**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 September 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.)

225 West Washington Street

Indianapolis, Indiana 46204

(Address of principal executiveoffices)

(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   x       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 x |
|---------------------------|---------------------|-------------------------|

 

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

Registrant has no commonstock outstanding.

 

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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 September 30, 2006 and December 31, 2005                                                        |       | 3        |
|                                              |       |       |       | Consolidated Statements of Operations and  Comprehensive Income for the three months and nine months ended September 30,  2006 and 2005 |       | 4        |
|                                              |       |       |       | Consolidated Statements of Cash Flows for the nine  months ended September 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                                                  |       | 15       |
|                                              |       | Item 3.    |       | Qualitative and Quantitative Disclosure About Market  Risk                                                                                   |       | 28       |
|                                              |       | Item 4.    |       | Controls and Procedures                                                                                                                      |       | 29       |
| **Part II —  Other Information**   |       |       |
|                                              |       | Item  1.   |       | Legal  Proceedings                                                                                                                           |       | 29       |
|                                              |       | Item  1A.  |       | Risk  Factors                                                                                                                                |       | 29       |
|                                              |       | Item  5.   |       | Other  Information                                                                                                                           |       | 29       |
|                                              |       | Item 6.    |       | Exhibits                                                                                                                                     |       | 30       |
| **Signatures**                                    |       | 31         |

 

2

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

*Consolidated BalanceSheets*

*(Dollars in thousands, except unit amounts)*

| ** **                                                                                                                                   | ** ** | **September 30,** | ** **     | **December 31,** | ** ** |
|----------------------------------------------------------------------------------------------------------------------------------------------|------------|------------------------|----------------|-----------------------|------------|
| ** **                                                                                                                                   | ** ** | **2006**               | ** **     | **2005**              | ** ** |
| ** **                                                                                                                                   | ** ** | ***(Unaudited)***      | ** **     | ** **            | ** ** |
| **ASSETS:**                                                                                                                                  |       |                   |           |                  |       |   |   |
| Investment  properties, at cost                                                                                                              | ** ** | ** **             | **$**          | **22,227,899**        |       |   | $ | 21,745,309 |   |
| Less—accumulated  depreciation                                                                                                          | ** ** | ** **             | **4,348,676**  |                  |       | 3,809,293 |   |
|                                                                                                                                         | ** ** | ** **             | **17,879,223** |                  |       | 17,936,016 |   |
| Cash and cash  equivalents                                                                                                                   | ** ** | ** **             | **322,952**    |                  |       | 337,048 |   |
| Tenant receivables  and accrued revenue, net                                                                                                 | ** ** | ** **             | **312,948**    |                  |       | 357,079 |   |
| Investment in  unconsolidated entities, at equity                                                                                            | ** ** | ** **             | **1,492,522**  |                  |       | 1,562,595 |   |
| Deferred costs and  other assets                                                                                                             | ** ** | ** **             | **995,973**    |                  |       | 938,301 |   |
| **Total  assets**                                                                                                                            | ** ** | ** **             | **$**          | **21,003,618**        |       |   | $ | 21,131,039 |   |
| **LIABILITIES:**                                                                                                                             | ** ** | ** **             | ** **     |                  | ** ** | ** ** | ** ** |
| Mortgages and  other indebtedness                                                                                                            | ** ** | ** **             | **$**          | **14,241,941**        |       |   | $ | 14,106,117 |   |
| Accounts payable,  accrued expenses, intangibles, and deferred revenue                                                                       | ** ** | ** **             | **1,036,219**  |                  |       | 1,092,334 |   |
| Cash distributions  and losses in partnerships and joint ventures, at equity                                                                 | ** ** | ** **             | **233,902**    |                  |       | 194,476 |   |
| Other liabilities,  minority interest, and accrued distributions                                                                             | ** ** | ** **             | **179,731**    |                  |       | 163,524 |   |
| **Total  liabilities**                                                                                                                       | ** ** | ** **             | **15,691,793** |                  |       | 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,  32,610,345 and 32,900,856 units outstanding, respectively. Liquidation values  $1,384,654,064 and $1,398,263, respectively | ** ** | ** **             | **1,383,025**  |                  |       | 1,396,679 |   |
| General Partner,  221,290,143 and 220,361,581 units outstanding, respectively                                                                | ** ** | ** **             | **3,031,740**  |                  |       | 3,227,274 |   |
| Limited Partners,  58,316,657 and 58,522,624 units outstanding, respectively                                                                 | ** ** | ** **             | **811,990**    |                  |       | 865,565 |   |
| **Total  partners’ equity**                                                                                                             | ** ** | ** **             | **5,226,755**  |                  |       | 5,489,518 |   |
| **Total liabilities and partners’  equity**                                                                                             | ** ** | ** **             | **$**          | **21,003,618**        |       |   | $ | 21,131,039 |   |

 

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

3

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

| ** **                                                                                                                   | ** ** | **For the Three  Months Ended  September 30,** | ** **  | **For the Nine   Months Ended  September 30,** | ** ** |
|------------------------------------------------------------------------------------------------------------------------------|------------|--------------------------------------------------------------------|-------------|-------------------------------------------------------------------------|------------|
| ** **                                                                                                                   | ** ** | **2006**                                                           | ** **  | **2005**                                                                | ** ** | **2006** | ** ** | **2005** | ** ** |
| **REVENUE:**                                                                                                                 | ** ** | ** **                                                         | ** **  | ** **                                                              | ** ** | ** ** | ** ** | ** ** | ** ** |
| Minimum rent                                                                                                                 | ** ** | **$**                                                              | **500,589** |                                                                    | $          | 475,912 | ** ** | **$** | **1,474,503** |   | $ | 1,406,461 |   |
| Overage rent                                                                                                                 | ** ** | **21,931**                                                         |        | 18,484                                                                  | ** ** | **53,287** |   | 46,276 |   |
| Tenant reimbursements                                                                                                        | ** ** | **233,278**                                                        |        | 225,973                                                                 | ** ** | **681,090** |   | 648,926 |   |
| Management fees and other  revenues                                                                                          | ** ** | **20,780**                                                         |        | 19,746                                                                  | ** ** | **60,348** |   | 56,931 |   |
| Other income                                                                                                                 | ** ** | **42,158**                                                         |        | 42,894                                                                  | ** ** | **135,895** |   | 118,469 |   |
| **Total  revenue**                                                                                                           | ** ** | **818,736**                                                        |        | 783,009                                                                 | ** ** | **2,405,123** |   | 2,277,063 |   |
| **EXPENSES:**                                                                                                                | ** ** | ** **                                                         | ** **  | ** **                                                              | ** ** | ** ** | ** ** | ** ** | ** ** |
| Property operating                                                                                                           | ** ** | **118,185**                                                        |        | 115,742                                                                 | ** ** | **331,389** |   | 315,827 |   |
| Depreciation and  amortization                                                                                               | ** ** | **211,390**                                                        |        | 203,022                                                                 | ** ** | **632,200** |   | 617,814 |   |
| Real estate taxes                                                                                                            | ** ** | **73,427**                                                         |        | 74,558                                                                  | ** ** | **225,636** |   | 217,175 |   |
| Repairs and maintenance                                                                                                      | ** ** | **23,910**                                                         |        | 22,637                                                                  | ** ** | **74,704** |   | 75,250 |   |
| Advertising and promotion                                                                                                    | ** ** | **17,718**                                                         |        | 20,974                                                                  | ** ** | **55,661** |   | 57,736 |   |
| Provision for credit  losses                                                                                                 | ** ** | **393**                                                            |        | 2,727                                                                   | ** ** | **4,853** |   | 3,331 |   |
| Home and regional office  costs                                                                                              | ** ** | **32,703**                                                         |        | 27,068                                                                  | ** ** | **95,691** |   | 85,060 |   |
| General and  administrative                                                                                                  | ** ** | **4,422**                                                          |        | 4,988                                                                   | ** ** | **13,920** |   | 13,239 |   |
| Other                                                                                                                        | ** ** | **15,264**                                                         |        | 12,455                                                                  | ** ** | **40,492** |   | 34,375 |   |
| **Total  operating expenses**                                                                                                | ** ** | **497,412**                                                        |        | 484,171                                                                 | ** ** | **1,474,546** |   | 1,419,807 |   |
| **OPERATING INCOME**                                                                                                         | ** ** | **321,324**                                                        |        | 298,838                                                                 | ** ** | **930,577** |   | 857,256 |   |
| Interest expense                                                                                                             | ** ** | **206,195**                                                        |        | 201,150                                                                 | ** ** | **611,010** |   | 594,136 |   |
| **Income before minority interest**                                                                                          | ** ** | **115,129**                                                        |        | 97,688                                                                  | ** ** | **319,567** |   | 263,120 |   |
| Minority interest                                                                                                            | ** ** | **(3,154**                                                         | **)**       | (3,174                                                                  | )          | **(7,512** | **)** | (8,734 | ) |
| Income tax expense of taxable REIT subsidiaries                                                                              | ** ** | **(2,536**                                                         | **)**       | (3,796                                                                  | )          | **(7,395** | **)** | (11,216 | ) |
| **Income before unconsolidated entities**                                                                                    | ** ** | **109,439**                                                        |        | 90,718                                                                  | ** ** | **304,660** |   | 243,170 |   |
| Income from unconsolidated entities and beneficial  interests, net                                                           | ** ** | **25,898**                                                         |        | 18,662                                                                  | ** ** | **75,703** |   | 51,045 |   |
| Gain (loss) on sales of assets and interests in other  unconsolidated entities, net                                          | ** ** | **9,457**                                                          |        | (55                                                                     | )          | **51,406** |   | 12,552 |   |
| **Income from continuing operations**                                                                                        | ** ** | **144,794**                                                        |        | 109,325                                                                 | ** ** | **431,769** |   | 306,767 |   |
| Results of operations from discontinued operations                                                                           | ** ** | **56**                                                             |        | 4,695                                                                   | ** ** | **112** |   | 8,110 |   |
| Gain on disposal or sale of discontinued operations,  net                                                                    | ** ** | **—**                                                         |        | 5,605                                                                   | ** ** | **84** |   | 125,385 |   |
| **NET INCOME**                                                                                                               | ** ** | **144,850**                                                        |        | 119,625                                                                 | ** ** | **431,965** |   | 440,262 |   |
| Preferred unit requirement                                                                                                   | ** ** | **(25,296**                                                        | **)**       | (25,407                                                                 | )          | **(76,018** | **)** | (76,485 | ) |
| **NET INCOME AVAILABLE TO UNITHOLDERS**                                                                                      | ** ** | **$**                                                              | **119,554** |                                                                    | $          | 94,218 | ** ** | **$** | **355,947** |   | $ | 363,777 |   |
| **NET INCOME AVAILABLE TO UNITHOLDERS ATTRIBUTABLE  TO:**                                                                    |       |                                                               |        |                                                                    |       |   |   |   |   |
| General Partner                                                                                                              | ** ** | **$**                                                              | **94,592**  |                                                                    | $          | 74,358 | ** ** | **$** | **281,477** |   | $ | 286,236 |   |
| Limited Partners                                                                                                             | ** ** | **24,962**                                                         |        | 19,860                                                                  | ** ** | **74,470** |   | 77,541 |   |
| **Net  income**                                                                                                              | ** ** | **$**                                                              | **119,554** |                                                                    | $          | 94,218 | ** ** | **$** | **355,947** |   | $ | 363,777 |   |
| **BASIC EARNINGS PER UNIT:**                                                                                                 | ** ** | ** **                                                         | ** **  | ** **                                                              | ** ** | ** ** | ** ** | ** ** | ** ** |
| Income from continuing  operations                                                                                           | ** ** | **$**                                                              | **0.43**    |                                                                    | $          | 0.30 | ** ** | **$** | **1.27** |   | $ | 0.82 |   |
| Discontinued operations                                                                                                      | ** ** | **—**                                                         |        | 0.04                                                                    | ** ** | **—** |   | 0.48 |   |
| **Net  income**                                                                                                              | ** ** | **$**                                                              | **0.43**    |                                                                    | $          | 0.34 | ** ** | **$** | **1.27** |   | $ | 1.30 |   |
| **DILUTED EARNINGS PER UNIT:**                                                                                               | ** ** | ** **                                                         | ** **  | ** **                                                              | ** ** | ** ** | ** ** | ** ** | ** ** |
| Income from continuing  operations                                                                                           | ** ** | **$**                                                              | **0.43**    |                                                                    | $          | 0.30 | ** ** | **$** | **1.27** |   | $ | 0.82 |   |
| Discontinued operations                                                                                                      | ** ** | **—**                                                         |        | 0.04                                                                    | ** ** | **—** |   | 0.48 |   |
| **Net  income**                                                                                                              | ** ** | **$**                                                              | **0.43**    |                                                                    | $          | 0.34 | ** ** | **$** | **1.27** |   | $ | 1.30 |   |
| **Net Income**                                                                                                               | ** ** | **$**                                                              | **144,850** |                                                                    | $          | 119,625 | ** ** | **$** | **431,965** |   | $ | 440,262 |   |
| Unrealized gain (loss) on  interest rate hedge agreements                                                                    | ** ** | **(4,030**                                                         | **)**       | (1,385                                                                  | )          | **7,354** |   | (10,212 | ) |
| Net income on derivative  instruments reclassified from accumulated other comprehensive income (loss)  into interest expense | ** ** | **504**                                                            |        | 152                                                                     | ** ** | **1,718** |   | (1,139 | ) |
| Currency translation  adjustments                                                                                            | ** ** | **962**                                                            |        | (2,277                                                                  | )          | **(262** | **)** | (3,923 | ) |
| Other income (loss)                                                                                                          | ** ** | **1,196**                                                          |        | (104                                                                    | )          | **721** |   | (421 | ) |
| **Comprehensive Income**                                                                                                     | ** ** | **$**                                                              | **143,482** |                                                                    | $          | 116,011 | ** ** | **$** | **441,496** |   | $ | 424,567 |   |

 

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

4

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

| ** **                                                                                | ** ** | **For the Nine Months  Ended September 30,** | ** **  |       |
|-------------------------------------------------------------------------------------------|------------|-----------------------------------------------------------------------|-------------|------------|
| ** **                                                                                | ** ** | **2006**                                                              | ** **  | **2005**   | ** ** |   |
| **CASH FLOWS FROM OPERATING  ACTIVITIES:**                                                | ** ** | ** **                                                            |        | ** ** |   |   |
| **Net  income**                                                                           | ** ** | **$**                                                                 | **431,965** |       | $ | 440,262 |   |   |
| Adjustments to  reconcile net income to net cash provided                                 | ** ** | ** **                                                            |        |       |   |   |
| by operating  activities —                                                      | ** ** | ** **                                                            |        |       |   |   |
| Depreciation and  amortization                                                            | ** ** | **599,985**                                                           | ** **  | 602,209    |   |   |
| Gain on sales of  assets and interests in unconsolidated entities                         | ** ** | **(51,406**                                                           | **)**       | (12,552    | ) |   |
| Gain on disposal  or sale of discontinued operations, net                                 | ** ** | **(84**                                                               | **)**       | (125,385   | ) |   |
| Straight-line  rent                                                                       | ** ** | **(12,334**                                                           | **)**       | (15,317    | ) |   |
| Minority interest                                                                         | ** ** | **7,512**                                                             | ** **  | 8,734      |   |   |
| Minority interest  distributions                                                          | ** ** | **(24,563**                                                           | **)**       | (16,135    | ) |   |
| Equity in income  of unconsolidated entities                                              | ** ** | **(75,703**                                                           | **)**       | (51,045    | ) |   |
| Distributions of  income from unconsolidated entities                                     | ** ** | **60,724**                                                            | ** **  | 62,367     |   |   |
| **Changes  in assets and liabilities —**                                        | ** ** | ** **                                                            |        |       |   |   |
| Tenant  receivables and accrued revenue, net                                              | ** ** | **56,064**                                                            | ** **  | 68,229     |   |   |
| Deferred costs  and other assets                                                          | ** ** | **(119,943**                                                          | **)**       | (132,476   | ) |   |
| Accounts payable,  accrued expenses, intangibles, deferred revenues and other liabilities | ** ** | **23,882**                                                            | ** **  | (101,724   | ) |   |
| **Net  cash provided by operating activities**                                            | ** ** | **896,099**                                                           |        | 727,167    |   |   |
| **CASH  FLOWS FROM INVESTING ACTIVITIES:**                                                | ** ** | ** **                                                            |        |       |   |   |
| Capital  expenditures, net                                                                | ** ** | **(533,696**                                                          | **)**       | (420,400   | ) |   |
| Cash impact from  the consolidation and de-consolidation of properties                    |       | —                                                                | ** **  | (8,951     | ) |   |
| Net proceeds from  sale of partnership interest, other assets and discontinued operations | ** ** | **103,158**                                                           | ** **  | 330,187    |   |   |
| Investments in  unconsolidated entities                                                   | ** ** | **(134,398**                                                          | **)**       | (17,426    | ) |   |
| Distributions of  capital from unconsolidated entities and other                          | ** ** | **245,796**                                                           | ** **  | 228,098    |   |   |
| **Net  cash (used in) provided by investing activities**                                  | ** ** | **(319,140**                                                          | **)**       | 111,508    |   |   |
| **CASH  FLOWS FROM FINANCING ACTIVITIES:**                                                | ** ** | ** **                                                            |        |       |   |   |
| Partnership  contributions and issuance of units                                          | ** ** | **13,172**                                                            | ** **  | 2,667      |   |   |
| Purchase of  preferred units, partnership units, and treasury units                       | ** ** | **(13,625**                                                           | **)**       | (176,939   | ) |   |
| Preferred Unit  redemptions                                                               | ** ** | **(494**                                                              | **)**       | (579       | ) |   |
| Partnership  distributions                                                                | ** ** | **(712,926**                                                          | **)**       | (664,772   | ) |   |
| Mortgage and  other indebtedness proceeds, net of transaction costs                       | ** ** | **3,431,483**                                                         | ** **  | 2,941,901  |   |   |
| Mortgage and  other indebtedness principal payments                                       | ** ** | **(3,308,665**                                                        | **)**       | (3,037,718 | ) |   |
| **Net  cash used in financing activities**                                                | ** ** | **(591,055**                                                          | **)**       | (935,440   | ) |   |
| **DECREASE  IN CASH AND CASH EQUIVALENTS**                                                | ** ** | **(14,096**                                                           | **)**       | (96,765    | ) |   |
| **CASH  AND CASH EQUIVALENTS, beginning of year**                                         | ** ** | **337,048**                                                           |        | 519,556    |   |   |
| **CASH AND CASH EQUIVALENTS, end  of period**                                             | ** ** | **$**                                                                 | **322,952** |       | $ | 422,791 |   |   |

 

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

5

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

(Dollars in thousands,except unit and per unit amounts and where indicated as in millions orbillions)

**1.**   Organization

Simon Property Group,L.P., a Delaware limited partnership (the “Operating Partnership”), is amajority owned subsidiary of Simon Property Group, Inc., a Delawarecorporation (“Simon Property”). Simon Property is a self-administered andself-managed real estate investment trust (“REIT”) under the Internal RevenueCode of 1986, as amended. In these condensed notes to the unauditedconsolidated financial statements, the terms “we”, “us” and “our” refer to theOperating Partnership and its subsidiaries.

We are engaged primarilyin the ownership, development, and management of retail real estate, primarilyregional malls, Premium Outlet® centers and community/lifestyle centers. As of September 30,2006, we owned or held an interest in 284 income-producing properties inthe United States, which consisted of 170 regional malls, 69community/lifestyle centers, 35 Premium Outlet centers and 10 other shoppingcenters or outlet centers in 38 states and Puerto Rico (collectively, the “Properties”,and individually, a “Property”). We also own interests in eight parcels of landheld in the United States for future development (together with the Properties,the “Portfolio”). Finally, we have ownership interests in 52 European shoppingcenters (France, Italy and Poland); five Premium Outlet centers in Japan; andone Premium Outlet center in Mexico.

**2.**   Basis ofPresentation

The accompanying unauditedconsolidated financial statements of the Operating Partnership include theaccounts of all majority-owned subsidiaries, and all significant inter-companyamounts have been eliminated. Due to the seasonal nature of certain operationalactivities, the results for the interim period ended September 30, 2006are not necessarily indicative of the results that may be obtained for the fullfiscal year.

These consolidatedfinancial statements have been prepared in accordance with the instructions to Form 10-Qand include 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 September 30,2006, of our 342 properties we consolidated 197 wholly-owned propertiesand 19 additional properties that are less than wholly-owned, but whichwe control or for which we are the primary beneficiary. We account for theremaining 126 properties using the equity method of accounting (joint ventureproperties). We manage the day-to-day operations of 58 of the 126 joint ventureproperties but have determined that our partner or partners have substantiveparticipating rights in regards to the assets and operations of these jointventure properties.

We allocate our netoperating results after preferred distributions based on our partners’respective weighted average ownership interest in the Operating Partnership. Inaddition, Simon Property owns certain of our preferred units. Simon Property’sweighted average ownership interest in the Operating Partnership was 79.1% and78.7% for the nine months ended September 30, 2006 and 2005, respectively.As of September 30, 2006 and December 31, 2005, Simon Property’sownership interest in us was 79.1% and 79.0%, respectively. We adjust thelimited partners’ interest at the end of each period to reflect theirrespective ownership interest in the Operating Partnership.

6

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

**3.**   SignificantAccounting Policies

***Cash and CashEquivalents***

We collect funds at thepoint of sale and then remit those funds to the banks that issue our co-brandedgift cards for further processing. As a result, cash and cash equivalents as ofSeptember 30, 2006 includes $26.8 million related to these gift cardprograms, which we do not consider available for general working capitalpurposes.

***Accounting forBeneficial Interests in Mall of America***

As previously disclosed,in January 2006, an entity controlled by the Simon family assigned to usits right to receive cash flow, capital distributions, and related profits andlosses with respect to a portion of its ownership interest in the Mall ofAmerica through Mall of America Associates (“MOAA”). The beneficial interestwas transferred subject to a credit facility repayable from MOAA’sdistributions from the property. As a result of this assignment, we beganrecognizing our share of MOAA’s income during the first quarter of 2006,including the proportionate share of earnings of MOAA since August 2004through the first quarter of 2006 of $10.2 million. This income is includedwith “income from unconsolidated entities and beneficial interests, net” in ourconsolidated results of operations. We have accounted for our beneficialinterests in MOAA under the equity method of accounting. On November 2,2006, the Simon family entity transferred its partnership interest to anaffiliate of another partner in MOAA as part of a settlement of pendinglitigation disclosed in Note 8, terminating our beneficial interests. We willcease recording income from this property’s operations as a result of thistransaction. We also expect to record a gain during the fourth quarter of 2006of approximately $85 million.

**4.**   Per Unit Data

Wedetermine basic earnings per unit based on the weighted average number ofcommon units outstanding during the period. We determine diluted earnings perunit based on the weighted average number of common units outstanding combinedwith the incremental weighted average units that would have been outstandingassuming all dilutive potential common units were converted into units at theearliest date possible. The following table sets forth the computation of ourbasic and diluted earnings per unit.

| ** **                                                                | ** ** | **For the  Three Months Ended** | ** **  | **For the  Nine Months Ended** | ** ** |
|---------------------------------------------------------------------------|------------|---------------------------------|-------------|--------------------------------|------------|
| ** **                                                                | ** ** | **September 30,**          | ** **  | **September 30,**         | ** ** |
| ** **                                                                | ** ** | **2006**                        | ** **  | **2005**                       | ** ** | **2006** | ** ** | **2005** | ** ** |
| **Income  from continuing operations, after preferred unit requirements** | ** ** | **$**                           | **119,498** |                           | $          | 83,918 | ** ** | **$** | **355,751** |   | $ | 230,282 |   |
| Discontinued operations                                                   | ** ** | **56**                          |        | 10,300                         | ** ** | **196** |   | 133,495 |   |
| **Net  Income available to Unitholders - Basic & Dilutive**      | ** ** | **$**                           | **119,554** |                           | $          | 94,218 | ** ** | **$** | **355,947** |   | $ | 363,777 |   |
| **Weighted Average Units Outstanding - Basic**                            | ** ** | **279,573,123**                 |        | 279,728,163                    | ** ** | **279,375,365** |   | 280,095,303 |   |
| Effect of stock  options of Simon Property                                | ** ** | **871,604**                     |        | 932,289                        | ** ** | **910,977** |   | 906,661 |   |
| **Weighted Average Units  Outstanding - Diluted**                         | ** ** | **280,444,727**                 |        | 280,660,452                    | ** ** | **280,286,342** |   | 281,001,964 |   |

 

For the three and ninemonths ending September 30, 2006, potentially dilutive securities includestock options of Simon Property and certain preferred units which areexchangeable for units. The only potentially dilutive securities that had adilutive effect for the three and nine months ended September 30, 

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2006 and2005 were stock options of Simon Property. When stock options are exercised weissue an equal number of units to Simon Property. Common units may be exchangedfor shares of Simon Property common stock, on a one-for one basis, in certaincircumstances. We accrue distributions when they are declared.

**5.**    Investment inUnconsolidated Entities

**Real Estate Joint Ventures**

Joint ventures are commonin the real estate industry. We use joint ventures to finance properties,develop new properties, and diversify our risk in a particular property orportfolio. We held joint venture ownership interests in 68 Properties in theUnited States as of September 30, 2006 and 69 at December 31, 2005.We held interests in two joint ventures which owned 52 European shoppingcenters as of September 30, 2006 and 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-sellprovisions, or other sale rights for partners which are customary in realestate joint venture agreements and the industry. Our partners in these jointventures may initiate these provisions at any time (subject to any applicablelock up or similar restrictions), which results in either the sale of ourinterest or the use of available cash or borrowings to acquire the jointventure interest.

On November 1, 2006,we acquired our partner’s 50% ownership interest in Mall of Georgia, a regionalmall Property, for $252.6 million, including the assumption of our $96.0million share of debt. As a result, we now own 100% of Mall of Georgia and willconsolidate this Property beginning in the fourth quarter of 2006.

**International Joint Venture Investments**

We conduct ourinternational operations in Europe through our two European joint ventureinvestment entities; Simon Ivanhoe B.V./S.à.r.l. (“Simon Ivanhoe”), which wasformerly known as European Retail Enterprises B.V./S.à.r.l (“ERE”), andGallerie Commerciali Italia (“GCI”). The carrying amount of our total combinedinvestment in these two joint venture investments is $337.8 million and$287.4 million as of  September 30,2006 and December 31, 2005, respectively, net of the related cumulativetranslation adjustments. The Operating Partnership has a 50% ownership in SimonIvanhoe and a 49% ownership in GCI as of September 30, 2006.

On October 20, 2005,Ivanhoe Cambridge, Inc. (“Ivanhoe”), an affiliate of Caisse de dépôt etplacement du Québec, effectively acquired our former partner’s 39.5% ownershipinterest in ERE. On February 13, 2006, pursuant to the terms of our October 20,2005 transaction with Ivanhoe, we sold a 10.5% interest in this joint ventureto 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 assets and interests in otherunconsolidated entities, net” in the consolidated statements of operations. Wethen settled all remaining share purchase commitments from the founders of ERE,including the early settlement of some commitments, by purchasing an additional25.8% interest in Simon Ivanhoe for €55.1 million, or$65.5 million. The result of these transactions equalized our and Ivanhoe’sownership 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 ourinvestment in these Premium Outlet joint ventures in Japan is $282.9 millionand $287.7 million as of September 30, 2006 and December 31, 2005,respectively, net of the related cumulative translation adjustments. TheOperating Partnership has a 40% ownership in the Japan Premium Outlet jointventures.

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During the period ended September 30,2006, we finalized the formation of joint venture arrangements to develop andoperate retail centers in China with Morgan Stanley Real Estate Fund (MSREF)and SZITIC Commercial Property Co., Ltd. (SZITIC CP), retail propertysubsidiary of the Chinese state-owned trust and investment firm ShenzenInternational Trust & Investment Co., Ltd. (SZITIC), as our partners. Thecenters will be anchored by Wal-Mart stores and our and MSREF’s ownership willeach be 32.5% with SZITIC CP owning 35%. We are planning on initiallydeveloping five centers, four of which are currently under construction, with atotal equity commitment of approximately $50 million. We account for theseinvestments in China under the equity method of accounting.

**Summary Financial Information**

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 venture interests”on the balance sheets and statements of operations, if material, so that we maypresent comparative results of operations for those joint venture interestsheld as of September 30, 2006.

| ** **                                                | ** ** | **September 30,** | ** **     | **December 31,** | ** ** |
|-----------------------------------------------------------|------------|------------------------|----------------|-----------------------|------------|
| **BALANCE SHEETS**                                   | ** ** | **2006**               | ** **     | **2005**              | ** ** |
| **Assets:**                                               | ** ** | ** **             |           |                  |       |   |   |
| Investment  properties, at cost                           | ** ** | **$**                  | **10,565,734** |                  |       | $ | 9,915,521 |   |   |
| Less -  accumulated depreciation                          | ** ** | **2,191,105**          |           |                  | 1,951,749  |   |   |
|                                                      | ** ** | **8,374,629**          |           |                  | 7,963,772  |   |   |
| Cash and cash  equivalents                                | ** ** | **379,053**            |           |                  | 334,714    |   |   |
| Tenant  receivables                                       | ** ** | **235,336**            |           |                  | 207,153    |   |   |
| Investment in  unconsolidated entities                    | ** ** | **184,570**            |           |                  | 135,914    |   |   |
| Deferred costs  and other assets                          | ** ** | **325,337**            |           |                  | 304,825    |   |   |
| Total assets                                              | ** ** | **$**                  | **9,498,925**  |                  |       | $ | 8,946,378 |   |   |
| **Liabilities and Partners’ Equity:**                | ** ** | ** **             |           |                  |       |   |   |
| Mortgages and  other indebtedness                         | ** ** | **$**                  | **8,166,550**  |                  |       | $ | 7,479,359 |   |   |
| Accounts payable,  accrued expenses, and deferred revenue | ** ** | **495,539**            |           |                  | 403,390    |   |   |
| Other liabilities                                         | ** ** | **227,673**            |           |                  | 189,722    |   |   |
| Total liabilities                                         | ** ** | **8,889,762**          |           |                  | 8,072,471  |   |   |
| Preferred units                                           | ** ** | **67,450**             |           |                  | 67,450     |   |   |
| Partners’ equity                                     | ** ** | **541,713**            |           |                  | 806,457    |   |   |
| Total liabilities and partners’ equity               | ** ** | **$**                  | **9,498,925**  |                  |       | $ | 8,946,378 |   |   |
| **Our Share of:**                                         | ** ** | ** **             |           |                  |       |   |   |
| Total assets                                              | ** ** | **$**                  | **4,090,724**  |                  |       | $ | 3,765,258 |   |   |
| Partners’ equity                                     | ** ** | **$**                  | **360,992**    |                  |       | $ | 429,942 |   |   |
| Add: Excess investment                                    | ** ** | **897,628**            |           |                  | 938,177    |   |   |
| Our net investment  in joint ventures                     | ** ** | **$**                  | **1,258,620**  |                  |       | $ | 1,368,119 |   |   |
| Mortgages and other  indebtedness                         | ** ** | **$**                  | **3,526,859**  |                  |       | $ | 3,169,662 |   |   |

 

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

9

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| ** **                                                             | ** ** | **For the Three Months Ended** | ** **  | **For the Nine Months Ended** | ** ** |
|------------------------------------------------------------------------|------------|----------------------------------------------------|-------------|---------------------------------------------------|------------|
| ** **                                                             | ** ** | **September 30,**                             | ** **  | **September 30,**                            | ** ** |
| ** **                                                             | ** ** | **2006**                                           | ** **  | **2005**                                          | ** ** | **2006** | ** ** | **2005** | ** ** |
| STATEMENTS OF OPERATIONS                                     |       |                                               |        |                                              |       |   |   |   |   |
| **Revenue:**                                                           | ** ** | ** **                                         | ** **  | ** **                                        | ** ** | ** ** | ** ** | ** ** | ** ** |
| Minimum  rent                                                          | ** ** | **$**                                              | **276,572** |                                              | $          | 262,663 | ** ** | **$** | **813,217** |   | $ | 774,671 |   |
| Overage  rent                                                          | ** ** | **19,621**                                         |        | 17,074                                            | ** ** | **52,312** |   | 48,677 |   |
| Tenant  reimbursements                                                 | ** ** | **143,194**                                        |        | 134,384                                           | ** ** | **405,910** |   | 390,522 |   |
| Other  income                                                          | ** ** | **41,071**                                         |        | 38,843                                            | ** ** | **110,842** |   | 96,188 |   |
| Total  revenue                                                         | ** ** | **480,458**                                        |        | 452,964                                           | ** ** | **1,382,281** |   | 1,310,058 |   |
| ** **                                                             | ** ** | ** **                                         | ** **  | ** **                                        | ** ** | ** ** | ** ** | ** ** | ** ** |
| **Operating Expenses:**                                                | ** ** | ** **                                         | ** **  | ** **                                        | ** ** | ** ** | ** ** | ** ** | ** ** |
| Property  operating                                                    | ** ** | **103,044**                                        |        | 100,477                                           | ** ** | **280,263** |   | 271,796 |   |
| Depreciation  and amortization                                         | ** ** | **82,840**                                         |        | 81,546                                            | ** ** | **241,959** |   | 241,036 |   |
| Real  estate taxes                                                     | ** ** | **35,265**                                         |        | 33,186                                            | ** ** | **102,654** |   | 98,477 |   |
| Repairs  and maintenance                                               | ** ** | **20,678**                                         |        | 19,088                                            | ** ** | **62,402** |   | 58,559 |   |
| Advertising  and promotion                                             | ** ** | **11,594**                                         |        | 7,956                                             | ** ** | **26,309** |   | 23,780 |   |
| Provision  for credit losses                                           | ** ** | **2,425**                                          |        | 2,679                                             | ** ** | **4,087** |   | 7,769 |   |
| Other                                                                  | ** ** | **26,414**                                         |        | 29,136                                            | ** ** | **86,884** |   | 82,818 |   |
| Total  operating expenses                                              | ** ** | **282,260**                                        |        | 274,068                                           | ** ** | **804,558** |   | 784,235 |   |
| **Operating Income**                                                   | ** ** | **198,198**                                        |        | 178,896                                           | ** ** | **577,723** |   | 525,823 |   |
| Interest expense                                                       | ** ** | **113,400**                                        |        | 103,438                                           | ** ** | **331,028** |   | 298,162 |   |
| **Income Before Gain on Sale of  Asset**                               | ** ** | **84,798**                                         |        | 75,458                                            | ** ** | **246,695** |   | 227,661 |   |
| Gain on sale of asset                                                  | ** ** | **—**                                         |        | —                                            | ** ** | **94** |   | — |   |
| **Income Before Unconsolidated  Entities**                             | ** ** | **84,798**                                         |        | 75,458                                            | ** ** | **246,789** |   | 227,661 |   |
| Income (loss) from  unconsolidated entities                            | ** ** | **480**                                            |        | —                                            | ** ** | **719** |   | (1,892 | ) |
| **Income from Continuing  Operations**                                 | ** ** | **85,278**                                         |        | 75,458                                            | ** ** | **247,508** |   | 225,769 |   |
| Income (loss) from  discontinued joint venture interests               | ** ** | **129**                                            |        | (1,025                                            | )          | **631** |   | (887 | ) |
| Gain (loss) on disposal  or sale of discontinued operations, net       | ** ** | **(329**                                           | **)**       | —                                            | ** ** | **20,375** |   | 98,359 |   |
| **Net Income**                                                         | ** ** | **$**                                              | **85,078**  |                                              | $          | 74,433 | ** ** | **$** | **268,514** |   | $ | 323,241 |   |
| **Third-Party Investors’ Share of  Net Income**                   | ** ** | **$**                                              | **51,049**  |                                              | $          | 45,578 | ** ** | **$** | **160,488** |   | $ | 186,617 |   |
| **Our Share of Net Income**                                            | ** ** | **34,029**                                         |        | 28,855                                            | ** ** | **108,026** |   | 136,624 |   |
| **Amortization of Excess  Investment**                                 | ** ** | **(12,164**                                        | **)**       | (10,221                                           | )          | **(37,056** | **)** | (36,400 | ) |
| **Income from Beneficial  Interests and Other, net**                   | ** ** | **4,033**                                          |        | —                                            | ** ** | **15,309** |   | — |   |
| **Write-off of Investment Related  to Properties Sold**                | ** ** | **135**                                            |        | 14                                                | ** ** | **(2,842** | **)** | (37,764 | ) |
| **Our Share of Net Gain Related  to Properties Sold**                  | ** ** | **(135**                                           | **)**       | 14                                                | ** ** | **(7,734** | **)** | (11,415 | ) |
| **Income from Unconsolidated Entities and  Beneficial Interests, net** | ** ** | **$**                                              | **25,898**  | ** **                                        | **$**      | **18,662** | ** ** | **$** | **75,703** | ** ** | **$** | **51,045** | ** ** |

 

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 jointventure community center was sold. We recognized our share of the gain of $7.7million, net of the write-off of the relatedinvestment and received $8.8 million representing our share of the proceeds from this disposition.

Our share of the gainresulting from the sale of Metrocenter and Great Northeast Plaza are shownseparately in “gain (loss) on sales of assets and interests in unconsolidatedentities, net” in the consolidated statement of operations.

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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 proceeds of theoffering and the termination of forward-starting swap arrangements to reduceborrowings on the Credit Facility.

On August 29, 2006, we sold two tranches ofsenior unsecured notes totaling $1.1 billion at a weighted average fixedinterest rate of 5.73%. The first tranche is $600.0 million at a fixed interestrate of 5.60% due September 1, 2011 and the second tranche is $500.0million at a fixed interest rate of 5.875% due March 1, 2017. We usedproceeds from the offering to reduce borrowings on the Credit Facility.

***Credit Facility.******  ***Othersignificant draws on the Credit Facility during the nine months ended September 30,2006 were 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. We repaid a total of $2.0billion on the Credit Facility during the nine months ended September 30,2006. The total outstanding balance on the Credit Facility as of September 30,2006 was $291.4 million, and the maximum amount outstanding during the quarterwas approximately $1.3 billion. During the first nine months of 2006, theweighted average outstanding balance on the Credit Facility was approximately$1.3 billion.

***Acquisition Facility.******  ***Weborrowed $1.8 billion in 2004 to finance the cash portion of ouracquisition of Chelsea. As disclosed above, this facility has been fullyrepaid.

**Secured Debt**

Total secured indebtednesswas $4.3 billion and $4.6 billion at September 30, 2006 and December 31,2005, respectively. During the nine months ended September 30, 2006, werepaid $217.7 million in mortgage loans, unencumbering four 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 restricted shares of Simon Propertycommon stock to employees under this Plan at a fair value of $83.48 per share. On May 11, 

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2006,our non-employee Directors were awarded 9,660 shares of restricted stock under this Plan at a fair value of$81.26 per share. The fair market value of the restricted stock awardedon February 21, 2006 has been deferred and is being amortized over a four-yearvesting service period. The fair market value of the restricted stock awardedon May 11, 2006 has been deferred and is being amortized over a one-yearvesting service period. As a result of the awards of restricted stock, weissued a like number of units to Simon Property in accordance with ourpartnership agreement.

During the first nine months of 2006, five limitedpartners exchanged 86,800 units for a like number of shares of commonstock of Simon Property, increasing Simon Property’s interest in us.

On May 12, 2006, the Simon Property Board ofDirectors authorized a common stock repurchase program under which SimonProperty may purchase up to 6,000,000 shares of its common stock subjectto a maximum aggregate purchase price of $250 million over the next twelvemonths as market conditions warrant. Simon Property may purchase the shares inthe open market or in privately negotiated transactions. There have been no purchases under this programsince May, 2006.

As previously disclosed, for the quarter ending on March 31,2006, holders of Series I 6% Convertible Perpetual Preferred Units (“Series IPreferred Units”) and Simon Property’s Series I 6% Convertible PerpetualPreferred Stock (“Series I Preferred Stock”) could elect to convert theirsecurities during the quarter beginning on April 3, 2006 into units in theOperating Partnership and shares of Simon Property common stock, respectively. Theoptional conversion is as a result of the closing sale price of Simon Property’scommon stock exceeding the applicable trigger price per share for a period of20 trading days in the last 30 trading days of the quarter. The conversiontrigger price was also met during the second quarter of 2006. At the currentconversion price of $79.48, each Series I Preferred Unit was convertibleinto 0.78637 of a common unit and each share of Series I Preferred Stockwas convertible into 0.78637 of a share of Simon Property common stock. Ifholders of a Series I Preferred Unit convert into common units, then theholder may also elect to convert those units into common stock on a one-for-onebasis in accordance with our partnership agreement. During the nine monthsended September 30, 2006, 238,982 shares of Series I Preferred Stockwere converted into 187,593 shares of Simon Property common stock and SimonProperty converted a like number of its Series I Preferred Units intocommon units. As of September 30, 2006, the conversion trigger price of$79.37 had been met and the Series I Preferred Unit is convertible into0.78745 of a common unit and the Series I Preferred Stock is convertibleinto 0.78745 of a share of Simon Property common stock beginning October 2,2006 through December 29, 2006.

Subsequent to September 30, 2006, Simon Propertyredeemed all 8,000,000 outstanding shares of its 83⁄4% Series F CumulativeRedeemable Preferred Stock at a liquidation preference of $25.00 per share plusaccrued unpaid dividends. Concurrently with that redemption, we redeemed the83⁄4% preferred units held by Simon Property at that same price. We will record a$7 million charge to net income during the fourth quarter of 2006 related tothese transactions.

Preferred units whose redemptionis outside of our control have been classified as temporary equity in theaccompanying balance sheets.

**8.**   Commitments and Contingencies

**Litigation**

There have been no material developments since July 1,2006 with respect to the pending litigation disclosed in our 2005 Annual Reporton Form 10-K, except that on November 2, all parties agreed tosettle the lawsuit brought by Triple Five of Minnesota, Inc. on November 9,1999 in the Federal District Court for the State of Minnesota, Fourth JudicialDistrict (*Triple Five of Minnesota, Inc. vs. MelvinSimon et al*.). As disclosed in note 3 to these consolidatedfinancial statements, the settlement terminated our beneficial 

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interest in Mall ofAmerica. This action was dismissed, with prejudice, and mutual releases weredelivered by all parties to the proceeding.

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 September 30, 2006, we haveloan guarantees and other guarantee obligations of $68.8 million and $99.6million, respectively, to support our total $3.5 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 and that propertycould be sold in order to satisfy the outstanding obligation.

**9.**    Real Estate Acquisitions and Dispositions

Duringthe nine-month period ended September 30, 2006, we disposed of certainnon-significant properties summarized as follows (dollars in millions):

| **Properties** | ** ** | ** ** | ** ** | **Previous  Ownership %** | ** ** | **Date of Disposal** | ** ** | **Sales Price** | ** ** | **Gain** | ** ** |
|----------------|------------|------------|------------|--------------------------------|------------|--------------------------------|------------|----------------------|------------|----------|------------|
| Wabash Village |       |       | 100        | %                              |       | July 27, 2006             |       |                 | $          | 2.6      |       |   | $ | 2.0 |   |
| Trolley Square |       |       | 90         | %                              |       | August 3, 2006            |       |                 | $          | 38.6     |       |   | $ | 7.3 |   |

 

We had no consolidatedproperty acquisitions during the nine months ended September 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.”  This Statementrequires exchanges of productive assets to be accounted for at fair value,rather than at carryover basis, unless: (a) neither the asset received northe asset surrendered has a fair value that is determinable within reasonable limits;or (b) the transactions lack commercial substance. SFAS No. 153 iseffective for nonmonetary asset exchanges occurring in fiscal periods beginningafter June 15, 2005. The adoption of this Statement did not have amaterial impact on our financial position or results of operations.

In November 2005,the FASB issued FASB Staff Position (“FSP”) No. SFAS 115-1 and SFAS124-1, “The Meaning of Other-Than-Temporary Impairment and ItsApplication to Certain Investments.” This FSP amends SFAS No. 115, “Accountingfor Certain Investments in Debt and Equity Securities,” and SFAS No. 124, “Accountingfor Certain Investments Held by Not-for-Profit Organizations,” and APB Opinion No. 18,“The Equity Method 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. 

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The guidance in this FSP is effective in reportingperiods beginning after December 15, 2005. The adoption of this FSP didnot have a material impact on our financial position or results of operations.

In May 2005,the FASB issued SFAS No. 154, “Accounting Changes and Error Corrections.”SFAS No. 154 is a replacement of APB Opinion No. 20, “AccountingChanges” and SFAS No. 3, “Reporting Accounting Changes in InterimFinancial Statements.” This Statement requires voluntary changes in accountingto be accounted for retrospectively and all prior periods to be restated as ifthe newly adopted policy had always been used, unless it is impracticable. APBOpinion No. 20 previously required most voluntary changes in accounting tobe recognized by including the cumulative effect of the change in accounting innet income in the period of change. This Statement also requires a change inmethod of depreciation, amortization or depletion for a long-lived asset beaccounted for as a change in estimate that is affected by a change inaccounting principle. SFAS No. 154 is effective for fiscal years beginningafter December 15, 2005. The adoption of this Statement did not have amaterial impact on our financial position or results of operations.

In December 2004,the FASB issued SFAS No. 123(R), “Share-Based Payment,” which revises SFASNo. 123, “Accounting for Stock-Based Compensation.” SFAS No. 123(R) supersedesAPB Opinion No. 25, “Accounting for Stock Issued to Employees,” and amendsSFAS No. 95, “Statement of Cash Flows.” This Statement requires that apublic entity measure the cost of equity-based service awards based on thegrant date fair value of the award. All share-based payments to employees,including grants of employee stock options, are required to be recognized inthe income statement based on their fair value. SFAS No. 123(R) iseffective as of the beginning of the first annual reporting period after June 15,2005. Other than the reclassification of the unamortized portion of ourrestricted stock awards to capital in excess of par in the consolidated balancesheets, the adoption of this Statement did not have a material impact on ourfinancial position or results of operations.We began expensing the vested portion of restricted stock awards to therecipients in the consolidated statements of operations in 2002.

In June 2006,the FASB issued Interpretation No. 48, “Accounting for Uncertainty inIncome Taxes, an Interpretation of FASB Statement No. 109” (“FIN 48”). FIN48 clarifies the accounting for uncertainty in income taxes recognized in acompany’s financial statements and prescribes a recognition threshold andmeasurement attribute for the financial statement recognition and measurementof a tax position taken or expected to be taken in a tax return. TheInterpretation also provides guidance on description, classification, interestand penalties, accounting in interim periods, disclosure and transition. FIN 48becomes effective on January 1, 2007. We are currently evaluating theimpact of adopting this Interpretation.

In September 2006,the FASB issued FASB No. 157, “Fair Value Measurements” (“FAS 157”).FAS 157 is definitional and disclosure oriented and addresses howcompanies should approach measuring fair value when required by GAAP; it doesnot create or modify any current GAAP requirements to apply fair valueaccounting. The Standard provides a single definition for fair value that is tobe applied consistently for all accounting applications, and also generallydescribes and prioritizes according to reliability the methods and inputs usedin valuations. FAS 157 prescribes various disclosures about financialstatement categories and amounts which are measured at fair value, if suchdisclosures are not already specified elsewhere in GAAP. The new measurementand disclosure requirements of FAS 157 are effective for us in the firstquarter of 2008. We do not expect the adoption of FAS 157 to have a significantimpact on our results of operations or financial position.

 

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

You should read the following discussion inconjunction with the financial statements and notes thereto that are includedin this report. Certain statements made in this section or elsewhere in thisreport may be deemed “forward-looking statements” within the meaning ofthe Private Securities Litigation Reform Act of 1995. Although we believe theexpectations reflected in any forward-looking statements are based onreasonable assumptions, we can give no assurance that our expectations will beattained, and it is possible that our actual results may differ materially fromthose indicated by these forward-looking statements due to a variety ofrisks and uncertainties. Those risks and uncertainties include, but are notlimited to: our ability to meet debt service requirements, the availability offinancing, changes in our credit rating, changes in market rates of interestand foreign exchange rates for foreign currencies, the ability to hedge ourinterest rate risk, risks associated with the acquisition, development andexpansion of properties, general risks related to retail real estate, theliquidity of real estate investments, environmental liabilities, international,national, regional and local economic climates, changes in market rental rates,trends in the retail industry, relationships with anchor tenants, the inabilityto collect rent due to the bankruptcy or insolvency of tenants or otherwise,risks relating to our joint venture properties, costs of common areamaintenance, competitive market forces, risks related to internationalactivities, insurance costs and coverage, impact of terrorist activities,inflation and maintenance of REIT status. We discussed these and other risksand uncertainties under the heading “Risk Factors” in our most recent AnnualReport on Form 10-K that could cause our actual results to differmaterially from the forward-looking statements that we make. We may update thatdiscussion in this or subsequent quarterly reports, but otherwise we undertakeno 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., a Delaware limitedpartnership (the “Operating Partnership”), is a majority owned subsidiary ofSimon Property Group, Inc., a Delaware corporation (“Simon Property”).Simon Property is our general partner and a self-administered and self-managedreal estate investment trust (“REIT”) under the Internal Revenue Code of 1986,as amended. In this discussion, the terms “we”, “us” and “our” refer to theOperating Partnership and 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 September 30, 2006,we owned or held an interest in 284 income-producing properties in theUnited States, which consisted of 170 regional malls, 69 community/lifestylecenters, 35 Premium Outlet centers and 10 other shopping centers or outletcenters in 38 states plus Puerto Rico (collectively, the “Properties”, andindividually, a “Property”). We also own interests in eight parcels of landheld in the United States for future development (together with the Properties,the “Portfolio”). Finally, we have ownership interests in 52 European shoppingcenters (France, Italy and Poland); five Premium Outlet centers in Japan; andone Premium Outlet center in Mexico.

***OperatingFundamentals***

We generate the majority of revenues from leases withretail 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 in our earnings and cash flows byenhancing the profitability and operation of our properties and investments. Weseek 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 by generatingsupplemental revenues in our existing real estate portfolio, from outlot parcelsales and, due to our size and tenant relationships, from the following:

·       Simon Brand Ventures (“SimonBrand”) mall marketing initiatives, including fees derived from the marketing,promotion, and sale of bank-issued co-branded gift cards. Simon Brand revenuesalso include payment services, national media contracts, a national beveragecontract and other contracts with national companies.

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

We focus on high quality realestate across the retail real estate spectrum. We expand or renovate to enhanceexisting assets’ profitability and market share when we believe the investmentof our capital meets our risk-reward criteria. We develop new properties inmajor metropolitan areas that exhibit strong population and economic growth.

We routinely review and evaluate a number ofacquisition opportunities based on their complement to our Portfolio. Lastly,we are selectively expanding our international presence. Our internationalstrategy includes partnering with established real estate companies andfinancing international investments with local currency to minimize foreignexchange risk.

To support our overall growth goals, we employ athree-fold capital strategy:

·       Provide the capitalnecessary to fund growth.

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

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

***ResultsOverview***

Diluted earnings per unitdecreased  $0.03 during the first ninemonths of 2006, or 2.3%, to $1.27 from $1.30 for the same period last year. The2006 results include a $34.4 million gain (or $0.12 per diluted unit) from thesale of partnership interests in one of our European joint ventures to our newpartner, Ivanhoe Cambridge, Inc. (“Ivanhoe”),an affiliate of Caisse de dépôt et placement du Québec, and recognitionof $15.3 million in income (or $0.05 per diluted unit) from contributedbeneficial interests, representing the right to receive cash flow, capitaldistributions, and related profits and losses of Mall of America Associates (“MOAA”).Included in 2005 results is a gain upon the disposition of the Riverway and O’HareInternational Center office building properties that resulted in a gain of$125.4 million (or $0.45 per diluted unit).

Our core business fundamentals remained strong duringthe first nine months of 2006. Regional mall comparable sales per square foot (“psf”)strengthened during the first nine months of 2006, increasing 6.8% to$474 psf from $444 psf for the same period in 2005 reflecting robust retail demand and thedisposition of non-core properties. Our regional mall average base rentsincreased 2.7% to $35.23 psf as of September 30, 2006 from$34.30 psf as of September 30, 2005.  In addition, our regional mall leasing spreads were $6.06 psf as of September 30,2006 compared to $7.26 psf as of September 30, 2005 principally as aresult of leasing mix. The operating fundamentals of the Premium Outlet centersand 

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community/lifestylecenters also contributed to the increase in our operating results for the ninemonth period as seen in the following section entitled Portfolio Data. Finally,regional mall occupancy was 92.5% as of September 30, 2006 as compared to92.6% as of September 30, 2005. The slight decline results from anincrease in square footage lost to bankruptcy proceedings and store closures.

During the first nine months of 2006 we disposed ofthree properties 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 $7.7 million. We held a 50% interest in this property.

·       On July 27, 2006,Wabash Village, a community center located in West Lafayette, Indiana was soldfor $2.6 million, and we recorded a gain on disposition of $2.0 million. Weheld a 100% interest in this property.

·       OnAugust 3, 2006, Trolley Square, a regional mall located in Salt Lake City,Utah was sold for $38.6 million, and we recorded a gain on disposition of $7.3million. We held a 90% interest in this property.

Regarding financing activities, despite the increasinginterest rate environment resulting in an approximate 150 basis point increasein LIBOR (5.32% at September 30, 2006 versus 3.86% at September 30,2005), our effective overall borrowing rate for the nine months ended September 30,2006 increased only 23 basis points as compared to the nine months ended September 30,2005. Our financing activities for the nine months ended September 30,2006 are highlighted by the following:

·       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 interestrate applicable to borrowings on our unsecured revolving $3 billion creditfacility (the “Credit Facility”) to 37.5 basis points over LIBOR from 42.5basis points over LIBOR. The revision to our rating also decreased the facilityfee on the Credit Facility to 12.5 basis points from 15 basis points.

·       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.

·       We paid off one mortgagetotaling $19.8 million that bore interest at 8.12%.

·       We issued two tranches of seniorunsecured notes totaling $1.1 billion at a weighted average fixed interest rateof 5.73%. We used the proceeds of the offering to reduce borrowings on ourCredit Facility.

·       Borrowingson the Credit Facility decreased to approximately $291.4 million during thenine months ended September 30, 2006, principally as a result of the aboverepayments. The September 30, 2006 outstanding balance encompassed onlyEuro and Yen denominated borrowings.

 

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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. The following table sets forth thesekey operating statistics for:

·       Propertiesthat we consolidate in our consolidated financial statements,

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

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

***DomesticProperty Data:***

| ** **                                 | ** ** | **September 30,  2006** | ** ** | **%/basis  point  Change(1)** | ** ** | **September 30,  2005** | ** ** | **%/basis  point  Change(1)** | ** ** |
|--------------------------------------------|------------|------------------------------|------------|-------------------------------|------------|------------------------------|------------|-------------------------------|------------|
| **Regional  Malls:**                       |       |                         |       |                          |       |                         |       |                          |       |   |   |   |   |   |   |
| ***Occupancy***                            | * *   | * *                     | * *   | * *                      | * *   | * *                     |       |                          |       |   |   |   |   |   |   |
| Consolidated                               | ** ** | ** **                   | **92.4%**  | ** **                    | ** ** | **-20 bps**                  |       |                          | 92.6%      |   |   |   | +90 bps |   |   |
| Unconsolidated                             | ** ** | ** **                   | **92.8%**  | ** **                    | ** ** | **+20 bps**                  |       |                          | 92.6%      |   |   |   | +60 bps |   |   |
| **Total  Portfolio**                       | ** ** | ** **                   | **92.5%**  | ** **                    | ** ** | **-10 bps**                  |       |                          | 92.6%      |   |   |   | +80 bps |   |   |
| ***Average Base Rent per Square  Foot***   | * *   | * *                     | * *   | * *                      | * *   | * *                     |       |                          |       |   |   |   |   |   |   |
| Consolidated                               | ** ** | ** **                   | **$**      | **34.74**                     | ** ** | ** **                   | **2.8%**   |                          |       | $ | 33.79 |   |   |   | 4.6% |   |   |
| Unconsolidated                             | ** ** | ** **                   | **$**      | **36.11**                     | ** ** | ** **                   | **2.4%**   |                          |       | $ | 35.26 |   |   |   | 2.5% |   |   |
| **Total  Portfolio**                       | ** ** | ** **                   | **$**      | **35.23**                     | ** ** | ** **                   | **2.7%**   |                          |       | $ | 34.30 |   |   |   | 3.7% |   |   |
| ***Comparable Sales Per Square  Foot***    | * *   | * *                     | * *   | * *                      | * *   | * *                     |       |                          |       |   |   |   |   |   |   |
| Consolidated                               | ** ** | ** **                   | **$**      | **460**                       | ** ** | ** **                   | **7.5%**   |                          |       | $ | 428 |   |   |   | 5.2% |   |   |
| Unconsolidated                             | ** ** | ** **                   | **$**      | **500**                       | ** ** | ** **                   | **5.0%**   |                          |       | $ | 476 |   |   |   | 6.3% |   |   |
| **Total  Portfolio**                       | ** ** | ** **                   | **$**      | **474**                       | ** ** | ** **                   | **6.5%**   |                          |       | $ | 445 |   |   |   | 5.5% |   |   |
| ** **                                 |       |                         |       |                          |       |                         |       |                          |       |   |   |   |   |   |   |
| **Premium  Outlet Centers:**               |       |                         |       |                          |       |                         |       |                          |       |   |   |   |   |   |   |
| Occupancy                                  | ** ** | ** **                   | **99.3%**  | ** **                    | ** ** | **-30 bps**                  |       |                          | 99.6%      |   |   |   | — |   |   |
| Average Base Rent  per Square Foot         | ** ** | ** **                   | **$**      | **24.05**                     | ** ** | ** **                   | **4.6%**   |                          |       | $ | 22.99 |   |   |   | — |   |   |
| Comparable Sales  Per Square Foot          | ** ** | ** **                   | **$**      | **462**                       | ** ** | ** **                   | **6.0%**   |                          |       | $ | 436 |   |   |   | — |   |   |
| ** **                                 | ** ** | ** **                   | ** ** | ** **                    | ** ** | ** **                   |       |                          |       |   |   |   |   |   |   |
| **Community/Lifestyle Centers**:           | ** ** | ** **                   | ** ** | ** **                    | ** ** | ** **                   |       |                          |       |   |   |   |   |   |   |
| ***Occupancy*****                          | ** ** | ** **                   | ** ** | ** **                    | ** ** | ** **                   |       |                          |       |   |   |   |   |   |   |
| Consolidated                               | ** ** | ** **                   | **88.1%**  | ** **                    | ** ** | **-140 bps**                 |       |                          | 89.5%      |   |   |   | -80  bps |   |   |
| Unconsolidated                             | ** ** | ** **                   | **96.6%**  | ** **                    | ** ** | **+110 bps**                 |       |                          | 95.5%      |   |   |   | -70  bps |   |   |
| **Total Portfolio**                        | ** ** | ** **                   | **90.7%**  | ** **                    | ** ** | **-60 bps**                  |       |                          | 91.3%      |   |   |   | -90  bps |   |   |
| ***Average Base Rent per  Square Foot***** | ** ** | ** **                   | ** ** | ** **                    | ** ** | ** **                   |       |                          |       |   |   |   |   |   |   |
| Consolidated                               | ** ** | ** **                   | **$**      | **11.96**                     | ** ** | ** **                   | **3.3%**   |                          |       | $ | 11.58 |   |   |   | 4.2% |   |   |
| Unconsolidated                             | ** ** | ** **                   | **$**      | **11.12**                     | ** ** | ** **                   | **6.0%**   |                          |       | $ | 10.49 |   |   |   | 4.1% |   |   |
| **Total Portfolio**                        | ** ** | ** **                   | **$**      | **11.69**                     | ** ** | ** **                   | **4.1%**   |                          |       | $ | 11.23 |   |   |   | 4.1% |   |   |
| ***Comparable Sales Per  Square Foot*****  | ** ** | ** **                   | ** ** | ** **                    | ** ** | ** **                   |       |                          |       |   |   |   |   |   |   |
| Consolidated                               | ** ** | ** **                   | **$**      | **227**                       | ** ** | ** **                   | **0.4%**   |                          |       | $ | 226 |   |   |   | 3.2% |   |   |
| Unconsolidated                             | ** ** | ** **                   | **$**      | **205**                       | ** ** | ** **                   | **0.5%**   |                          |       | $ | 204 |   |   |   | 1.0% |   |   |
| **Total  Portfolio**                       | ** ** | ** **                   | **$**      | **220**                       | ** ** | ** **                   | **(0.4%)** |                          |       | $ | 221 |   |   |   | 3.3% |   |   |

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(1)          Percentages may notrecalculate due to rounding.

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***Occupancy Levels and Average Base Rent Per Square Foot.******  ***Occupancyand average 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 Portfoliohas maintained stable occupancy and increased average base rents despite theuncertain economic 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.

***InternationalProperty Data***

The following keyoperating statistics are provided for our international properties, which areaccounted for using the equity method of accounting.

| ** **                                  | ** ** | **September 30,  2006** | ** ** | **%/basis  point  Change** | ** ** | **September 30,  2005** | ** **  | **%/basis  point  Change** | ** ** |
|---------------------------------------------|------------|------------------------------|------------|----------------------------|------------|------------------------------|-------------|----------------------------|------------|
| **European  Shopping Centers:**             |       |                         |       |                       |       |                         |        |                       |       |   |   |   |   |   |   |
| Occupancy                                   | ** ** | ** **                   | **96.9%**  |                       | ** ** | ** **                   | **-80 bps** |                       | ** ** | ** ** | 97.7% |   |   | -150 bps |   |
| Comparable sales  per square foot           | ** ** | ** **                   | **€** | **386**                    |       | ** **                   | ** **  | **-0.4%**                  |       |   |   | € | 387 |   |   | — |   |
| Average base rent  per square foot (2) | ** ** | ** **                   | **€** | **26.26**                  |       | ** **                   | ** **  | **1.0%**                   |       |   |   | € | 25.99 |   |   | 1.2% |   |
| **International  Premium Outlets (1)**      |       |                         |       |                       |       |                         |        |                       |       |   |   |   |   |   |   |
| Occupancy                                   | ** ** | ** **                   | **100%**   |                       |       |                         | —      |                       | ** ** | ** ** | 100% |   |   | — |   |
| Comparable sales  per square foot           | ** ** | ** **                   | **¥** | **89,746**                 |       | ** **                   | ** **  | **5.6%**                   |       |   |   | ¥ | 85,008 |   |   | — |   |
| Average base rent per  square foot (2) | ** ** | ** **                   | **¥** | **4,686**                  |       | ** **                   | ** **  | **3.9%**                   |       |   |   | ¥ | 4,509 |   |   | — |   |

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(1)          Doesnot 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 0.788 and0.830, and USD:Yen of 117.91 and 107.20, both for 2006 and 2005, respectively.

**Results of Operations**

In addition to theactivity discussed in the Results Overview, the following acquisitions andopenings affected our consolidated results from continuing operations in thecomparative periods:

·       OnAugust 4, 2006, we opened Round Rock Premium Outlets, a 432,000 squarefoot Premium Outlet center located within 20 minutes North of Austin, Texas inRound Rock, Texas.

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

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

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

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

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

In addition to the activity discussed in the ResultsOverview, the following acquisitions, dispositions, and openings affected ourincome from unconsolidated entities in the comparative periods:

·       OnMay 31, 2006, we opened Giugliano, an 800,000 square foot center anchoredby a hypermarket, in Italy.

·       OnApril 25, 2006, we sold our 50% interest in Great Northeast Plazacommunity center in Philadelphia, Pennsylvania for $8.8 million and recognizeda gain on the disposition of $7.7 million.

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

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

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

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

For the purposes of the following comparison betweenthe three and nine months ended September 30, 2006 and 2005, the abovetransactions 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.

Our consolidated discontinued operations reflectresults of the following significant 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  |

 

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

Minimum rents, excludingrents from our consolidated Simon Brand and Simon Business initiatives,increased $21.8 million during the period, of which the PropertyTransactions accounted for $4.2 million of the increase. Totalamortization of the fair market value of in-place leases increased minimumrents by $3.1 million over that of the third quarter of 2005. Comparable rents,excluding rents from Simon Brand and Simon Business, increased$17.6 million, or 3.8%. This was primarily due to the leasing of space athigher rents that resulted in an increase in minimum rents of$11.7 million. In addition, rents from carts, kiosks, and other temporarytenants increased comparable rents by $1.8 million.

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Tenant reimbursements,excluding Simon Business initiatives, increased $7.0 million, of which theProperty Transactions accounted for $2.5 million. The remainder of theincrease of $4.5 million, or 2.0%, was in comparable Properties and wasdue to inflationary increases in property operating costs.

Total other income, excluding Simon Brand and SimonBusiness initiatives, increased $6.5 million, and was principally the result ofthe following:

·       $6.1million increased land sale activity:

·       $3.7million related to the sale of a holding in a technology venture by Chelsea ;

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

·       $1.3million in gain on the sale of air rights at Las Vegas Outlet Center;

·       partiallyoffset by decreases of $6.4 million in other net activity during the comparableperiod of 2005 on comparable Properties related primarily to the 2005 sale ofsecurities and net recovery of a note receivable which had previously beenreserved for.

Revenues from Simon Brand and Simon Businessinitiatives decreased $4.1 million to $35.9 million from$40.0 million. The decrease in revenues is primarily due to:

·       decreasedrevenue in the period as a result of structural changes to the co-branded giftcard programs;

·       offsetpartially by increased event 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$2.4 million, $1.5 million from comparable properties (representingan increase of 1.3%) principally as a result of inflationary increases for energy,utilities, and salaries, and the remainder from new openings.

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

Home office and regional costs increased$5.6 million due to increased personnel costs, which is due to the effectof the increase in our stock price on our stock-based compensation programs.

Other expenses increased $2.8 million primarilydue to increased professional fees.

Interest expense increased $5.0 million dueprincipally to the following:

·       theimpact of increases in our average borrowing rates for our variable rate debt;and

·       theimpact of increased fixed rate debt of $1.3 billion, which are generally athigher rates than our variable rate debt, due to the issuances of unsecurednotes in May and August of 2006 and June and November of2005.

Gain on sales of assets and interests inunconsolidated entities increased $9.5 million over the prior period. In 2006,we recorded a $7.3 million gain on the sale of Trolley Square, and $2.0 millionfor Wabash Village.

The results of operations from discontinued operationsand the gain on disposal of discontinued operations related to the sale ofRiverway and O’Hare International Center properties recorded in 2005. Thedecrease in gain on disposal of discontinued operations is due to theresolution of a $5.6 million contingency related to the sale of theseproperties.

 

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***Nine Months Ended September 30, 2006  vs. Nine Months Ended September 30, 2005***

Minimum rents, excluding rents from our consolidatedSimon Brand and Simon Business initiatives, increased $63.1 million duringthe period, of which the Property Transactions accounted for $11.3 millionof the increase. Total amortization of the fair market value of in-place leasesincreased minimum rents by $10.5 million over that of the first ninemonths of 2005. Comparable rents, excluding rents from Simon Brand and SimonBusiness, increased $51.7 million, or 3.8%. This was primarily due to theleasing of space at higher rents that resulted in an increase in base minimumrents of $41.4 million. In addition, rents from carts, kiosks, and othertemporary tenants increased comparable rents by $3.6 million.

Total overage rents increased $7.0 million, or15.1%, reflecting the increases in tenants’ sales.

Tenant reimbursements, excluding Simon Businessinitiatives, increased $30.9 million, of which the Property Transactionsaccounted for $7.3 million. The remainder of the increase of$23.6 million, or 3.7%, was in comparable Properties and was due toinflationary increases in property operating costs.

Total other income,excluding Simon Brand and Simon Business initiatives, increased $24.2 million,and was the result of:

·       $6.9 million in increasedlease settlement activity;

·       $5.0 million in increasedinterest income driven by increasing investment rates;

·       $3.7 million related to thesale of a holding in a technology venture by Chelsea ;

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

·       $1.3 million in gain on thesale of air rights at Las Vegas Outlet Center;

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

·       $9.5 million increase inland sale activity;

·       partiallyoffset by decreases of $4.9 million in other net activity from the comparableperiod of 2005 on comparable Properties related primarily to the 2005 sale ofsecurities and net recovery of a note receivable that had been reserved for.

Revenues from SimonBrand and Simon Business initiatives decreased $0.5 million to$105.3 million from $105.8 million. The decrease in revenues isprimarily due to:

·       decreasedrevenue from the co-branded gift card program;

·       offset by increased eventand sponsorship income.

Simon Brand and Simon Business expenses decreased$8.4 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$15.6 million, $12.5 million from comparable properties (representingan increase of 4.0%) principally as a result of inflationary increases, and theremainder from new openings.

Real estate taxes increased $8.5 million dueprincipally to a $6.5 million multi-year reassessment settlement at a Propertyand increases in expenses at the our other comparable properties driven byreassessments and rate increases.

Provision for credit losses increased$1.5 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$10.6 million due to increased personnel costs, which is due to the effectof the increase in our stock price on our stock-based compensation programs.

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Other expenses increased $6.1 million primarilydue to ground rent expenses of $2.3 million and increased professional fees.

Interest expenseincreased $16.9 million due principally to the following:

·       theimpact of increases in our average borrowing rates for our variable rate debtoffset by a decrease in variable rate debt of approximately  $2.4 billion due to repayment activity;  and

·       the impact of increasedfixed rate debt of $2.3 billion, which are generally at higher rates than ourvariable rate debt, due to the issuances of unsecured notes in May and August of2006 and June and November of 2005.

The minority interest decrease resulted from ourallocating to our minority interest partner their share of the multi-year realestate tax assessment settlement discussed above offset by increased net incomein Properties in which outside partners hold a minority ownership interest.

During the first quarter of 2006, we recognized thereceipt of a beneficial interest in Mall of America Associates (MOAA), whichrepresents the majority of the increase in our income from unconsolidatedentities and beneficial interests, net in the consolidated financial statements.The transaction and related accounting are more fully described in thecondensed footnotes to the consolidated financial statements in this Form 10-Q.

Gain on sales of assets and interests inunconsolidated entities increased $38.9 million over the prior period. In 2006,we recorded a $34.4 million gain on the sale of 10.5% of our interests in SimonIvanhoe B.V./S.à.r.l. (“Simon Ivanhoe”), a $7.7 million gain on the sale ofGreat Northeast Plaza, a $7.3 million gain on the sale of Trolley Square,and a $2.0 million gain on the sale of Wabash Village. The gain on sale ofassets in 2005 of $12.6 million primarily relates to the sale of our jointventure interest in Metrocenter in January 2005 and the sale of a propertymanagement entity in which we acquired an interest as part of the Rodamcoacquisition in 2002.

The decrease in gain ondisposal of discontinued operations is due to a $125.4 million 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 at or below 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 $1.1 billion during the first nine 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$14.1 million during 2006 to $323.0 million as of September 30, 2006.The September 30, 2006 and December 31, 2005 balances include $26.8 millionand $42.3, respectively, related to our co-branded gift card programs, which wedo not consider available for general working capital purposes.

On September 30, 2006, the Credit Facility hadavailable borrowing capacity of approximately $2.7 billion net ofoutstanding borrowings of $291.4 million and letters of credit of$22.5 million. During the first nine months of 2006, the maximum amountoutstanding under the Credit Facility was $2.0 billion and the weightedaverage amount outstanding was $1.3 billion. The weighted average interestrate was 4.83% for the period ended September 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 A3 by Moody’s Investors Service.

**Cash Flows**

Our net cash flowfrom operating activities and distributions of capital from unconsolidatedentities for the nine months ended September 30, 2006 totaled $1.1billion. We also received proceeds of $103.2 million from the sale ofpartnership interests and sales of assets during the first nine months of 2006.In addition, we had net proceeds from all of our debt financing and repaymentactivities in this period of $122.8 million. These activities are furtherdiscussed below in Financing and Debt. We also:

·       repurchasedunits and preferred units amounting to $13.6 million,

·       paidunitholder distributions of $636.9 million,

·       paidpreferred unit distributions totaling $76.0 million,

·       fundedconsolidated capital expenditures of $533.7 million. These capital expendituresinclude development costs of $232.1 million, renovation and expansioncosts of $216.7 million, and tenant costs and other operational capitalexpenditures of $84.9 million, and

·       funded investments inunconsolidated entities of $134.4 million.

In general, weanticipate that cash generated from operations will be sufficient to meetoperating expenses, monthly debt service, recurring capital expenditures, anddistributions necessary to maintain Simon Property’s REIT qualification for2006 and on a long-term basis. In addition, we expect to be able to obtaincapital for nonrecurring capital expenditures, such as acquisitions, majorbuilding renovations and expansions, as well as for scheduled principalmaturities on outstanding indebtedness, from:

·       excesscash generated from operating performance and working capital reserves,

·       borrowingson our Credit Facility,

·       additionalsecured or unsecured debt financing, or

·       additionalequity raised in the public or private markets.

**Financing and Debt**

***UnsecuredDebt***

On March 31, 2006, Standard & Poor’sRating Services raised our corporate credit rating 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 proceeds of theoffering and the termination of forward-starting swap arrangements to reduceborrowings on our Credit Facility.

On August 29, 2006, we sold two tranches ofsenior unsecured notes totaling $1.1 billion at a weighted average fixedinterest rate of 5.73%. The first tranche is $600.0 million at a fixed interestrate of 5.60% due September 1, 2011 and the second tranche is $500.0million at a fixed interest rate of 5.875% due March 1, 2017. We used theproceeds of the offering to reduce borrowings on the Credit Facility.

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***Credit Facility.******  ***Othersignificant draws on the Credit Facility during the nine months ended September 30,2006 were 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. We repaid a total of $2.0billion on the Credit Facility during the nine months ended September 30,2006. The total outstanding balance on the Credit Facility as of September 30,2006 was $291.4 million, and the maximum amount outstanding during the quarter,was approximately $1.3 billion. During the first nine months of 2006, theweighted average outstanding balance on the Credit Facility was approximately$1.3 billion.

***Acquisition Facility.******  ***Weborrowed $1.8 billion in 2004 to finance the cash portion of ouracquisition of Chelsea. As disclosed above, this facility has been fullyrepaid.

***SecuredDebt***

Total secured indebtednesswas $4.3 billion and $4.6 billion at September 30, 2006 and December 31,2005, respectively. During the nine months ended September 30, 2006, werepaid $217.7 million in mortgage loans, unencumbering four properties.

***Summary of Financing***

Ourconsolidated debt, adjusted to reflect outstanding derivative instruments, andthe effective weighted average interest rates as of September 30 and December 31consisted of the following (dollars in thousands):

| **Debt Subject to** | ** ** | **Adjusted  Balance  as of  September 30,  2006** | ** **  | **Effective  Weighted  Average  Interest Rate** | ** ** | **Adjusted Balance  as of  December 31,   2005** | ** ** | **Effective  Weighted  Average  Interest Rate** | ** ** |
|-------------------------------|------------|-------------------------------------------------------------|-------------|------------------------------------------------------|------------|----------------------------------------------------------------------|------------|------------------------------------------------------|------------|
| **Fixed  Rate**               | ** ** |                                                        | **$**       | **13,388,337**                                       | ** ** |                                                                 |       | **6.11**                                             | **%**      |   |   | $ | 11,908,050 |   |   |   | 6.22 | % |   |
| **Variable  Rate**            | ** ** |                                                        | **853,604** | ** **                                           |       |                                                                 | **4.94**   | **%**                                                |       |   | 2,198,067 |   |   |   | 4.95 | % |   |
|                          | ** ** |                                                        | **$**       | **14,241,941**                                       | ** ** |                                                                 |       | **6.04**                                             | **%**      |   |   | $ | 14,106,117 |   |   |   | 6.02 | % |   |

 

As of September 30, 2006, we had interest ratecap protection agreements on $96.2 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 5.36% and a weighted average fixedreceive rate of 3.72%. As of September 30, 2006, these agreementseffectively converted $370.0 million of fixed rate debt to variable rate debt.

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***ContractualObligations and Off-Balance Sheet Arrangements.******  ***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 September 30, 2006 forthe remainder of 2006 and subsequent years thereafter (dollars in thousands):

| ** **                                  | ** ** | ***2006*** | *** *** | ***2007-2008*** | *** *** | ***2009-2011*** | *** *** | ***After 2011*** | *** *** | ***Total*** | ** ** |
|---------------------------------------------|------------|------------|--------------|-----------------|--------------|-----------------|--------------|-----------------------|--------------|-------------|------------|
| **Long  Term Debt**                         | ** ** | ** ** | ** **   | ** **      | ** **   | ** **      | ** **   | ** **            | ** **   | ** **  | ** ** |
| Consolidated (1)                       |       | $          | 267,399      |            | $            | 2,566,028       |         | $                     | 5,764,355    |        | $          | 5,582,659 |   | $ | 14,180,441 |   |
| **Pro rata  share of Long-Term Debt:**      | ** ** | ** ** | ** **   | ** **      | ** **   | ** **      | ** **   | ** **            | ** **   | ** **  | ** ** |
| Consolidated (2)                       |       | $          | 266,579      |            | $            | 2,515,965       |         | $                     | 5,705,027    |        | $          | 5,506,898 |   | $ | 13,994,469 |   |
| Joint Ventures (2)                     |       | 22,747     |         | 534,010         |         | 1,425,930       |         | 1,545,396             |         | 3,528,083   |       |
| **Total Pro Rata Share of  Long-Term Debt** |       | $          | 289,326      |            | $            | 3,049,975       |         | $                     | 7,130,957    |        | $          | 7,052,294 |   | $ | 17,522,552 |   |

 

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(1)          Represents principalmaturities and therefore, excludes net premiums and discounts and fair valueswaps of $61,500.

(2)          Represents our pro ratashare of principal maturities 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 September 30, 2006, we haveloan guarantees and other guarantee obligations of $68.8 million and $99.6million, respectively, to support our total $3.5 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.

On November 1, 2006, we acquired our partner’s50% ownership interest in Mall of Georgia, a regional mall Property, for $252.6million, including the assumption of our $96.0 million share of debt. As aresult, we now own 100% of Mall of Georgia and will consolidate this Propertybeginning in the fourth quarter of 2006.

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

***Dispositions.******  ***Wecontinue to pursue the sale of Properties that no longer meet our strategiccriteria. During the first nine months of 2006, we disposed of Great NortheastPlaza, a community center in Philadelphia, Pennsylvania in which we held a 50%interest, Wabash Village a community center in West Lafayette, Indiana, inwhich we held a 100% interest, and Trolley Square a regional mall in Salt LakeCity, Utah in which we held a 90% interest. We received net proceeds of$49.3 million and recorded our share of a gain on the disposals totaling$17.0 million. We do not believe the sale of these properties will have amaterial impact on our future results of operations or cash flows. We believethe disposition of these properties will enhance the average overall quality ofour Portfolio.

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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 September 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                   |         |                                  | $            | 229                                                      | ** **   |                                                         |         | $                                  | 115          | ** ** |   |   | $ | 113 | ** ** |   | 4th Quarter 2006  (b) |   |
| Domain, The                        |         | Austin,  TX                |         | 700,000                     |         |                                  | 195          | ** **                                               |         |                                                         | 195          | ** **                         |         |   | 151 | ** ** |   | 1st Quarter 2007 |   |
| Hamilton Town Center               |         | Noblesville,  IN           |         | 950,000                     |         |                                  | 142          | ** **                                               |         |                                                         | 71           | ** **                         |         |   | 5 | ** ** |   | 1st Quarter 2008 |   |
| Pier Park                          |         | Panama  City, FL           |         | 920,000                     |         |                                  | 127          | ** **                                               |         |                                                         | 127          | ** **                         |         |   | 41 | ** ** |   | 1st Quarter 2008 |   |
| Philadelphia Premium  Outlets      |         | Limerick,  PA              |         | 430,000                     |         |                                  | 114          | ** **                                               |         |                                                         | 114          | ** **                         |         |   | 23 | ** ** |   | 4th Quarter 2007 |   |
| Rio Grande Valley Premium  Outlets |         | Mercedes,  TX              |         | 404,000                     |         |                                  | 60           | ** **                                               |         |                                                         | 60           | ** **                         |         |   | 48 | ** ** |   | 4th Quarter 2006 |   |
| Shops at Arbor Walk, The           |         | Austin,  TX                |         | 460,000                     |         |                                  | 52           | ** **                                               |         |                                                         | 52           | ** **                         |         |   | 42 | ** ** |   | 4th Quarter 2006 |   |
| Village at SouthPark, The          |         | Charlotte, NC              |         | 81,000                      |         |                                  | 26           | ** **                                               |         |                                                         | 26           | ** **                         |         |   | 12 | ** ** |   | 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 represents Phase 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 $150 million.

***StrategicExpansions and Renovations.******  ***Inaddition to new development, we also incur costs related to construction forsignificant renovation and/or expansion projects at our Properties. Included inthese projects are the renovation and addition of Crate & Barrel andNordstom at Burlington Mall, expansion and life-style addition at Smith HavenMall, the acquisition and renovation of several anchor stores previouslyoperated by Federated, and a Neiman Marcus expansion at Lenox Square. Our shareof the estimated total net cost and our share of the construction in progressbalance as of September 30, 2006 for all of our expansion and renovationactivity currently under construction is approximately $502 million and $133million, respectively.

We expect to fund these projects with available cashflow from operations or borrowings from the Credit Facility. We expect toinvest a total of approximately $50 million (our share) on expansion andrenovation activities for the remainder of 2006.

***International.******  ***We typically reinvest netcash flow from our international investments to fund future internationaldevelopment activity. We believe this strategy mitigates some of the risk ofour initial investment and our exposure to changes in foreign currencies. Wehave also funded our European investments with Euro-denominated borrowings thatact as a natural hedge against local currency fluctuations. This has also beenthe case with our Premium Outlet joint ventures in Japan and Mexico where weuse Yen and Peso denominated financing. Currently, our net income exposure tochanges in the volatility of the Euro, Yen, and Peso is not material. Inaddition, since cash flow from operations is currently being reinvested inother development projects, we do not expect to repatriate foreign denominatedearnings in the near term.

The carrying amount of our total combined investmentin Simon Ivanhoe and Gallerie Commerciali Italia (“GCI”) as of September 30,2006, net of the related currency translation adjustment, was $337.8 million.Our investments in Simon Ivanhoe and GCI are accounted for using the equitymethod of accounting. Currently five European developments are underconstruction, which will add approximately 3.2 million square feet of GLAfor a total net cost of approximately €590.2 million, ofwhich our share is approximately €160.6 million, or $203.8million based on current Euro:USD exchange rates.

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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 September 30, 2006, the carrying amount ofour 40% joint venture investment in the five Japanese Premium Outlet centersnet of the related cumulative translation adjustment was $282.9 million.We began an expansion in Nagoya, Japan which will add incremental  GLA of 53,000 square feet for a totalprojected net cost of ¥1.8 billion, of which our share is approximately ¥0.7 billion,or $6.0 million based on current Yen:USD exchange rates.

In addition to the developments in Europe and Japan, anew development, Yeoju Premium Outlets, was started near Seoul, South Korea. Theproject will contain 253,000 square feet for a total projected net cost of KRW78.7 billion, of which our share is approximately KRW 39.1 billion, orapproximately $41.8 million based on current KRW:USD exchange rates.

During the period ended September 30,2006, we finalized the formation of joint venture arrangements to develop andoperate retail centers in China with Morgan Stanley Real Estate Fund (MSREF)and SZITIC Commercial Property Co., Ltd. (SZITIC CP), retail propertysubsidiary of the Chinese state-owned trust and investment firm Shenzen InternationalTrust & Investment Co., Ltd. (SZITIC) as our partners. The centerswill be anchored by Wal-Mart stores and our and MSREF’s ownership will each be32.5% with SZITIC CP owning 35%. We are planning on initially developing fivecenters, four of which are currently under construction, with a total equitycommitment of approximately $50 million.

**Distributions**

The Board of Directors of Simon Property, our generalpartner, declared and we paid a distribution of $0.76 per unit in the thirdquarter 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 12, 2006, theSimon Property Board of Directors authorized a common stock repurchase programunder which Simon Property may purchase up to 6,000,000 shares of itscommon stock subject to a maximum aggregate purchase price of $250 millionover the next twelve months as market conditions warrant. Simon Property maypurchase the shares in the open market or in privately negotiated transactions.There have been no purchases under thisprogram since May, 2006.

**Item 3.**   Qualitative and Quantitative DisclosureAbout Market Risk

***Sensitivity Analysis.******  ***Wedisclosed a comprehensive qualitative and quantitative analysis regardingmarket risk in the Management’s Discussion and Analysis of Financial Conditionand Results of Operations included in our 2005 Annual Report on Form 10-K.There have been no material changes in the assumptions used or results obtainedregarding market risk since December 31, 2005.

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**Item 4.**   Controls and Procedures

***Evaluation ofDisclosure Controls and Procedures.******  ***Wecarried out an evaluation under the supervision and with participation ofmanagement, including the Chief Executive Officer and Chief Financial Officer,of the effectiveness of the design and operation of our “disclosure controlsand procedures” (as defined in Rule 13a-15(e) under theSecurities Exchange Act of 1934 (the “Exchange Act”)) as of the end of theperiod covered by this Quarterly Report on Form 10-Q. Based uponthat evaluation, the Chief Executive Officer and Chief Financial Officer haveconcluded that our disclosure controls and procedures were effective as of September 30,2006.

***Changes in Internal Control Over Financial Reporting.******  ***Therehave not been any changes in our internal control over financial reporting (asdefined in Rule 13a-15(f)) that occurred during the quarter ended September 30,2006 that have materially affected, or are reasonably likely to materiallyaffect, our internal control over financial reporting.

**Part II —Other Information**

**Item 1.**   Legal Proceedings

There have been no material developments since July 1,2006 with respect to the pending litigation disclosed in our 2005 Annual Reporton Form 10-K, except that on November 2, all parties agreed tosettle the lawsuit brought by Triple Five of Minnesota, Inc. on November 9,1999 in the Federal District Court for the State of Minnesota, Fourth JudicialDistrict (*Triple Five of Minnesota, Inc. vs. MelvinSimon et al*.). As disclosed in note 3 to the consolidated financialstatements included in this Form 10-Q, the settlement terminated ourbeneficial interest in Mall of America. This action was dismissed, withprejudice, and mutual releases were delivered by all parties to the proceeding.

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.  Risk Factors**

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.

**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 international tax compliance and consulting services. Thisdisclosure is made pursuant to Section 10A(i)(2) of the SecuritiesExchange Act of 1934, as added by Section 202 of the Sarbanes-Oxley Act of2002.

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**Item 6. Exhibits**

| *Exhibit  Number* | *** *** | ***Exhibit Descriptions***                                                                                                                                                                                                                                                                                                                                                                                                                                     |
|-------------------|--------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 1.1     |         | Underwriting agreement dated as of August 22,  2006, among Simon Property Group, L.P., Citigroup Global Markets Inc., Credit  Suisse Securities (USA) LLC, J.P. Morgan Securities Inc. and Morgan  Stanley & Co. Incorporated, as the representatives of the several  underwriters named therin (incorporated by reference to Exhibit 1.1 to  the current Report on Form 8-K filed by Simon Property Group, L.P.  on August 24, 2006). |
| 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: November 13,  2006                              |

 

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