**UNITED STATES**

**SECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

**FORM 10-Q**

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

For the quarterly periodended June 30, 2006

**SIMON PROPERTYGROUP, L.P.**

(Exact name of registrantas specified in its charter)

Delaware

(State of incorporation ororganization)

33-11491

(Commission File No.)

34-1755769

(I.R.S. EmployerIdentification No.)

National City Center

225 West Washington Street

Indianapolis, Indiana 46204

(Address of principalexecutive offices)

(317) 636-1600

(Registrant’s telephonenumber, including area code)

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

Indicateby check mark whether the registrant is a large accelerated filer, anaccelerated filer, or a non-accelerated filer:
| Large accelerated filer o | Accelerated filer o | Non-accelerated filer þ |
|---------------------------|---------------------|------------------------------|

 

Indicate by check markwhether Registrant is a shell company (as defined by Rule 12b-2 ofthe Exchange Act). Yes   o       No   þ

 

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

**Form 10-Q**

**INDEX**
|                                                   | ** ** | ** ** | ** ** | ** **                                                                                                                             | ** ** | **Page** |
|---------------------------------------------------|------------|------------|------------|----------------------------------------------------------------------------------------------------------------------------------------|------------|----------|
| **Part I — Financial Information** |       |       |
|                                              |       | Item 1.    |       | Consolidated Financial  Statements (Unaudited)                                                                                         |       |     |
|                                              |       |       |       | Consolidated Balance Sheets  as of June 30, 2006 and December 31, 2005                                                       |       | 3        |
|                                              |       |       |       | Consolidated Statements of  Operations and Comprehensive Income for the three months and six months ended  June 30, 2006 and 2005 |       | 4        |
|                                              |       |       |       | Consolidated Statements of  Cash Flows for the six months ended June 30, 2006 and 2005                                            |       | 5        |
|                                              |       |       |       | Condensed Notes to  Consolidated Financial Statements                                                                                  |       | 6        |
|                                              |       | Item 2.    |       | Management’s Discussion and  Analysis of Financial Condition and Results of Operations                                            |       | 16       |
|                                              |       | Item 3.    |       | Qualitative and Quantitative  Disclosure About Market Risk                                                                             |       | 29       |
|                                              |       | Item 4.    |       | Controls and Procedures                                                                                                                |       | 29       |
| **Part II — Other Information**    |       |       |
|                                              |       | Item 1.    |       | Legal Proceedings                                                                                                                      |       | 30       |
|                                              |       | Item 1A.   |       | Risk Factors                                                                                                                           |       | 31       |
|                                              |       | Item 5.    |       | Other Information                                                                                                                      |       | 31       |
|                                              |       | Item 6.    |       | Exhibits                                                                                                                               |       | 31       |
| **Signatures**                                    |       | 32         |

 

2

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

| ** **                                                                                                                               | ** ** | **June 30,** | ** **     | **December 31,** | ** ** |
|------------------------------------------------------------------------------------------------------------------------------------------|------------|-------------------|----------------|-----------------------|------------|
| ** **                                                                                                                               | ** ** | **2006**          | ** **     | **2005**              | ** ** |
| **ASSETS:**                                                                                                                              | ** ** | ** **        | ** **     |                  | ** ** | ** ** |   |
| Investment  properties, at cost                                                                                                          | ** ** | **$**             | **22,004,082** |                  |       | $ | 21,745,309 | ** ** |   |
| Less —  accumulated depreciation                                                                                               | ** ** | **4,172,347**     |           |                  | 3,809,293  | ** ** |   |
|                                                                                                                                     | ** ** | **17,831,735**    |           |                  | 17,936,016 | ** ** |   |
| Cash  and cash equivalents                                                                                                               | ** ** | **330,285**       |           |                  | 337,048    | ** ** |   |
| Tenant  receivables and accrued revenue, net                                                                                             | ** ** | **307,969**       |           |                  | 357,079    | ** ** |   |
| Investment  in unconsolidated entities, at equity                                                                                        | ** ** | **1,523,529**     |           |                  | 1,562,595  | ** ** |   |
| Deferred  costs and other assets                                                                                                         | ** ** | **922,349**       |           |                  | 938,301    | ** ** |   |
| **Total assets**                                                                                                                         | ** ** | **$**             | **20,915,867** |                  |       | $ | 21,131,039 | ** ** |   |
| **LIABILITIES:**                                                                                                                         | ** ** | ** **        | ** **     |                  | ** ** | ** ** |   |
| Mortgages  and other indebtedness                                                                                                        | ** ** | **$**             | **14,133,592** |                  |       | $ | 14,106,117 | ** ** |   |
| Accounts  payable, accrued expenses, intangibles, and deferred revenue                                                                   | ** ** | **976,823**       |           |                  | 1,092,334  | ** ** |   |
| Cash  distributions and losses in partnerships and joint ventures, at equity                                                             | ** ** | **224,984**       |           |                  | 194,476    | ** ** |   |
| Other  liabilities, minority interest, and accrued distributions                                                                         | ** ** | **176,278**       |           |                  | 163,524    | ** ** |   |
| **Total liabilities**                                                                                                                    | ** ** | **15,511,677**    |           |                  | 15,556,451 | ** ** |   |
| COMMITMENTS  AND CONTINGENCIES                                                                                                           |       |              |           |                  |       | ** ** |   |
| 7.75%/8.00%  Cumulative Redeemable Preferred Units, 850,698 units issued and outstanding,  respectively, at liquidation value            | ** ** | **85,070**        |           |                  | 85,070     | ** ** |   |
| **PARTNERS’ EQUITY:**                                                                                                               | ** ** | ** **        | ** **     |                  | ** ** | ** ** |   |
| Preferred  units, 32,652,217 and 32,900,856 units outstanding, respectively. Liquidation  values $1,386,448 and $1,398,263, respectively | ** ** | **1,384,834**     |           |                  | 1,396,679  | ** ** |   |
| General  Partner, 221,169,734 and 220,361,581 units outstanding, respectively                                                            | ** ** | **3,100,923**     |           |                  | 3,227,274  | ** ** |   |
| Limited Partners,  58,393,218 and 58,522,624 units outstanding, respectively                                                             | ** ** | **833,363**       |           |                  | 865,565    | ** ** |   |
| **Total partners’ equity**                                                                                                          | ** ** | **5,319,120**     |           |                  | 5,489,518  | ** ** |   |
| **Total  liabilities and partners’ equity**                                                                                         | ** ** | **$**             | **20,915,867** |                  |       | $ | 21,131,039 | ** ** |   |

 

*The accompanying notes are an integral part ofthese statements.*

3

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**Simon Property Group, L.P. and Subsidiaries**

*Unaudited ConsolidatedStatements of Operations and Comprehensive Income(Dollars in thousands, except per unit amounts)*

| ** **                                                                                                                  | ** ** | **For the Three Months  Ended June 30,** | ** **  | **For the Six Months  Ended June 30,** | ** ** |
|-----------------------------------------------------------------------------------------------------------------------------|------------|-------------------------------------------------------------------|-------------|-----------------------------------------------------------------|------------|
| ** **                                                                                                                  | ** ** | **    2006    **          | ** **  | **    2005    **        | ** ** | **2006** | ** ** | **2005** | ** ** |
| **REVENUE:**                                                                                                                | ** ** |                                                              | ** **  | ** **                                                      |       |   | ** ** | ** ** |   | ** ** | ** ** | ** ** | ** ** |
| Minimum rent                                                                                                                | ** ** |                                                              | **$**       | **485,826**                                                     |       |   |   | $ | 467,398 | ** ** |   | **$** | **973,914** |   | $ | 930,549 |   |
| Overage rent                                                                                                                | ** ** |                                                              | **15,297**  |                                                            |       |   | 14,447 | ** ** |   | **31,356** |   | 27,792 |   |
| Tenant reimbursements                                                                                                       | ** ** |                                                              | **226,777** |                                                            |       |   | 212,720 | ** ** |   | **447,812** |   | 422,953 |   |
| Management fees and other revenues                                                                                          | ** ** |                                                              | **19,399**  |                                                            |       |   | 17,505 | ** ** |   | **39,568** |   | 37,185 |   |
| Other income                                                                                                                | ** ** |                                                              | **51,439**  |                                                            |       |   | 40,014 | ** ** |   | **93,737** |   | 75,575 |   |
| **Total revenue**                                                                                                           | ** ** |                                                              | **798,738** |                                                            |       |   | 752,084 | ** ** |   | **1,586,387** |   | 1,494,054 |   |
| **EXPENSES:**                                                                                                               | ** ** |                                                              | ** **  | ** **                                                      |       |   | ** ** | ** ** |   | ** ** | ** ** | ** ** | ** ** |
| Property operating                                                                                                          | ** ** |                                                              | **107,257** |                                                            |       |   | 99,710 | ** ** |   | **213,204** |   | 200,085 |   |
| Depreciation and amortization                                                                                               | ** ** |                                                              | **211,363** |                                                            |       |   | 204,494 | ** ** |   | **420,810** |   | 414,792 |   |
| Real estate taxes                                                                                                           | ** ** |                                                              | **70,404**  |                                                            |       |   | 71,123 | ** ** |   | **152,209** |   | 142,617 |   |
| Repairs and maintenance                                                                                                     | ** ** |                                                              | **24,839**  |                                                            |       |   | 24,629 | ** ** |   | **50,794** |   | 52,613 |   |
| Advertising and promotion                                                                                                   | ** ** |                                                              | **20,541**  |                                                            |       |   | 18,641 | ** ** |   | **37,943** |   | 36,762 |   |
| Provision for (recovery of) credit losses                                                                                   | ** ** |                                                              | **4,466**   |                                                            |       |   | (1,696 | ) |   | **4,460** |   | 604 |   |
| Home and regional office costs                                                                                              | ** ** |                                                              | **32,652**  |                                                            |       |   | 30,802 | ** ** |   | **62,988** |   | 57,992 |   |
| General and administrative                                                                                                  | ** ** |                                                              | **5,005**   |                                                            |       |   | 4,454 | ** ** |   | **9,498** |   | 8,246 |   |
| Other                                                                                                                       | ** ** |                                                              | **12,162**  |                                                            |       |   | 11,104 | ** ** |   | **25,228** |   | 21,925 |   |
| **Total operating expenses**                                                                                                | ** ** |                                                              | **488,689** |                                                            |       |   | 463,261 | ** ** |   | **977,134** |   | 935,636 |   |
| **OPERATING INCOME**                                                                                                        |       |                                                              | **310,049** | ** **                                                      |       |   | 288,823 |   |   | **609,253** |   | 558,418 |   |
| Interest expense                                                                                                            |       |                                                              | **200,743** |                                                            |       |   | 197,782 | ** ** |   | **404,815** |   | 392,986 |   |
| **Income before minority interest**                                                                                         | ** ** |                                                              | **109,306** |                                                            |       |   | 91,041 | ** ** |   | **204,438** |   | 165,432 |   |
| Minority interest                                                                                                           | ** ** |                                                              | **(3,433**  | **)**                                                           |       |   | (2,253 | ) |   | **(4,358** | **)** | (5,560 | ) |
| Income tax expense of taxable REIT subsidiaries                                                                             | ** ** |                                                              | **(3,220**  | **)**                                                           |       |   | (2,734 | ) |   | **(4,859** | **)** | (7,420 | ) |
| **Income before unconsolidated entities**                                                                                   | ** ** |                                                              | **102,653** |                                                            |       |   | 86,054 | ** ** |   | **195,221** |   | 152,452 |   |
| Income from unconsolidated entities and beneficial  interests, net                                                          | ** ** |                                                              | **19,882**  |                                                            |       |   | 14,456 | ** ** |   | **49,805** |   | 32,383 |   |
| Gain on sales of interests in unconsolidated entities                                                                       | ** ** |                                                              | **7,599**   |                                                            |       |   | 2,134 | ** ** |   | **41,949** |   | 12,607 |   |
| **Income from continuing operations**                                                                                       | ** ** |                                                              | **130,134** |                                                            |       |   | 102,644 | ** ** |   | **286,975** |   | 197,442 |   |
| Results of operations from discontinued operations                                                                          | ** ** |                                                              | **(135**    | **)**                                                           |       |   | 250 | ** ** |   | **56** |   | 3,415 | ** ** |
| Gain on disposal or sale of discontinued operations,  net                                                                   | ** ** |                                                              | **112**     |                                                            |       |   | 119,692 | ** ** |   | **84** |   | 119,780 |   |
| **NET INCOME**                                                                                                              | ** ** |                                                              | **130,111** |                                                            |       |   | 222,586 | ** ** |   | **287,115** |   | 320,637 |   |
| Preferred unit requirement                                                                                                  | ** ** |                                                              | **(25,323** | **)**                                                           |       |   | (25,757 | ) |   | **(50,722** | **)** | (51,078 | ) |
| **NET INCOME AVAILABLE TO UNITHOLDERS**                                                                                     | ** ** |                                                              | **$**       | **104,788**                                                     |       |   |   | $ | 196,829 | ** ** |   | **$** | **236,393** |   | $ | 269,559 |   |
| **NET INCOME AVAILABLE TO UNITHOLDERS ATTRIBUTABLE  TO:**                                                                   | ** ** |                                                              | ** **  | ** **                                                      |       |   | ** ** | ** ** |   | ** ** | ** ** | ** ** | ** ** |
| General Partner                                                                                                             | ** ** |                                                              | **$**       | **82,868**                                                      |       |   |   | $ | 154,811 | ** ** |   | **$** | **186,885** |   | $ | 211,878 |   |
| Limited Partners                                                                                                            | ** ** |                                                              | **21,920**  |                                                            |       |   | 42,018 | ** ** |   | **49,508** |   | 57,681 |   |
| **Net income**                                                                                                              | ** ** |                                                              | **$**       | **104,788**                                                     |       |   |   | $ | 196,829 | ** ** |   | **$** | **236,393** |   | $ | 269,559 |   |
| **BASIC EARNINGS PER UNIT:**                                                                                                | ** ** |                                                              | ** **  | ** **                                                      |       |   | ** ** | ** ** |   | ** ** | ** ** | ** ** | ** ** |
| Income  from continuing operations                                                                                          | ** ** |                                                              | **$**       | **0.37**                                                        |       |   |   | $ | 0.27 | ** ** |   | **$** | **0.85** |   | $ | 0.52 |   |
| Discontinued  operations                                                                                                    | ** ** |                                                              | **—**  |                                                            |       |   | 0.43 | ** ** |   | **—** |   | 0.44 |   |
| **Net income**                                                                                                              | ** ** |                                                              | **$**       | **0.37**                                                        |       |   |   | $ | 0.70 | ** ** |   | **$** | **0.85** |   | $ | 0.96 |   |
| **DILUTED EARNINGS PER UNIT:**                                                                                              | ** ** |                                                              | ** **  | ** **                                                      |       |   | ** ** | ** ** |   | ** ** | ** ** | ** ** | ** ** |
| Income  from continuing operations                                                                                          | ** ** |                                                              | **$**       | **0.37**                                                        |       |   |   | $ | 0.27 | ** ** |   | **$** | **0.84** |   | $ | 0.52 |   |
| Discontinued  operations                                                                                                    | ** ** |                                                              | **—**  |                                                            |       |   | 0.43 | ** ** |   | **—** |   | 0.44 |   |
| **Net income**                                                                                                              | ** ** |                                                              | **$**       | **0.37**                                                        |       |   |   | $ | 0.70 | ** ** |   | **$** | **0.84** |   | $ | 0.96 |   |
| **Net  Income**                                                                                                             | ** ** |                                                              | **$**       | **130,111**                                                     |       |   |   | $ | 222,586 | ** ** |   | **$** | **287,115** |   | $ | 320,637 |   |
| Unrealized gain (loss) on interest rate hedge  agreements                                                                   | ** ** |                                                              | **8,068**   |                                                            |       |   | (9,430 | ) |   | **11,384** |   | (8,828 | ) |
| Net income on derivative instruments reclassified  from accumulated other comprehensive income (loss) into interest expense | ** ** |                                                              | **913**     |                                                            |       |   | (678 | ) |   | **1,214** |   | (1,290 | ) |
| Currency translation adjustments                                                                                            | ** ** |                                                              | **1,072**   |                                                            |       |   | 307 | ** ** |   | **(1,224** | **)** | (1,646 | ) |
| Other loss                                                                                                                  | ** ** |                                                              | **(422**    | **)**                                                           |       |   | 154 | ** ** |   | **(475** | **)** | (317 | ) |
| **Comprehensive  Income**                                                                                                   | ** ** |                                                              | **$**       | **139,742**                                                     |       |   |   | $ | 212,939 | ** ** |   | **$** | **298,014** |   | $ | 308,556 |   |

 

*The accompanying notes are an integral part ofthese statements.*

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**Simon PropertyGroup, L.P. and Subsidiaries***UnauditedConsolidated Statements of Cash Flows**(Dollars in thousands)*

| ** **                                                                                    | ** ** | **For the Six Months  Ended June 30,** | ** **  |
|-----------------------------------------------------------------------------------------------|------------|-----------------------------------------------------------------|-------------|
| ** **                                                                                    | ** ** | **2006**                                                        | ** **  | **2005** | ** ** |
| **CASH FLOWS FROM OPERATING ACTIVITIES:**                                                     | ** ** | ** **                                                      | ** **  | ** ** | ** ** |
| **Net  income**                                                                               | ** ** | **$**                                                           | **287,115** |   | $ | 320,637 |   |
| Adjustments to reconcile  net income to net cash provided by operating activities — |       |                                                            |        |   |   |
| Depreciation and  amortization                                                                | ** ** | **401,193**                                                     |        | 405,411 |   |
| Loss on sales of assets  and other, net                                                       | ** ** | **(41,949**                                                     | **)**       | (12,607 | ) |
| Gain on disposal or sale  of discontinued operations, net                                     | ** ** | **(84**                                                         | **)**       | (119,780 | ) |
| Straight-line rent                                                                            | ** ** | **(4,963**                                                      | **)**       | (9,386 | ) |
| Minority interest                                                                             | ** ** | **4,358**                                                       |        | 5,560 |   |
| Minority interest  distributions                                                              | ** ** | **(8,554**                                                      | **)**       | (12,757 | ) |
| Equity in income of  unconsolidated entities                                                  | ** ** | **(49,805**                                                     | **)**       | (32,383 | ) |
| Distributions of income  from unconsolidated entities                                         | ** ** | **37,137**                                                      |        | 40,955 |   |
| **Changes  in assets and liabilities —**                                            | ** ** | ** **                                                      | ** **  | ** ** | ** ** |
| Tenant receivables and  accrued revenue, net                                                  | ** ** | **54,157**                                                      |        | 59,950 |   |
| Deferred costs and other  assets                                                              | ** ** | **(46,699**                                                     | **)**       | (73,519 | ) |
| Accounts payable, accrued  expenses, intangibles, deferred revenues and other liabilities     | ** ** | **(47,200**                                                     | **)**       | (175,092 | ) |
| **Net cash  provided by operating activities**                                                | ** ** | **584,706**                                                     |        | 396,989 |   |
| **CASH FLOWS FROM INVESTING ACTIVITIES:**                                                     | ** ** | ** **                                                      | ** **  | ** ** | ** ** |
| Capital expenditures, net                                                                     | ** ** | **(276,412**                                                    | **)**       | (287,964 | ) |
| Cash impact from the consolidation  and de-consolidation of properties                        |       | —                                                          |        | (8,951 | ) |
| Net proceeds from sale of  partnership interest, other assets and discontinued operations     | ** ** | **62,683**                                                      |        | 320,046 |   |
| Investments in  unconsolidated entities                                                       | ** ** | **(112,583**                                                    | **)**       | (15,978 | ) |
| Distributions of capital  from unconsolidated entities and other                              | ** ** | **182,543**                                                     |        | 211,288 |   |
| **Net cash  (used in) provided by investing activities**                                      | ** ** | **(143,769**                                                    | **)**       | 218,441 |   |
| **CASH FLOWS FROM FINANCING ACTIVITIES:**                                                     | ** ** | ** **                                                      | ** **  | ** ** | ** ** |
| Partnership contributions  and issuance of units                                              | ** ** | **16,463**                                                      |        | 2,099 |   |
| Purchase of preferred  units, partnership units, and treasury units                           | ** ** | **(10,842**                                                     | **)**       | (127,125 | ) |
| Preferred Unit  redemptions                                                                   | ** ** | **(244**                                                        | **)**       | (579 | ) |
| Partnership distributions                                                                     | ** ** | **(475,150**                                                    | **)**       | (443,601 | ) |
| Mortgage and other  indebtedness proceeds, net of transaction costs                           | ** ** | **2,252,028**                                                   |        | 2,584,808 |   |
| Mortgage and other  indebtedness principal payments                                           | ** ** | **(2,229,955**                                                  | **)**       | (2,775,013 | ) |
| **Net cash  used in financing activities**                                                    | ** ** | **(447,700**                                                    | **)**       | (759,411 | ) |
| **DECREASE IN CASH AND CASH EQUIVALENTS**                                                     | ** ** | **(6,763**                                                      | **)**       | (143,981 | ) |
| **CASH AND CASH EQUIVALENTS, beginning of year**                                              | ** ** | **337,048**                                                     |        | 519,556 |   |
| **CASH AND CASH EQUIVALENTS, end of period**                                                  | ** ** | **$**                                                           | **330,285** |   | $ | 375,575 |   |

 

*The accompanying notes are an integral part ofthese statements.*

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**Simon PropertyGroup, L.P. and SubsidiariesCondensed Notes to Consolidated Financial Statements(Unaudited)**

(Dollars in thousands, except unit and per unit amounts and whereindicated as in millions or billions)

**1.**                 Organization

Simon Property Group, L.P. (the “Operating Partnership”),a Delaware limited partnership, is a majority owned subsidiary of SimonProperty Group, Inc. (“Simon Property”), a Delaware corporation. SimonProperty is a self-administered and self-managed real estate investment trust (“REIT”)under the Internal Revenue Code of 1986, as amended (the “Code”). In thesecondensed notes to the unaudited consolidated financial statements, the terms “we”,“us” and “our” refer to the Operating Partnership and its subsidiaries.

Weare engaged primarily in the ownership, development, and management of retailreal estate, primarily regional malls, Premium Outlet® centers andcommunity/lifestyle centers. As of June 30, 2006, we owned or held aninterest in 285 income-producing properties in the United States, whichconsisted of 171 regional malls, 70 community/lifestyle centers, 34 PremiumOutlet centers and 10 other shopping centers or outlet centers in 39 states andPuerto Rico (collectively, the “Properties”, and individually, a “Property”).We also own interests in nine parcels of land held in the United States forfuture development (together with the Properties, the “Portfolio”). Finally, wehave ownership interests in 52 European shopping centers (France, Italy, andPoland); five Premium Outlet centers in Japan; and one Premium Outlet center inMexico.

**2.**                 Basisof Presentation

The accompanying unaudited consolidated financialstatements of the Operating Partnership include the accounts of all majority-ownedsubsidiaries, and all significant inter-company amounts have beeneliminated. Due to the seasonal nature of certain operational activities, theresults for the interim period ended June 30, 2006 are not necessarilyindicative of the results that may be obtained for the full fiscal year.

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

As of June 30, 2006, of our 343 properties weconsolidated 197 wholly-owned properties and 20 additionalproperties that are less than wholly-owned, which we control or for whichwe are the primary beneficiary. We account for the remaining 126 propertiesusing the equity method of accounting (joint venture properties). We manage theday-to-day operations of 58 of the 126 joint venture properties but havedetermined that our partner or partners have substantive participating rightsin regards to the assets and operations of these joint venture properties.

We allocate our net operating results after preferreddistributions based on our partners’ respective weighted average ownership. Inaddition, Simon Property owns certain of our preferred units. Simon Property’sweighted average ownership interest in the Operating Partnership was 79.1% and78.6% for the six months ended June 30, 2006 and 2005, respectively. As ofJune 30, 2006 and December 31, 2005, Simon Property’s ownershipinterest in us was 79.1% and 79.0%, respectively. We adjust the limitedpartners’ 

6

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interest at the end ofeach period to reflect their respective ownership interest in the OperatingPartnership.

We made certainreclassifications of prior period amounts in the financial statements toconform to the 2006 presentation. These reclassifications have no impact on netincome previously reported. Also, the statements of operations andcomprehensive income for the periods ended June 30, 2005 have beenreclassified to reflect significant dispositions of properties sold during2005.

**3.**                 SignificantAccounting Policies

***Cash and Cash Equivalents***

For the bank-issuedco-branded gift card programs that we administer, we collect funds at the pointof sale and then remit those funds to the banks for further processing. As aresult, cash and cash equivalents as of June 30, 2006 includes$26.2 million related to these gift card programs, which we do notconsider available for general working capital purposes.

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

**Asdiscussed in note 8 to these condensed notes to consolidated financialstatements and as previously disclosed, a Simon family entity assigned to usthe right to receive cash flow, capital distributions, and related profits andlosses with respect to the Simon family’s portion of a partnership interest inthe Mall of America. As a result of this assignment, we began recognizing ourshare of the income during the first quarter of 2006, including theproportionate share of earnings of the partnership since August 2004 throughthe first quarter of 2006 of $10.2 million. This income is included with“income from unconsolidated entities and beneficial interests, net” in ourconsolidated results of operations. We are accounting for our beneficialinterests in this entity under the equity method of accounting.**

**4.**                 PerUnit Data

We determine basic earnings per unit of limitedpartnership interest based on the weighted average number of common unitsoutstanding during the period. We determine diluted earnings per unit based onthe weighted average number of common units outstanding combined with theincremental weighted average units that would have been outstanding assumingall dilutive potential common units were converted into units at the earliestdate possible. The following table sets forth the computation of our basic anddiluted earnings per unit.

| ** **                                                                | ** ** | **For the three months ended  June 30,** | ** **  | **For the six months ended  June 30,** | ** ** |
|---------------------------------------------------------------------------|------------|-------------------------------------------------------------------|-------------|-----------------------------------------------------------------|------------|
| ** **                                                                | ** ** | **2006**                                                          | ** **  | **2005**                                                        | ** ** | **2006** | ** ** | **2005** | ** ** |
| **Income  from continuing operations, after preferred unit requirements** | ** ** | **$**                                                             | **104,811** |                                                            | $          | 76,887 |   | **$** | **236,253** |   | $ | 146,364 |   |
| Discontinued operations                                                   | ** ** | **(23**                                                           | **)**       | 119,942                                                         |       | **140** |   | 123,195 |   |
| **Net Income available to Unitholders -  Basic & Dilutive**      | ** ** | **$**                                                             | **104,788** |                                                            | $          | 196,829 |   | **$** | **236,393** |   | $ | 269,559 |   |
| **Weighted Average Units Outstanding - Basic**                            | ** ** | **279,464,253**                                                   |        | 279,762,141                                                     |       | **279,274,847** |   | 280,281,917 |   |
| Effect of stock options of Simon Property                                 | ** ** | **885,218**                                                       |        | 883,274                                                         |       | **929,923** |   | 886,915 |   |
| **Weighted  Average Units Outstanding - Diluted**                         | ** ** | **280,349,471**                                                   |        | 280,645,415                                                     |       | **280,204,770** |   | 281,168,832 |   |

 

For the three and sixmonths ending June 30, 2006, potentially dilutive securities include thestock options of Simon Property and certain preferred units . The onlypotentially dilutive security that had a dilutive effect for the three and sixmonths ended June 30, 2006 and 2005 were stock options of Simon Property.When stock options are exercised we issue an equal number of units to SimonProperty. 

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Common unitsmay be exchanged for shares of Simon Property common stock, on a one-for onebasis, in certain circumstances. We accrue distributions when they aredeclared.

**5.**                 Investmentin Unconsolidated Entities

**Real Estate JointVentures**

Joint ventures are common in the real estate industry.We use joint ventures to finance properties, develop new properties, anddiversify our risk in a particular property or portfolio. We held joint ventureownership interests in 68 Properties in the United States as of June 30,2006 and 69 at December 31, 2005. We also held interests in two jointventures which owned 52 European shopping centers as of June 30, 2006 and51 at December 31, 2005. We also held an interest in five joint ventureproperties in Japan and one joint venture property in Mexico. We account forthese Properties using the equity method of accounting

Substantially all of ourjoint venture Properties are subject to rights of first refusal, buy-sell provisions,or other sale rights for partners which are customary in real estate jointventure agreements and the industry. Our partners in these joint ventures mayinitiate these provisions at any time (subject to any applicable lock up orsimilar restrictions), which results in either the sale of our interest or theuse of available cash or borrowings to acquire the joint venture interest.

**International JointVenture Investments**

We conduct our international operations in Europethrough our two European joint venture investment entities; Simon Ivanhoe B.V./S.à.r.l. (“Simon Ivanhoe”),formerly known as European Retail Enterprises B.V./S.à.r.l (“ERE”), and GallerieCommerciali Italia (“GCI”). The carrying amount of our total combinedinvestment in these two joint venture investments is $335.3 million and$287.4 million as of June 30, 2006 and December 31, 2005,respectively, net of the related cumulative translation adjustments. TheOperating Partnership has a 50% ownership in Simon Ivanhoe and a 49% ownershipin GCI as of June 30, 2006.

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

We conduct ourinternational Premium Outlet operations in Japan through joint venturepartnerships with Mitsubishi Estate Co., Ltd. and Sojitz Corporation(formerly known as Nissho Iwai Corporation). The carrying amount of our investmentin these Premium Outlet joint ventures in Japan is $285.5 million and $287.7million as of June 30, 2006 and December 31, 2005, respectively, netof the related cumulative translation adjustments. The Operating Partnershiphas a 40% ownership in the Japan Premium Outlet joint ventures.

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**Summary FinancialInformation**

Summaryfinancial information of all of our joint ventures and a summary of ourinvestment in and share of income from such joint ventures follow. We condensedinto separate line items major captions of the statements of operations forjoint venture interests sold or consolidated. Consolidation occurs when weacquire an additional interest in the joint venture and, as a result, gainunilateral control of the Property or are determined to be the primarybeneficiary. We reclassify these line items into “Discontinued Joint VentureInterests” and “Consolidated Joint Venture Interests” on the balance sheets andstatements of operations, if material, so that we may present comparativeresults of operations for those joint venture interests held as of June 30,2006.

| ** **                                                | ** ** | **June 30,** | ** **     | **December 31,** | ** ** |
|-----------------------------------------------------------|------------|-------------------|----------------|-----------------------|------------|
| ** **                                                | ** ** | **2006**          | ** **     | **2005**              | ** ** |
| **BALANCE  SHEETS**                                       | ** ** | ** **        |           |                  |       |   |   |
| **Assets:**                                               |       |              | ** **     |                  |       |   |   |
| Investment  properties, at cost                           | ** ** | **$**             | **10,277,051** |                  |       | $ | 9,915,521 |   |   |
| Less - accumulated  depreciation                          | ** ** | **2,109,181**     |           |                  | 1,951,749  |   |   |
|                                                      |       | **8,167,870**     | ** **     |                  | 7,963,772  |   |   |
| Cash and cash equivalents                                 | ** ** | **319,241**       |           |                  | 334,714    |   |   |
| Tenant receivables                                        |       | **200,721**       | ** **     |                  | 207,153    |   |   |
| Investment in  unconsolidated entities                    | ** ** | **175,532**       |           |                  | 135,914    |   |   |
| Deferred costs and  other assets                          | ** ** | **346,652**       |           |                  | 304,825    |   |   |
| Total assets                                              |       | **$**             | **9,210,016**  |                  |       | $ | 8,946,378 |   |   |
| **Liabilities and Partners’ Equity:**                | ** ** | ** **        |           |                  |       |   |   |
| Mortgages and  other indebtedness                         | ** ** | **$**             | **7,954,275**  |                  |       | $ | 7,479,359 |   |   |
| Accounts payable,  accrued expenses, and deferred revenue | ** ** | **417,695**       |           |                  | 403,390    |   |   |
| Other liabilities                                         |       | **212,946**       | ** **     |                  | 189,722    |   |   |
| Total liabilities                                         |       | **8,584,916**     | ** **     |                  | 8,072,471  |   |   |
| Preferred units                                           |       | **67,450**        | ** **     |                  | 67,450     |   |   |
| Partners’ equity                                     |       | **557,650**       | ** **     |                  | 806,457    |   |   |
| Total liabilities  and partners’ equity              |       | **$**             | **9,210,016**  | ** **            |       | $ | 8,946,378 |   |   |
| **Our Share of:**                                         | ** ** | ** **        | ** **     |                  |       |   |   |
| Total assets                                              | ** ** | **$**             | **3,965,479**  | ** **            |       | $ | 3,765,258 |   |   |
| Partners’ equity                                     | ** ** | **$**             | **389,439**    | ** **            |       | $ | 429,942 |   |   |
| Add: Excess  Investment                                   | ** ** | **909,106**       |           |                  | 938,177    |   |   |
| Our net Investment  in Joint Ventures                     | ** ** | **$**             | **1,298,545**  |                  |       | $ | 1,368,119 |   |   |
| Mortgages and other  indebtedness                         | ** ** | **$**             | **3,433,708**  |                  |       | $ | 3,169,662 |   |   |

 

“Excess Investment”represents the unamortized difference of our investment over our share of theequity in the underlying net assets of the joint ventures acquired. We amortizeexcess investment over the life of the related Properties, typically no greaterthan 40 years, and the amortization is included in the reported amount ofincome from unconsolidated entities.

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| ** **                                                        | ** ** | **For the Three Months Ended  June 30,**                            | ** **  | **For the Six Months Ended  June 30,**                              | ** ** |
|-------------------------------------------------------------------|------------|----------------------------------------------------------------------------------------------|-------------|----------------------------------------------------------------------------------------------|------------|
| ** **                                                        | ** ** | **       2006       ** | ** **  | **       2005       ** | ** ** | **       2006       ** | ** ** | **       2005       ** | ** ** |
| **STATEMENTS OF OPERATIONS**                                      | ** ** |                                                                                         | ** **  | ** **                                                                                   |       |   | ** ** | ** ** |   |   | ** ** | ** ** |   |   | ** ** | ** ** |   |
| **Revenue:**                                                      | ** ** |                                                                                         | ** **  | ** **                                                                                   |       |   | ** ** | ** ** |   |   | ** ** | ** ** |   |   | ** ** | ** ** |   |
| Minimum rent                                                      |       |                                                                                         | **$**       | **272,628**                                                                                  | ** ** |   |   | $ | 260,732 |   |   |   | **$** | **536,645** | ** ** |   |   | $ | 512,008 |   |   |
| Overage rent                                                      |       |                                                                                         | **18,337**  | ** **                                                                                   |       |   | 19,637 |   |   |   | **32,691** | ** ** |   |   | 31,603 |   |   |
| Tenant reimbursements                                             |       |                                                                                         | **134,706** | ** **                                                                                   |       |   | 129,998 |   |   |   | **262,716** | ** ** |   |   | 256,138 |   |   |
| Other income                                                      |       |                                                                                         | **37,025**  | ** **                                                                                   |       |   | 32,897 |   |   |   | **69,771** | ** ** |   |   | 57,345 |   |   |
| Total revenue                                                     |       |                                                                                         | **462,696** | ** **                                                                                   |       |   | 443,264 |   |   |   | **901,823** | ** ** |   |   | 857,094 |   |   |
| **Operating Expenses:**                                           | ** ** |                                                                                         | ** **  | ** **                                                                                   |       |   | ** ** | ** ** |   |   | ** ** | ** ** |   |   | ** ** | ** ** |   |
| Property operating                                                |       |                                                                                         | **89,738**  | ** **                                                                                   |       |   | 90,873 |   |   |   | **177,219** | ** ** |   |   | 171,319 |   |   |
| Depreciation and amortization                                     |       |                                                                                         | **83,147**  | ** **                                                                                   |       |   | 84,015 |   |   |   | **159,119** | ** ** |   |   | 159,490 |   |   |
| Real estate taxes                                                 |       |                                                                                         | **33,447**  | ** **                                                                                   |       |   | 32,675 |   |   |   | **67,389** | ** ** |   |   | 65,291 |   |   |
| Repairs and maintenance                                           |       |                                                                                         | **20,786**  | ** **                                                                                   |       |   | 18,119 |   |   |   | **41,724** | ** ** |   |   | 39,471 |   |   |
| Advertising and promotion                                         |       |                                                                                         | **7,573**   | ** **                                                                                   |       |   | 8,123 |   |   |   | **14,715** | ** ** |   |   | 15,824 |   |   |
| Provision for credit losses                                       |       |                                                                                         | **1,236**   | ** **                                                                                   |       |   | 1,775 |   |   |   | **1,662** | ** ** |   |   | 5,090 |   |   |
| Other                                                             |       |                                                                                         | **36,602**  | ** **                                                                                   |       |   | 29,266 |   |   |   | **60,470** | ** ** |   |   | 53,682 |   |   |
| Total operating expenses                                          |       |                                                                                         | **272,529** | ** **                                                                                   |       |   | 264,846 |   |   |   | **522,298** | ** ** |   |   | 510,167 |   |   |
| **Operating Income**                                              | ** ** |                                                                                         | **190,167** | ** **                                                                                   |       |   | 178,418 | ** ** |   |   | **379,525** | ** ** |   |   | 346,927 |   |   |
| Interest expense                                                  | ** ** |                                                                                         | **110,082** | ** **                                                                                   |       |   | 98,314 | ** ** |   |   | **217,628** | ** ** |   |   | 194,724 |   |   |
| **Income Before Gain on Sale of  Asset**                          | ** ** |                                                                                         | **80,085**  | ** **                                                                                   |       |   | 80,104 | ** ** |   |   | **161,897** | ** ** |   |   | 152,203 |   |   |
| Gain on sale of asset                                             | ** ** |                                                                                         | **94**      | ** **                                                                                   |       |   | - | ** ** |   |   | **94** | ** ** |   |   | - |   |   |
| **Income Before Unconsolidated  Entities**                        | ** ** |                                                                                         | **80,179**  | ** **                                                                                   |       |   | 80,104 | ** ** |   |   | **161,991** | ** ** |   |   | 152,203 |   |   |
| Income (loss) from  unconsolidated entities                       | ** ** |                                                                                         | **145**     | ** **                                                                                   |       |   | (637 | ) |   |   | **239** | ** ** |   |   | (1,892 | ) |   |
| **Income from Continuing  Operations**                            | ** ** |                                                                                         | **80,324**  | ** **                                                                                   |       |   | 79,467 | ** ** |   |   | **162,230** | ** ** |   |   | 150,311 |   |   |
| Income from discontinued  joint venture interests                 | ** ** |                                                                                         | **175**     | ** **                                                                                   |       |   | 214 | ** ** |   |   | **502** | ** ** |   |   | 138 |   |   |
| Gain (loss) on disposal  or sale of discontinued operations, net  | ** ** |                                                                                         | **21,151**  | ** **                                                                                   |       |   | (34 | ) |   |   | **20,704** | ** ** |   |   | 98,359 |   |   |
| **Net Income**                                                    | ** ** |                                                                                         | **$**       | **101,650**                                                                                  | ** ** |   |   | $ | 79,647 | ** ** |   |   | **$** | **183,436** | ** ** |   |   | $ | 248,808 |   |   |
| **Third-Party Investors’ Share of  Net Income**              | ** ** |                                                                                         | **$**       | **59,863**                                                                                   | ** ** |   |   | $ | 49,305 | ** ** |   |   | **$** | **109,439** | ** ** |   |   | $ | 141,067 |   |   |
| **Our Share of Net Income**                                       | ** ** |                                                                                         | **41,787**  | ** **                                                                                   |       |   | 30,342 | ** ** |   |   | **73,997** | ** ** |   |   | 107,741 |   |   |
| **Amortization of Excess  Investment**                            | ** ** |                                                                                         | **(12,374** | **)**                                                                                        |       |   | (15,903 | ) |   |   | **(24,892** | **)** |   |   | (26,179 | ) |   |
| **Income from Beneficial  Interests**                             | ** ** |                                                                                         | **1,045**   | ** **                                                                                   |       |   | - | ** ** |   |   | **11,276** | ** ** |   |   | - |   |   |
| **Write-off of Investment Related  to Properties Sold**           | ** ** |                                                                                         | **(2,977**  | **)**                                                                                        |       |   | 945 | ** ** |   |   | **(2,977** | **)** |   |   | (37,778 | ) |   |
| **Our Share of Net Gain Related  to Properties Sold**             | ** ** |                                                                                         | **(7,599**  | **)**                                                                                        |       |   | (928 | ) |   |   | **(7,599** | **)** |   |   | (11,401 | ) |   |
| **Income from Unconsolidated Entities and  Beneficial Interests** | ** ** |                                                                                         | **$**       | **19,882**                                                                                   | ** ** |   |   | **$** | **14,456** | ** ** |   |   | **$** | **49,805** | ** ** |   |   | **$** | **32,383** | ** ** |   |

 

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

On April 25, 2006,Great Northeast Plaza, a joint venture community center was sold. We recognizedour share of the gain of $7.6 million, net of the write-off of the related investmentand received $8.8 million representing our share of the proceeds from this disposition.

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**6.**   Debt

**Unsecured Debt**

On March 31, 2006, Standard & Poor’sRating Services raised its corporate credit rating for us to ‘A-’ from ‘BBB+’which resulted in a decrease in the interest rate applicable to borrowings onour unsecured revolving $3 billion credit facility (the “Credit Facility”) to37.5 basis points over LIBOR from 42.5 basis points over LIBOR. The revision toour rating also decreased the facility fee on the Credit Facility to 12.5 basispoints from 15 basis points.

On May 15, 2006, we sold two tranches of seniorunsecured notes totaling $800 million at a weighted average fixed interest rateof 5.93%. The first tranche is $400.0 million at a fixed interest rate of 5.75%due May 1, 2012 and the second tranche is $400.0 million at a fixedinterest rate of 6.10% due May 1, 2016. We used the net proceeds of $803.9million from the offering which includes $10.1 million from terminatedforward-starting swap arrangements, to reduce borrowings on the CreditFacility.

***Credit Facility.******  ***Significant activity on the Credit Facilityduring the six-month period ended June 30, 2006 was as follows:

| ***Draw  Date*** | *** *** | ***Draw  Amount*** | *** *** | ***Use of Credit Line Proceeds***                                                                                     | *** ***                                                               |
|------------------|--------------|--------------------|--------------|-------------------------------------------------------------------------------------------------------------------------------------------|----------------------------------------------------------------------------|
| 01/03/06         |         | $                  | 59,075       |                                                                                                                                      | Repayment of a Term Loan (CPG Partners, L.P.), which  had a rate of 7.26%. |   |
| 01/06/06         |         | 140,000            |         | Repayment of a mortgage, which had a rate of LIBOR  plus 138 basis points.                                                                |                                                                       |
| 01/20/06         |         | 300,000            |         | Repayment of unsecured notes, which had a fixed rate  of 7.375%.                                                                          |                                                                       |
| 03/27/06         |         | 600,000            |         | Early repayment of the $1.8 billion facility we used  to finance our acquisition of Chelsea Property Group, Inc. (Chelsea) in  2004. |                                                                       |
| 04/03/06         |         | 58,000             |         | Repayment of two secured mortgages which each bore  interest at 8.25%.                                                                    |                                                                       |
|                  |              |                    |              |                                                                                                                                           |                                                                            |  |

 

Other amounts drawn on the Credit Facility wereprimarily for general working capital purposes. The total aggregate amount ofour repayments on the Credit Facility during the six-month period ended June 30,2006 was $1.0 billion. The total outstanding balance on the CreditFacility as of June 30, 2006 was $1.2 billion, and the maximum amountoutstanding during the quarter, was approximately $2.0 billion. During thefirst six months of 2006, the weighted average outstanding balance on theCredit Facility was approximately $1.5 billion.

***Acquisition Facility.******  ***We borrowed $1.8 billion in 2004 to financethe cash portion of our acquisition of Chelsea. On March 27, 2006, we madethe final $600.0 million principal payment due on this facility. The facilitybore interest at LIBOR plus 55 basis points with an additional 15 basis pointfacility fee on all loans outstanding and provided for variable grid pricingbased upon our credit rating.

**Secured Debt**

Total secured indebtednesswas $4.3 billion and $4.6 billion at June 30, 2006 and December 31,2005, respectively. During the six-month period ended June 30, 2006, we repaid$198.0 million in mortgage loans, unencumbering three properties.

**7.**   Partners’Equity

Under The Simon Property Group 1998 Stock IncentivePlan, on February 21, 2006 the Compensation Committee of Simon Property’sBoard of Directors awarded 426,750 shares of restricted stock of SimonProperty to employees under this Plan at a fair value of $83.48 per share. On May 11,2006, our non-employee Directors were awarded 9,660 shares of restricted stockof Simon Property under this plan at a fair value of $81.26 per share. The fairmarket value of the restricted stock awarded on February 21, 2006 has beendeferred and is being amortized over a four-year vesting period. The fairmarket value of the restricted stock awarded on May 11, 2006 has beendeferred and is being amortized 

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over a one-year vestingperiod. The issuance of these 2006 restricted stock awards utilized existingshares held by Simon Property as treasury shares.  As a result, we issued a like number of unitsto Simon Property in accordance with our partnership agreement.

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

On May 12, 2006, Simon Property’s Board of Directorsauthorized a stock repurchase program under which Simon Property may purchaseup to 6,000,000 shares of its common stock subject to a maximum aggregatepurchase price of $250 million over the next twelve months as marketconditions warrant. Simon Property may repurchase the shares in the open marketor in privately negotiated transactions. As shares are repurchased, the numberof outstanding units is reduced on an equivalent basis. There have been no purchases under this program during 2006.

Beginning on March 31, 2006, holders of Series I6% Convertible Perpetual Preferred Units (“Series I Preferred Units”) andSimon Property’s Series I 6% Convertible Perpetual Preferred Stock (“Series IPreferred Stock”) could elect to convert their securities during the quarterbeginning on April 3, 2006 and ending on June 30, 2006. The Series IPreferred Units are convertible into units in the Operating Partnership and theSeries I Preferred Stock is convertible into shares of Simon Propertycommon stock. The conversion right was the result of the closing sale price ofSimon Property’s common stock exceeding the trigger price of $79.59 for aperiod of 20 trading days in the last 30 trading days of the quarter. At theconversion price, each Series I Preferred Unit was convertible into 0.7853of a common unit and each share of Series I Preferred Stock wasconvertible into 0.7853 of a share of common stock. If holders of a Series IPreferred Unit convert into units, then the holder may also elect to convert thoseunits into common stock on a one-for-one basis in accordance with ourpartnership agreement. During the second quarter of 2006, 215,730 shares of Series IPreferred Stock were converted into 169,343 shares of Simon Property commonstock and Simon Property converted a like number of its Series I PreferredUnits into common units. As of June 30, 2006, the trigger price, which isadjusted quarterly based on a pre-determined calculation, of $79.48 was met andholders of Series I Preferred Units and Series I Preferred Stock mayagain elect to convert their securities during the quarter beginning on July 3,2006 and ending on September 29, 2006. Each Series I Preferred Unitis now convertible into 0.78637 of a common unit and each share of Series IPreferred Stock is convertible into 0.78637 of a share of common stock.

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

**8.**   Commitments and Contingencies

**Litigation**

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

As previously disclosed in our 2005 Annual Report on Form 10-K,we are a defendant in a suit filed on November 9, 1999, in the DistrictCourt for the State of Minnesota, Fourth Judicial District (*Triple Five of Minnesota, Inc., a Minnesota corporation, v. MelvinSimon, et al.*). In January 2006, and as more fully described inour 2005 Annual Report on Form 10-K, we resolved a portion of thislitigation between Triple Five of Minnesota, Inc. (“Triple Five”) and,among others, certain members of the Simon family, entities allegedlycontrolled by such individuals, and us. In April 2005, the federalAppellate Court modified the District Court’s remedy in this case, requiringthat the transfer of a partnership interest originally purchased fromaffiliates of Teachers’ Insurance and Annuity Association of America (“TIAA”)in 1999 and transferred to Triple Five in August 2004, should have beentransferred to Mall of America Associates (“MOAA”), a partnership in which anentity owned indirectly by members of the Simon family has an 

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interest. In January 2006,the transfer of this interest from Triple Five to MOAA was completed, andfinanced with a new credit facility secured by cash flows and excess sale andrefinancing proceeds received by MOAA from the operation of Mall of America. Asof the date of the transfer, the entity owned indirectly by the Simon familytransferred, under certain circumstances, the right to receive cash flowdistributions, capital transaction proceeds, and related profits and lossesattributable to one-half of the interest that MOAA acquired from Triple Five(or 25%) subject to the new credit facility, to the Operating Partnership. Theresult on our consolidated financial statements is discussed in note 3 to ourcondensed notes to consolidated financial statements in this Form 10-Q.

The District Court has also scheduled a trial on abreach of contract claim for damages asserted by Triple Five against entitiesindirectly owned by members of the Simon family including the entity thatcompleted the transfer described above. While the Company and its affiliatesare not a defendant in that claim, any damages awarded to Triple Five inconnection with the breach of contract claim could adversely impact the Company’sbeneficial interest in cash flow distributions, capital transaction proceeds,and related profits and losses from Mall of America.

In response to a motion filed by Triple Five, theDistrict Court has determined that Triple Five may elect to terminate theexisting management contract for the Mall with our subsidiary. We have appealedthe District Court’s determination granting Triple Five the right to terminatethe management contract, and that appeal is pending.

In March, 2006, TIAA notified MOAA of TIAA’s receiptof an offer to acquire all of the partnership interests in Mall of Americapursuant to rights granted TIAA under the applicable partnership agreements. Pursuantto those partnership agreements, MOAA may respond to this notice by electing toacquire all of TIAA’s partnership interests in Mall of America or insteadelecting to sell MOAA’s partnership interests pursuant to the offer. At thatsame time, TIAA filed an action for declaratory relief in the Federal DistrictCourt seeking to determine whether MOAA may acquire the TIAA partnershipinterests in Mall of America, or to permit TIAA to acquire MOAA’s partnershipinterests in Mall of America, pursuant to the sale rights granted TIAA underthe applicable partnership agreements. In response to the filing of thataction, Triple Five has filed counter claims alleging, among other things, thatno entity owned or controlled by members of the Simon family or the Companyshould be allowed to participate in, or otherwise receive any benefits from,the offer made by TIAA. Those issues have not yet been decided by the FederalDistrict Court.

It is not possible to provide any assurance as to theoutcome of any remaining litigation related to the Mall of America.

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

**Guarantees ofIndebtedness**

Joint venture debt is theliability of the joint venture, and is typically secured by the joint ventureProperty, which is non-recourse to us. As of June 30, 2006, we have loanguarantees and other guarantee obligations of $37.7 million and $75.6million, respectively, to support our total $3.4 billion share of joint venturemortgage and other indebtedness in the event that the joint venture partnershipdefaults under the terms of the underlying arrangement. Mortgages which areguaranteed by us are secured by the property of the joint venture partnershipand could be sold in order to satisfy the outstanding obligation.

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**9.**   Real Estate Acquisitions andDispositions

We had no consolidatedproperty acquisitions or dispositions during the six months ended June 30,2006.

**10.**   Recent Financial Accounting Standards

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

In December 2004, the FASB issued SFAS No. 153,“Exchanges of Nonmonetary Assets – an amendment of Accounting Principles Board(“APB”) Opinion No. 29.”  ThisStatement requires exchanges of productive assets to be accounted for at fairvalue, rather than at carryover basis, unless: (a) neither the assetreceived nor the asset surrendered has a fair value that is determinable withinreasonable limits; or (b) the transactions lack commercial substance. SFASNo. 153 is effective for nonmonetary asset exchanges occurring in fiscalperiods beginning after June 15, 2005. The adoption of this Statement didnot have a material impact on our financial position or results of operations.

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

In May 2005, the FASB issued SFAS No. 154, “AccountingChanges and Error Corrections.” SFAS No. 154 is a replacement of APBOpinion No. 20, “Accounting Changes” and SFAS No. 3, “ReportingAccounting Changes in Interim Financial Statements.” This Statement requiresvoluntary changes in accounting to be accounted for retrospectively and allprior periods to be restated as if the newly adopted policy had always beenused, unless it is impracticable. APB Opinion No. 20 previously requiredmost voluntary changes in accounting to be recognized by including thecumulative effect of the change in accounting in net income in the period ofchange. This Statement also requires a change in method of depreciation,amortization or depletion for a long-lived asset be accounted for as a changein estimate that is affected by a change in accounting principle. SFAS No. 154is effective for fiscal years beginning after December 15, 2005. Theadoption of this Statement did not have a material impact on our financialposition or results of operations.

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

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impact on our financialposition or results of operations. We beganexpensing the vested portion of restricted stock awards to the recipients inthe consolidated statements of operations in 2002.

In June 2006, the FASB issued Interpretation No. 48,“Accounting for Uncertainty in Income Taxes, an Interpretation of FASBStatement No. 109” (“FIN 48”). FIN 48 clarifies the accounting foruncertainty in income taxes recognized in a company’s financial statements andprescribes a recognition threshold and measurement attribute for the financialstatement recognition and measurement of a tax position taken or expected to betaken in a tax return. The Interpretation also provides guidance ondescription, classification, interest and penalties, accounting in interimperiods, disclosure and transition. FIN 48 becomes effective on January 1,2007. We are currently evaluating the impact of adopting this Interpretation.

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**Item 2.**   Management’s Discussion and Analysis ofFinancial Condition and Results of Operations

You should read thefollowing discussion in conjunction with the financial statements and notesthereto that are included in this report. Certain statements made in thissection or elsewhere in this report may be deemed “forward-lookingstatements” within the meaning of the Private Securities Litigation Reform Actof 1995. Although we believe the expectations reflected in any forward-lookingstatements are based on reasonable assumptions, we can give no assurance thatour expectations will be attained, and it is possible that our actual resultsmay differ materially from those indicated by these forward-lookingstatements due to a variety of risks and uncertainties. Those risks anduncertainties include, but are not limited to: our ability to meet debt servicerequirements, the availability of financing, changes in our credit rating,changes in market rates of interest and foreign exchange rates for foreigncurrencies, the ability to hedge our interest rate risk, risks associated withthe acquisition, development and expansion of properties, general risks relatedto retail real estate, the liquidity of real estate investments, environmentalliabilities, international, national, regional and local economic climates,changes in market rental rates, trends in the retail industry, relationshipswith anchor tenants, the inability to collect rent due to the bankruptcy orinsolvency of tenants or otherwise, risks relating to our joint ventureproperties, costs of common area maintenance, competitive market forces, risksrelated to international activities, insurance costs and coverage, impact ofterrorist activities, inflation and maintenance of REIT status. We discussedthese and other risks and uncertainties under the heading “Risk Factors” in ourmost recent Annual Report on Form 10-K that could cause our actualresults to differ materially from the forward-looking statements that we make. Wemay update that discussion in this or subsequent quarterly reports, butotherwise we undertake no duty or obligation to update or revise these forward-lookingstatements, whether as a result of new information, future developments, orotherwise.

**Overview**

Simon Property Group, L.P. (the “Operating Partnership”),a Delaware limited partnership, is a majority owned subsidiary of SimonProperty Group, Inc. (“Simon Property”). Simon Property is our generalpartner and a self-administered and self-managed real estate investment trust (“REIT”)under the Internal Revenue Code of 1986, as amended (the “Code”). In thisdiscussion, the terms “we”, “us” and “our” refer to the Operating Partnershipand its subsidiaries. 

We are engaged in the ownership, development, andmanagement of retail real estate properties, primarily regional malls, PremiumOutlet® centers and community/lifestyle centers. As of June 30, 2006, weowned or held an interest in 285 income-producing properties in theUnited States, which consisted of 171 regional malls, 70 community/lifestylecenters, 34 Premium Outlet centers and 10 other shopping centers or outletcenters in 39 states plus Puerto Rico (collectively, the “Properties”, andindividually, a “Property”). We also own interests in nine parcels of land heldin the United States for future development (together with the Properties, the “Portfolio”).Finally, we have ownership interests in 52 European shopping centers (France,Italy, and Poland); five Premium Outlet centers in Japan; and one PremiumOutlet center in Mexico.

***Operating Fundamentals***

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

·       Base minimum rents and cartand kiosk rentals,

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

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

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

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We seek growth inour earnings and cash flows by enhancing the profitability and operation of ourregional malls, Premium Outlet centers, community/lifestyle centers, and internationalinvestments. We seek to accomplish this growth through the following:

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

·       Expanding and re-tenantingexisting franchise locations at competitive market rates,

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

We also grow bygenerating supplemental revenues in our existing real estate portfolio, fromoutlot parcel sales and, due to our size and tenant relationships, from thefollowing:

·       Simon Brand Ventures (“SimonBrand”) mall marketing initiatives, including fees derived from the issuance ofbank-issued co-branded gift cards. Simon Brand revenues also include paymentservices, national media contracts, a national beverage contract and othercontracts with national companies.

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

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

We acquire high quality retail real estate within ourthree domestic platforms. As part of our acquisition strategy, we review andevaluate a number of acquisition opportunities based on their complement to ourPortfolio.

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

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

·       Provide the capitalnecessary to fund growth.

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

·       Manage our overallfinancial structure in a fashion that preserves our investment grade ratings.

***Results Overview***

Diluted earnings per unit decreased  $0.12 during the first six months of 2006, or12.5%, to $0.84 from $0.96 for the same period last year. The 2006 resultsinclude a $34.4 million gain (or $0.12 per diluted unit) from the sale of partnershipinterests in one of our European joint ventures to our new partner, Ivanhoe Cambridge, Inc. (“Ivanhoe”), anaffiliate of Caisse de dépôt et placement du Québec, and recognition of$11.3 million in income (or $0.04 per diluted unit) from contributed beneficialinterests, representing the right to receive cash flow, capital distributions,and related profits and losses of Mall of America Associates (“MOAA”). Includedin 2005 results is a gain upon the disposition of the Riverway and O’HareInternational Center office building properties that resulted in a gain of$119.7 million (or $0.40 per diluted unit).

Our core business fundamentals remained fairly strongduring the first six months of 2006. Regional mall comparable sales per squarefoot (“psf”) strengthened during the first six months of 2006, increasing 5.9%to $468 psf from $442 psf for the same period in 2005 reflecting robust retail demand and thedisposition of non-core properties. Our regional mall average base rentsincreased 2.8% to $35.10 psf as of 

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June 30, 2006 from$34.16 psf as of June 30, 2005.  In addition, we maintained strong regional mall leasing spreads of $8.16 psfas of June 30, 2006 compared to $7.33 psf as of June 30, 2005.Fundamentals of the Premium Outlet centers and community/lifestyle centers werealso positive contributors to the increase in operating results for the quarteras seen in the following section entitled Portfolio Data. Finally, regionalmall occupancy decreased by sixty basis points to 91.6% as of June 30, 2006from 92.2% as of June 30, 2005 as a result of square footage lost tobankruptcy proceedings and store closures.

During the firstsix months of 2006 we disposed of one property as follows:

·       OnApril 25, 2006, Great Northeast Plaza, a community center located inPhiladelphia, Pennsylvania was sold for $8.8 million, and we recorded a gain ondisposition of $7.6 million. We held a 50% interest in this property.

Regarding financingactivities, despite the significantly increasing interest rate environment resultingin an approximate 200 basis point increase in LIBOR (5.35% at June 30,2006 versus 3.34% at June 30, 2005), our effective overall borrowing ratefor the six months ended June 30, 2006 increased only 31 basis points ascompared to the six months ended June 30, 2005. Further, from December 31,2005 to June 30, 2006, our effective overall borrowing rate increasedthree basis points due to an increase in variable interest rates. Our financingactivities for the period ended June 30, 2006 are highlighted by thefollowing:

·       We repaid $300 million inunsecured notes that bore interest at 7.38%, and a $59.1 million term loan thatbore interest at 7.26%.

·       We paid off one mortgagetotaling $140.0 million that bore interest at LIBOR plus 138 basis points.

·       We made the final $600million payment on the facility we used to fund the cash portion of our 2004acquisition of Chelsea Property Group, Inc. (“Chelsea”).

·       We repaid two mortgagestotaling $58.0 million that each bore interest at 8.25%.

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

·       We issued two tranches ofsenior unsecured notes totaling $800 million at a weighted average fixedinterest rate of 5.93%. We used the net proceeds of $803.9 million, whichincludes $10.1 million proceeds from terminated forward-starting swaparrangements, to reduce the borrowings on our Credit Facility.

·       Borrowings on the CreditFacility decreased to approximately $1.2 billion during the six months ended June 30,2006, principally as a result of the above repayments.

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***Portfolio Data***

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

·       Propertiesthat we consolidate in our consolidated financial statements,

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

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

| ** **                               | ** **   | **June 30,  2006** | ** **   | **%/basis  point  Change(1)** | ** **   | **June 30,  2005** | ** ** | **%/basis  point  Change(1)** | ** **   |
|------------------------------------------|--------------|-------------------------|--------------|-------------------------------|--------------|-------------------------|------------|-------------------------------|--------------|
| **Regional  Malls:**                     | ** **   | ** **              | ** **   |                          | ** **   | ** **              |       | ** **                    | ** **   | ** ** | ** ** |
| ***Occupancy***                          | *** *** | *** ***            | *** *** | * *                      | *** *** | ** **              | * *   | *** ***                  | *** *** | *** *** | *** *** |
| Consolidated                             | ** **   | **91.3%**               | ** **   |                          | **-100 bps** | ** **              |       | 92.3%                         |         | +140 bps |   |
| Unconsolidated                           | ** **   | **92.1%**               | ** **   |                          | **+10 bps**  | ** **              |       | 92.0%                         |         | +20 bps |   |
| **Total  Portfolio**                     | ** **   | **91.6%**               | ** **   |                          | **-60 bps**  | ** **              |       | 92.2%                         |         | +90 bps |   |
| ***Average  Base Rent per Square Foot*** | *** *** | *** ***            | *** *** | * *                      | *** *** | ** **              | * *   | *** ***                  | *** *** | *** *** | *** *** |
| Consolidated                             | ** **   | **$**                   | **34.64**    | ** **                    |         | **3.3%**                | ** ** |                          | $            | 33.53 |   | 4.8% |   |
| Unconsolidated                           | ** **   | **$**                   | **35.93**    | ** **                    |         | **1.8%**                | ** ** |                          | $            | 35.31 |   | 2.7% |   |
| **Total  Portfolio**                     | ** **   | **$**                   | **35.10**    | ** **                    |         | **2.8%**                | ** ** |                          | $            | 34.16 |   | 3.8% |   |
| ***Comparable  Sales Per Square Foot***  | *** *** | *** ***            | *** *** | * *                      | *** *** | ** **              | * *   | *** ***                  | *** *** | *** *** | *** *** |
| Consolidated                             | ** **   | **$**                   | **454**      | ** **                    |         | **6.3%**                | ** ** |                          | $            | 427 |   | 5.5% |   |
| Unconsolidated                           | ** **   | **$**                   | **495**      | ** **                    |         | **4.4%**                | ** ** |                          | $            | 474 |   | 5.9% |   |
| **Total  Portfolio**                     | ** **   | **$**                   | **468**      | ** **                    |         | **5.9%**                | ** ** |                          | $            | 442 |   | 5.5% |   |
| **Premium Outlet Centers:**              | ** **   | ** **              | ** **   |                          | ** **   | ** **              |       | ** **                    | ** **   | ** ** | ** ** |
| Occupancy                                | ** **   | **99.4%**               | ** **   |                          | **+20 bps**  | ** **              |       | 99.2%                         |         | — |   |
| Average Base Rent  per Square Foot       | ** **   | **$**                   | **23.78**    | ** **                    |         | **4.2%**                | ** ** |                          | $            | 22.83 |   | — |   |
| Comparable Sales  Per Square Foot        | ** **   | **$**                   | **453**      | ** **                    |         | **6.3%**                | ** ** |                          | $            | 426 |   | — |   |
| **Community/Lifestyle Centers:**         | ** **   | ** **              | ** **   |                          | ** **   | ** **              |       | ** **                    | ** **   | ** ** | ** ** |
| ***Occupancy***                          | *** *** | *** ***            | *** *** | * *                      | *** *** | ** **              | * *   | *** ***                  | *** *** | *** *** | *** *** |
| Consolidated                             | ** **   | **86.9%**               | ** **   |                          | **-240 bps** | ** **              |       | 89.3%                         |         | -50 bps |   |
| Unconsolidated                           | ** **   | **96.2%**               | ** **   |                          | **+10 bps**  | ** **              |       | 96.1%                         |         | +100 bps |   |
| **Total  Portfolio**                     | ** **   | **89.7%**               | ** **   |                          | **-180 bps** | ** **              |       | 91.5%                         |         | - |   |
| ***Average  Base Rent per Square Foot*** | ** **   | **$**                   | **11.92**    | ** **                    |         | **4.2%**                | ** ** |                          | $            | 11.44 |   | 3.3% |   |
| Consolidated                             | ** **   | **$**                   | **11.08**    | ** **                    |         | **5.4%**                | ** ** |                          | $            | 10.51 |   | 4.4% |   |
| Unconsolidated                           | ** **   | **$**                   | **11.65**    | ** **                    |         | **4.7%**                | ** ** |                          | $            | 11.13 |   | 3.4% |   |
| **Total  Portfolio**                     | ** **   | ** **              | ** **   |                          | ** **   | ** **              |       | ** **                    | ** **   | ** ** | ** ** |
| ***Comparable  Sales Per Square Foot***  | *** *** | *** ***            | *** *** | * *                      | *** *** | ** **              | * *   | *** ***                  | *** *** | *** *** | *** *** |
| Consolidated                             | ** **   | **$**                   | **226**      | ** **                    |         | **0.9%**                | ** ** |                          | $            | 224 |   | 2.8% |   |
| Unconsolidated                           | ** **   | **$**                   | **203**      |                          |         | -                       | ** ** |                          | $            | 203 |   | (0.5% | ) |
| **Total Portfolio**                      | ** **   | **$**                   | **218**      |                          |         | -                       | ** ** |                          | $            | 218 |   | 2.1% |   |

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(1)                       Percentagesmay not recalculate due to rounding.

***Occupancy Levelsand Average Base Rent Per Square Foot.******  ***Occupancy andaverage base rent are based on mall and freestanding Gross Leaseable Area (“GLA”)owned by us (“Owned GLA”) in the regional malls, all tenants at the PremiumOutlet centers, and all tenants at community/lifestyle centers. Our 

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Portfolio has maintainedstable occupancy and increased average base rents despite the uncertaineconomic climate.

***Comparable Sales 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.

***International Property Data***

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

| ** **                                  | ** ** | **June 30,  2006** | ** ** | **%/basis  points  Change** | ** ** | **June 30,  2005** | ** ** | **%/basis  point  Change** | ** ** |
|---------------------------------------------|------------|-------------------------|------------|-----------------------------|------------|-------------------------|------------|----------------------------|------------|
| **European  Shopping Centers:**             |       | ** **              |       |                        |       |                    |       |                       |       |
| Occupancy                                   | ** ** | **97.1%**               | ** ** | **-80 bps**                 |       | 97.9%                   |       | -140  bps                  |       |
| Comparable sales  per square foot           | ** ** | **€378**           | ** ** | **2.8%**                    |       | €368               |       | —                     |       |
| Average base rent  per square foot (2) | ** ** | **€26.01**         | ** ** | **0.9%**                    |       | €25.78             |       | 1.7%                       |       |
| **International Premium Outlets (1)**       | ** ** |                    | ** ** |                        |       |                    |       |                       |       |
| Occupancy                                   | ** ** | **100%**                | ** ** | —                      |       | 100%                    |       | —                     |       |
| Comparable sales  per square foot           | ** ** | **¥88,752**        | ** ** | **3.7%**                    |       | ¥85,621            |       | —                     |       |
| Average base rent per  square foot (2) | ** ** | **¥4,645**         | ** ** | **3.0%**                    |       | ¥4,509             |       | —                     |       |

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(1)          Does not include our center in Mexico(Premium Outlets Punta Norte), which opened December 2004.

(2)          Amounts recorded for ourinternational investment entities transactions utilize conversion factors, asappropriate, of:  USD:Euro of 0.797 and0.829, and USD:Yen of 115.41 and 106.59, both for 2006 and 2005, respectively.

**Results ofOperations**

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

·       On December 28, 2005,the deed for Biltmore Square was surrendered to a designee of the property’smortgage lender in full consideration of the $26 million mortgage on theproperty, which bore interest at a fixed rate of 7.95%, and had an anticipatedmaturity date of December 11, 2010.

·       On November 17, 2005,we sold our interest in Cheltenham Square for $71.5 million and recognizeda gain on its disposition of $19.7 million.

·       In November 2005, weopened Rockaway Plaza, a 450,000 square foot community center located inRockaway, New Jersey, adjacent to our Rockaway Townsquare.

·       On October 7, 2005, weopened Firewheel Town Center, a 785,000 square foot open-air regional malllocated 15 miles northeast of downtown Dallas in Garland, Texas.

·       On July 15, 2005, weopened Wolf Ranch, a 600,000 square foot open-air community center located inGeorgetown, Texas.

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·       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 $119.7 million.

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

·       OnMarch 15, 2005, we and our joint venture partner completed the constructionof, obtained permanent financing for, and opened St. Johns Town Center (St.Johns), a 1.5 million square foot open-air retail project in Jacksonville,Florida. Prior to the completion, we consolidated St. Johns as we wereresponsible for 85% of the development cost. At permanent financing, theownership percentages were each adjusted to 50%, and we began to account forSt. Johns using the equity method of accounting.

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

·       On May 31, 2006, weopened Giugliano, an 800,000 square foot center anchored by a hypermarket, inItaly.

·       On April 25, 2006, wesold our 50% interest in Great Northeast Plaza community center inPhiladelphia, Pennsylvania for $8.8 million and recognized a gain on thedisposition of $7.6 million.

·       On November 18, 2005,we purchased a 37.99% interest in Springfield Mall in Springfield, Pennsylvaniafor approximately $39.3 million, including the issuance of our share ofdebt of $29.1 million.

·       On November 21, 2005,we purchased a 50% interest in Coddingtown Mall in Santa Rosa, California forapproximately $37.1 million, including the assumption of our share of debtof $10.5 million.

·       In March 2005, weopened Toki Premium Outlets in Japan.

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

Ourconsolidated discontinued operations reflect results of the followingsignificant property dispositions:

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

 

For the purposes of thefollowing comparison between the three and six months ended June 30, 2006and 2005, the above transactions are referred to as the Property Transactions. In the following discussions of our results ofoperations, “comparable” refers to Properties open and operating throughout theperiods in both 2006 and 2005.

***Three Months Ended June 30, 2006  vs. Three Months Ended June 30, 2005***

Minimum rents, excluding rents from our consolidatedSimon Brand and Simon Business initiatives, increased $16.7 million duringthe period, of which the Property Transactions accounted for $3.2 millionof the increase. Total amortization of the fair market value of in-place leasesincreased minimum rents by $3.8 million over that of the second quarter of2005. Comparable rents, excluding rents from Simon Brand and Simon Business,increased $13.5 million, or 3.0%. This was primarily due to the leasing ofspace at 

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higher rents that resultedin an increase in minimum rents of $12.5 million. In addition, rents fromcarts, kiosks, and other temporary tenants increased comparable rents by $1.0 million.

Tenant reimbursements, excluding Simon Businessinitiatives, increased $13.8 million, of which the Property Transactionsaccounted for $2.4 million. The remainder of the increase of$11.43 million, or 5.5%, was in comparable Properties and was due toinflationary increases in property operating costs.

Total other income, excluding Simon Brand and SimonBusiness initiatives, increased $12.2 million, and was principally the resultof a $1.3 million increase in interest income driven by increasing depositoryrates, an $8.1 million increase in land sale activity, and increases inmiscellaneous fee income of $2.8 million.

Revenues from SimonBrand and Simon Business initiatives increased $1.7 million to$35.1 million from $33.4 million. The increase in revenues isprimarily due to:

·       increased rents and feesfrom service providers;

·       increased advertisingrentals; and

·       increasedevent and sponsorship income.

Simon Brand and Simon Business expenses decreased$3.0 million, primarily as a result of decreases in operating expenses ofthe co-branded gift card programs, which are included in total propertyoperating expenses.

Property operating expenses increased$7.5 million, $6.6 million from comparable properties (representingan increase of 6.7%) principally as a result of inflationary increases, and theremainder from new openings.

Provision for credit losses increased$6.2 million from the prior period related to significantly lower bad debtexpense in 2005 due to recoveries of amounts previously written off or providedfor in prior periods.

Home office and regional costs increased$1.9 million due to increased personnel costs.

Other expenses increased $1.1 million primarilydue to increases in ground rent expenses of $0.5 million and increasedprofessional fees.

Interest expenseincreased $3.0 million due principally to the following:

·       the impact of increases inour average borrowing rates for our variable rate debt; and

·       theimpact of increased fixed rate debt of $249 million, which is generally athigher rates than our variable rate debt, due to the issuances of unsecurednotes in May of 2006 and June and November of 2005.

The minority interest increase was the result ofincreased net income in our Properties in which outside partners hold aminority ownership interest.

Gain on sales of interests in unconsolidated entitiesincreased $5.5 million over the prior period. In 2006, we recorded a $7.6million gain on the sale of Great Northeast Plaza. The gain on sales in thesecond quarter of 2005 of $2.1 million relates to the sale of ourownership in a property management entity acquired as part of our acquisitionof Rodamco North America N.V. (“Rodamco”) in 2002 and other non-core assetsales.

The decrease in gain ondisposal of discontinued operations is due to $119.7 million of netrecognized gain upon disposition of our Riverway and O’Hare InternationalCenter properties in June of 2005.

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***Six Months Ended June 30, 2006  vs. Six Months Ended June 30, 2005***

Minimum rents, excluding rents from our consolidatedSimon Brand and Simon Business initiatives, increased $41.3 million duringthe period, of which the Property Transactions accounted for $7.2 millionof the increase. Total amortization of the fair market value of in-place leasesincreased minimum rents by $7.3 million over that of the first six monthsof 2005. Comparable rents, excluding rents from Simon Brand and Simon Business,increased $34.0 million, or 3.8%. This was primarily due to the leasing ofspace at higher rents that resulted in an increase in base minimum rents of$29.7 million. In addition, rents from carts, kiosks, and other temporarytenants increased comparable rents by $1.8 million.

Total overage rents increased $3.6 million, or12.8%, reflecting the increases in tenants’ sales.

Tenant reimbursements, excluding Simon Businessinitiatives, increased $23.9 million, of which the Property Transactionsaccounted for $4.7 million. The remainder of the increase of$19.2 million, or 4.7%, was in comparable Properties and was due toinflationary increases in property operating costs.

Total other income,excluding Simon Brand and Simon Business initiatives, increased $17.3 million,and was the result of:

·       $6.1 million in increasedlease settlement activity;

·       $3.2 million in increasedinterest income driven by increasing depository rates;

·       $1.5 million in collectionson a note receivable which had been previously reserved for;

·       $1.2 million in gains onthe sale of air rights at a property in Texas to a residential joint venture;and

·       a$3.4 million increase in land sale activity and increases of $1.9 million inother net activity on comparable Properties.

Revenues from SimonBrand and Simon Business initiatives increased $3.8 million to$69.5 million from $65.7 million. The increase in revenues isprimarily due to:

·       increased rents and feesfrom service providers;

·       increased advertisingrentals; and

·       increasedevent and sponsorship income.

Simon Brand and Simon Business expenses decreased$5.4 million, primarily as a result of decreases in operating expenses ofthe co-branded gift card programs, which are included in total propertyoperating expenses.

Property operating expenses increased$13.1 million, $10.8 million from comparable properties (representingan increase of 5.4%) principally as a result of inflationary increases, and theremainder from new openings.

Real estate taxes increased $9.6 million dueprincipally to a $6.5 million multi-year reassessment settlement at a propertyand increases in expenses at the other comparable properties driven byreassessments and rate increases.

Repairs and maintenance decreased $1.8 million asa result of decreased comparable property repair needs.

Provision for credit losses increased$3.9 million from the prior period related to significantly lower bad debtexpense in 2005 due to recoveries of amounts previously written off or providedfor in prior periods.

Home office and regional costs increased$5.0 million due to increased personnel costs, principally as a result ofthe effect of the significant increase in our stock price and its effect on ourstock-based compensation programs.

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Other expenses increased $3.3 million primarilydue to ground rent expenses of $2.0 million and increased professional fees.

Interest expenseincreased $11.8 million due principally to the following:

·       the impact of increases inour average borrowing rates for our variable rate debt offset by a decrease invariable rate debt of approximately $1.2 billion due to repayment activity; and

·       theimpact of increased fixed rate debt of $1.1 billion, which are generally athigher rates than our variable rate debt, due to the issuances of unsecurednotes in May of 2006 and June and November of 2005.

The minority interest decrease was the result of ourallocating to our minority interest partner their share of the aforementionedmulti-year real estate tax assessment settlement on a Property in which we holda 53% interest, offset by increased net income in Properties in which outsidepartners hold a minority ownership interest.

During the first quarter of 2006, we recognized thereceipt of a beneficial interest in MOAA, which represents the majority of theincrease in our income from unconsolidated entities and beneficial interests,net in the consolidated financial statements. The transaction and relatedaccounting are more fully described in the condensed footnotes to theconsolidated financial statements in this Form 10-Q.

Gain on sales of interests in unconsolidated entitiesincreased $29.3 million over the prior period. In 2006, we recorded a $34.4million gain on the sales of interests in unconsolidated entities in 2006 thatincluded our share of the gain on the sale of 10.5% of our interests in ERE anda $7.6 million gain on the sale of Great Northeast Plaza. The gain on sale ofassets in 2005 of $12.6 million relates to the sale of our joint ventureinterest in Metrocenter in January 2005 and the sale of a propertymanagement entity acquired as part of the Rodamco acquisition in 2002.

The decrease in gain ondisposal of discontinued operations is due to $119.7 million of netrecognized gain upon disposition of our Riverway and O’Hare InternationalCenter properties in June of 2005.

**Liquidity andCapital Resources**

Because we generate revenues primarily from long-termleases, our financing strategy relies primarily on long-term fixed rate debt.We manage our floating rate debt to be approximately 15–25% of totaloutstanding indebtedness by setting interest rates for each financing orrefinancing based on current market conditions. We also enter into interestrate protection agreements as appropriate to assist in managing our interestrate risk. We derive most of our liquidity from leases that generate positivenet cash flow from operations and distributions of capital from unconsolidatedentities that totaled $767.3 million during the first six months of 2006.In addition, our Credit Facility provides an alternative source of liquidity asour cash needs vary from time to time.

Our balance of cash and cash equivalents decreased$6.8 million during 2006 to $330.3 million as of June 30, 2006. The June 30,2006 and December 31, 2005 balances include $26.2 million and $42.3, respectively,related to our co-branded gift card programs, which we do not consideravailable for general working capital purposes.

On June 30, 2006, the Credit Facility hadavailable borrowing capacity of approximately $1.7 billion net of outstandingborrowings of $1.2 billion and letters of credit of $20.4 million. During thefirst six months of 2006, the maximum amount outstanding under the CreditFacility was $2.0 billion and the weighted average amount outstanding was $1.5billion. The weighted average interest rate was 4.75% for the period ended June 30,2006.

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Simon Property and theOperating Partnership also have access to public equity and long term unsecureddebt markets and access to private equity from institutional investors at theProperty level. Our current senior unsecured debt ratings are A- by Standard &Poor’s and Baa1 by Moody’s Investors Service.

**Cash Flows**

Our net cash flowfrom operating activities and distributions of capital from unconsolidatedentities for the six months ended June 30, 2006 totaled $767.3 million. Wealso received proceeds of $62.7 million from the sale of partnershipinterests and sales of assets during the first six months of 2006. In addition,we had net proceeds from all of our debt financing and repayment activities inthis period of $22.1 million. These activities are further discussed belowin Financing and Debt. We also:

·       repurchased units andpreferred units amounting to $10.8 million,

·       paid unitholder distributionsof $424.5 million,

·       paid preferred unit distributionstotaling $50.7 million,

·       funded consolidated capitalexpenditures of $276.4 million. These capital expenditures includedevelopment costs of $150.1 million, renovation and expansion costs of$88.7 million, and tenant costs and other operational capital expendituresof $37.6 million, and

·       fundedinvestments in unconsolidated entities of $112.6 million.

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

·       excess cash generated fromoperating performance and working capital reserves,

·       borrowings on our CreditFacility,

·       additional secured orunsecured debt financing, or

·       additional equity by SimonProperty raised in the public or private markets and contributed to us inexchange for units.

**Financing and Debt**

***Unsecured Debt***

On March 31, 2006, Standard & Poor’sRating Services raised its corporate credit rating for us to ‘A-’ from ‘BBB+’which resulted in a decrease in the interest rate applicable to borrowings onour Credit Facility to 37.5 basis points over LIBOR from 42.5 basis points overLIBOR. The revision to our rating also decreased the facility fee on the CreditFacility to 12.5 basis points from 15 basis points.

On May 15, 2006, we sold two tranches of seniorunsecured notes totaling $800 million at a weighted average fixed interest rateof 5.93%. The first tranche is $400.0 million at a fixed interest rate of 5.75%due May 1, 2012 and the second tranche is $400.0 million at a fixedinterest rate of 6.10% due May 1, 2016. We used the net proceeds of $803.9million from the offering, which included $10.1 million from terminatedforward-starting swap arrangements, to reduce borrowings on our CreditFacility.

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***Credit Facility.******  ***Significant activity on the Credit Facilityduring the six-month period ended June 30, 2006 was as follows:

| ***Draw  Date*** | *** *** | ***Draw  Amount*** | *** *** | ***Use of Credit Line Proceeds***                                                 | *** ***                                                               |
|------------------|--------------|--------------------|--------------|-------------------------------------------------------------------------------------------------------|----------------------------------------------------------------------------|
| 01/03/06         |         | $                  | 59,075       |                                                                                                  | Repayment  of a Term Loan (CPG Partners, L.P.), which had a rate of 7.26%. |   |
| 01/06/06         |         | 140,000            |         | Repayment  of a mortgage, which had a rate of LIBOR plus 138 basis points.                            |                                                                       |
| 01/20/06         |         | 300,000            |         | Repayment  of unsecured notes, which had a fixed rate of 7.375%.                                      |                                                                       |
| 03/27/06         |         | 600,000            |         | Early repayment of the $1.8 billion facility we used  to finance our acquisition of  Chelsea in 2004. |                                                                       |
| 04/03/06         |         | 58,000             |         | Repayment of two secured  mortgages that each bore interest at 8.25%.                                 |                                                                       |
|                  |              |                    |              |                                                                                                       |                                                                            |  |

 

Other amounts drawn on the Credit Facility wereprimarily for general working capital purposes. The total aggregate amount ofour repayments on the Credit Facility during the six-month period ended June 30,2006 was $1.0 billion. The total outstanding balance on the CreditFacility as of June 30, 2006 was $1.2 billion, and the maximum amountoutstanding during the quarter was approximately $2.0 billion. During thefirst six months of 2006, the weighted average outstanding balance on theCredit Facility was approximately $1.5 billion.

***Acquisition Facility.******  ***We borrowed $1.8 billion in 2004 to financethe cash portion of our acquisition of Chelsea. On March 27, 2006, we madethe final $600.0 million principal payment due on this facility. The facilitybore interest at LIBOR plus 55 basis points with an additional 15 basis pointfacility fee on all loans outstanding and provided for variable grid pricingbased upon our credit rating.

***SecuredDebt***

Total secured indebtednesswas $4.3 billion and $4.6 billion at June 30, 2006 and December 31,2005, respectively. During the six-month period ended June 30, 2006, werepaid $198.0 million in mortgage loans, unencumbering three properties.

***Summary of Financing***

Our consolidated debt,adjusted to reflect outstanding derivative instruments, and the effectiveweighted average interest rates as of June 30 and December 31consisted of the following (dollars in thousands):

| ** **                    | ** ** | **Adjusted**      | ** ** | ** ** | ** ** | ** **             | ** ** | ** ** | ** ** | **Adjusted**          | ** ** | ** **             | ** ** |
|-------------------------------|------------|-------------------|------------|------------|------------|------------------------|------------|------------|------------|-----------------------|------------|------------------------|------------|
| ** **                    | ** ** | **Balance**       | ** ** | ** ** | ** ** | **Effective**          | ** ** | ** ** | ** ** | **Balance**           | ** ** | **Effective**          | ** ** |
| ** **                    | ** ** | **as of**    | ** ** | ** ** | ** ** | **Weighted**           | ** ** | ** ** | ** ** | **as of**        | ** ** | **Weighted**           | ** ** |
| ** **                    | ** ** | **June 30,** | ** ** | ** ** | ** ** | **Average**            | ** ** | ** ** | ** ** | **December 31,** | ** ** | **Average**            | ** ** |
| **Debt Subject to** | ** ** | **2006**          | ** ** | ** ** | ** ** | **Interest Rate** | ** ** | ** ** | ** ** | **2005**              | ** ** | **Interest Rate** | ** ** |
| **Fixed Rate**                |       | **$12,245,634**   |       |       |       | **6.15%**              |       |       |       | $11,908,050           |       | 6.22%                  |       |
| **Variable Rate**             |       | **1,887,958**     |       |       |       | **5.38%**              |       |       |       | 2,198,067             |       | 4.95%                  |       |
| ** **                    |       | **$14,133,592**   |       |       |       | **6.05%**              |       |       |       | $14,106,117           |       | 6.02%                  |       |

 

As of June 30, 2006, we had interest rate capprotection agreements on $96.6 million of consolidated variable rate debt. Wealso hold $370.0 million of notional amount variable rate swap agreements thathave a weighted average variable pay rate of 5.54% and a weighted average fixedreceive rate of 3.72%. As of June 30, 2006, the net effect of theseagreements effectively converted $370.0 million of fixed rate debt to variablerate debt.

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***Contractual Obligations and Off-Balance SheetArrangements.******  ***Therehave been no material changes in our outstanding capital expenditurecommitments since December 31, 2005, as previously disclosed in our 2005Annual Report on Form 10-K. The following table summarizes thematerial aspects of our future obligations as of June 30, 2006 for theremainder of 2006 and subsequent years thereafter (dollars in thousands):

| *** ***                                | *** *** | ***        2006        *** | *** *** | ***2007-2008*** | *** *** | ***2009-2011*** | *** *** | ***After 2011*** | *** *** | ***Total*** | *** *** |
|---------------------------------------------|--------------|------------------------------------------------------------------------------------------------------------|--------------|-----------------|--------------|-----------------|--------------|-----------------------|--------------|-------------|--------------|
| **Long  Term Debt**                         | ** **   |                                                                                                       | ** **   | ** **      |         | ** **      | ** **   | ** **            | ** **   | ** **  | ** **   | ** ** | ** ** |
| Consolidated (1)                            |         |                                                                                                       | $            | 283,264         | ** **   |            | $            | 2,657,069             |         | $           | 6,040,318    |   | $ | 5,086,214 |   | $ | 14,066,865 |   |
| **Pro rata  share of Long-Term Debt:**      | ** **   |                                                                                                       | ** **   | ** **      |         | ** **      | ** **   | ** **            | ** **   | ** **  | ** **   | ** ** | ** ** |
| Consolidated (2)                            |         |                                                                                                       | $            | 281,686         | ** **   |            | $            | 2,604,179             |         | $           | 5,980,990    |   | $ | 5,010,453 |   | $ | 13,877,308 |   |
| Joint Ventures (2)                          |         |                                                                                                       | 66,898       | ** **      |         | 528,540         |         | 1,309,003             |         | 1,530,607   |         | 3,435,048 |   |
| **Total Pro Rata Share of Long-Term  Debt** |         |                                                                                                       | $348,584     | ** **      |         | $               | 3,132,719    |                  | $            | 7,289,993   |         | $ | 6,541,060 |   | $ | 17,312,356 |   |

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(1)             Represents principal maturities and therefore, excludesnet premiums and discounts and fair value swaps of $66,727.

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

Our off-balance sheetarrangements consist primarily of our investments in real estate joint ventureswhich are common in the real estate industry and are described in Note 5of the notes to the accompanying financial statements. Joint venture debt isthe liability of the joint venture, is typically secured by the joint ventureProperty, and is non-recourse to us. As of June 30, 2006, we have loanguarantees and other guarantee obligations of $37.7 million and $75.6million, respectively, to support our total $3.4 billion share of joint venturemortgage and other indebtedness presented in the table above.

**Acquisitions andDispositions**

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

***Acquisitions.******  ***Although the acquisition of high qualityindividual properties or portfolios of properties remain an integral componentof our growth strategies, we did not acquire any properties during the firstsix months of 2006.

***Dispositions.******  ***We continue to pursue the sale of Properties thatno longer meet our strategic criteria. During the first six months of 2006, wedisposed of Great Northeast Plaza, a community center in Philadelphia, Pennsylvaniain which we held a 50% interest. We received net proceeds of $8.8 millionand recorded our share of the gain on its disposal totaling $7.6 million.We do not believe the sale of this property will have a material impact on ourfuture results of operations or cash flows and its removal from service andsale will not materially affect our ongoing operations. We believe thedisposition of this property will enhance the average overall quality of ourPortfolio.

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**DevelopmentActivity**

***New Developments.******  ***The following describes ournew development projects, the estimated total cost, and our share of theestimated total cost and our share of the construction in progress balance asof June 30, 2006 (dollars in millions):

| ***Property***                     | *** *** | ***Location***            | *** *** | ***Gross  Leasable  Area*** | *** *** | ***Estimated  Total  Cost (a)*** | *** *** | ***Our Share of  Estimated  Total Cost*** | *** *** | ***Our Share of  Construction  in Progress*** | *** *** | ***Estimated  Opening Date*** | *** *** |
|------------------------------------|--------------|---------------------------|--------------|-----------------------------|--------------|---------------------------------------|--------------|----------------------------------------------------------|--------------|--------------------------------------------------------------|--------------|------------------------------------|--------------|
| **Under Construction:**            | ** **   | ** **                | ** **   | ** **                  | ** **   |                                  | ** **   | ** **                                               |         |                                                         | ** **   | ** **                         |         |   | ** ** | ** ** |   | ** ** | ** ** |
| Coconut Point                      |         | Estero/Bonita Springs, FL |         | 1,200,000                   | ** **   |                                  | $            | 225                                                      | ** **   |                                                         |         | $                                  | 112          | ** ** |   |   | $ | 95 | ** ** |   | 4th Quarter 2006  (b) |   |
| Domain, The                        |         | Austin, TX                |         | 700,000                     | ** **   |                                  | 195          | ** **                                               |         |                                                         | 195          | ** **                         |         |   | 116 | ** ** |   | 1st Quarter 2007 |   |
| Rio Grande Valley Premium  Outlets |         | Mercedes, TX              |         | 404,000                     | ** **   |                                  | 59           | ** **                                               |         |                                                         | 59           | ** **                         |         |   | 35 | ** ** |   | 4th Quarter 2006 |   |
| Round Rock Premium  Outlets        |         | Round Rock (Austin), TX   |         | 433,000                     | ** **   |                                  | 106          | ** **                                               |         |                                                         | 106          | ** **                         |         |   | 87 | ** ** |   | 3rd Quarter 2006 |   |
| Shops at Arbor Walk, The           |         | Austin, TX                |         | 460,000                     | ** **   |                                  | 52           | ** **                                               |         |                                                         | 52           | ** **                         |         |   | 28 | ** ** |   | 4th Quarter 2006 |   |
| Village at SouthPark, The          |         | Charlotte, NC             |         | 81,000                      | ** **   |                                  | 26           | ** **                                               |         |                                                         | 26           | ** **                         |         |   | 8 | ** ** |   | 1st Quarter 2007 |   |
|                                    |              |                           |              |                             |              |                                       |              |                                                          |              |                                                              |              |                                    |              |  |  |  |  |  |  |  |  |  |

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

(b)              The estimated opening date representsPhase II only. Phase I opened in the 2nd quarter 2006.

We expect to fund these projects with available cashflow from operations, borrowings from our Credit Facility, or project specificconstruction loans. We expect our share of the total 2006 new development costsremaining for the year to be approximately $300 million.

***Strategic Expansions and Renovations.******  ***The following describes oursignificant renovation and/or expansion projects currently under construction,the estimated total cost, our share of the estimated total cost and our shareof the construction in progress balance as of June 30, 2006 (dollars inmillions):

| ***Property***                               | *** *** | ***Location***            | *** *** | ***Incremental  Gross  Leasable  Area*** | *** *** | ***Estimated  Total  Cost (a)*** | *** *** | ***Our Share of  Estimated  Total Cost*** | *** *** | ***Our Share of  Construction  in Progress*** | *** *** | ***Estimated  Opening Date*** | *** *** |
|----------------------------------------------|--------------|---------------------------|--------------|------------------------------------------|--------------|---------------------------------------|--------------|----------------------------------------------------------|--------------|--------------------------------------------------------------|--------------|------------------------------------|--------------|
| **Under Construction:**                      | ** **   | ** **                | ** **   |                                     | ** **   | ** **                            |         |                                                     | ** **   | ** **                                                   |         |                               | ** **   | ** ** |   |   | ** ** | ** ** |   | ** ** | ** ** |
| Las  Vegas Premium Outlets                   |         | Las Vegas, NV             |         |                                     | 104,000      | ** **                            |         |                                                     | $            | 53                                                           | ** **   |                               |         | $ | 53 | ** ** |   |   | $ | 1 | ** ** |   | 4th Quarter 2007 |   |
| Lehigh  Valley Mall                          |         | Whitehall, PA             |         |                                     | 121,000      | ** **                            |         |                                                     | 43           | ** **                                                   |         |                               | 16           | ** ** |   |   | 0.3 | ** ** |   | 3rd Quarter 2007 |   |
| Lenox  Square                                |         | Atlanta, GA               |         |                                     | 65,000       | ** **                            |         |                                                     | 46           | ** **                                                   |         |                               | 46           | ** ** |   |   | 11 | ** ** |   | 4th Quarter 2007 |   |
| Northgate  Mall                              |         | Seattle, WA               |         |                                     | 114,000      | ** **                            |         |                                                     | 44           | ** **                                                   |         |                               | 44           | ** ** |   |   | 4 | ** ** |   | 2nd Quarter 2007 |   |
| Smith  Haven Mall                            |         | Lake Grove (New York), NY |         |                                     | —       | ** **                            |         |                                                     | 65           | ** **                                                   |         |                               | 16           | ** ** |   |   | 5 | ** ** |   | 4th Quarter 2006 |   |
| St.  Johns Town Center —  Phase II |         | Jacksonville, FL          |         |                                     | 180,000      | ** **                            |         |                                                     | 61           | ** **                                                   |         |                               | 30           | ** ** |   |   | 3 | ** ** |   | 3rd Quarter 2007 |   |
|                                              |              |                           |              |                                          |              |                                       |              |                                                          |              |                                                              |              |                                    |              |  |  |  |  |  |  |  |  |  |  |  |

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*(*a)              Represents project costs net of landsales, tenant reimbursements for construction and other items (whereapplicable).

We expect to fund these projects with available cashflow from operations or borrowings from the Credit Facility. We have otherrenovation and/or expansion projects currently under construction or inpreconstruction development and expect to invest a total of approximately $200million (our share) on expansion and renovation activities for the remainder of2006.

***International.******  ***Part ofour international expansion strategy is to reinvest net cash flow to fundfuture international developments. We believe this strategy will mitigate someof the risk of our initial investment and our exposure to changes in foreigncurrencies. To date we typically fund our European investments withEuro-denominated borrowings that act as a natural hedge against local currencyfluctuations. This has also been the case with our Premium Outlet jointventures in Japan and Mexico where we use Yen and Peso denominated financing. Currently,our net income exposure to changes in the volatility of the Euro, Yen, and Pesois not material. In addition, since cash flow from operations is currentlybeing reinvested in other development projects, we do not expect to repatriateforeign denominated earnings in the near term.

The carrying amount of our total combined investmentin Simon Ivanhoe B.V./S.à.r.l.(“Simon Ivanhoe”) and Gallerie Commerciali Italia (“GCI”) as of June 30,2006, net of the related currency translation adjustment, was $335.3 million.Our investments in Simon Ivanhoe and GCI are accounted for 

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using the equity method ofaccounting. Currently six European developments are under construction, whichwill add approximately 3.4 million square feet of GLA for a total net costof approximately €604 million, of whichour share is approximately €174 million.

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

As of June 30, 2006, the carrying amount of our40% joint venture investment in the five Japanese Premium Outlet centers net ofthe related cumulative translation adjustment was $285.5 million. We beganan expansion in Nagoya, Japan which will add incremental GLA of 53,000 squarefeet for a total projected net cost of ¥1.8 billion, of which our share isapproximately ¥0.7 billion, or $6.1 million based on current Yen:USDexchange rates.

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

**Distributions**

The Board of Directors of Simon Property, our generalpartner, declared and we paid a distribution of $0.76 per unit in the secondquarter of 2006. Our distributions typically exceed our net income generated inany given year primarily because of depreciation, which is a “non-cash”expense. Our future distributions and the dividends of Simon Property will bedetermined by Simon Property’s Board of Directors based on actual results ofoperations, cash available for distributions, and what may be required tomaintain Simon Property’s status as a REIT.

On May 11, 2006, theBoard of Directors of Simon Property authorized a stock repurchase programunder which Simon Property may purchase up to $250 million of its commonstock over the next twelve months as market conditions warrant. Simon Propertymay repurchase the shares in the open market or in privately negotiatedtransactions. There have been no purchasesunder this program during 2006.

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

***Sensitivity Analysis.******  ***We disclosed a comprehensive qualitative andquantitative analysis regarding market risk in the Management’s Discussion andAnalysis of Financial Condition and Results of Operations included in ourAnnual Report on Form 10-K for the year ended December 31,2005. There have been no material changes in the assumptions used or resultsobtained regarding market risk since December 31, 2005.

**Item 4.**                        Controlsand Procedures

***Evaluation ofDisclosure Controls and Procedures.******  ***We carried out an evaluation under the supervisionand with participation of management, including the Chief Executive Officer andChief Financial Officer, of the effectiveness of the design and operation ofour “disclosure controls and procedures” (as defined in Rule 13a-15(e) underthe Securities Exchange Act of 1934 (the “Exchange Act”)) as of the end of the 

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period covered by thisQuarterly Report on Form 10-Q. Based upon that evaluation, the ChiefExecutive Officer and Chief Financial Officer have concluded that ourdisclosure controls and procedures were effective as of June 30, 2006.

***Changes in Internal Control Over Financial Reporting.******  ***There have not been any changes in our internalcontrol over financial reporting (as defined in Rule 13a-15(f)) thatoccurred during the quarter ended June 30, 2006 that have materiallyaffected, or are reasonably likely to materially affect, our internal controlover financial reporting.

**Part II —Other Information**

**Item 1.**                       LegalProceedings

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

As previously disclosed in our 2005 Annual Report on Form 10-K,we are a defendant in a suit filed on November 9, 1999, in the DistrictCourt for the State of Minnesota, Fourth Judicial District (*Triple Five of Minnesota, Inc., a Minnesota corporation, v. MelvinSimon, et al.*). In January 2006, and as more fully described inour 2005 Annual Report on Form 10-K, we resolved a portion of thislitigation between Triple Five of Minnesota, Inc. (“Triple Five”) and,among others, certain members of the Simon family, entities allegedlycontrolled by such individuals, and us. In April 2005, the federalAppellate Court modified the District Court’s remedy in this case, requiringthat the transfer of a partnership interest originally purchased fromaffiliates of Teachers’ Insurance and Annuity Association of America (“TIAA”)in 1999 and transferred to Triple Five in August 2004, should have beentransferred to Mall of America Associates (“MOAA”), a partnership in which anentity owned indirectly by members of the Simon family has an interest. In January 2006,the transfer of this interest from Triple Five to MOAA was completed, and financedwith a new credit facility secured by cash flows and excess sale andrefinancing proceeds received by MOAA from the operation of Mall of America. Asof the date of the transfer, the entity owned indirectly by the Simon familytransferred, under certain circumstances, the right to receive cash flowdistributions, capital transaction proceeds, and related profits and lossesattributable to one-half of the interest that MOAA acquired from Triple Five(or 25%) subject to the new credit facility, to the Operating Partnership. Theresult on our consolidated financial statements is discussed in note 3 to thesecondensed notes to consolidated financial statements. 

The District Court has also scheduled a trial on abreach of contract claim for damages asserted by Triple Five against entitiesindirectly owned by members of the Simon family including the entity thatcompleted the transfer described above. While the Company and its affiliatesare not a defendant in that claim, any damages awarded to Triple Five in connectionwith the breach of contract claim could adversely impact the Company’sbeneficial interest in cash flow distributions, capital transaction proceeds,and related profits and losses from Mall of America. 

In response to a motion filed by Triple Five, theDistrict Court has determined that Triple Five may elect to terminate theexisting management contract for the Mall with our subsidiary. We have appealedthe District Court’s determination granting Triple Five the right to terminatethe management contract, and that appeal is pending. 

In March, 2006, TIAAnotified MOAA of TIAA’s receipt of an offer to acquire all of the partnershipinterests in Mall of America pursuant to rights granted TIAA under theapplicable partnership agreements. Pursuant to those partnership agreements,MOAA may respond to this notice by electing to acquire all of TIAA’spartnership interests in Mall of America or instead electing to sell MOAA’spartnership interests pursuant to the offer. At that same time, TIAA filed anaction for declaratory relief in 

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theFederal District Court seeking to determine whether MOAA may acquire the TIAApartnership interests in Mall of America, or to permit TIAA to acquire MOAA’spartnership interests in Mall of America, pursuant to the sale rights grantedTIAA under the applicable partnership agreements. In response to the filing ofthat action, Triple Five has filed counter claims alleging, among other things,that no entity owned or controlled by members of the Simon family or theCompany should be allowed to participate in, or otherwise receive any benefitsfrom, the offer made by TIAA. Those issues have not yet been decided by theFederal District Court.

It is not possible toprovide any assurance as to the outcome of any remaining litigation related tothe Mall of America.

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

**Item 1A.**               RiskFactors

Through the period coveredby this report, there were no significant changes to the Risk Factors disclosedin “Part I, Item 1: Business” of our Annual Report on Form 10-K forthe year ended December 31, 2005.

**Item **5.                       Other Information

During the quarter covered by this report, the AuditCommittee of Simon Property’s Board of Directors approved Ernst &Young, LLP, the Company’s independent registered public accounting firm, toperform certain tax compliance 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***                                                                                                                                                                                                                                                                                                                                     |
|-------------------|--------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 10.1              |         | Simon Property Group, L.P. 1998 Stock Incentive  Plan, as amended (incorporated by reference to Appendix B to Simon Property’s  Definitive Proxy Statement filed on April 4, 2006).                                                                                                                                                                       |
| 10.2              |         | Form of Seventeenth Supplemental to the Indenture  dated as of November 26, 1996 between Simon Property Group, L.P.  and JPMorgan Chase Bank, N.A. (as successor to the Chase Manhattan Bank), as  trustee, (incorporated by reference to Exhibit 4.1 to the Current Report  on Form 8-K filed May 12, 2006 by Simon Property Group, L.P.) |
| 31.1              |         | Certification by the Chief Executive Officer  pursuant to rule 13a-14(a)/15d-14(a) of the Securities  Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley  Act of 2002.                                                                                                                                                   |
| 31.2              |         | Certification by the Chief Financial Officer  pursuant to rule 13a-14(a)/15d-14(a) of the Securities  Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley  Act of 2002.                                                                                                                                                   |
| 32                |         | Certification by the Chief Executive Officer and  Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as  adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                 |

 

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**SIGNATURES**

Pursuantto the requirements of the Securities Exchange Act of 1934, the registrant hasduly caused this report to be signed on its behalf by the undersigned thereuntoduly authorized.
|        | **SIMON PROPERTY GROUP, L.P**                             |
|--------|-----------------------------------------------------------|
|   | **By Simon Property  Group, Inc.,  General Partner** |
|   | /s/ Stephen E. Sterrett                                   |
|   | Stephen E. Sterrett                                  |
|   | Executive Vice President and Chief Financial Officer      |
|   | Date: August 11,  2006                               |

 

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