andthe remaining portion was used for general working capital purposes. All of theRule 144A notes were exchanged in July of 2005 in a transactionregistered under the Securities Act of 1933 for notes having the same economicterms and conditions.

***CreditFacility.******  ***Othersignificant activity on the Credit Facility during the nine-month period ended September 30,2005 was as follows:
| Draw Date             | *** *** | *** *** | *** *** | ***Draw Amount***                                                                                                                 | *** *** | ***Use of Credit Line Proceeds*** |
|-----------------------|--------------|--------------|--------------|-----------------------------------------------------------------------------------------------------------------------------------|--------------|-----------------------------------|
| January 20, 2005 |         | $200,000     |         | ·   To repay a $250 million unsecured term  loan, which had a rate of LIBOR plus 65 basis points.             |
| March 31, 2005   |         | 17,268       |         | ·   Repayment of Chelsea’s Yen unsecured loan  facility, which had a rate of TIBOR plus 125 basis points.     |
| May 16, 2005     |         | 110,000      |         | ·   Repayment of $110 million unsecured  notes, which had a fixed rate of 7.625%.                             |
| June 15, 2005    |         | 300,000      |         | ·   Repayment of $300 million of unsecured  notes, which had a fixed rate of 6.75%.                           |
| June 24, 2005    |         | 100,000      |         | ·   Repayment of $100 million Medium Term  Notes, which had a fixed rate of 7.125%.                           |
| August 17, 2005  |         | 35,000       |         | ·   Repayment of $50 million in unsecured  notes, which had a fixed rate of 8.375%.                                |
| August 30,  2005 |         | 63,000       |         | ·   To repay two secured mortgages for one  regional mall, which had fixed rates of 7.13% and 7.77%, respectively. |

 

Other amountsdrawn on the Credit Facility were for general working capital purposes. Thetotal amount repaid on the Credit Facility during the nine month period ended September 30,2005 was $910.2 million. The total outstanding balance of the CreditFacility was $1.031 billion as of September 30, 2005. During thefirst nine months of 2005, the maximum amount outstanding under the CreditFacility was $1.034 billion and the weighted average amount outstandingwas $788.0 million.

***AcquisitionFacility.******  ***Weborrowed the $1.8 billion Acquisition Facility in 2004 to finance the cashportion of our acquisition of Chelsea. As of September 30, 2005,$1.2 billion remained outstanding. The Acquisition Facility matures on October 12,2006 and has remaining principal payments of two equal installments each due onApril 12, 2006 and at maturity. The Acquisition Facility bears interest atLIBOR plus 55 basis points with an additional 15 basis point facility fee onall loans outstanding, and provides for variable grid pricing based upon ourcredit rating.

**Secured Debt**

Total securedindebtedness was $4.6 billion and $5.0 billion at September 30,2005 and December 31, 2004, respectively.

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During thenine-month period ended September 30, 2005, we repaid $109.7 millionin mortgage loans, unencumbering five separate properties.

On June 1, 2005, we repaid a $110 million mortgage related toour disposition of Riverway, which bore interest at LIBOR plus 115 basispoints, and had a maturity date of October 1, 2006.

**7.**   Partners’Equity

On January 1,2005, Simon Property assigned the economic rights of Ocean County Mall, theonly Property held directly by Simon Property, to the Operating Partnership inexchange for 1,602,821 units and the settlement of an $88.8 million notereceivable. The Property is now consolidated with the Operating Partnership.The assignment was a final step to align the ownership interests in theproperties acquired as a result of the merger with Corporate Property Investors, Inc.in 1998 and the acquisition of the Northshore Mall in 1999.

On March 11,2005, we issued 407,200 units to Simon Property at a fair value of $60.57 pershare. On May 11, 2005, we issued 7,400 units to Simon Property at afair value of $68.40 per share, and on June 1, 2005, we issued 1,000 unitsto Simon Property at a fair value of $69.91 per share. All of these units wereissued in conjunction with Simon Property’s issuance of shares of restrictedstock that were awarded under The Simon Property Group 1998 Stock IncentivePlan. The fair market value of the restricted stock awarded has been deferredand is being amortized over a four-year vesting period. The issuance of therestricted stock utilized existing shares held by Simon Property as treasuryshares.

During thefirst nine months of 2005, eleven limited partners exchanged1,761,775 units for a like number of shares of common stock of SimonProperty.

During thefirst quarter of 2005, Simon Property repurchased 2,000,000 shares of commonstock in the open market under its $250 million Board approved share repurchaseprogram at an average price of $61.88. The program permitted Simon Property toacquire shares through May 6, 2005. In total, Simon Property hasrepurchased 2,317,300 shares as part of this program. As a result of theseshare repurchases, we have repurchased a like number of our units from SimonProperty.

On May 11,2005, Simon Property’s Board of Directors authorized a new common stockrepurchase program under which Simon Property may purchase up to 6,000,000shares of our common stock subject to a maximum aggregate purchase price of$250 million over the next twelve months as market conditions warrant. SimonProperty may repurchase the shares in the open market or in privatelynegotiated transactions. During the third quarter of 2005, Simon Propertyrepurchased 815,400 shares in the open market at an average price of $71.93 aspart of this program. In connection with these repurchases of common stock, weconcurrently repurchased an identical number of units from Simon Property. Theprogram has 5,184,600 shares, limited to $191.4 million, remaining for SimonProperty’s repurchase.

Preferred units whose redemption is outside of our control have beenclassified as temporary equity in the accompanying balance sheets.

**8.**   Commitmentsand Contingencies

**Litigation**

On November 15,2004, the Attorneys General of Massachusetts, New Hampshire and Connecticutfiled complaints in their respective state Superior Courts against us and ouraffiliate, SPGGC, Inc., alleging that the sale of co-branded, bank-issuedgift cards sold in certain of its Portfolio Properties violated giftcertificate statutes and consumer protection laws in those states. Each ofthese suits seeks injunctive relief, unspecified civil penalties anddisgorgement of any fees determined to be improperly charged to consumers.

In addition, weare a defendant in three other proceedings relating to the gift card program.Each of the three proceedings has been brought by a private plaintiff as apurported class action and alleges violation of state consumer protection laws,state abandoned property and contract laws or state statutes regarding giftcertificates or gift cards and seeks a variety of remedies includingunspecified damages and injunctive relief.

We believe thatwe have viable defenses under both state and federal laws to the above giftcard actions. Although it is not possible to provide any assurance of theultimate outcome of any of these pending actions, 

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management does not believe that an adverse outcome would have a materialadverse effect on our financial position, results of operations or cash flow.

*Triple Five of Minnesota, Inc., aMinnesota corporation, v. Melvin Simon, et al.*   Onor about November 9, 1999, Triple Five of Minnesota, Inc. commencedan action in the District Court for the state of Minnesota, Fourth JudicialDistrict, against, among others, Mall of America, certain members of the Simonfamily and entities allegedly controlled by such individuals, and us. Theaction was later removed to federal court. On September 10, 2003, thecourt issued its decision in a Memorandum and Order (the “Order”). In theOrder, the court found that certain entities and individuals breached theirfiduciary duties to Triple Five. The court did not award Triple Five damagesbut instead awarded Triple Five equitable and other relief and imposed aconstructive trust on that portion of the Mall of America owned by us.Specifically, as it relates to us, the court ordered that Triple Five wasentitled to purchase from us the one-half partnership interest that wepurchased in October 1999, provided Triple Five remits to us the sum of$81.38 million within nine months of the Order. On August 6, 2004,Triple Five closed on its purchase of our one-half partnership interest. Thecourt further held that we must disgorge all “net profits” that we received asa result of our ownership interest in the Mall from October 1999 to thepresent.

As a result ofthe Order, we initially recorded a $6.0 million charge for our share ofthe estimated loss in 2003. In the first quarter of 2004, as a result of the May 3,2004 memorandum issued by the court appointed mediator, which has now beenaffirmed by the court, we recorded an additional $13.5 million charge forour share of the loss that is included in “(Loss) gain on sales of assets andother, net” in the accompanying consolidated statements of operations andcomprehensive income. We ceased recording any contribution to net income fromthe results of operations of Mall of America as of September 1, 2003.

We appealed theOrder to the United States Court of Appeals for the Eighth Circuit. On April 21,2005, the Court of Appeals issued its opinion, affirming in part and reversingin part the Order of the trial court. The Appellate Court opinion changes theequitable remedy contained in the Order and requires that the one-halfpartnership interest Triple Five acquired from us pursuant to the Order mustinstead be offered, for the same price, to Mall of America Associates, ageneral partnership in which Triple Five and an entity affiliated with theSimon family are 50/50 partners (“MOAA”). If MOAA refuses to purchase theinterest, then Triple Five must transfer back to us one-half of the interest itacquired from us in August, 2004. Triple Five, as managing partner of MOAA, haselected to cause MOAA to acquire the one-half partnership interest. Inaddition, Triple Five has asked the Trial Court to grant it additional relief,namely to cause the Simon family partner in MOAA to be dissociated from thatpartnership and to terminate the existing management contract for the Mall withour subsidiary. The trial court has not yet determined whether it will considerthese requests for additional relief. It is not possible to provide anyassurance of the ultimate outcome of this litigation.

We are involved in various other legal proceedings that arise in theordinary course of our business. We believe that such routine litigation, claimsand administrative proceedings will not have a material adverse impact on ourfinancial position or our results of operations. We record a liability when aloss is considered probable and the amount can be reasonably estimated.

**Guarantees of Indebtedness**

Joint venture debt is the liability of the joint venture, and istypically secured by the joint venture Property, which is non-recourse to us.As of September 30, 2005, we have guaranteed or have provided letters ofcredit to support our share of $88.1 million of our total$2.9 billion share of joint venture mortgage and other indebtedness in theevent that the joint venture partnership defaults under the terms of themortgage or other indebtedness. The mortgages and other indebtedness guaranteedare secured by the property of the joint venture partnership which could besold in order to satisfy the outstanding obligation.

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**9.**   RealEstate Acquisitions and Dispositions

During the nine-month period ended September 30,2005, we had significant dispositions of properties summarized as follows(dollars in millions):
| Properties                                    | *** *** | ***Our  Ownership %*** | *** *** | ***Date of Disposal*** | *** *** | ***Sales Price*** | *** ***      | ***Gain/(Loss)*** | *** *** |
|-----------------------------------------------|--------------|-----------------------------|--------------|----------------------------------|--------------|------------------------|-------------------|-------------------|--------------|
| Riverway and O’Hare International Center |         |                        | 100          | %                                |         |                   | June 1, 2005 |              |         |   | $ | 257.3 |   |   |   | $ | 125.4 |   |   |
| Grove at Lakeland Square                      |         |                        | 100          | %                                |         |                   | July 1, 2005 |              |         |   | $ | 10.4 |   |   |   | ($0.1 | ) |   |

 

The majority ofthe net proceeds from the sale, net of repayment of outstanding debt, ofRiverway and O’Hare International Center are held in escrow for reinvestment inqualifying replacement properties pursuant to Section 1031 of the InternalRevenue Code and related regulations. Proceeds from the disposition of Grove atLakeland Square were used for general working capital purposes.

We had no property acquisitions during the nine-month period ended September 30,2005.

**10.**   NewAccounting Pronouncements

In December 2004,the FASB issued SFAS No. 153, “Exchanges of Nonmonetary Assets — anamendment of APB Opinion No. 29.” This statement requires exchanges ofproductive assets to be accounted for at fair value, rather than at carryoverbasis, unless (a) neither the asset received nor the asset surrendered hasa fair 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 is not anticipated to have a materialimpact on our financial position or results of operations.

In June 2005,the FASB ratified its consensus in EITF Issue 04-05, “Determining Whethera General Partner, or the General Partners as a Group, Controls a LimitedPartnership or Similar Entity When the Limited Partners Have Certain Rights”(Issue 04-05). The effective date for Issue 04-05 is June 29,2005 for all new or modified partnerships and January 1, 2006 for allother partnerships for the applicable provisions. The adoption of theprovisions of EITF 04-05 is not anticipated to have a material impact onour financial position or results of operations.

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

You should read the following discussion in conjunction with thefinancial statements and notes thereto that are included in this report.Certain statements made in this section or elsewhere in this report may bedeemed “forward-looking statements” within the meaning of the PrivateSecurities Litigation Reform Act of 1995. Although we believe the expectationsreflected in any forward-looking statements are based on reasonableassumptions, we can give no assurance that our expectations will be attained,and it is possible that our actual results may differ materially from thoseindicated by these forward-looking statements due to a variety of risksand uncertainties. Those risks and uncertainties include, but are not limitedto: international, national, regional and local economic climates, competitivemarket forces, changes in market rental rates, trends in the retail industry,the inability to collect rent due to the bankruptcy or insolvency of tenants orotherwise, risks associated with acquisitions, the impact of terroristactivities, environmental liabilities, pending litigation, maintenance of REITstatus, changes in applicable laws, rules and regulations, changes inmarket rates of interest and exchange rates for foreign currencies. Weundertake no duty or obligation to update or revise these forward-lookingstatements, whether as a result of new information, future developments, orotherwise.

**Overview**

Simon PropertyGroup, L.P. (the “Operating Partnership”), a Delaware limited partnership, is amajority owned subsidiary of Simon Property Group, Inc. (“Simon Property”).Simon Property is our general partner and a self-administered and self-managedreal estate investment trust (“REIT”) under the Internal Revenue Code of 1986,as amended (the “Code”). In this discussion, the terms “we”, “us” and “our”refer to the Operating Partnership and its subsidiaries.

We are engaged in the ownership, development and management of retailreal estate, primarily regional malls, Premium Outlet® centers andcommunity/lifestyle centers. As of September 30, 2005, we owned or held aninterest in 295 income-producing properties in the United States, whichconsisted of 172 regional malls, 71 community/lifestyle centers, 33 PremiumOutlet centers and 19 other shopping centers or outlet centers in40 states plus Puerto Rico (collectively, the “Properties”, andindividually, a “Property”). We also own interests in eleven parcels of landheld in the United States for future development (together with the Properties,the “Portfolio”). Finally, we have ownership interests in 51 European shoppingcenters (France, Italy, Poland and Portugal); five Premium Outlet centers inJapan; one Premium Outlet center in Mexico; and one shopping center in Canada.

***OperatingFundamentals***

We generate the majority of revenues fromleases with retail tenants including:

·        Base minimum rents, cartand kiosk rentals,

·        Overage and percentagerents based on tenants’ sales volume, and

·        Recoveries of asignificant amount of our recoverable expenditures, which consist of propertyoperating, real estate tax, repairs and maintenance, and advertising andpromotional expenditures.

Revenues of theManagement Company, after intercompany eliminations, consist primarily ofmanagement fees that are typically based upon the revenues of the propertybeing managed.

We seek growth in our earnings and cash flowsby enhancing the profitability of our operation of our regional malls, PremiumOutlet centers, community/lifestyle centers, and international investments. Weseek to accomplish this growth through the following:

·        Focusing on leasing toincrease revenues and utilization of economies of scale to reduce operatingexpenses.

·        Expansion and re-tenantingexisting franchise locations at competitive market rates.

·        The addition of mixed-useelements to our Portfolio through our land intensification initiatives. Thisincludes such elements as multifamily, condominiums, hotel and self-storage toselected locations.

·        The sale of non-coreassets.

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We also grow by generating supplementalrevenues in our existing real estate portfolio, from outlot parcel sales and,due to our size and tenant relationships, from the following:

·        Simon Brand Ventures (“SimonBrand”) mall marketing initiatives, including the sale of co-branded gift cardsunder the Simon brand. Simon Brand revenues also include payment services,national media contracts, a national beverage contract and other contracts withnational companies.

·        Simon Business Network (“SimonBusiness”) property operating services to our tenants and others resulting fromits relationships with vendors.

Further, westrive to develop high quality real estate across the retail real estatespectrum. We pursue strategic expansion and renovation activity to enhanceexisting assets’ profitability and market share when we believe the investmentof our capital meets our risk-reward criteria. We selectively develop newproperties in major metropolitan areas that exhibit strong population andeconomic growth.

Additionally,we acquire high quality retail real estate within our three domestic platforms.As part of our acquisition strategy, we review and evaluate a number ofacquisition opportunities and evaluate each based on its complement to ourPortfolio.

Lastly, weselectively expand our international presence. Our strategy to investinginternationally includes partnering with established real estate companies andfinancing international investments with local currency to minimize foreignexchange risk.

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

·        Provide the capitalnecessary to fund growth.

·        Maintain sufficientflexibility to access capital in many forms, both public and private.

·        Manageour overall financial structure in a fashion that preserves our investmentgrade ratings.

***ResultsOverview***

Dilutedearnings per unit increased $0.37 during the first nine months of 2005, or39.8%, to $1.30 from $0.93 for the same period last year. This increase was theresult of net gains from sales of real estate and results of operations ofdiscontinued operations which increased from the previous period by $0.46.Excluding the effect of net gains from sales of real estate and results of operationsfrom discontinued operations, diluted earnings per unit from continuingoperations decreased $0.09 to $0.82 per unit for the nine months as compared tothe prior period. This decrease is primarily the result of increases indepreciation resulting from our 2004 acquisitions.

Our corebusiness fundamentals remained healthy during the first nine months of 2005.Regional mall comparable sales per square foot (“psf”) strengthened during thefirst nine months of 2005, increasing 5.5% to $444 psf from $421 psffor the same period in 2004 as a result of strong retail demand by consumers.Our regional mall average base rents increased 3.7% to $34.30 psf as of September 30,2005 from $33.07 psf as of September 30, 2004 and our regional mallleasing spreads were $7.26 psf as of September 30, 2005 compared to$6.38 psf as of September 30, 2004. Finally, regional mall occupancyincreased 0.8% to 92.6% as of September 30, 2005 from 91.8% due to strongdemand for retail space and less tenant bankruptcy activity.

During the first nine months of 2005 wedisposed of five properties as follows:

·        On January 11, 2005,Metrocenter, a regional mall located in Phoenix, Arizona was sold and werecorded a gain on disposition of $11.4 million. We held a 50% interest inMetrocenter.

·        On March 31, 2005, wesold Lakeland Factory Outlet, located in Lakeland, Tennessee. There was no gainor loss on the sale of this property.

·        On June 1, 2005, wesold our Riverway and O’Hare International Center office building complexes,located in Rosemont, Illinois. We recorded a gain on the disposition of thesetwo properties of $125.4 million.

·        On July 1, 2005, wesold Grove at Lakeland Square, located in Lakeland, Florida. We recorded aninsignificant loss on this disposition.

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Our overall effective weighted averageborrowing rate increased by 23 basis points as compared to our overalleffective weighted average borrowing rate at December 31, 2004 due toincreasing variable interest rates. However, as compared to the prior yearperiod, our overall effective weighted average borrowing rate decreased 11basis points. Our financing activities were highlighted by the followingsignificant transactions:

·        On January 11, 2005,we refinanced the Credit Facility, increasing it to a maximum of$2.0 billion and extending the maturity to January 11, 2008, with anadditional one-year extension available at our option. The Credit Facility canbe increased to $2.5 billion within the first two years of closing at ouroption subject to a fee approximating 25 basis points. The Credit Facilitybears interest at LIBOR plus 55 basis points with an additional 15 basis pointfacility fee on the entire $2.0 billion facility and provides for variablegrid pricing based upon our corporate credit rating. In addition, the new facilityhas a $500 million multi-currency tranche for Euro, Yen or Sterlingborrowings and also includes a money market competitive bid option program thatallows us to hold auctions to obtain lower pricing for short-term funds for upto $1.0 billion.

·        We paid off a$110 million mortgage that bore interest at LIBOR plus 115 basis points,as a result of our disposition of the property (Riverway).

·        We issued two tranches ofsenior unsecured notes totaling $1.0 billion at a weighted average fixedinterest rate of 4.90%, and used $358 million to repay borrowings on theCredit Facility and $600 million to repay borrowings on the loan weincurred to finance a portion of our acquisition of Chelsea Property Group, Inc.and its affiliates (collectively “Chelsea”) in 2004.

·        We repaid$510 million in unsecured borrowings which bore interest at fixed ratesranging from 6.75% to 7.625%, and $250 million in unsecured borrowingsthat bore a variable rate of LIBOR plus 65 basis points.

·        We repaid $50 million ofChelsea unsecured borrowings which bore interest at a fixed rate of 8.375%.

·        Wepaid off two mortgages totaling $62 million that bore interest at fixed ratesof 7.13% and 7.77%, respectively.

***PortfolioData***

The Portfolio data discussed in this overviewincludes the following key operating statistics: occupancy, average base rentper square foot, and comparable sales per square foot for our three domesticplatforms. We include acquired Properties in this data beginning in the year ofacquisition and we do not include any Properties located outside of the UnitedStates. The following table sets forth these key operating statistics for:

·        Properties that weconsolidate in our consolidated financial statements,

·        Properties that we accountfor under the equity method as unconsolidated joint ventures, and

·        the foregoing twocategories of Properties on a total Portfolio basis.

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| *** ***                            | *** *** | ***September 30,  2005*** | *** *** | ***% Change  from prior  period*** | *** *** | ***September 30,  2004*** | *** *** | ***% Change  from prior  period*** | *** *** |
|-----------------------------------------|--------------|--------------------------------|--------------|----------------------------------------------|--------------|--------------------------------|--------------|----------------------------------------------|--------------|
| **Regional Malls:**                     |         |                           |         | ** **                                   |         |                           |         | ** **                                   |         |   |   |   |   |   |   |   |   |
| ***Occupancy***                         |         |                           |         | ** **                                   |         |                           |         | ** **                                   |         |   |   |   |   |   |   |   |   |
| Consolidated                            | ** **   | ** **                     | **92.6**     | **%**                                        |         |                           |         | ** **                                   |         |   | 91.7 | % |   |   |   |   |   |
| Unconsolidated                          | ** **   | ** **                     | **92.6**     | **%**                                        |         |                           |         | ** **                                   |         |   | 92.0 | % |   |   |   |   |   |
| **Total  Portfolio**                    | ** **   | ** **                     | **92.6**     | **%**                                        |         |                           |         | ** **                                   |         |   | 91.8 | % |   |   |   |   |   |
| ***Average Base Rent per Square Foot*** |         |                           |         | ** **                                   |         |                           |         | ** **                                   |         |   |   |   |   |   |   |   |   |
| Consolidated                            | ** **   | ** **                     | **$**        | **33.79**                                    | ** **   | ** **                     | ** **   | **4.6**                                      | **%**        |   |   | $ | 32.30 |   |   |   | 5.2 | % |   |
| Unconsolidated                          | ** **   | ** **                     | **$**        | **35.26**                                    | ** **   | ** **                     | ** **   | **2.5**                                      | **%**        |   |   | $ | 34.38 |   |   |   | 1.8 | % |   |
| **Total  Portfolio**                    | ** **   | ** **                     | **$**        | **34.30**                                    | ** **   | ** **                     | ** **   | **3.7**                                      | **%**        |   |   | $ | 33.07 |   |   |   | 3.8 | % |   |
| ***Comparable Sales Per Square Foot***  |         |                           |         | ** **                                   |         |                           |         | ** **                                   |         |   |   |   |   |   |   |   |   |
| Consolidated                            | ** **   | ** **                     | **$**        | **428**                                      | ** **   | ** **                     | ** **   | **5.2**                                      | **%**        |   |   | $ | 407 |   |   |   | 6.2 | % |   |
| Unconsolidated                          | ** **   | ** **                     | **$**        | **476**                                      | ** **   | ** **                     | ** **   | **6.3**                                      | **%**        |   |   | $ | 448 |   |   |   | 5.1 | % |   |
| **Total  Portfolio**                    | ** **   | ** **                     | **$**        | **444**                                      | ** **   | ** **                     | ** **   | **5.5**                                      | **%**        |   |   | $ | 421 |   |   |   | 5.8 | % |   |
| **Premium  Outlet Centers:**            |         |                           |         | ** **                                   |         |                           |         | ** **                                   |         |   |   |   |   |   |   |   |   |
| Occupancy                               | ** **   | ** **                     | **99.6**     | **%**                                        |         |                           |         | ** **                                   |         |   |   |   |   |   |   |   |   |
| Average Base  Rent Per Square Foot      | ** **   | ** **                     | **$**        | **22.99**                                    | ** **   | ** **                     | ** **   | **—**                                   | ** **   |   |   | — |   |   |   | — |   |   |
| Comparable  Sales Per Square Foot       | ** **   | ** **                     | **$**        | **426**                                      | ** **   | ** **                     | ** **   | **—**                                   | ** **   |   |   | — |   |   |   | — |   |   |
| **Community/Lifestyle  Centers:**       |         |                           |         | ** **                                   |         |                           |         | ** **                                   |         |   |   |   |   |   |   |   |   |
| ***Occupancy***                         |         |                           |         | ** **                                   |         |                           |         | ** **                                   |         |   |   |   |   |   |   |   |   |
| Consolidated                            | ** **   | ** **                     | **89.5**     | **%**                                        |         |                           |         | ** **                                   |         |   | 90.3 | % |   |   |   |   |   |
| Unconsolidated                          | ** **   | ** **                     | **95.5**     | **%**                                        |         |                           |         | ** **                                   |         |   | 96.2 | % |   |   |   |   |   |
| **Total  Portfolio**                    | ** **   | ** **                     | **91.3**     | **%**                                        |         |                           |         | ** **                                   |         |   | 92.2 | % |   |   |   |   |   |
| ***Average Base Rent Per Square Foot*** |         |                           |         | ** **                                   |         |                           |         | ** **                                   |         |   |   |   |   |   |   |   |   |
| Consolidated                            | ** **   | ** **                     | **$**        | **11.58**                                    | ** **   | ** **                     | ** **   | **4.2**                                      | **%**        |   |   | $ | 11.11 |   |   |   | 4.8 | % |   |
| Unconsolidated                          | ** **   | ** **                     | **$**        | **10.49**                                    | ** **   | ** **                     | ** **   | **4.1**                                      | **%**        |   |   | $ | 10.08 |   |   |   | 3.0 | % |   |
| **Total  Portfolio**                    | ** **   | ** **                     | **$**        | **11.23**                                    | ** **   | ** **                     | ** **   | **4.1**                                      | **%**        |   |   | $ | 10.79 |   |   |   | 4.4 | % |   |
| ***Comparable Sales Per Square Foot***  |         |                           |         | ** **                                   |         |                           |         | ** **                                   |         |   |   |   |   |   |   |   |   |
| Consolidated                            | ** **   | ** **                     | **$**        | **226**                                      | ** **   | ** **                     | ** **   | **3.2**                                      | **%**        |   |   | $ | 219 |   |   |   | 8.1 | % |   |
| Unconsolidated                          | ** **   | ** **                     | **$**        | **204**                                      | ** **   | ** **                     | ** **   | **1.0**                                      | **%**        |   |   | $ | 202 |   |   |   | (1.3 | %) |   |
| **Total Portfolio**                     | ** **   | ** **                     | **$**        | **220**                                      | ** **   | ** **                     | ** **   | **3.3**                                      | **%**        |   |   | $ | 213 |   |   |   | 5.0 | % |   |

 

***Occupancy Levels and Average Base Rent PerSquare Foot.******  ***Occupancyand average base rent are based on mall and freestanding GLA owned by us (“OwnedGLA”) in the regional malls, all tenants at the Premium Outlet centers, and alltenants at community/lifestyle centers. We believe 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.

***ComparableSales Per Square Foot.******  ***Comparablesales include total reported retail tenant sales at Owned GLA (for mall andfreestanding stores with less than 10,000 square feet) in the regional mallsand all reporting tenants at the Premium Outlet centers and community/lifestylecenters. Retail sales at Owned GLA affect revenue and profitability levelsbecause sales determine the amount of minimum rent that can be charged, thepercentage rent realized, and the recoverable expenses (common areamaintenance, real estate taxes, etc.) that tenants can afford to pay.

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***International Property Data (1)***

The following key operating statistics are providedfor our international properties, which are accounted for using the equitymethod of accounting. Discussion regarding our results of operations for ourinvestment in unconsolidated entities is included in our year-over-yearcomparisons which follow.

| *** ***                               | *** *** | ***September 30,  2005*** | *** *** | ***Change  from prior  period*** | *** *** | ***September 30,  2004*** | *** *** |
|--------------------------------------------|--------------|--------------------------------|--------------|---------------------------------------|--------------|--------------------------------|--------------|
| **European Shopping Centers**              |         |                           |         | ** **                            |         |                           |         |   |   |   |   |   |   |
| Occupancy                                  | ** **   | ** **                     | **97.7**     | **%**                                 |         |                           |         |   |   |   | 99.2 | % |   |
| Comparable sales per square foot (2)  | ** **   | ** **                     | **$**        | **467**                               | ** **   |                           |         | — |   |   |   | — |   |   |
| Average base rent per square foot (2) | ** **   | ** **                     | **$**        | **31.32**                             | ** **   |                           |         | 1.2 | % |   |   | $ | 30.96 |   |   |
| **International Premium Outlets**          | ** **   | ** **                     | ** **   | ** **                            |         |                           |         |   |   |   |   |   |   |
| Occupancy                                  | ** **   | ** **                     | **100**      | **%**                                 |         |                           |         |   |   |   | — |   |   |
| Comparable sales per square foot (3)  | ** **   | ** **                     | **$**        | **842**                               | ** **   |                           |         | — |   |   |   | — |   |   |
| Average base rent per square foot (3) | ** **   | ** **                     | **$**        | **41.82**                             | ** **   |                           |         | — |   |   |   | — |   |   |
|                                            |              |                                |              |                                       |              |                                |              |  |  |  |  |  |  |  |  |

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

(2)                    Basedon a conversion factor (USD:Euro) of 1.2048 for 2005 and 1.2331 for 2004.

(3)                    Basedon a conversion factor of (USD:Yen) of 107.2 for 2005.

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**Results of Operations**

In addition to the activity discussed in theResults Overview, the following acquisitions, dispositions, and openingsaffected our consolidated results from continuing operations in the comparativeperiods:

·        On July 1, 2005, we sold Groveat Lakeland Square community center in Lakeland, Florida for $10.4 million andrecognized a loss on the disposition of $0.1 million.

·        On June 1, 2005, wesold the Riverway and O’Hare International Center office building complexes, inRosemont, Illinois for $257.3 million and recognized a gain on theirdisposition of $125.5 million.

·        On May 6, 2005, weopened Seattle Premium Outlets.

·        On January 1, 2005, Simon Property assigned theeconomic rights of Ocean County Mall, the only Property held directly by SimonProperty, to the Operating Partnership in exchange for 1,602,821 units and thesettlement of an $88.8 million note receivable. The Property is nowconsolidated with the Operating Partnership.

·        On December 15, 2004,we increased our ownership interest in Woodland Hills, located in Tulsa,Oklahoma, to approximately 94.5% for $119.5 million, including theassumption of our $39.7 million share of debt.

·        On November 19,2004, we increased our ownership interest in Lehigh Valley, located inWhitehall, Pennsylvania, to 37.6% for approximately $42.3 million,including the assumption of our $25.9 million share of debt.

·        On October 14, 2004,we completed our acquisition of Chelsea. The acquisition included32 Premium Outlets, 4 Premium Outlets in Japan, 3 community centers, 21other retail centers, 1 Premium Outlet in Mexico, and its developmentportfolio. The purchase price was approximately $5.2 billion including theassumption of debt. As a result, we acquired the remaining 50% interests in twoPremium Outlets in Las Vegas and Chicago, which resulted in our owning a 100%interest in these Properties which were previously accounted for under theequity method of accounting.

·        OnMay 4, 2004, we purchased a 100% interest in Plaza Carolina in San Juan,Puerto Rico for approximately $309.0 million.

·        OnApril 27, 2004, we increased our ownership interest in Bangor Mall andMontgomery Mall to approximately 67.6% and 54.4%, respectively, forapproximately $67.0 million and the assumption of our $16.8 million shareof debt.

·        OnApril 1, 2004, we increased our ownership interest in Mall of GeorgiaCrossing from 50% to 100% for approximately $26.3 million, including theassumption of our $16.5 million share of debt.

·        On February 5, 2004we purchased a 95% interest in Gateway Shopping Center in Austin, Texas forapproximately $107.0 million.

In addition to the activity discussed in theResults Overview, the following acquisitions, dispositions, and openingsaffected our income from unconsolidated entities in the comparative periods:

·        In March 2005, weand our joint venture partner opened St. Johns Town Center, a 1.5 millionsquare foot open-air retail project, located in Jacksonville, Florida. Throughthe construction period, we owned 85% of this project, including our 85%guarantee underlying the construction financing. Also in March, theconstruction loan was refinanced with permanent secured debt, the guarantee wasreleased, and the ownership percentages were each adjusted to50%.As a result, we changed the method of accounting for this Property fromconsolidated to the equity method. We received proceeds from the refinancing of$15.7 million as a repayment of our capital contribution.

·        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, which was accountedfor on the equity method of accounting.

·        OnOctober 14, 2004, we opened Clay Terrace in Carmel, Indiana.

·        OnMay 10, 2004, we and our joint venture partner (Chelsea) completedconstruction and opened Chicago Premium Outlets.

·        OnApril 7, 2004, we sold the joint venture interest in a hotel property heldby the Management Company.

·        August 6, 2004, wecompleted the court ordered sale of our joint venture interest in Mall ofAmerica, in Minneapolis, Minnesota.

We sold the following Properties in 2004 and2005:

| · | Hutchinson Mall on June 15, 2004               | · | Lakeland Factory Outlet Mall on March 31,  2005 |
|--------|-----------------------------------------------------|--------|------------------------------------------------------|
| · | Bridgeview Court on July 22, 2004              | · | Riverway and O’Hare International Center on     |
| · | Woodville Mall on September 1, 2004            |   | June 1, 2005                                    |
| · | Santa Fe Premium Outlets on  December 28, 2004 | · | Grove at Lakeland Square on July 1, 2005             |
| · | Heritage Park Mall on December 29,  2004       |   |                                                 |

 

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For the purposes of the following comparison between the three and ninemonths ended September 30, 2005 and 2004, the above transactions arereferred to as the Property Transactions. Properties that were owned in both ofthe periods under comparison are referred to as comparable properties.

***Three MonthsEnded September 30, 2005 vs. Three Months Ended September 30, 2004***

Minimum rents,excluding rents from our consolidated Simon Brand and Simon Businessinitiatives, increased $117.9 million during the period. The net effect ofthe Property Transactions increased minimum rents $107.0 million,$93.9 million of which was due to the operations of the Premium Outletcenters and other Properties acquired from Chelsea in October of 2004.Amortization of the fair market value of in-place leases increased minimumrents by $5.5 million over that of the third quarter of 2004, includingthe impact of the Property Transactions, principally the result of the Chelseatransaction. Non-Simon Brand and Simon Business rents from comparable propertiesincreased $11.0 million, or 3.2%. This was primarily due to the leasing ofspace at higher rents that resulted in an increase in base rents of$11.9 million. In addition, rents from carts, kiosks, and other temporarytenants increased comparable rents by $0.9 million. Total overage rentsincreased $6.6 million, reflecting stronger retail sales and as a resultof the Property Transactions, principally Chelsea.

Tenantreimbursements, excluding Simon Business initiatives, increased$41.3 million, of which the Property Transactions accounted for $38.7 million,$33.5 million of which was due to the operations of the Premium Outletsand other properties which were acquired from Chelsea in October of 2004.The remainder of the increase of $2.6 million, or 1.4%, was in comparableproperties and was due to increased property operating costs and the impact ofmoving tenants to our fixed common area maintenance reimbursement program.

Management feesand other revenues increased $1.8 million primarily due to increased feesfrom joint venture activities. Total other income, excluding consolidated SimonBrand and Simon Business initiatives, increased $6.6 million during theperiod. This increase was principally due to the recovery of a note receivablein excess of its value assigned in a prior business combination of $4.1million.

Consolidated revenues from Simon Brand andSimon Business initiatives increased $6.3 million to $40.0 millionfrom $33.7 million. The increase in revenues is primarily due to:

·        increasedrevenue from co-branded gift card programs,

·        increasedrents and fees from service providers,

·        increasedadvertising rentals, and

·        increased event andsponsorship income.

The increasedrevenues from Simon Brand and Simon Business were offset partially by increasesin Simon Brand and Simon Business expenses of $1.1 million, that primarilyresulted from increased gift card and other operating expenses included intotal property operating expenses.

Propertyoperating expenses increased $23.9 million, $8.6 million fromcomparable properties (representing an increase of 9.6%) principally as aresult of increased personnel costs and insurance. The remaining increase inproperty operating expenses was due to the net effect of the PropertyTransactions, principally Chelsea.

Depreciationand amortization expenses increased $61.9 million primarily due to the neteffect of the Property Transactions. The Chelsea properties accounted for$48.0 million of the increase.

Real estatetaxes increased $14.9 million due principally to the PropertyTransactions. The Chelsea properties accounted for $11.9 million of theincrease. The increase for comparable properties was $1.5 million, or2.6%.

Repairs andmaintenance decreased $1.3 million due principally to a decrease at thecomparable properties of $4.6 million, or 19.2%. The decrease was offset by a$2.8 million increase in the Chelsea properties.

Advertising andpromotion expenses increased $9.5 million due to the net effect of theProperty Transactions, primarily the Chelsea properties.

Provision forcredit losses decreased $0.5 million from the prior period due to areduction of gross receivables and recoveries of amounts previously written offor provided for in prior periods.

Home office andregional costs increased $7.5 million due to the Property Transactions,primarily Chelsea, and the costs of operating the Roseland, NJ offices. Otherexpenses increased $5.3 million primarily due to ground rent and legalexpense increases.

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Interest expense increased $42.0 milliondue to the following:

·        theeffect of the borrowings to finance the Property Transactions, including $12.5million related to the Acquisition Facility,

·        theconsolidation and/or acquisition of debt related to Property Transactions,principally the Chelsea acquisition in the fourth quarter of 2004, whichincreased interest expense by $16.8 million,

·        increasedaverage borrowings resulting from the impact of an unsecured note offering inAugust of 2004, and

·        increases in our averageborrowing rates for our variable rate debt.

The gain onsale of discontinued operations of $5.6 million represents the resolutionof a contingency related to the net gain on the sale of Riverway and O’HareInternational Center properties in the third quarter of 2005.

The results ofoperations from discontinued operations includes the sale of underlying groundadjacent to the Riverway and O’Hare International Center properties.

Preferred unit distribution requirements increased $12.7 million due tothe issuance of preferred units in conjunction with the acquisition of Chelsea.

***Nine MonthsEnded September 30, 2005 vs. Nine Months Ended September 30, 2004***

Minimum rents,excluding rents from our consolidated Simon Brand and Simon Businessinitiatives, increased $356.1 million during the period. The net effect ofthe Property Transactions increased minimum rents $329.3 million,$273.2 million of which was due to the operations of the Premium Outletcenters and other Properties acquired from Chelsea in October of 2004.Total amortization of the fair market value of in-place leases increasedminimum rents by $15.3 million over that of the first nine months of 2004,including the impact of the Property Transactions, principally the result ofthe Chelsea transaction. Non-Simon Brand and Simon Business rents from thecomparable properties increased $26.8 million, or 2.7%. This was primarilydue to the leasing of space at higher rents that resulted in an increase inbase rents of $27.8 million. In addition, rents from carts, kiosks, andother temporary tenants increased comparable rents by $8.1 million. Totaloverage rents increased $16.5 million, $3.0 million of which was fromcomparable properties, reflecting stronger retail sales and as a result of theProperty Transactions, principally Chelsea.

Tenant reimbursements,excluding Simon Business initiatives, increased $119.2 million, of whichthe Property Transactions accounted for $113.2 million, $89.6 millionof which was due to the operations of the Premium Outlets and other propertieswhich were acquired from Chelsea in October of 2004. The remainder of theincrease of $6.0 million, or 1.2%, was in comparable properties and wasdue to the increase in property operating cost expenses and the impact ofmoving tenants to our fixed common area maintenance reimbursement program.

Management feesand other revenues increased $2.6 million primarily due to increased feesfrom joint venture activities. Total other income, excluding consolidated SimonBrand and Simon Business initiatives, increased $12.5 million during theperiod. This increase was due to increased interest income, recovery of a notereceivable in excess of its value assigned in a prior business combination of$4.1 million, and increases in net fee income received for construction andfinancing activities for joint venture Properties.

Consolidated revenues from Simon Brand andSimon Business initiatives increased $19.4 million to $106.4 millionfrom $87.0 million. The increase in revenues is primarily due to:

·        increasedrevenue from a co-branded gift card program,

·        increasedrents and fees from service providers,

·        increasedadvertising rentals, and

·        increased event andsponsorship income.

The increasedrevenues from Simon Brand and Simon Business were offset by increases in SimonBrand and Simon Business expenses of $4.6 million, that primarily resultedfrom increased gift card and other operating expenses included in propertyoperating expenses.

Propertyoperating expenses increased $59.9 million, $13.1 million from thecomparable properties (representing an increase of 5.1%). The remainder of theincrease is due to the net effect of the Property Transactions, principallyChelsea.

Depreciationand amortization expenses increased $204.7 million primarily due to thenet effect of the Property Transactions. The Chelsea properties accounted for$161.4 million of the increase. Comparable properties depreciation andamortization increased $3.7 million, due to the effect of expansions andrenovations.

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Real estatetaxes increased $43.0 million due principally to the PropertyTransactions. The Chelsea properties accounted for $29.1 million of theincrease. The increase for the comparable properties was $7.9 million, or4.6%.

Repairs andmaintenance increased $10.4 million due principally to the PropertyTransactions, offset by a decrease of $1.4, or 2.1% for comparable properties.The Chelsea properties accounted for $9.4 million of the increase.

Advertising andpromotion expenses increased $21.3 million due to net effect of theProperty Transactions.

Provision forcredit losses decreased $6.3 million from the prior period due to areduction of gross receivables and recoveries of amounts previously written offor provided for in prior periods.

Home office andregional costs increased $23.2 million due to the Property Transactions,primarily due to the acquisition of Chelsea and the additional costs ofoperating the Roseland, NJ offices, and incremental discretionary incentivecompensation arrangements. Other expenses increased $10.7 million primarilydue to ground rent and legal expense increases.

Interest expense increased$129.0 million due to the following:

·        theeffect of the borrowings to finance the Property Transactions, including $41.3million related to the Acquisition Facility,

·        theconsolidation and/or acquisition of debt related to Property Transactions,principally the Chelsea acquisition in the fourth quarter of 2004, whichincreased interest expense by $48.0 million,

·        increasedaverage borrowings resulting from the impact of an unsecured note offering inAugust 2004, and

·        increases in our averageborrowing rates for our variable rate debt.

The gain onsale of assets in 2005 of $12.6 million relates to the sale of our jointventure interest in Metrocenter in January 2005 and the sale of a propertymanagement entity acquired as part of the Rodamco acquisition in 2002.

The gain onsale of discontinued operations of $125.4 million principally representsthe net gain upon disposition of our Riverway and O’Hare International Centerproperties in June of 2005.

The results ofoperations from discontinued operations includes the net operating results ofproperties sold, including the aforementioned sale of underlying groundadjacent to the Riverway and O’Hare International Center properties.

Preferred unit distribution requirements increased $38.3 million due tothe issuance of preferred units in conjunction with the acquisition of Chelsea.

**Liquidity and Capital Resources**

Because wegenerate revenues primarily from long-term leases, our financing strategyrelies primarily on long-term fixed rate debt. We manage our floating rate debtto be approximately 15-25% of total outstanding indebtedness by settinginterest modalities for each financing or refinancing based on current marketconditions. We also enter into interest rate protection agreements asappropriate to assist in managing our interest rate risk. We derive most of ourliquidity from leases that generate positive net cash flow from operations anddistributions of capital from unconsolidated entities that totaled$957.1 million in the first three quarters of 2005. In addition, our$2.0 billion unsecured revolving credit facility (“Credit Facility”)provides an alternative source of liquidity as our cash needs vary from time totime.

Our balance ofcash and cash equivalents decreased $96.8 million to $422.8 millionas of September 30, 2005. The reduction in cash was due to changes in thegift card program. The cash and related liability to gift card holders for theunused portion of the card are now held and controlled by an independent bank.

OnSeptember 30, 2005, the Credit Facility had available borrowing capacityof $961.6 million. During the first nine months of 2005, the maximumamount outstanding under the Credit Facility was $1.034 billion and theweighted average amount outstanding was $788.0 million. The weightedaverage interest rate was 3.50% for the nine-month period endedSeptember 30, 2005.

We and the Operating Partnership also have access to public and privatecapital markets for our equity and unsecured debt. Finally, we have access toprivate equity from institutional investors and other joint venture investorsat the Property level. Our current senior unsecured debt ratings are Baa1 byMoody’s Investors Service and BBB+ by Standard & Poor’s.

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**Cash Flows**

Our net cash flow from operating activitiesand distributions of capital from unconsolidated entities for the nine monthsended September 30, 2005 totaled $957.1 million. We also received proceedsof $330.2 million from the sale of properties and partnership interestsduring the first nine months of 2005. In addition, we had a net use of cashfrom all of our debt financing and repayment activities in this period of$95.8 million. These activities are further discussed below in Financingand Debt. We also:

·        repurchasedlimited partner units and preferred units amounting to $176.9 million,

·        paidunitholder distributions of $588.3 million,

·        paidpreferred unit distributions totaling $76.5 million,

·        fundedconsolidated capital expenditures of $420.4 million. These capitalexpenditures include development costs of $153.9 million, renovation andexpansion costs of $196.2 million, and tenant costs and other operationalcapital expenditures of $70.3 million, and

·        funded investments inunconsolidated entities of $17.4 million.

In general, we anticipate that cash generatedfrom operations will be sufficient to meet operating expenses, monthly debtservice, recurring capital expenditures, and distributions necessary tomaintain Simon Property’s REIT qualification for 2005 and on a long-term basis.In addition, we expect to be able to obtain capital for nonrecurring capitalexpenditures, such as acquisitions, major building renovations and expansions,as well as for scheduled principal maturities on outstanding indebtedness,from:

·        excesscash generated from operating performance and working capital reserves,

·        borrowingson our Credit Facility,

·        additionalsecured or unsecured debt financing, or

·        additional equity raisedin the public or private markets.

**Financing and Debt**

***Unsecured Debt.******  ***As previously discussed, on January 11,2005, we refinanced our Credit Facility, expanding the facility from$1.25 billion to $2.0 billion.

On June 1,2005, we repaid a $110 million mortgage related to our disposition of Riverway,which bore interest at LIBOR plus 115 basis points, and had a maturity date of October 1,2006.

During thenine-month period ended September 30, 2005, we repaid $1.41 billionin unsecured notes with borrowings from the Credit Facility and the proceeds ofsenior unsecured note offerings.

We issued twotranches of senior unsecured notes totaling $1.0 billion at a weightedaverage fixed interest rate of 4.90%. The first tranche is $600.0 millionat a fixed interest rate of 5.10% due June 15, 2015, and the secondtranche is $400.0 million at a fixed interest rate of 4.60% due June 15,2010.

***Secured Debt.******  ***During the nine-month periodended September 30, 2005, we repaid $109.7 million in mortgage loans,unencumbering five properties.

We refinanced a joint venture property with a $500.0 million,4.86% fixed rate mortgage that matures on June 1, 2010. The balances ofthe two previous mortgages, which were repaid, were $142.0 million and$50.1 million and bore interest at fixed rates of 8.74% and 7.20%,respectively. Both mortgages were scheduled to mature on September 1,2005. We received our share of the excess refinancing proceeds of approximately$120 million on closing of this new mortgage loan.

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***Summary ofFinancing***

Our consolidated debt, after giving effect tooutstanding derivative instruments, consisted of the following:

| ***Debt Subject to*** | *** *** | *** *** | *** *** | ***Adjusted  Balance as of  September 30, 2005*** | *** *** | ***Effective  Weighted  Average  Interest Rate*** | *** *** | ***Adjusted  Balance as of  December 31, 2004*** | *** *** | ***Effective  Weighted  Average  Interest Rate*** | *** *** |
|---------------------------------|--------------|--------------|--------------|-----------------------------------------------------------------------|--------------|--------------------------------------------------------|--------------|----------------------------------------------------------------------|--------------|--------------------------------------------------------|--------------|
| **Fixed  Rate**                 |         |         | $            | 11,062,215                                                            |         |                                                   |         | 6.29                                                                 | %            |                                                   |         | $ | 10,766,015 |   |   |   | 6.48 | % |   |
| **Variable  Rate**              |         |         | 3,267,985    |                                                                  |         |                                                   | 4.17         | %                                                                    |         |                                                   | 3,820,378    |   |   |   | 3.06 | % |   |
|                            |         |         | $            | 14,330,200                                                            |         |                                                   |         | 5.81                                                                 | %            |                                                   |         | $ | 14,586,393 |   |   |   | 5.58 | % |   |

 

As of September 30,2005, we had interest rate cap protection agreements on $210.0 million ofconsolidated variable rate debt. We also hold $370.0 million of notionalamount variable rate swap agreements that had a weighted average pay rate of4.13% and a weighted average receive rate of 3.72% at September 30, 2005.As of September 30, 2005, the net effect of these agreements effectivelyconverted $304.5 million of fixed rate debt to variable rate debt.

**Contractual Obligations and Off-Balance Sheet Arrangements.****  **There have been no material changes in ouroutstanding capital expenditure commitments since December 31, 2004, aspreviously disclosed in our 2004 Annual Report on Form 10-K. Thefollowing table summarizes the material aspects of our future obligations as ofSeptember 30, 2005 for the remainder of 2005 and subsequent yearsthereafter (dollars in thousands):

| *** ***                               | *** *** | ***2005*** | *** *** | ***2006 - 2007*** | *** *** | ***2008 - 2010*** | *** *** | ***After 2010*** | *** *** | ***Total*** | *** *** |
|--------------------------------------------|--------------|------------|--------------|-----------------------------|--------------|-----------------------------|--------------|-----------------------|--------------|-------------|--------------|
| **Long Term Debt**                         |         |       |         |                        |         |                        |         |                  |         |        |         |   |   |   |   |
| Consolidated (1)                      |         | $          | 175,288      |                        |         | $                           | 3,906,946    |                  |         |        | $            | 5,538,807 |   |   | $ | 4,613,050 |   | $ | 14,234,091 |   |
| **Pro rata share of Long- Term Debt:**     |         |       |         |                        |         |                        |         |                  |         |        |         |   |   |   |   |
| Consolidated (2)                      |         | $          | 174,571      |                        |         | $                           | 3,864,021    |                  |         |        | $            | 5,497,005 |   |   | $ | 4,506,744 |   | $ | 14,042,341 |   |
| Joint  Ventures (2)                   |         | 86,406     |         |                        | 642,508      |                        |         |                  | 1,000,208    |        |         | 1,176,534 |   | 2,905,656 |   |
| **Total Pro Rata Share of Long-Term Debt** |         | $          | 260,977      |                        |         | $                           | 4,506,529    |                  |         |        | $            | 6,497,213 |   |   | $ | 5,683,278 |   | $ | 16,947,997 |   |

 

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(1)                    Representsprincipal maturities and therefore, excludes net premiums and discounts andfair value swaps of $96,109.

(2)                    Representsour pro rata share of principal maturities and excludes net premiums anddiscounts.

Our off-balance sheet arrangements consist primarily of our investmentsin real estate joint ventures which are common in the real estate industry andare described in Note 5 of the notes to the accompanying financialstatements. Joint venture debt is the liability of the joint venture, istypically secured by the joint venture Property, and is non-recourse to us. Asof September 30, 2005, we have guaranteed or have provided letters ofcredit to support our share of $88.1 million of our total$2.9 billion share of joint venture mortgage and other indebtednesspresented in the table above.

**Acquisitionsand Dispositions**

Buy/sellprovisions are common in real estate partnership agreements. Most of our partnersare institutional investors who have a history of direct investment in regionalmall properties. Our partners in our joint ventures may initiate theseprovisions at any time and if we determine it is in our unitholders’ bestinterests for us to purchase the joint venture interest, we believe we haveadequate liquidity to execute the purchases of the interests without hinderingour cash flows or liquidity. Should we decide to sell any of our joint ventureinterests, we would expect to use the net proceeds from any such sale to reduceoutstanding indebtedness.

***Acquisitions.******  ***Although the acquisition ofhigh quality individual properties or portfolios of properties is an integralcomponent of our growth strategies, we did not acquire any properties during thefirst nine months of 2005.

***Dispositions.******  ***We continue to pursue thesale of Properties and other assets that no longer meet our strategic criteria.During the first nine months of 2005 we disposed of Metrocenter, a regionalmall in Phoenix, Arizona in which we held a 50% interest, Lakeland FactoryOutlet in Lakeland, Tennessee, the O’Hare International Center and Riverwayoffice buildings, in Rosemont, Illinois, and Grove at Lakeland Square, acommunity center in Lakeland, Florida. We received net proceeds of$330.2 million from the disposition of these properties and other assetsand 

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recorded gains on their disposal totaling$137.9 million. Proceeds from the disposition of Metrocenter, LakelandFactory Outlet, and Grove at Lakeland Square were used for general workingcapital purposes, while the majority of the proceeds from the sale of Riverwayand O’Hare International Center are held in escrow for reinvestment inqualifying replacement properties pursuant to Section 1031 of the InternalRevenue Code (Section 1031) and related regulations. We do not believe thesale of these assets will have a material impact on our future results ofoperations or cash flows and their removal from service and sale will notmaterially affect our ongoing operations. We have received a $10.0 milliondeposit in connection with a proposed sale of a regional mall, the closing ofwhich is contingent on certain financing arrangements. If we sell anyProperties that are classified as held for use, their sale prices may differfrom their carrying value. To the extent properties subject to the Section 1031exchange transaction is not completed as contemplated, amounts become availablefor general working capital purposes and are included in taxable income forREIT compliance purposes.

**DevelopmentActivity**

***New Developments.******  ***Thefollowing describes our new development projects, the estimated total cost, andour share of the estimated total cost and our share of the construction inprogress balance as of September 30, 2005 (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:**   |         |               |         |           |         |                        |         |                                  |         |                                                     |         |                                                         |         |                               |   |   |   |   |
| Firewheel Center          |         | Garland, TX        |         | 785,000        |         |                        | $            |  98                              |         |                                                     | ** **   | $                                                            |  98     |                               |   |   | $ | 92 |   |   | 4th Quarter 2005 |
| Rockaway Plaza            |         | Rockaway, NJ       |         | 370,000        |         |                        | 8            |                                  |         |                                                     | 8            |                                                         |         |                               | 15 |   |   | 1st Quarter 2006 |
| Coconut Point             |         | Bonita Springs, FL |         | 1,200,000      |         |                        | 210          |                                  |         |                                                     | 105          |                                                         |         |                               | 42 |   |   | 1st Quarter 2006 (b) |
| The Domain (c)            |         | Austin, TX         |         | 775,000        |         |                        | 195          |                                  |         |                                                     | 195          |                                                         |         |                               | 68 |   |   | 1st Quarter 2007 |
| The Village  at SouthPark |         | Charlotte, NC      |         | 47,000         |         |                        | 26           |                                  |         |                                                     | 26           |                                                         |         |                               | 1 |   |   | 1st  Quarter 2007 |
|                           |              |                    |              |                |              |                             |              |                                       |              |                                                          |              |                                                              |              |                                    |  |  |  |  |  |  |  |  |  |

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(a)                    Representsthe project costs net of land sales, tenant reimbursements for construction,and other items (where applicable).

(b)                    Theestimated opening date represents Phase I only. Phase II estimated opening dateis 4th quarter 2006.

(c)                     Propertybeing developed using proceeds from the sale of Riverway and O’HareInternational Center being held in escrow for reinvestment in qualifyingreplacement properties pursuant to Section 1031 of the Internal RevenueCode.

We expect tofund these capital projects with available cash flow from operations,borrowings from our Credit Facility, or project specific construction loans. Weexpect our share of the total 2005 new development costs during the year to beapproximately $250 million.

***Strategic Expansions andRenovations.******  ***Thefollowing describes our significant renovation and/or expansion projectscurrently under construction, the estimated total cost, our share of theestimated total cost and our share of the construction in progress balance asof September 30, 2005 (dollars in millions):

| ***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:** |         |         |         |           |         |                                   |         |                                  |         |                                                     |         |                                                         |
| Town Center at Aurora   |         | Aurora, CO   |         | 51,000         |         | $45                                    |         | $45                                   |         | $30                                                      |         | 3rd  Quarter 2006                                            |

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*(*a)                    Representsthe project costs net of land sales, tenant reimbursements for construction,and other items (where applicable).

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We expect tofund this capital project with available cash flow from operations orborrowings from the Credit Facility. We have other renovation and/or expansionprojects currently under construction or in preconstruction development andexpect to invest a total of approximately $220 million (our share) on expansionand renovation activities in 2005.

***International.******  ***In2003 we significantly increased our presence in Europe through our jointventure with the Rinascente Group, Gallerie Commerciali Italia (“GCI”). Part ofour international 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 Europeaninvestments with Euro-denominated borrowings that act as a natural hedgeagainst local currency fluctuations. This has also been the case with ourPremium Outlet joint ventures in Japan and Mexico where we use Yen and Pesodenominated financing.

Currently, ournet income exposure to changes in the volatility of the Euro, Yen, and Peso isnot material. In addition, since cash flow from operations is currently beingreinvested in other development projects, we do not expect to repatriateforeign denominated earnings in the near term.

The carryingamount of our total combined investment in European Retail Enterprises, B.V. (“ERE”)and GCI as of September 30, 2005, net of the related currency translationadjustment, was $291.4 million, including subordinated debt in ERE. Ourinvestments in ERE and GCI are accounted for using the equity method ofaccounting. Currently three European developments are under construction, whichwill add approximately 3.3 million square feet of GLA for a total net costof approximately €459 million, of whichour share is approximately €94 million.

On October 20, 2005, Ivanhoe Cambridge, Inc. (“Ivanhoe”), anaffiliate of Caisse de dépôt et placement du Québec, effectively acquired ourformer partner’s 39.5% ownership interest in ERE. ERE owns Group B.E.G. (“BEG”),a Paris-based developer, owner and manager of retail properties. In the future,we and Ivanhoe will equalize our ownership positions in ERE through thepurchase of additional interests from ERE’s founders.

**Distributions**

The Board ofDirectors of Simon Property, our general partner, declared and we paid adistribution of $0.70 per unit in the third quarter of 2005. We are required tomake distributions to maintain Simon Property’s status as a REIT. Ourdistributions typically exceed our net income generated in any given yearprimarily because of depreciation, which is a “non-cash” expense. Our futuredistributions and the dividends of Simon Property will be determined by SimonProperty’s Board of Directors based on actual results of operations, cashavailable for distributions, and what may be required to maintain SimonProperty’s status as a REIT.

On January 1,2005, Simon Property assigned the economic rights of Ocean County Mall, theonly Property held directly by Simon Property, to the Operating Partnership inexchange for 1,602,821 units and the settlement of an $88.8 million notereceivable. The property is now consolidated with the Operating Partnership.The assignment was a final step to align the ownership interests in the propertiesacquired as a result of the merger with Corporate Property Investors, Inc.in 1998 and the acquisition of the Northshore Mall in 1999.

During thefirst quarter of 2005, Simon Property repurchased 2,000,000 shares of commonstock in the open market under a $250 million Board approved sharerepurchase program at an average price of $61.88. In total, Simon Propertyrepurchased 2,317,300 shares as part of this program and we purchased a likenumber of our units from Simon Property. This share repurchase program expiredon May 6, 2005.

On May 11, 2005, the Board of Directors of Simon Propertyauthorized a common stock repurchase program under which Simon Property maypurchase up to $250 million of its common stock over the next twelvemonths as market conditions warrant. Simon Property may repurchase the sharesin the open market or in privately negotiated transactions. During the thirdquarter of 2005, Simon Property repurchased 815,400 shares in the open marketat an average price of $71.93 as part of this program. In connection with theserepurchases of common stock, we concurrently repurchased an identical number ofunits from Simon Property. The program has 5,184,600 shares, limited to $191.4million, remaining for Simon Property’s repurchase.

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**Market Risk**

Our exposure tomarket risk due to changes in interest rates primarily relates to our variablerate debt obligations. We manage our exposure to interest rate risk by acombination of interest rate protection agreements to effectively fix or cap aportion of our variable rate debt, or in the case of a fair value hedge,effectively convert fixed rate debt to variable rate debt. In addition, wemanage this exposure by refinancing fixed rate debt at times when rates andterms are appropriate.

We are also exposedto foreign currency risk on the financing of foreign operations. We seek tomanage this foreign currency risk by using foreign-denominated debt tofinance a significant portion of these foreign operations. We also reinvest netcash flow from our international operations in other internationaldevelopments.

We do not enterinto either interest rate protection or foreign currency rate protectionagreements for speculative purposes.

Our future earnings, cash flows and fair values relating to financial instrumentsare dependent upon prevalent market rates of interest, primarily LIBOR. We seekto mitigate the risk of changing interest rates by limiting the variable rateportion of our debt portfolio to a specified limit, currently no more than 25%of our overall borrowings, and we believe that we have limited the exposure toany potential significant adverse effect due to the variability in underlyinginterest rates.

**Retail Climate and Tenant Bankruptcies**

Bankruptcyfilings by retailers are normal in the course of our operations. We arecontinually releasing vacant spaces resulting from tenant terminations.Pressures that affect consumer confidence, job growth, energy costs and incomegains can affect retail sales growth, and a continuing soft economic cycle mayimpact our ability to retenant property vacancies resulting from bankruptcies.We lost approximately 52,000 square feet of mall shop tenants to bankruptciesin the third quarter of 2005.

Consolidationof major department stores in the retail real estate industry can occur and istypically cyclical in nature. Recently, the May and Federated departmentstore companies announced their merger, which closed during the third quarterof 2005. Our strategy in these instances is to aggressively position, acquire,or release space vacated by store closings as a result of such consolidations.Generally, our exposure to department store consolidations and related storeclosings or divestitures is more pronounced at our larger centers. As a result,we have historically been successful at finding quality replacement tenants insuch instances.

The geographical diversity of our Portfolio mitigates some of the riskof an economic downturn. In addition, the diversity of our tenant mix also isimportant because no single retailer represents either more than 1.7% of totalGLA or more than 4.1% of our annualized base minimum rent. Bankruptcies andstore closings may, in some circumstances, create opportunities for us torelease spaces at higher rents to tenants with enhanced sales performance. Wehave demonstrated an ability to successfully retenant anchor and inline storelocations during soft economic cycles. While these factors reflect some of theinherent strengths of our portfolio in a difficult retail environment, we cannotassure you that we will successfully execute our releasing strategy.

**Insurance**

We maintaincommercial general liability, “all risk” property coverage including fire,flood, windstorm extended coverage and rental loss insurance on our Properties.Rosewood Indemnity, Ltd. (“Rosewood”), a wholly-owned subsidiary,indemnifies our general liability carrier for a specific layer of losses. Thecarrier has, in turn, agreed to provide evidence of coverage for this layer oflosses under the terms and conditions of the carrier’s policy. A similar policywritten through Rosewood also provides a portion of our initial propertyinsurance coverage for the Properties. This coverage includes a reduction inthe “all risk” windstorm deductible for Properties located in Florida andcertain other coastal locations from a 2% of insured value per locationdeductible to $1 million per occurrence, but Rosewood’s liability under thiscoverage cannot exceed, in the aggregate, $6.0 million in any one policy year.Hurricane related losses at certain of our Properties may require payments byRosewood under this coverage provision.

The events of September 11, 2001 affected our insurance programs.Although insurance rates remain high, since the President signed into law theTerrorism Risk Insurance Act (TRIA) in November of 2002, we have purchasedterrorism insurance covering all Properties. The program provides limits up to$1 billion per occurrence for Certified 

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(Foreign) acts of terrorism and$500 million per occurrence for Non-Certified (Domestic) acts ofterrorism. The coverage is written on an “all risk” policy form that eliminatesthe policy aggregates associated with our previous terrorism policies. Thispolicy is in place throughout the remainder of 2005. However, if TRIA is not extendedin terms and conditions substantially similar to those currently in place, ouravailable coverage options and cost of insurance could be impacted.

**Inflation**

Inflation hasremained relatively low in recent years and has had minimal impact on the operatingperformance of the Properties. Nonetheless, substantially all of the tenants’leases contain provisions designed to lessen our exposure to the impact ofinflation. These provisions include clauses enabling us to receive percentagerentals based on tenants’ gross sales, which generally increase as prices rise,and/or escalation clauses, which generally increase rental rates during theterms of the leases. In addition, many of the leases are for terms of less thanten years, which may enable us to replace existing leases with new leases athigher base and/or percentage rentals if rents of the existing leases are belowthe then-existing market rate. A substantial portion of our leases, other thanthose for anchors, require the tenant to pay their proportionate share ofoperating expenses, including common area maintenance, real estate taxes andinsurance, thereby reducing our exposure to increases in costs and operatingexpenses resulting from inflation. For most of our remaining leases, we receivefixed reimbursement from the tenant which is subject to annual adjustments.

However, inflation may have a negative impact on some of our otheroperating items. Interest and general and administrative expenses may beadversely affected by inflation as these specified costs could increase at arate higher than rents. Also, for tenant leases with stated rent increases,inflation may have a negative effect as the stated rent increases in theseleases could be lower than the increase in inflation at any given time.

**Seasonality**

The shoppingcenter industry is seasonal in nature, particularly in the fourth quarterduring the holiday season, when tenant occupancy and retail sales are typicallyat their highest levels. In addition, shopping malls achieve most of their temporarytenant rents during the holiday season. As a result, our earnings are generallyhighest in the fourth quarter of each year.

In addition, given the number of Properties in warm summer climates ourutility expenses are typically higher in the months of June through September dueto higher electricity costs to supply air conditioning to our Properties. As aresult some seasonality results in increased property operating expenses duringthese months; however, the majority of these costs are recoverable fromtenants.

**EnvironmentalMatters**

*General Compliance.**  *We believe that the Portfolio is incompliance, in all material respects, with all Federal, state and localenvironmental laws, ordinances and regulations regarding hazardous or toxicsubstances. Nearly all of the Portfolio have been subjected to Phase I orsimilar environmental audits (which generally involve only a review of recordsand visual inspection of the property without soil sampling or ground wateranalysis) by independent environmental consultants. Phase I environmentalaudits are intended to discover information regarding, and to evaluate theenvironmental condition of, the surveyed properties and surrounding properties.These environmental audits have not revealed, nor are we aware of, any environmentalliability that we believe will have a material adverse effect on our results ofoperations. We cannot assure you that:

·        existingenvironmental studies with respect to the Portfolio reveal all potentialenvironmental liabilities;

·        anyprevious owner, occupant or tenant of a Property did not create any materialenvironmental condition not known to us;

·        thecurrent environmental condition of the Portfolio will not be affected bytenants and occupants, by the condition of nearby properties, or by otherunrelated third parties; or

·        future uses or conditions(including, without limitation, changes in applicable environmental laws andregulations or the interpretation thereof) will not result in environmentalliabilities.

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*Asbestos-Containing Materials.**  *Asbestos-containing materials are present inmost of the Properties, primarily in the form of vinyl asbestos tile, masticsand roofing materials, which we believe are generally in good condition.Fireproofing and insulation containing asbestos is also present in certainProperties in limited concentrations or in limited areas. The presence of suchasbestos-containing materials does not violate currently applicable laws.Generally, we remove asbestos-containing materials as required in the ordinarycourse of any renovation, reconstruction, or expansion, and in connection withthe retenanting of space.

*MoldManagement.**  *From time to time,during normal maintenance activities, increased levels of moisture may be foundin building materials and mechanical systems. When this occurs, the source ofthe moisture (typically, due to a plumbing system malfunction or weather relateddamage) is corrected and the impact to building operations is assessed. Whenactive mold growth is reasonably suspected or identified, the services ofenvironmental professionals are utilized to evaluate and address the situationappropriately.

*UndergroundStorage Tanks*.   Several of theProperties contain, or at one time contained, underground storage tanks used tostore waste oils or other petroleum products primarily related to auto servicecenter establishments or emergency electrical generation equipment. We believethat regulated tanks have been removed, upgraded or abandoned in accordancewith applicable environmental laws. Site assessments have revealed certain soiland groundwater contamination associated with such tanks at some of theseProperties. Subsurface investigations (Phase II assessments) and remediationactivities are either completed, ongoing, or scheduled to be conducted at suchProperties. The costs of remediation with respect to such matters has not beenmaterial and we do not expect these costs will have a material adverse effecton our results of operations.

*Properties to be Developed or Acquired.**  *Land held for mall development or that may beacquired for development may contain residues or debris associated with the useof the land by prior owners or third parties. In certain instances, suchresidues or debris could be or could contain hazardous wastes or hazardoussubstances. Prior to exercising any option to acquire properties, we typicallyconduct environmental due diligence consistent with acceptable industrystandards.

**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, 2004. There have been no material changesin the assumptions used or results obtained regarding market risk since December 31,2004.

**Item 4.**   Controlsand Procedures

***Evaluationof Disclosure 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 September 30,2005.

***Changesin 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 September 30,2005 that have materially affected, or are reasonably likely to materiallyaffect, our internal control over financial reporting.

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**Part II —Other Information**

**Item 1.**   LegalProceedings

On November 15,2004, the Attorneys General of Massachusetts, New Hampshire and Connecticutfiled complaints in their respective state Superior Courts against us and ouraffiliate, SPGGC, Inc., alleging that the sale of co-branded, bank-issuedgift cards sold in certain of its Portfolio Properties violated giftcertificate statutes and consumer protection laws in those states. Each ofthese suits seeks injunctive relief, unspecified civil penalties and disgorgementof any fees determined to be improperly charged to consumers.

In addition, weare a defendant in three other proceedings relating to the gift cardprogram: Lisa Corbiles and Dana Walicky vs. Simon Property Group, Inc.d/b/a Simon Malls, Superior Court of New Jersey, County of Essex, Docket No:ESX-L-224-04, filed January 6, 2004; Betty Benson and AndreaNay-Richardson vs. Simon Property Group, Inc., and Simon Property Group,L.P., Superior Court of Cobb County, State of Georgia, Case No. 04-19617-42,filed December 9, 2004; Christopher Lonner vs. Simon Property Group, Inc.,Supreme Court of the State of NY, County of Westchester, Case No.: 04-2246,filed February 18, 2004, Erin Reilly, individually and on behalf of allothers similarly situated vs. SPG, Inc., SPG, L.P. and SPGGC, Inc.,Lee County Circuit Court, Florida, filed February 8, 2005 and AlizaGoldman, individually and on behalf of all others similarly situated vs. SimonProperty Group, Inc., Supreme Court of the State of New York, County ofNassau, filed February 7, 2005. Each of these proceedings has beenbrought by a private plaintiff as a purported class action and allegesviolation of state consumer protection laws, state abandoned property andcontract laws or state statutes regarding gift certificates or gift cards andseeks a variety of remedies including unspecified damages and injunctiverelief.

We believe thatwe have viable defenses under both state and federal laws to the gift cardactions. Although it is not possible to provide any assurance of the ultimateoutcome of any of these pending actions, management does not believe that anadverse outcome would have a material adverse effect on our financial position,results of operations or cash flow.

*Triple Five of Minnesota, Inc., aMinnesota corporation, v. Melvin Simon, et al.*   Onor about November 9, 1999, Triple Five of Minnesota, Inc. commencedan action in the District Court for the state of Minnesota, Fourth JudicialDistrict, against, among others, Mall of America, certain members of the Simonfamily and entities allegedly controlled by such individuals, and us. Theaction was later removed to federal court. On September 10, 2003, thecourt issued its decision in a Memorandum and Order (the “Order”). In theOrder, the court found that certain entities and individuals breached theirfiduciary duties to Triple Five. The court did not award Triple Five damagesbut instead awarded Triple Five equitable and other relief and imposed aconstructive trust on that portion of the Mall of America owned by us.Specifically, as it relates to us, the court ordered that Triple Five wasentitled to purchase from us the one-half partnership interest that wepurchased in October 1999, provided Triple Five remits to us the sum of$81.38 million within nine months of the Order. On August 6, 2004,Triple Five closed on its purchase of our one-half partnership interest. Thecourt further held that we must disgorge all “net profits” that we received asa result of our ownership interest in the Mall from October 1999 to thepresent.

As a result ofthe Order, we initially recorded a $6.0 million charge for our share ofthe estimated loss in 2003. In the first quarter of 2004, as a result of the May 3,2004 memorandum issued by the court appointed mediator, which has now beenaffirmed by the court, we recorded an additional $13.5 million charge forour share of the loss that is included in “(Loss) gain on sales of assets andother, net” in the accompanying consolidated statements of operations andcomprehensive income. We ceased recording any contribution to net income fromthe results of operations of Mall of America as of September 1, 2003.

We appealed theOrder to the United States Court of Appeals for the Eighth Circuit. On April 21,2005, the Court of Appeals issued its opinion, affirming in part and reversingin part the Order of the trial court. The Appellate Court opinion changes theequitable remedy contained in the Order and requires that the one-halfpartnership interest Triple Five acquired from us pursuant to the Order mustinstead be offered, for the same price, to Mall of America Associates, ageneral partnership in which Triple Five and an entity affiliated with theSimon family are 50/50 partners (“MOAA”). If MOAA refuses to purchase the interest,then Triple Five must transfer back to us one-half of the interest it acquiredfrom us in August, 2004. Triple Five, as managing partner of MOAA, has electedto cause MOAA to acquire the one-half partnership interest. In addition, TripleFive has asked the Trial Court to grant it additional relief, namely to causethe Simon family partner in MOAA to be dissociated from that partnership and toterminate the existing management contract for the Mall with our subsidiary.The trial court has not yet determined whether it 

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will consider these requests for additional relief. It is not possibleto provide any assurance of the ultimate outcome of this litigation.

We are also involved in various other legal proceedings that arise inthe ordinary course of our business. We believe that such routine litigation,claims and administrative proceedings will not have a material adverse impacton our financial position or our results of operations. We record a liabilitywhen a loss is considered probable and the amount can be reasonably estimated.

**Item **5.   Other Information

During thequarter covered by this report, the Audit Committee of the Board of Directorsof Simon Property, our general partner, did not approve Ernst & Young,LLP, the Company’s independent registered public accounting firm, to performcertain 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.

**Item 6.**   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**

Pursuant to the requirements of theSecurities Exchange Act of 1934, the registrant has duly caused this report tobe signed on its behalf by the undersigned thereunto duly authorized.

|        | **Simon Property Group, L.P.**                        |
|--------|-------------------------------------------------------|
|   | By Simon  Property, Inc.                         |
|   | General  Partner                                      |
|   | /s/ Stephen E. Sterrett                               |
|   | Stephen E.  Sterrett                                  |
|   | Executive  Vice President and Chief Financial Officer |
|   | Date: November 7, 2005                           |

 

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