----

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**UNITEDSTATESSECURITIES AND EXCHANGE COMMISSION****Washington, D.C.  20549**

 

**FORM10-Q**

**QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIESEXCHANGE ACT OF 1934**

**For the quarterly period ended June 30, 2001**

 
| **SIMON  PROPERTY GROUP, INC.**                         |   | **SPG  REALTY CONSULTANTS, INC.**                       |
|---------------------------------------------------------|--------|---------------------------------------------------------|
| ****                                                    |   | ****                                                    |
| (Exact  name of registrant as specified in its charter) |   | (Exact  name of registrant as specified in its charter) |
|                                                    |   |                                                    |
| **Delaware**                                            |   | **Delaware**                                            |
|                                                         |   |                                                         |
| (State  of incorporation or organization)               |   | (State  of incorporation or organization)               |
|                                                    |   |                                                    |
| **001-14469**                                           |   | **001-14469-01**                                        |
|                                                         |   |                                                         |
| (Commission  File No.)                                  |   | (Commission  File No.)                                  |
|                                                    |   |                                                    |
| **046268599**                                           |   | **13-2838638**                                          |
|                                                         |   |                                                         |
| (I.R.S.  Employer Identification No.)                   |   | (I.R.S.  Employer Identification No.)                   |
|                                                    |   |                                                    |
| **National City Center**                                |   | **National City Center**                                |
| **115 West Washington Street, Suite 15 East**           |   | **115 West Washington Street, Suite 15 East**           |
| **Indianapolis, Indiana   46204**                  |   | **Indianapolis, Indiana   46204**                  |
|                                                         |   |                                                         |
| (Address  of principal executive offices)               |   | (Address  of principal executive offices)               |
|                                                    |   |                                                    |
| **(317) 636-1600**                                      |   | **(317) 636-1600**                                      |
|                                                         |   |                                                         |
| (Registrant's  telephone number, including area code)   |   | (Registrant's  telephone number, including area code)   |

 

Indicate by check mark whether theRegistrant (1) has filed all reports required to be filed by Section 13 or15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (orfor such shorter period that the Registrant was required to file such reports),and (2) has been subject to such filing requirements for the past 90 days.            YES      ý         NO       o

As of August 1, 2001, 171,606,443 sharesof common stock, par value $0.0001 per share, 3,200,000 shares of Class Bcommon stock, par value $0.0001 per share, and 4,000 shares of Class C commonstock, par value $0.0001 per share of Simon Property Group, Inc. wereoutstanding, and were paired with 1,748,104 shares of common stock, par value $0.0001 per share, of SPG RealtyConsultants, Inc.

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**SIMON PROPERTY GROUP, INC. ANDSPG REALTY CONSULTANTS, INC.**

**FORM 10-Q**

**INDEX**

 

| **Part I - Financial  Information** |
|-------------------------------------|
|                                |
|                                | Item 1:  Financial Statements |
|                                |
|                                | Simon Property Group,  Inc. and SPG Realty Consultants, Inc.: |
|                                |
|                                | Condensed Combined  Balance Sheets as of June 30, 2001 and December 31, 2000 |
|                                |
|                                | Condensed  Combined Statements of Operations for the three-month  and six-month periods ended June 30, 2001  and 2000 |
|                                |
|                                | Condensed  Combined Statements of Cash Flows for the six-month periods ended June 30,  2001 and 2000 |
|                                |
|                                | Simon Property Group,  Inc.: |
|                                |
|                                | Condensed  Consolidated Balance Sheets as of June 30, 2001 and December 31, 2000 |
|                                |   |
|                                | Condensed  Consolidated Statements of Operations for the three-month  and six-month periods ended June 30, 2001  and 2000 |
|                                |   |
|                                | Condensed  Consolidated Statements of Cash Flows for the six-month periods ended June  30, 2001 and 2000 |
|                                |
|                                | SPG Realty  Consultants, Inc.: |
|                                |
|                                | Condensed  Consolidated Balance Sheets as of June 30, 2001 and December 31, 2000 |
|                                |   |
|                                | Condensed  Consolidated Statements of Operations for the three-month and six-month  periods ended June 30, 2001 and 2000 |
|                                |   |
|                                | Condensed  Consolidated Statements of Cash Flows for the six-month periods ended June  30, 2001 and 2000 |
|                                |
|                                | Notes  to Unaudited Condensed Financial Statements |
|                                |
|                                | Item  2:  Management's Discussion and  Analysis of Financial Condition and Results of Operations |
|                                |
|                                | Item  3: Qualitative and Quantitative Disclosure About Market Risk |
|                                |
| **Part II - Other Information**     |
|                                |
|                                | Items 1 through 6 |
|                                |
| **Signature**                       |   |
|                                     |  |  |  |

** **

 

**SimonProperty Group, Inc. and SPG Realty Consultants, Inc.******* Condensed Combined Balance Sheets*

(Dollarsin thousands, except per share amounts)

|                                                                | June  30,                                                                                                                                                                                    |       | December  31, |       |
|---------------------------------------------------------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|---------------|------------|
|                                                                | 2001                                                                                                                                                                                         |       | 2000          |       |
|                                                                |                                                                                                                                                                                              |       |               |       |
| ASSETS:                                                             |                                                                                                                                                                                         |       |          |       |
|                                                                | Investment properties,  at cost                                                                                                                                                              | $          | 13,156,049    |       | $ | 13,045,133 |   |
|                                                                | Less — accumulated  depreciation                                                                                                                                                        | 1,669,250  |          | 1,480,719  |   |
|                                                                |                                                                                                                                                                                         |            |          |            |   |
|                                                                |                                                                                                                                                                                         | 11,486,799 |          | 11,564,414 |   |
|                                                                | Cash and cash equivalents                                                                                                                                                                    | 180,359    |          | 223,111    |   |
|                                                                | Tenant receivables and accrued  revenue, net                                                                                                                                                 | 281,720    |          | 302,198    |   |
|                                                                | Notes and advances receivable  from Management Company and affiliates                                                                                                                        | 122,133    |          | 182,401    |   |
|                                                                | Investment in unconsolidated  entities, at equity                                                                                                                                            | 1,280,068  |          | 1,315,836  |   |
|                                                                | Goodwill, net                                                                                                                                                                                | 37,798     |          | 38,384     |   |
|                                                                | Deferred costs and other assets,  net                                                                                                                                                        | 264,119    |          | 269,867    |   |
|                                                                | Minority interest, net                                                                                                                                                                       | 44,637     |          | 41,734     |   |
|                                                                |                                                                                                                                                                                         |            |          |            |   |
|                                                                | $                                                                                                                                                                                            | 13,697,633 |          | $          | 13,937,945 |   |
|                                                                |                                                                                                                                                                                              |       |               |       |
|                                                                |                                                                                                                                                                                         |       |          |       |
| LIABILITIES:                                                        |                                                                                                                                                                                         |       |          |       |
|                                                                | Mortgages and other indebtedness                                                                                                                                                             | $          | 8,730,012     |       | $ | 8,728,582 |   |
|                                                                | Accounts payable and accrued expenses                                                                                                                                                        | 476,516    |          | 451,207    |   |
|                                                                | Cash distributions and losses in  partnerships and joint ventures, at equity                                                                                                                 | 48,252     |          | 44,634     |   |
|                                                                | Accrued dividends                                                                                                                                                                            | 18,487     |          | 18,266     |   |
|                                                                | Other liabilities                                                                                                                                                                            | 104,480    |          | 227,552    |   |
|                                                                |                                                                                                                                                                                         |            |          |            |   |
|                                                                | Total liabilities                                                                                                                                                                            | 9,377,747  |          | 9,470,241  |   |
|                                                                |                                                                                                                                                                                         |            |          |            |   |
|                                                                |                                                                                                                                                                                         |       |          |       |
| COMMITMENTS AND  CONTINGENCIES (Note 9)                             |                                                                                                                                                                                         |       |          |       |
|                                                                |                                                                                                                                                                                         |       |          |       |
| LIMITED PARTNERS'  INTEREST IN THE OPERATING PARTNERSHIPS           | 871,406                                                                                                                                                                                      |       | 913,482       |       |
|                                                                |                                                                                                                                                                                         |       |          |       |
| LIMITED PARTNERS'  PREFERRED INTEREST IN THE                        |                                                                                                                                                                                         |       |          |       |
| SPG OPERATING PARTNERSHIP                                           | 150,852                                                                                                                                                                                      |       | 149,885       |       |
|                                                                |                                                                                                                                                                                         |       |          |       |
| PREFERRED STOCK OF  SUBSIDIARY (Liquidation value $350,000)         | 340,000                                                                                                                                                                                      |       | 339,866       |       |
|                                                                |                                                                                                                                                                                         |       |          |       |
| SHAREHOLDERS' EQUITY:                                               |                                                                                                                                                                                         |       |          |       |
|                                                                |                                                                                                                                                                                         |       |          |       |
|                                                                | CAPITAL STOCK OF SIMON PROPERTY  GROUP, INC. (750,000,000 total shares authorized, $.0001 par value,  237,996,000 shares of excess common stock):                                            |       |          |       |   |
|                                                                |                                                                                                                                                                                         |       |          |       |   |
|                                                                | All series of preferred stock, 100,000,000 shares  authorized, 5,879,896 and 5,881,116 issued and  outstanding, respectively.   Liquidation values $557,845 and $559,065, respectively. | 537,229    |     | 538,684    |     |
|                                                                |                                                                                                                                                                                         |       |          |       |
|                                                                | Common stock, $.0001 par value,  400,000,000 shares authorized, 171,576,618 and 170,840,315 issued and  outstanding, respectively                                                            | 17         |     | 17         |     |
|                                                                |                                                                                                                                                                                         |       |          |       |   |
|                                                                | Class B common stock, $.0001 par  value, 12,000,000 shares authorized, 3,200,000 issued and outstanding                                                                                      | 1          |     | 1          |     |
|                                                                |                                                                                                                                                                                         |       |          |       |   |
|                                                                | Class C common stock, $.0001 par  value, 4,000 shares authorized, issued and outstanding                                                                                                     | --         |          | --         |   |
|                                                                |                                                                                                                                                                                         |       |          |       |
|                                                                | CAPITAL STOCK OF SPG REALTY  CONSULTANTS, INC.:                                                                                                                                              |       |          |       |   |
|                                                                |                                                                                                                                                                                         |       |          |       |
|                                                                | Common stock, $.0001 par  value,  7,500,000 shares authorized,  1,747,806 and 1,740,443 issued and outstanding, respectively                                                            | --         |     | --         |     |
|                                                                |                                                                                                                                                                                         |       |          |       |
|                                                                | Capital in excess of par value                                                                                                                                                               | 3,330,847  |          | 3,313,557  |   |
|                                                                | Accumulated deficit                                                                                                                                                                          | (823,323   | )             | (715,288   | ) |
|                                                                | Accumulated other comprehensive  income                                                                                                                                                      | (8,405     | )             | --         |   |
|                                                                | Unamortized restricted stock  award                                                                                                                                                          | (26,220    | )             | (19,982    | ) |
|                                                                |                                                                                                                                                                                         |       |          |       |   |
|                                                                | Common stock held in treasury at  cost, 2,098,555 shares                                                                                                                                     | (52,518    | )             | (52,518    | ) |
|                                                                |                                                                                                                                                                                         |            |          |            |   |
|                                                                | Total shareholders'  equity                                                                                                                                                                  | 2,957,628  |          | 3,064,471  |   |
|                                                                |                                                                                                                                                                                              |       |               |       |
|                                                                | $                                                                                                                                                                                            | 13,697,633 |          | $          | 13,937,945 |   |
|                                                                |                                                                                                                                                                                              |       |               |       |
|                                                                |                                                                                                                                                                                         |       |          |       |
| *The accompanying notes are an integral part of these  statements.* |                                                                                                                                                                                         |
|                                                                     |                                                                                                                                                                                              |            |               |            |  |  |  |  |  |

 

**Simon Property Group, Inc. and SPG Realty Consultants,Inc. ******* Condensed Combined Statements of Operations*

(Dollarsin thousands, except per share amounts)

 

|                                                                                                            | For the Three Months Ended June 30,                                                                                   |    | For the Six Months Ended June 30, |          |
|-----------------------------------------------------------------------------------------------------------------|-----------------------------------------------------------------------------------------------------------------------|---------|-----------------------------------|---------------|
|                                                                                                            |                                                                                                                       |    |                                   |          |
|                                                                                                            | 2001                                                                                                                  |    | 2000                              |          | 2001 |   | 2000 |   |
|                                                                                                            |                                                                                                                       |    |                                   |          |  |   |  |   |
| REVENUE:                                                                                                        |                                                                                                                  |    |                              |          |   |   |   |   |
|                                                                                                            | Minimum rent                                                                                                          | $       | 307,386                           |          | $ | 294,265 |   | $ | 614,517 |   | $ | 590,727 |   |
|                                                                                                            | Overage rent                                                                                                          | 7,130   |                              | 6,718         |   | 17,013 |   | 18,756 |   |
|                                                                                                            | Tenant reimbursements                                                                                                 | 146,449 |                              | 154,303       |   | 294,963 |   | 299,147 |   |
|                                                                                                            | Other income                                                                                                          | 27,305  |                              | 32,373        |   | 52,453 |   | 56,880 |   |
|                                                                                                            |                                                                                                                  |         |                              |               |   |  |   |  |   |
|                                                                                                            | Total revenue                                                                                                         | 488,270 |                              | 487,659       |   | 978,946 |   | 965,510 |   |
|                                                                                                            |                                                                                                                       |    |                                   |          |  |   |  |   |
|                                                                                                            |                                                                                                                  |    |                              |          |   |   |   |   |
| EXPENSES:                                                                                                       |                                                                                                                  |    |                              |          |   |   |   |   |
|                                                                                                            | Property operating                                                                                                    | 82,666  |                              | 79,459        |   | 161,440 |   | 156,441 |   |
|                                                                                                            | Depreciation and amortization                                                                                         | 106,748 |                              | 99,140        |   | 213,263 |   | 197,628 |   |
|                                                                                                            | Real estate taxes                                                                                                     | 48,721  |                              | 49,729        |   | 101,513 |   | 98,151 |   |
|                                                                                                            | Repairs and maintenance                                                                                               | 19,333  |                              | 16,195        |   | 39,060 |   | 35,760 |   |
|                                                                                                            | Advertising and promotion                                                                                             | 12,618  |                              | 15,245        |   | 26,424 |   | 31,255 |   |
|                                                                                                            | Provision for credit losses                                                                                           | 2,243   |                              | 2,214         |   | 5,147 |   | 4,345 |   |
|                                                                                                            | Other                                                                                                                 | 6,761   |                              | 9,375         |   | 13,546 |   | 18,484 |   |
|                                                                                                            |                                                                                                                  |         |                              |               |   |  |   |  |   |
|                                                                                                            | Total operating expenses                                                                                              | 279,090 |                              | 271,357       |   | 560,393 |   | 542,064 |   |
|                                                                                                            |                                                                                                                  |         |                              |               |   |  |   |  |   |
|                                                                                                            |                                                                                                                  |    |                              |          |   |   |   |   |
| OPERATING  INCOME                                                                                               | 209,180                                                                                                               |    | 216,302                           |          | 418,553 |   | 423,446 |   |
|                                                                                                            |                                                                                                                  |    |                              |          |   |   |   |   |
| INTEREST  EXPENSE                                                                                               | 149,970                                                                                                               |    | 155,207                           |          | 307,894 |   | 313,866 |   |
|                                                                                                            |                                                                                                                       |    |                                   |          |  |   |  |   |
| INCOME  BEFORE MINORITY INTEREST                                                                                | 59,210                                                                                                                |    | 61,095                            |          | 110,659 |   | 109,580 |   |
|                                                                                                            |                                                                                                                  |    |                              |          |   |   |   |   |
| MINORITY  INTEREST                                                                                              | (3,115                                                                                                                | )       | (2,283                            | )             | (5,231 | ) | (4,717 | ) |
| GAIN  (LOSS)  ON SALES OF ASSETS, NET OF  ASSET WRITE DOWNS OF $0,$  10,572, $0, AND $10,572, RESPECTIVELY | (28                                                                                                                   | )       | 1,562                             |     | 2,683 |     | 8,658 |     |
|                                                                                                            |                                                                                                                       |    |                                   |          |  |   |  |   |
| INCOME  BEFORE UNCONSOLIDATED ENTITIES                                                                          | 56,067                                                                                                                |    | 60,374                            |          | 108,111 |   | 113,521 |   |
|                                                                                                            |                                                                                                                  |    |                              |          |   |   |   |   |
| INCOME  FROM UNCONSOLIDATED ENTITIES                                                                            | 13,903                                                                                                                |    | 15,538                            |          | 25,634 |   | 33,527 |   |
|                                                                                                            |                                                                                                                       |    |                                   |          |  |   |  |   |
| INCOME  BEFORE EXTRAORDINARY ITEMS AND                                                                          |                                                                                                                  |    |                              |          |   |   |   |   |
| CUMULATIVE  EFFECT OF ACCOUNTING CHANGE                                                                         | 69,970                                                                                                                |    | 75,912                            |          | 133,745 |   | 147,048 |   |
|                                                                                                            |                                                                                                                  |    |                              |          |   |   |   |   |
| EXTRAORDINARY  ITEMS - DEBT RELATED TRANSACTIONS                                                                | --                                                                                                                    |    | --                                |          | (25 | ) | (440 | ) |
| CUMULATIVE  EFFECT OF ACCOUNTING CHANGE (Note 5)                                                                | --                                                                                                                    |    | --                                |          | (1,638 | ) | (12,342 | ) |
|                                                                                                            |                                                                                                                       |    |                                   |          |  |   |  |   |
| INCOME  BEFORE ALLOCATION TO LIMITED PARTNERS                                                                   | 69,970                                                                                                                |    | 75,912                            |          | 132,082 |   | 134,266 |   |
|                                                                                                            |                                                                                                                  |    |                              |          |   |   |   |   |
| LESS:                                                                                                           |                                                                                                                  |    |                              |          |   |   |   |   |
|                                                                                                            | LIMITED PARTNERS' INTEREST IN THE  OPERATING PARTNERSHIPS                                                             | 13,878  |                              | 15,532        |   | 25,620 |   | 26,271 |   |
|                                                                                                            | PREFERRED DISTRIBUTIONS OF THE  SPG OPERATING PARTNERSHIP                                                             | 2,835   |                              | 2,817         |   | 5,747 |   | 5,634 |   |
|                                                                                                            | PREFERRED DIVIDENDS OF SUBSIDIARY                                                                                     | 7,334   |                              | 7,334         |   | 14,668 |   | 14,668 |   |
|                                                                                                            |                                                                                                                       |    |                                   |          |  |   |  |   |
| NET  INCOME                                                                                                     | 45,923                                                                                                                |    | 50,229                            |          | 86,047 |   | 87,693 |   |
|                                                                                                            |                                                                                                                  |    |                              |          |   |   |   |   |
| PREFERRED  DIVIDENDS                                                                                            | (9,177                                                                                                                | )       | (9,217                            | )             | (18,362 | ) | (18,438 | ) |
|                                                                                                            |                                                                                                                       |    |                                   |          |  |   |  |   |
| NET  INCOME AVAILABLE TO COMMON SHAREHOLDERS                                                                    | $                                                                                                                     | 36,746  |                              | $             | 41,012 |   | $ | 67,685 |   | $ | 69,255 |   |
|                                                                                                            |                                                                                                                       |    |                                   |          |  |   |  |   |
|                                                                                                            |                                                                                                                  |    |                              |          |   |   |   |   |
| BASIC  AND DILUTED EARNINGS PER COMMON PAIRED SHARE:                                                            |                                                                                                                  |    |                              |          |   |   |   |   |
|                                                                                                            | Income before extraordinary items and cumulative effect  of accounting change                                         | $       | 0.21                              |          | $ | 0.24 |   | $ | 0.40 |   | $ | 0.45 |   |
|                                                                                                            |                                                                                                                  |         |                              |               |   |  |   |  |   |
|                                                                                                            |                                                                                                                  |    |                              |          |   |   |   |   |   |
|                                                                                                            | Net income                                                                                                            | $       | 0.21                              |          | $ | 0.24 |   | $ | 0.39 |   | $ | 0.40 |   |
|                                                                                                            |                                                                                                                  |         |                              |               |   |  |   |  |   |
|                                                                                                            |                                                                                                                  |    |                              |          |   |   |   |   |
|                                                                                                            | Net Income                                                                                                            | $       | 45,923                            |          | $ | 50,229 |   | $ | 86,047 |   | $ | 87,693 |   |
|                                                                                                            | Cumulative effect of accounting  change                                                                               | --      |                              | --            |   | (1,995 | ) | -- |   |
|                                                                                                            | Unrealized gain (loss) on  interest rate hedge agreements                                                             | 111     |                              | --            |   | (6,093 | ) | -- |   |
|                                                                                                            | Net losses on derivative instruments  reclassified from accumulated other comprehensive income into interest  expense | 905     |                         | --            |     | 1,663 |     | -- |     |
|                                                                                                            | Unrealized gain/(loss) on  investment                                                                                 | (1,980  | )                                 | 5,659         |   | (1,980 | ) | 4,879 |   |
|                                                                                                            |                                                                                                                  |         |                              |               |   |  |   |  |   |
|                                                                                                            | Comprehensive Income                                                                                                  | $       | 44,959                            |          | $ | 55,888 |   | $ | 77,642 |   | $ | 92,572 |   |
|                                                                                                            |                                                                                                                       |    |                                   |          |  |   |  |   |
|                                                                                                            |                                                                                                                  |    |                              |          |   |   |   |   |
| *The accompanying notes are an integral part of these  statements.*                                             |                                                                                                                  |
|                                                                                                                 |                                                                                                                       |         |                                   |               |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

**Simon Property Group, Inc. and SPG Realty Consultants,Inc. *** Condensed Combined Statements ofCash Flows*

(Dollarsin thousands)

 

|                                                                | For the Six Months Ended June 30,                                                       |     |
|---------------------------------------------------------------------|-----------------------------------------------------------------------------------------|----------|
|                                                                |                                                                                         |     |
|                                                                | 2001                                                                                    |     | 2000 |   |
|                                                                |                                                                                         |     |  |   |
| CASH FLOWS FROM  OPERATING ACTIVITIES:                              |                                                                                    |     |   |   |
|                                                                | Net income                                                                              | $        | 86,047 |   | $ | 87,693 |   |
|                                                                | Adjustments to reconcile net income to net cash provided  by operating activities— |     |     |   |   |
|                                                                | Depreciation and amortization                                                           | 218,383  |   | 202,733 |   |
|                                                                | Extraordinary items                                                                     | 25       |   | 440 |   |
|                                                                | Cumulative effect of accounting change                                                  | 1,638    |   | 12,342 |   |
|                                                                | Gain on sales of assets, net of asset write downs of $0  and                            |     |   |   |   |
|                                                                | and $10,572, respectively                                                               | (2,683   | ) | (8,658 | ) |
|                                                                | Limited partners' interest in Operating Partnerships                                    | 25,620   |   | 26,271 |   |
|                                                                | Preferred dividends of Subsidiary                                                       | 14,668   |   | 14,668 |   |
|                                                                | Preferred  distributions of the SPG Operating Partnership                               | 5,747    |   | 5,634 |   |
|                                                                | Straight-line rent                                                                      | (4,652   | ) | (8,416 | ) |
|                                                                | Minority interest                                                                       | 5,231    |   | 4,717 |   |
|                                                                | Equity in income of unconsolidated entities                                             | (25,634  | ) | (33,527 | ) |
|                                                                | Changes in assets and liabilities—                                                 |     |   |   |   |
|                                                                | Tenant receivables and accrued revenue                                                  | 31,094   |   | 44,615 |   |
|                                                                | Deferred costs and other assets                                                         | (18,141  | ) | 8,116 |   |
|                                                                | Accounts payable, accrued expenses and other liabilities                                | (55,473  | ) | (84,202 | ) |
|                                                                |                                                                                    |          |   |  |   |
|                                                                | Net cash provided by operating activities                                               | 281,870  |   | 272,426 |   |
|                                                                |                                                                                         |     |  |   |
| CASH FLOWS FROM  INVESTING ACTIVITIES:                              |                                                                                    |     |   |   |
|                                                                | Capital expenditures                                                                    | (152,342 | ) | (226,106 | ) |
|                                                                | Cash from consolidation of ASP                                                          | 8,156    |   | -- |   |
|                                                                | Net proceeds from sale of assets                                                        | 19,550   |   | 108,993 |   |
|                                                                | Investments in unconsolidated entities                                                  | (20,433  | ) | (103,876 | ) |
|                                                                | Distributions from unconsolidated entities                                              | 112,014  |   | 185,650 |   |
|                                                                | Investments in and advances (to)/from Management Company  and affiliate                 | (2,230   | ) | (1,821 | ) |
|                                                                |                                                                                    |          |   |  |   |
|                                                                | Net cash used in investing activities                                                   | (35,285  | ) | (37,160 | ) |
|                                                                |                                                                                    |          |   |  |   |
|                                                                |                                                                                    |     |   |   |
| CASH FLOWS FROM  FINANCING ACTIVITIES:                              |                                                                                    |     |   |   |
|                                                                | Proceeds from sales of common and preferred stock, net                                  | 4,163    |   | 341 |   |
|                                                                | Minority interest distributions, net                                                    | (7,613   | ) | (8,234 | ) |
|                                                                | Preferred dividends of Subsidiary                                                       | (14,668  | ) | (14,668 | ) |
|                                                                | Preferred  distributions of the SPG Operating Partnership                               | (5,747   | ) | (5,634 | ) |
|                                                                | Preferred dividends and distributions to shareholders                                   | (196,059 | ) | (194,045 | ) |
|                                                                | Distributions to limited partners                                                       | (66,859  | ) | (66,070 | ) |
|                                                                | Mortgage and other note proceeds, net of transaction  costs                             | 665,134  |   | 790,007 |   |
|                                                                | Mortgage and other note principal payments                                              | (667,688 | ) | (751,117 | ) |
|                                                                |                                                                                    |          |   |  |   |
|                                                                | Net cash used in financing activities                                                   | (289,337 | ) | (249,420 | ) |
|                                                                |                                                                                    |          |   |  |   |
|                                                                |                                                                                    |     |   |   |
| DECREASE IN CASH AND  CASH EQUIVALENTS                              | (42,752                                                                                 | )        | (14,154 | ) |
|                                                                |                                                                                    |     |   |   |
| CASH AND CASH  EQUIVALENTS, beginning of period                     | 223,111                                                                                 |     | 157,632 |   |
|                                                                |                                                                                    |     |   |   |
|                                                                |                                                                                         |     |  |   |
| CASH AND CASH  EQUIVALENTS, end of period                           | $                                                                                       | 180,359  |   | $ | 143,478 |   |
|                                                                |                                                                                         |     |  |   |
|                                                                |                                                                                    |     |   |   |
| *The accompanying  notes are an integral part of these statements.* |                                                                                    |
|                                                                     |                                                                                         |          |  |  |  |  |  |  |  |  |  |

** **

 

**Simon Property Group,Inc.***Condensed Consolidated BalanceSheets*

(Dollarsin thousands, except per share amounts)

|                                                                                                                             | June  30,                                                                                                                                                                                    |       | December  31, |          |
|----------------------------------------------------------------------------------------------------------------------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|---------------|---------------|
|                                                                                                                             | 2001                                                                                                                                                                                         |       | 2000          |          |
|                                                                                                                             |                                                                                                                                                                                              |       |               |          |
| ASSETS:                                                                                                                          |                                                                                                                                                                                         |       |          |          |
|                                                                                                                             | Investment properties,  at cost                                                                                                                                                              | $          | 13,148,889    |          | $ | 13,037,506 |   |
|                                                                                                                             | Less — accumulated  depreciation                                                                                                                                                        | 1,667,869  |          | 1,479,378     |   |
|                                                                                                                             |                                                                                                                                                                                         |            |          |               |   |
|                                                                                                                             |                                                                                                                                                                                         | 11,481,020 |          | 11,558,128    |   |
|                                                                                                                             | Cash and cash equivalents                                                                                                                                                                    | 171,669    |          | 214,404       |   |
|                                                                                                                             | Tenant receivables and accrued  revenue, net                                                                                                                                                 | 279,150    |          | 296,785       |   |
|                                                                                                                             | Notes and advances receivable from  Management Company and affiliates                                                                                                                        | 122,133    |          | 182,401       |   |
|                                                                                                                             | Note receivable from the SRC  Operating Partnership (Interest at 8%, due 2009)                                                                                                               | 1,460      |          | 29,425        |   |
|                                                                                                                             | Investment in unconsolidated  entities, at equity                                                                                                                                            | 1,273,148  |          | 1,308,838     |   |
|                                                                                                                             | Goodwill, net                                                                                                                                                                                | 37,798     |          | 38,384        |   |
|                                                                                                                             | Deferred costs and other assets,  net                                                                                                                                                        | 262,946    |          | 240,665       |   |
|                                                                                                                             | Minority interest, net                                                                                                                                                                       | 44,637     |          | 42,377        |   |
|                                                                                                                             |                                                                                                                                                                                         |            |          |               |   |
|                                                                                                                             | $                                                                                                                                                                                            | 13,673,961 |          | $             | 13,911,407 |   |
|                                                                                                                             |                                                                                                                                                                                              |       |               |          |
|                                                                                                                             |                                                                                                                                                                                         |       |          |          |
| LIABILITIES:                                                                                                                     |                                                                                                                                                                                         |       |          |          |
|                                                                                                                             | Mortgages and other indebtedness                                                                                                                                                             | $          | 8,730,012     |          | $ | 8,728,582 |   |
|                                                                                                                             | Accounts payable and accrued  expenses                                                                                                                                                       | 471,428    |          | 439,190       |   |
|                                                                                                                             | Cash distributions and losses in  partnerships and joint ventures, at equity                                                                                                                 | 48,252     |          | 44,634        |   |
|                                                                                                                             | Accrued dividends                                                                                                                                                                            | 18,487     |          | 18,266        |   |
|                                                                                                                             | Other liabilities                                                                                                                                                                            | 105,118    |          | 227,481       |   |
|                                                                                                                             |                                                                                                                                                                                         |            |          |               |   |
|                                                                                                                             | Total liabilities                                                                                                                                                                            | 9,373,297  |          | 9,458,153     |   |
|                                                                                                                             |                                                                                                                                                                                         |            |          |               |   |
|                                                                                                                             |                                                                                                                                                                                         |       |          |          |
| COMMITMENTS AND  CONTINGENCIES (Note 9)                                                                                          |                                                                                                                                                                                         |       |          |          |
|                                                                                                                             |                                                                                                                                                                                         |       |          |          |
| LIMITED PARTNERS'  INTEREST IN THE SPG OPERATING PARTNERSHIP                                                                     | 866,118                                                                                                                                                                                      |       | 909,491       |          |
|                                                                                                                             |                                                                                                                                                                                         |       |          |          |
| LIMITED PARTNERS'  PREFERRED INTEREST IN THE                                                                                     |                                                                                                                                                                                         |       |          |          |
| SPG OPERATING PARTNERSHIP                                                                                                        | 150,852                                                                                                                                                                                      |       | 149,885       |          |
|                                                                                                                             |                                                                                                                                                                                         |       |          |          |
| PREFERRED STOCK OF  SUBSIDIARY (Liquidation value $350,000)                                                                      | 340,000                                                                                                                                                                                      |       | 339,866       |          |
|                                                                                                                             |                                                                                                                                                                                         |       |          |          |
| SHAREHOLDERS' EQUITY  (750,000,000 total shares authorized, $.0001 par value,  237,996,000  shares of excess common stock): |                                                                                                                                                                                         |       |          |     |
|                                                                                                                             |                                                                                                                                                                                         |       |          |          |
|                                                                                                                             | All series of preferred stock,  100,000,000 shares authorized, 5,879,896 and 5,881,116 issued and  outstanding, respectively.   Liquidation values $557,845 and $559,065, respectively. | 537,229    |     | 538,684       |     |
|                                                                                                                             |                                                                                                                                                                                         |       |          |          |   |
|                                                                                                                             | Common stock, $.0001 par value,  400,000,000 shares authorized, 171,576,618                                                                                                                  |       |          |          |   |
|                                                                                                                             | and 170,840,315 issued and  outstanding, respectively                                                                                                                                        | 17         |          | 17            |   |
|                                                                                                                             |                                                                                                                                                                                         |       |          |          |   |
|                                                                                                                             | Class B common stock, $.0001 par  value, 12,000,000 shares authorized, 3,200,000                                                                                                             |       |          |          |   |
|                                                                                                                             | issued and outstanding                                                                                                                                                                       | 1          |          | 1             |   |
|                                                                                                                             |                                                                                                                                                                                         |       |          |          |   |
|                                                                                                                             | Class C common stock, $.0001 par  value, 4,000 shares authorized, issued and outstanding                                                                                                     | --         |          | --            |   |
|                                                                                                                             |                                                                                                                                                                                         |       |          |          |   |
|                                                                                                                             | Capital in excess of par value                                                                                                                                                               | 3,318,123  |          | 3,299,016     |   |
|                                                                                                                             | Accumulated deficit                                                                                                                                                                          | (824,722   | )             | (711,395      | ) |
|                                                                                                                             | Accumulated other comprehensive  income                                                                                                                                                      | (8,405     | )             | --            |   |
|                                                                                                                             | Unamortized restricted stock  award                                                                                                                                                          | (26,220    | )             | (19,982       | ) |
| `                                                                                                                                |                                                                                                                                                                                         |       |          |          |   |
|                                                                                                                             | Common stock held in treasury at  cost, 2,098,555 shares                                                                                                                                     | (52,329    | )             | (52,329       | ) |
|                                                                                                                             |                                                                                                                                                                                         |            |          |               |   |
|                                                                                                                             |                                                                                                                                                                                         |       |          |          |   |
|                                                                                                                             | Total shareholders'  equity                                                                                                                                                                  | 2,943,694  |          | 3,054,012     |   |
|                                                                                                                             |                                                                                                                                                                                         |       |          |          |   |
|                                                                                                                             |                                                                                                                                                                                              |       |               |          |
|                                                                                                                             | $                                                                                                                                                                                            | 13,673,961 |          | $             | 13,911,407 |   |
|                                                                                                                             |                                                                                                                                                                                              |       |               |          |
|                                                                                                                             |                                                                                                                                                                                         |       |          |          |
| *The accompanying  notes are an integral part of these statements.*                                                              |                                                                                                                                                                                         |
|                                                                                                                                  |                                                                                                                                                                                              |            |               |               |  |  |  |  |

** **

** **

**Simon Property Group,Inc.*******Condensed ConsolidatedStatements of Operations*

(Dollarsin thousands, except per share amounts)

 

|                                                                                                     | For the Three Months Ended June 30,                                                                                   |    | For the Six Months Ended June 30, |    |
|----------------------------------------------------------------------------------------------------------|-----------------------------------------------------------------------------------------------------------------------|---------|-----------------------------------|---------|
|                                                                                                     |                                                                                                                       |    |                                   |    |
|                                                                                                     | 2001                                                                                                                  |    | 2000                              |    | 2001 |   | 2000 |   |
|                                                                                                     |                                                                                                                       |    |                                   |    |  |   |  |   |
| REVENUE:                                                                                                 |                                                                                                                  |    |                              |    |   |   |   |   |
|                                                                                                     | Minimum rent                                                                                                          | $       | 307,406                           |    | $ | 294,285 |   | $ | 614,557 |   | $ | 590,763 |   |
|                                                                                                     | Overage rent                                                                                                          | 7,130   |                              | 6,718   |   | 17,013 |   | 18,756 |   |
|                                                                                                     | Tenant reimbursements                                                                                                 | 146,450 |                              | 154,303 |   | 294,964 |   | 299,147 |   |
|                                                                                                     | Other income                                                                                                          | 26,654  |                              | 32,093  |   | 50,921 |   | 54,925 |   |
|                                                                                                     |                                                                                                                  |         |                              |         |   |  |   |  |   |
|                                                                                                     | Total revenue                                                                                                         | 487,640 |                              | 487,399 |   | 977,455 |   | 963,591 |   |
|                                                                                                     |                                                                                                                  |         |                              |         |   |  |   |  |   |
|                                                                                                     |                                                                                                                  |    |                              |    |   |   |   |   |
| EXPENSES:                                                                                                |                                                                                                                  |    |                              |    |   |   |   |   |
|                                                                                                     | Property operating                                                                                                    | 82,224  |                              | 78,861  |   | 160,850 |   | 154,093 |   |
|                                                                                                     | Depreciation and amortization                                                                                         | 106,726 |                              | 99,114  |   | 213,218 |   | 197,579 |   |
|                                                                                                     | Real estate taxes                                                                                                     | 48,714  |                              | 49,736  |   | 101,501 |   | 98,121 |   |
|                                                                                                     | Repairs and maintenance                                                                                               | 19,332  |                              | 16,193  |   | 39,059 |   | 35,758 |   |
|                                                                                                     | Advertising and promotion                                                                                             | 12,618  |                              | 15,196  |   | 26,424 |   | 31,260 |   |
|                                                                                                     | Provision for credit losses                                                                                           | 2,248   |                              | 2,214   |   | 5,152 |   | 4,345 |   |
|                                                                                                     | Other                                                                                                                 | 6,608   |                              | 7,363   |   | 13,504 |   | 14,988 |   |
|                                                                                                     |                                                                                                                  |         |                              |         |   |  |   |  |   |
|                                                                                                     | Total operating expenses                                                                                              | 278,470 |                              | 268,677 |   | 559,708 |   | 536,144 |   |
|                                                                                                     |                                                                                                                  |         |                              |         |   |  |   |  |   |
|                                                                                                     |                                                                                                                  |    |                              |    |   |   |   |   |
| OPERATING  INCOME                                                                                        | 209,170                                                                                                               |    | 218,722                           |    | 417,747 |   | 427,447 |   |
|                                                                                                     |                                                                                                                  |    |                              |    |   |   |   |   |
| INTEREST  EXPENSE                                                                                        | 149,969                                                                                                               |    | 155,830                           |    | 307,894 |   | 314,514 |   |
|                                                                                                     |                                                                                                                       |    |                                   |    |  |   |  |   |
| INCOME  BEFORE MINORITY INTEREST                                                                         | 59,201                                                                                                                |    | 62,892                            |    | 109,853 |   | 112,933 |   |
|                                                                                                     |                                                                                                                  |    |                              |    |   |   |   |   |
| MINORITY  INTEREST                                                                                       | (3,115                                                                                                                | )       | (2,353                            | )       | (5,353 | ) | (4,787 | ) |
| GAIN  (LOSS) ON SALES OF ASSETS, NET OF ASSET WRITE DOWNS OF $0, $10,572,  $0, AND $10,572, RESPECTIVELY | (28                                                                                                                   | )       | 1,562                             |    | 2,683 |   | 8,658 |   |
|                                                                                                     |                                                                                                                       |    |                                   |    |  |   |  |   |
| INCOME  BEFORE UNCONSOLIDATED ENTITIES                                                                   | 56,058                                                                                                                |    | 62,101                            |    | 107,183 |   | 116,804 |   |
|                                                                                                     |                                                                                                                  |    |                              |    |   |   |   |   |
| INCOME  FROM UNCONSOLIDATED ENTITIES                                                                     | 13,970                                                                                                                |    | 15,883                            |    | 25,712 |   | 33,213 |   |
|                                                                                                     |                                                                                                                       |    |                                   |    |  |   |  |   |
| INCOME  BEFORE EXTRAORDINARY ITEMS AND                                                                   |                                                                                                                  |    |                              |    |   |   |   |   |
| CUMULATIVE  EFFECT OF ACCOUNTING CHANGE                                                                  | 70,028                                                                                                                |    | 77,984                            |    | 132,895 |   | 150,017 |   |
| EXTRAORDINARY  ITEMS - DEBT RELATED TRANSACTIONS                                                         | --                                                                                                                    |    | --                                |    | (25 | ) | (440 | ) |
| CUMULATIVE  EFFECT OF ACCOUNTING CHANGE (Note 5)                                                         | --                                                                                                                    |    | --                                |    | (1,638 | ) | (12,342 | ) |
|                                                                                                     |                                                                                                                       |    |                                   |    |  |   |  |   |
| INCOME  BEFORE ALLOCATION TO LIMITED PARTNERS                                                            | 70,028                                                                                                                |    | 77,984                            |    | 131,232 |   | 137,235 |   |
|                                                                                                     |                                                                                                                  |    |                              |    |   |   |   |   |
| LESS:                                                                                                    |                                                                                                                  |    |                              |    |   |   |   |   |
|                                                                                                     | LIMITED PARTNERS' INTEREST IN THE  SPG OPERATING PARTNERSHIP                                                          | 13,895  |                              | 16,103  |   | 25,386 |   | 27,090 |   |
|                                                                                                     | PREFERRED DISTRIBUTIONS OF THE  SPG OPERATING PARTNERSHIP                                                             | 2,835   |                              | 2,817   |   | 5,747 |   | 5,634 |   |
|                                                                                                     | PREFERRED DIVIDENDS OF SUBSIDIARY                                                                                     | 7,334   |                              | 7,334   |   | 14,668 |   | 14,668 |   |
|                                                                                                     |                                                                                                                  |         |                              |         |   |  |   |  |   |
|                                                                                                     |                                                                                                                  |    |                              |    |   |   |   |   |
| NET  INCOME                                                                                              | 45,964                                                                                                                |    | 51,730                            |    | 85,431 |   | 89,843 |   |
|                                                                                                     |                                                                                                                  |    |                              |    |   |   |   |   |
| PREFERRED  DIVIDENDS                                                                                     | (9,177                                                                                                                | )       | (9,217                            | )       | (18,362 | ) | (18,438 | ) |
|                                                                                                     |                                                                                                                       |    |                                   |    |  |   |  |   |
|                                                                                                     |                                                                                                                  |    |                              |    |   |   |   |   |
| NET  INCOME AVAILABLE TO COMMON SHAREHOLDERS                                                             | $                                                                                                                     | 36,787  |                              | $       | 42,513 |   | $ | 67,069 |   | $ | 71,405 |   |
|                                                                                                     |                                                                                                                       |    |                                   |    |  |   |  |   |
|                                                                                                     |                                                                                                                  |    |                              |    |   |   |   |   |
| BASIC  AND DILUTED EARNINGS PER COMMON SHARE:                                                            |                                                                                                                  |    |                              |    |   |   |   |   |
|                                                                                                     | Income before extraordinary items and cumulative effect  of                                                           |    |                              |    |   |   |   |   |   |
|                                                                                                     | accounting change                                                                                                     | $       | 0.21                              |    | $ | 0.24 |   | $ | 0.40 |   | $ | 0.46 |   |
|                                                                                                     |                                                                                                                  |         |                              |         |   |  |   |  |   |
|                                                                                                     |                                                                                                                  |    |                              |    |   |   |   |   |
| Net  income                                                                                              | $                                                                                                                     | 0.21    |                              | $       | 0.24 |   | $ | 0.39 |   | $ | 0.41 |   |
|                                                                                                     |                                                                                                                       |    |                                   |    |  |   |  |   |
|                                                                                                     |                                                                                                                  |    |                              |    |   |   |   |   |
| BASIC  WEIGHTED AVERAGE SHARES OUTSTANDING                                                               | 172,485                                                                                                               |    | 173,672                           |    | 172,244 |   | 173,448 |   |
|                                                                                                     |                                                                                                                       |    |                                   |    |  |   |  |   |
|                                                                                                     |                                                                                                                  |    |                              |    |   |   |   |   |
| DILUTED  WEIGHTED AVERAGE SHARES OUTSTANDING                                                             | 172,805                                                                                                               |    | 173,815                           |    | 172,484 |   | 173,570 |   |
|                                                                                                     |                                                                                                                       |    |                                   |    |  |   |  |   |
|                                                                                                     |                                                                                                                  |    |                              |    |   |   |   |   |
|                                                                                                     | Net Income                                                                                                            | $       | 45,964                            |    | $ | 51,730 |   | $ | 85,431 |   | $ | 89,843 |   |
|                                                                                                     | Cumulative effect of accounting  change                                                                               | --      |                              | --      |   | (1,995 | ) | - |   |
|                                                                                                     | Unrealized gain (loss) on  interest rate hedge agreements                                                             | 111     |                              | --      |   | (6,093 | ) | - |   |
|                                                                                                     | Net losses on derivative  instruments reclassified from accumulated other comprehensive income into  interest expense | 905     |                              | --      |    | 1,663 |    | -- |    |
|                                                                                                     | Unrealized gain/(loss) on  investment                                                                                 | (1,980  | )                                 | 5,659   |   | (1,980 | ) | 4,879 |   |
|                                                                                                     |                                                                                                                  |         |                              |         |   |  |   |  |   |
|                                                                                                     | Comprehensive Income                                                                                                  | $       | 45,000                            |    | $ | 57,389 |   | $ | 77,026 |   | $ | 94,722 |   |
|                                                                                                     |                                                                                                                       |    |                                   |    |  |   |  |   |
|                                                                                                     |                                                                                                                  |    |                              |    |   |   |   |   |
| *The accompanying notes are an integral part of these  statements.*                                      | * *                                                                                                              |
|                                                                                                          |                                                                                                                       |         |                                   |         |  |  |  |  |  |  |  |  |  |  |  |  |

** **

 

**Simon Property Group,Inc.***Condensed ConsolidatedStatements of Cash Flows*

(Dollarsin thousands)

 

|                                                                | For  the Six Months Ended June 30,                                                      |     |
|---------------------------------------------------------------------|-----------------------------------------------------------------------------------------|----------|
|                                                                |                                                                                         |     |
|                                                                | 2001                                                                                    |     | 2000 |   |
|                                                                |                                                                                         |     |  |   |
| CASH FLOWS FROM  OPERATING ACTIVITIES:                              |                                                                                    |     |   |   |
|                                                                | Net income                                                                              | $        | 85,431 |   | $ | 89,843 |   |
|                                                                | Adjustments to reconcile net income to net cash provided  by operating activities— |     |   |   |     |
|                                                                | Depreciation and amortization                                                           | 218,337  |   | 202,684 |   |
|                                                                | Extraordinary items                                                                     | 25       |   | 440 |   |
|                                                                | Cumulative effect of accounting change                                                  | 1,638    |   | 12,342 |   |
|                                                                | Gain on sales of assets, net of asset write downs of $0  and                            |     |   |   |   |
|                                                                | and $10,572, respectively                                                               | (2,683   | ) | (8,658 | ) |
|                                                                | Limited partners' interest in Operating Partnership                                     | 25,386   |   | 27,090 |   |
|                                                                | Preferred dividends of Subsidiary                                                       | 14,668   |   | 14,668 |   |
|                                                                | Preferred  distributions of the SPG Operating Partnership                               | 5,747    |   | 5,634 |   |
|                                                                | Straight-line rent                                                                      | (4,652   | ) | (8,416 | ) |
|                                                                | Minority interest                                                                       | 5,353    |   | 4,787 |   |
|                                                                | Equity in income of unconsolidated entities                                             | (25,712  | ) | (33,213 | ) |
|                                                                | Changes in assets and liabilities—                                                 |     |   |   |   |
|                                                                | Tenant receivables and accrued revenue                                                  | 32,584   |   | 46,779 |   |
|                                                                | Deferred costs and other assets                                                         | (19,999  | ) | 8,828 |   |
|                                                                | Accounts payable, accrued expenses and other liabilities                                | (58,168  | ) | (89,403 | ) |
|                                                                |                                                                                    |          |   |  |   |
|                                                                | Net cash provided by operating activities                                               | 277,955  |   | 273,405 |   |
|                                                                |                                                                                    |          |   |  |   |
|                                                                |                                                                                    |     |   |   |
| CASH FLOWS FROM  INVESTING ACTIVITIES:                              |                                                                                    |     |   |   |
|                                                                | Capital expenditures                                                                    | (152,480 | ) | (216,819 | ) |
|                                                                | Cash from consolidation of ASP                                                          | 8,156    |   | -- |   |
|                                                                | Proceeds from sale of assets                                                            | 19,550   |   | 108,993 |   |
|                                                                | Investments in unconsolidated entities                                                  | (20,433  | ) | (103,876 | ) |
|                                                                | Distributions from unconsolidated entities                                              | 112,014  |   | 183,852 |   |
|                                                                | Investments in and advances (to)/from Management Company  and affiliate                 | (2,230   | ) | (1,821 | ) |
|                                                                | Loan to the SRC  Operating Partnership                                                  | 4,136    |   | (12,478 | ) |
|                                                                |                                                                                    |          |   |  |   |
|                                                                | Net cash used in investing activities                                                   | (31,287  | ) | (42,149 | ) |
|                                                                |                                                                                    |          |   |  |   |
|                                                                |                                                                                    |     |   |   |
| CASH FLOWS FROM  FINANCING ACTIVITIES:                              |                                                                                    |     |   |   |
|                                                                | Proceeds from sales of common and preferred stock, net                                  | 4,097    |   | 292 |   |
|                                                                | Minority interest distributions, net                                                    | (7,613   | ) | (8,234 | ) |
|                                                                | Preferred dividends of Subsidiary                                                       | (14,668  | ) | (14,668 | ) |
|                                                                | Preferred  distributions of the SPG Operating Partnership                               | (5,747   | ) | (5,634 | ) |
|                                                                | Preferred dividends and distributions to shareholders                                   | (196,059 | ) | (194,045 | ) |
|                                                                | Distributions to limited partners                                                       | (66,859  | ) | (66,070 | ) |
|                                                                | Mortgage and other note proceeds, net of transaction  costs                             | 665,134  |   | 790,007 |   |
|                                                                | Mortgage and other note principal payments                                              | (667,688 | ) | (751,007 | ) |
|                                                                |                                                                                    |          |   |  |   |
|                                                                | Net cash used in financing activities                                                   | (289,403 | ) | (249,359 | ) |
|                                                                |                                                                                    |          |   |  |   |
|                                                                |                                                                                    |     |   |   |
| DECREASE IN CASH AND  CASH EQUIVALENTS                              | (42,735                                                                                 | )        | (18,103 | ) |
|                                                                |                                                                                    |     |   |   |
| CASH AND CASH  EQUIVALENTS, beginning of period                     | 214,404                                                                                 |     | 154,924 |   |
|                                                                |                                                                                    |     |   |   |
|                                                                |                                                                                         |     |  |   |
| CASH AND CASH  EQUIVALENTS, end of period                           | $                                                                                       | 171,669  |   | $ | 136,821 |   |
|                                                                |                                                                                         |     |  |   |
|                                                                |                                                                                    |     |   |   |
| *The accompanying notes are an integral part of these  statements.* |                                                                                    |
|                                                                     |                                                                                         |          |  |  |  |  |  |  |  |  |  |

** **

** **

**SPG Realty Consultants,Inc.***Condensed Consolidated BalanceSheets*

(Dollarsin thousands, except per share amounts)

 

|                                                                | June  30,                                                                                          |    | December  31, |    |
|---------------------------------------------------------------------|----------------------------------------------------------------------------------------------------|---------|---------------|---------|
|                                                                | 2001                                                                                               |    | 2000          |    |
|                                                                |                                                                                                    |    |               |    |
| ASSETS:                                                             |                                                                                               |    |          |    |
|                                                                | Cash and cash equivalents                                                                          | $       | 8,690         |    | $ | 8,707 |   |
|                                                                | Accounts receivable (including  $2,312 and $2,984 from related parties)                            | 3,532   |          | 8,394   |   |
|                                                                |                                                                                               |         |          |         |   |
|                                                                | Total current assets                                                                               | 12,222  |          | 17,101  |   |
|                                                                | Investment properties, at cost, less accumulated  depreciation of $1,381 and $1,341,  respectively | 5,780   |          | 6,286   |   |
|                                                                | Investment in unconsolidated  entities, at equity                                                  | 6,921   |          | 6,998   |   |
|                                                                | Investment in technology  initiatives                                                              | --      |          | 23,583  |   |
|                                                                | Other noncurrent assets                                                                            | 469     |          | 2,896   |   |
|                                                                |                                                                                               |         |          |         |   |
|                                                                | $                                                                                                  | 25,392  |          | $       | 56,864 |   |
|                                                                |                                                                                                    |    |               |    |
|                                                                |                                                                                               |    |          |    |
| LIABILITIES:                                                        |                                                                                               |    |          |    |
|                                                                | Accounts payable and accrued  expenses (including $63 and $4,855 from related parties)             | $       | 4,708         |    | $ | 12,346 |   |
|                                                                |                                                                                               |         |          |         |   |
|                                                                | Total current liabilities                                                                          | 4,708   |          | 12,346  |   |
|                                                                | Note payable to the SPG Operating  Partnership (Interest at 8%, due 2009)                          | 1,460   |          | 29,425  |   |
|                                                                | Minority interest                                                                                  | --      |          | 643     |   |
|                                                                |                                                                                               |         |          |         |   |
|                                                                | Total liabilities                                                                                  | 6,168   |          | 42,414  |   |
|                                                                |                                                                                               |         |          |         |   |
|                                                                |                                                                                               |    |          |    |
| COMMITMENTS AND  CONTINGENCIES (Note 9)                             |                                                                                               |    |          |    |
|                                                                |                                                                                               |    |          |    |
| LIMITED PARTNERS'  INTEREST IN THE SRC OPERATING PARTNERSHIP        | 5,288                                                                                              |    | 3,991         |    |
|                                                                |                                                                                               |    |          |    |
| SHAREHOLDERS' EQUITY:                                               |                                                                                               |    |          |    |
|                                                                |                                                                                               |    |          |    |
|                                                                | Common stock, $.0001 par value,  7,500,000 shares authorized, 1,747,806                       |    |          |    |   |
|                                                                | and 1,740,443 issued and  outstanding, respectively                                                | --      |          | --      |   |
|                                                                | Capital in excess of par value                                                                     | 27,832  |          | 29,647  |   |
|                                                                | Accumulated deficit                                                                                | (13,707 | )             | (18,999 | ) |
|                                                                | Less common stock held in  treasury at cost, 20,986 shares.                                        | (189    | )             | (189    | ) |
|                                                                |                                                                                               |         |          |         |   |
|                                                                |                                                                                               |    |          |    |   |
|                                                                | Total shareholders'  equity                                                                        | 13,936  |          | 10,459  |   |
|                                                                |                                                                                               |    |          |    |
|                                                                |                                                                                                    |    |               |    |
|                                                                | $                                                                                                  | 25,392  |          | $       | 56,864 |   |
|                                                                |                                                                                                    |    |               |    |
|                                                                |                                                                                               |    |          |    |
| *The accompanying  notes are an integral part of these statements.* |                                                                                               |
|                                                                     |                                                                                                    |         |               |         |  |  |  |  |

** **

 

**SPG Realty Consultants,Inc.***Condensed ConsolidatedStatements of Operations*

(Inthousands, except per share amounts)

 

|                                                               | For the Three Months Ended June 30,   |   | For the Six Months Ended June 30, |   |
|--------------------------------------------------------------------|---------------------------------------|--------|-----------------------------------|--------|
|                                                               |                                       |   |                                   |   |
|                                                               | 2001                                  |   | 2000                              |   | 2001 |   | 2000 |   |
|                                                               |                                       |   |                                   |   |  |   |  |   |
| REVENUE:                                                           |                                  |   |                              |   |   |   |   |   |
|                                                               | Rental income                         | $      | 77                                |   | $ | 91 |   | $ | 153 |   | $ | 197 |   |
|                                                               | Marketing and fee income              | --     |                              | 2,450  |   | -- |   | 4,238 |   |
|                                                               | Insurance premiums                    | 544    |                              | --     |   | 1,061 |   | -- |   |
|                                                               | Other income                          | 103    |                              | 50     |   | 221 |   | 76 |   |
|                                                               |                                  |        |                              |        |   |  |   |  |   |
|                                                               | Total revenue                         | 724    |                              | 2,591  |   | 1,435 |   | 4,511 |   |
|                                                               |                                  |        |                              |        |   |  |   |  |   |
|                                                               |                                  |   |                              |   |   |   |   |   |
| EXPENSES:                                                          |                                  |   |                              |   |   |   |   |   |
|                                                               | Depreciation and amortization         | 23     |                              | 26     |   | 46 |   | 49 |   |
|                                                               | Technology initiatives startup  costs | --     |                              | 2,277  |   | 90 |   | 3,138 |   |
|                                                               | Insurance losses                      | 641    |                              | --     |   | 1,127 |   | -- |   |
|                                                               | General  and administrative expenses  | 23     |                              | 2,075  |   | 36 |   | 4,397 |   |
|                                                               |                                  |        |                              |        |   |  |   |  |   |
|                                                               | Total operating expenses              | 687    |                              | 4,378  |   | 1,299 |   | 7,584 |   |
|                                                               |                                  |        |                              |        |   |  |   |  |   |
|                                                               |                                  |   |                              |   |   |   |   |   |
| OPERATING  INCOME (LOSS)                                           | 37                                    |   | (1,787                            | )      | 136 |   | (3,073 | ) |
|                                                               |                                  |   |                              |   |   |   |   |   |
| INTEREST  EXPENSE                                                  | 28                                    |   | 10                                |   | 581 |   | 280 |   |
| PLUS:                                                              |                                  |   |                              |   |   |   |   |   |
| MINORITY  INTEREST                                                 | --                                    |   | 70                                |   | 122 |   | 70 |   |
| GAIN  ON LAND SALES, NET                                           | --                                    |   | --                                |   | 1,251 |   | -- |   |
|                                                               |                                       |   |                                   |   |  |   |  |   |
| INCOME  (LOSS) BEFORE UNCONSOLIDATED ENTITIES                      | 9                                     |   | (1,727                            | )      | 928 |   | (3,283 | ) |
|                                                               |                                  |   |                              |   |   |   |   |   |
| INCOME  (LOSS) FROM UNCONSOLIDATED ENTITIES                        | (67                                   | )      | (345                              | )      | (78 | ) | 314 |   |
|                                                               |                                       |   |                                   |   |  |   |  |   |
| INCOME  (LOSS) BEFORE ALLOCATION TO LIMITED PARTNERS               | (58                                   | )      | (2,072                            | )      | 850 |   | (2,969 | ) |
|                                                               |                                  |   |                              |   |   |   |   |   |
| LESS--LIMITED  PARTNERS' INTEREST INTHE  SRC OPERATING PARTNERSHIP | (17                                   | )      | (571                              | )      | 234 |   | (819 | ) |
|                                                               |                                       |   |                                   |   |  |   |  |   |
|                                                               |                                  |   |                              |   |   |   |   |   |
| NET  INCOME (LOSS)                                                 | $                                     | (41    | )                                 | $      | (1,501 | ) | $ | 616 |   | $ | (2,150 | ) |
|                                                               |                                       |   |                                   |   |  |   |  |   |
|                                                               |                                  |   |                              |   |   |   |   |   |
|                                                               |                                  |   |                              |   |   |   |   |   |
| BASIC  AND DILUTED EARNINGS PER COMMON SHARE:                      |                                  |   |                              |   |   |   |   |   |
|                                                               |                                  |   |                              |   |   |   |   |   |
|                                                               | Net income (loss)                     | $      | (0.02                             | )      | $ | (0.86 | ) | $ | 0.36 |   | $ | (1.24 | ) |
|                                                               |                                  |        |                              |        |   |  |   |  |   |
|                                                               |                                  |   |                              |   |   |   |   |   |
| BASIC  WEIGHTED AVERAGE SHARES OUTSTANDING                         | 1,725                                 |   | 1,737                             |   | 1,722 |   | 1,734 |   |
|                                                               |                                       |   |                                   |   |  |   |  |   |
|                                                               |                                  |   |                              |   |   |   |   |   |
| DILUTED  WEIGHTED AVERAGE SHARES OUTSTANDING                       | 1,725                                 |   | 1,737                             |   | 1,725 |   | 1,734 |   |
|                                                               |                                       |   |                                   |   |  |   |  |   |
|                                                               |                                  |   |                              |   |   |   |   |   |
| *The accompanying notes are an integral part of these statements.* |                                  |
|                                                                    |                                       |        |                                   |        |  |  |  |  |  |  |  |  |  |  |

** **

** **

**SPGRealty Consultants, Inc.******* Condensed Consolidated Statementsof Cash Flows*

(Dollarsin thousands)

|                                                                | For the Six Months Ended June 30,                                                                        |   |
|---------------------------------------------------------------------|----------------------------------------------------------------------------------------------------------|--------|
|                                                                |                                                                                                          |   |
|                                                                | 2001                                                                                                     |   | 2000 |   |
|                                                                |                                                                                                          |   |  |   |
| CASH FLOWS FROM  OPERATING ACTIVITIES:                              |                                                                                                     |   |   |   |
|                                                                | Net income (loss)                                                                                        | $      | 616 |   | $ | (2,150 | ) |
|                                                                | Adjustments to reconcile net income (loss) to net cash  provided by (used in) operating activities— |   |     |   |   |
|                                                                | Depreciation and amortization                                                                            | 46     |   | 49 |   |
|                                                                | Gain on sales of assets, net                                                                             | (1,251 | ) | -- |   |
|                                                                | Limited partners' interest in SRC Operating Partnership                                                  | 234    |   | (819 | ) |
|                                                                | Minority interest                                                                                        | (122   | ) | (70 | ) |
|                                                                | Equity in income of unconsolidated entities                                                              | 78     |   | (314 | ) |
|                                                                | Changes in assets and liabilities—                                                                  |   |   |   |   |
|                                                                | Accounts receivable                                                                                      | (1,490 | ) | (2,876 | ) |
|                                                                | Other non-current assets                                                                                 | 1,859  |   | -- |   |
|                                                                | Accounts payable and accrued expenses                                                                    | 2,692  |   | 5,201 |   |
|                                                                |                                                                                                     |        |   |  |   |
|                                                                | Net cash provided (used in) by operating activities                                                      | 2,662  |   | (979 | ) |
|                                                                |                                                                                                     |        |   |  |   |
|                                                                |                                                                                                     |   |   |   |
| CASH FLOWS FROM  INVESTING ACTIVITIES:                              |                                                                                                     |   |   |   |
|                                                                | Investment in technology initiatives and other capital  expenditures                                     | (115   | ) | (9,287 | ) |
|                                                                | Cash included in transfer of assets to SPG Operating  Partnership                                        | (152   | ) | -- |   |
|                                                                | Net proceeds from  sales of assets                                                                       | 1,658  |   | -- |   |
|                                                                | Distributions from unconsolidated entities                                                               | --     |   | 1,798 |   |
|                                                                |                                                                                                     |        |   |  |   |
|                                                                | Net cash provided by (used in) investing activities                                                      | 1,391  |   | (7,489 | ) |
|                                                                |                                                                                                     |        |   |  |   |
|                                                                |                                                                                                     |   |   |   |
| CASH FLOWS FROM  FINANCING ACTIVITIES:                              |                                                                                                     |   |   |   |
|                                                                | Proceeds from sales of common stock, net                                                                 | 66     |   | 49 |   |
|                                                                | Loan from the SPG Operating Partnership                                                                  | (4,136 | ) | 12,478 |   |
|                                                                | Mortgage and other note proceeds, net of transaction  costs                                              | --     |   | (110 | ) |
|                                                                |                                                                                                     |        |   |  |   |
|                                                                | Net cash (used in) provided by financing activities                                                      | (4,070 | ) | 12,417 |   |
|                                                                |                                                                                                          |   |  |   |
| CHANGE IN CASH AND  CASH EQUIVALENTS                                | (17                                                                                                      | )      | 3,949 |   |
|                                                                |                                                                                                     |   |   |   |
| CASH AND CASH  EQUIVALENTS, beginning of period                     | 8,707                                                                                                    |   | 2,708 |   |
|                                                                |                                                                                                     |   |   |   |
|                                                                |                                                                                                          |   |  |   |
| CASH AND CASH EQUIVALENTS,  end of period                           | $                                                                                                        | 8,690  |   | $ | 6,657 |   |
|                                                                |                                                                                                          |   |  |   |
|                                                                |                                                                                                     |   |   |   |
| *The accompanying notes are an integral part of these  statements.* | * *                                                                                                 |
|                                                                     |                                                                                                          |        |  |  |  |  |  |  |  |  |  |

** **

 

**SIMON PROPERTY GROUP, INC. AND****SPGREALTY CONSULTANTS, INC.**

**Notes to Unaudited CondensedFinancial Statements**

(Dollarsin thousands, except per share amounts and where indicated as in billions)

 

**Note 1 – Organization**

             SimonProperty Group, Inc. ("SPG"), a Delaware corporation, is aself-administered and self-managed real estate investment trust("REIT") under the Internal Revenue Code of 1986, as amended (the“Code”). Each share of common stock of SPG is paired (“Paired Shares”) with abeneficial interest in 1/100th of a share of common stock of SPGRealty Consultants, Inc., also a Delaware corporation (“SRC” and together withSPG, the “Companies”).

             SimonProperty Group, L.P. (the “SPG Operating Partnership”) is the primarysubsidiary of SPG. Units of ownership interest (“Units”) in the SPG OperatingPartnership are paired with a Unit in SPG Realty Consultants, L.P. (“PairedUnits”) (the “SRC Operating Partnership” and together with the SPG OperatingPartnership, the “Operating Partnerships”). The SRC Operating Partnership isthe primary subsidiary of SRC. The Companies together with the OperatingPartnerships are hereafter referred to as “Simon Group”.

             SPG,primarily through the SPG Operating Partnership, is engaged in the ownership,operation, management, leasing, acquisition, expansion and development of realestate properties, primarily regional malls and community shopping centers. Asof June 30, 2001, SPG and the SPG Operating Partnership owned or held aninterest in 250 income-producing properties in the United States, whichconsisted of 164 regional malls, 72 community shopping centers, five specialtyretail centers, four office and mixed-use properties and five value-orientedsuper-regional malls in 36 states (the “Properties”) and six additional retailreal estate properties operating in Europe and Canada. SPG and the SPGOperating Partnership also owned an interest in one property currently underconstruction and 11 parcels of land held for future development, which togetherwith the Properties are hereafter referred to as the “PortfolioProperties”.  At June 30, 2001 andDecember 31, 2000, the Companies’ direct and indirect ownership interests inthe Operating Partnerships were 72.5% and 72.4% respectively.  The SPG Operating Partnership also holdssubstantially all of the economic interest in M.S. Management Associates, Inc.(the “Management Company”).   EffectiveJanuary 1, 2001, the Management Company elected to become a taxable REITsubsidiary (“TRS”).

             SRC,primarily through the SRC Operating Partnership, engages primarily inactivities that capitalize on the resources, customer base and operatingactivities of SPG, which could not be engaged in by SPG without potentiallyimpacting its status as a REIT.  Theseactivities included a technology subsidiary, clixnmortar.  Minority interest on the SRC balance sheetas of December 31, 2000 represents an 8.3% outside ownership interest inclixnmortar. Effective March 31, 2001, the SPG Operating Partnership purchasedclixnmortar from the SRC Operating Partnership at its carrying value utilizingthe inter-company note.  SRC also hasnoncontrolling interests in two joint ventures which each own land held forsale, which are located adjacent to Properties.  The SPG Operating Partnership subsequently contributedclixnmortar to the Management Company in exchange for preferred stock of theManagement Company.  During 2000, SRC’swholly-owned insurance subsidiary, Marigold Indemnity, Ltd (“Marigold”), beganproviding general liability insurance coverage to a third party that providesoutsourcing services at certain properties. Marigold reinsures the majority of the risk through a third partyindemnity company.

             SimonBrand Ventures, LLC (“SBV”) and Simon Business Network (“SBN”) continue toexpand upon certain mall marketing initiatives to take advantage of SimonGroup’s size and tenant relationships, primarily through strategic corporatealliances. SBV is focused on leveraging Simon Group’s 100 million uniqueshoppers and their 2 billion annual shopping visits to contribute to SimonGroup’s second-curve revenue strategy. The SBV concept and initiatives were started in 1997 to create a newmedium for connecting consumers with retailers and sponsors by developing acombination of shopping, entertainment and community.  SBN is focused on leveraging Simon Group’s assets to create newbusinesses which will drive greater value to its Portfolio Properties,retailers and other developers and generate new sources of revenue for SimonGroup.  SBN’s strategy is to provide acompetitively valued, broad-based offering of products and services via aunique and dominant marketplace and service network focused on the real estateindustry and their tenants.  SBV hasalso entered into cost sharing arrangements with the Management Company similarto those of the SPG Operating Partnership. Effective January 1, 2001, the SPG Operating Partnership purchased SBVfrom SRC at approximately its carrying value utilizing the intercompany note.

             On April 1, 2001, SPG, LP becamethe managing general partner of SPG Administrative Services PartnershipL.P.  (“ASP”). In addition, SPG LPacquired an additional 24% partnership interest in ASP from the ManagementCompany.  As a result, SPG, LP gainedcontrol of ASP consistent with the Simon Group’s consolidation principles. ASPwas previously consolidated as part of the Management Company.  The change in control and consolidation ofASP will not have a material impact on the results of operations of Simon Groupand the other aspects of the transaction were not material.   ASP was organized to provide for theallocation of the salaries and other costs associated with employees whoperform services for the Management Company and its affiliates as well asmultiple entities controlled by SPG L.P.

**Note 2 - Basis of Presentation**

             Theaccompanying condensed financial statements are unaudited; however, they havebeen prepared in accordance with generally accepted accounting principles forinterim financial information and in conjunction with the rules and regulationsof the Securities and Exchange Commission. Accordingly, they do not include allof the disclosures required by generally accepted accounting principles forcomplete financial statements. In the opinion of management, all adjustmentsnecessary for fair presentation, consisting of only normal recurringadjustments, have been included. The results for the interim period ended June30, 2001 are not necessarily indicative of the results to be obtained for thefull fiscal year. These unaudited financial statements have been prepared inaccordance with the accounting policies described in the Companies’ combinedannual report on Form 10-K for the year ended December 31, 2000, except for thechange in accounting policy discussed in Note 5, and should be read inconjunction therewith.  Investments insecurities classified as available for sale are reflected in deferred costs andother assets in the accompanying balance sheets at market value with thechanges in market value reflected as comprehensive income or loss inshareholders’ equity.

             Theaccompanying condensed combined financial statements include SPG and SRC andtheir subsidiaries. The accompanying condensed consolidated financialstatements for SPG and SRC include SPG and its subsidiaries and SRC and itssubsidiaries, respectively. All significant intercompany amounts have beeneliminated.

             Netoperating results of the Operating Partnerships are allocated to the Companiesbased first on the Companies' preferred unit preference, if applicable, andthen on their remaining ownership interests in the Operating Partnershipsduring the period. The Companies’ remaining weighted average ownershipinterests in the Operating Partnerships for both the six-month periods endedJune 30, 2001 and June 30, 2000 was 72.4%.

             Certainreclassifications of prior period amounts have been made in the financialstatements to conform to the 2001 presentation. These reclassifications have noimpact on the net operating results previously reported.

**Note 3 -  Per ShareData**

             Basicearnings per share is based on the weighted average number of shares of commonstock outstanding during the period and diluted earnings per share is based onthe weighted average number of shares of common stock outstanding combined withthe incremental weighted average shares that would have been outstanding if alldilutive potential common shares would have been converted into shares at theearliest date possible. The following table sets forth the computation for theCompanies’ basic and diluted earnings per share.  The extraordinary items and cumulative effect of accountingchange amounts presented in the reconciliation below represent the commonshareholders’ pro rata share of these items.

 

|                                                                                                              | For  the Three Months Ended   June 30, |   | For  the Six Months Ended June 30, |   |
|-------------------------------------------------------------------------------------------------------------------|----------------------------------------|--------|------------------------------------|--------|
|                                                                                                              |                                        |   |                                    |   |
|                                                                                                              | 2001                                   |   | 2000                               |   | 2001 |   | 2000 |   |
|                                                                                                              |                                        |   |                                    |   |  |   |  |   |
| Common Shareholders’  share of income before extraordinary items and cumulative effect of  accounting change | $                                      | 36,746 |                               | $      | 41,012 |   | $ | 68,889 |   | $ | 78,511 |   |
|                                                                                                              |                                   |   |                               |   |   |   |   |   |
| Common Shareholders’  share of extraordinary items                                                           | —                                 |   | —                             |   | (18 | ) | (319 | ) |
|                                                                                                              |                                   |   |                               |   |   |   |   |   |
| Common Shareholders’  share of cumulative effect of accounting change                                        | —                                 |   | —                             |   | (1,186 | ) | (8,937 | ) |
|                                                                                                              |                                        |   |                                    |   |  |   |  |   |
|                                                                                                              |                                   |   |                               |   |   |   |   |   |
| Net Income available  to Common Shareholders                                                                      | $                                      | 36,746 |                               | $      | 41,012 |   | $ | 67,685 |   | $ | 69,255 |   |
|                                                                                                              |                                        |   |                                    |   |  |   |  |   |
|                                                                                                              |                                   |   |                               |   |   |   |   |   |
| Weighted Average  Shares Outstanding – Basic                                                                 | 172,485,020                            |   | 173,672,074                        |   | 172,244,332 |   | 173,447,511 |   |
|                                                                                                              |                                   |   |                               |   |   |   |   |   |
| Effect of stock  options                                                                                          | 319,616                                |   | 143,016                            |   | 239,714 |   | 122,045 |   |
|                                                                                                              |                                        |   |                                    |   |  |   |  |   |
|                                                                                                              |                                   |   |                               |   |   |   |   |   |
| Weighted Average  Shares Outstanding  - Diluted                                                              | 172,804,636                            |   | 173,815,090                        |   | 172,484,046 |   | 173,569,556 |   |
|                                                                                                              |                                        |   |                                    |   |  |   |  |   |

 

 

|                                                                                                              | For  the Three Months Ended June 30, |   | For  the Six Months Ended June 30, |   |
|-------------------------------------------------------------------------------------------------------------------|--------------------------------------|--------|------------------------------------|--------|
|                                                                                                              |                                      |   |                                    |   |
|                                                                                                              | 2001                                 |   | 2000                               |   | 2001 |   | 2000 |   |
|                                                                                                              |                                      |   |                                    |   |  |   |  |   |
| Basic and Diluted Per  Share:                                                                                     |                                 |   |                               |   |   |   |   |   |
| Common Shareholders’  share of income before extraordinary items and cumulative effect of  accounting change | $                                    | 0.21   |                               | $      | 0.24 |   | $ | 0.40 |   | $ | 0.45 |   |
|                                                                                                              |                                 |   |                               |   |   |   |   |   |
| Common Shareholders’  share of extraordinary items                                                           | --                                   |   | --                                 |   | -- |   | -- |   |
|                                                                                                              |                                 |   |                               |   |   |   |   |   |
| Common Shareholders’  share of cumulative effect of accounting change                                        | —                               |   | —                             |   | (0.01 | ) | (0.05 | ) |
|                                                                                                              |                                 |   |                               |   |   |   |   |   |
|                                                                                                              |                                      |   |                                    |   |  |   |  |   |
| Net Income available  to Common Shareholders                                                                      | $                                    | 0.21   |                               | $      | 0.24 |   | $ | 0.39 |   | $ | 0.40 |   |
|                                                                                                              |                                      |   |                                    |   |  |   |  |   |

 

             Noneof the series of convertible preferred stock issued and outstanding during thecomparative periods had a dilutive effect on earnings per share, nor did any ofthe convertible preferred Units of the SPG Operating Partnership outstanding,which are convertible into Paired Shares on or after August 27, 2004 if certainconditions are met. Paired Units held by limited partners in the OperatingPartnerships may be exchanged for Paired Shares, on a one-for-one basis incertain circumstances. If exchanged, the paired Units would not have a dilutiveeffect.

**Note 4 - Cash Flow Information**

             Cashpaid for interest, net of amounts capitalized, during the six months ended June30, 2001 was $297,342 as compared to $319,696 for the same period in 2000. SeeNotes 1 and 8 for information about non-cash transactions during the six monthsended June 30, 2001.

**Note 5 - Cumulative Effect of Accounting Change**

             OnJanuary 1, 2001 Simon Group adopted SFAS 133 “Accounting for Derivative Instruments and Hedging Activities,” asamended in June of 2000 by SFAS 138, “Accounting for Derivative Instruments andHedging Activities.”  SFAS 133, asamended, establishes accounting and reporting standards for derivativeinstruments and requires Simon Group to record on the balance sheet allderivative instruments at fair value and to recognize certain non-cash changesin these fair values either in the income statement or other comprehensive income,as appropriate under SFAS 133.  SFAS 133currently impacts the accounting for Simon Group’s interest rate and foreigncurrency rate risk protection agreements.

             Onadoption of SFAS 133, Simon group recorded the difference between the fairvalue of the derivative instruments and the previous carrying amount of thosederivatives on its condensed consolidated combined balance sheets in net incomeor other comprehensive income, as appropriate, as the cumulative effect of achange in accounting principle in accordance with APB 20 “AccountingChanges.”   On adoption, Simon Group’snet fair value of derivatives was ($2.0) million, of which $3.1 million wasrecorded in other liabilities and $1.1 million was recorded in other assets. Inaddition, $2.0 million of unrecognized loss was recorded in other comprehensiveincome as a cumulative effect of accounting change and an expense of $1.6million was recorded as a cumulative effect of accounting change in thestatement of operations, which includes Simon Group’s $1.4 million share ofjoint venture cumulative effect of accounting change.  The joint venture cumulative effect of accounting change wasrecorded in investment in unconsolidated entities.

             Withinthe next twelve months, Simon Group expects to reclassify to earningsapproximately $3.0 million of expense of the current balance held inaccumulated other comprehensive income. Amounts included in these reclassifications attributable to jointventures and minority interests were not material.  The amount of hedge ineffectiveness recorded during the threemonths ended June 30, 2001 was not material.

             

The following table summarizes thenotional and fair values of Simon Group’s derivative instruments as of June 30,2001, in millions:

 

| Hedge  Type                        |   | Index                      |   | Notional  Amount |    | Interest  Rate Range |        | Maturity  Range |              | Fair  Value |   |
|------------------------------------|--------|----------------------------|--------|------------------|---------|----------------------|-------------|-----------------|-------------------|-------------|--------|
|                                    |   |                            |   |                  |    |                      |        |                 |              |             |   |
|                               |   |                       |   |             |    |                 |        |            |              |        |   |
| **Consolidated:**                  |   |                       |   |             |    |                 |        |            |              |        |   |
| Interest Rate Swaps                |   | 1  month LIBOR             |   | $                | 100.0   |                 | 5.80-7.24%  |            | 9/01-12/04        |        | $      | (1.4 | ) |
| Interest Rate Caps                 |   | 1  or 3 month LIBOR        |   | 238.0            |    | 6.40-16.77%          |        | 9/01-1/05       |              | 0.3         |   |
| Interest Rate Cap -  Collar        |   | 3  month LIBOR             |   | 85.0             |    | 5.89%                |        | 5/04            |              | 0.8         |   |
| Interest Rate Floor -  Collar      |   | 3  month LIBOR             |   | $                | 85.0    |                 | 5.89%       |            | 5/04              |        | (2.5   | ) |
|                               |   |                       |   |             |    |                 |        |            |              |             |   |
|                               |   |                       |   |             |    |                 |        |            |              | $           | (2.8   | )  |
| Cross-Currency  Interest Rate Swap |   | 1  month EURIBOR and Euros |   | 30.0  EUR        |    | 7.75  %/ 0.94 EUR    |        | 7/03            |              | $           | (4.0   | ) |
|                               |   |                       |   |             |    |                 |        |            |              |             |   |
|                               |   |                       |   |             |    |                 |        |            |              | $           | (6.8   | )  |
|                               |   |                       |   |             |    |                 |        |            |              |             |   |
| **Joint Ventures:**                |   |                       |   |             |    |                 |        |            |              |        |   |
|                               |   |                       |   |             |    |                 |        |            |              |        |   |
| Interest Rate Caps                 |   | 1  or 3 month LIBOR        |   | $                | 1,001.4 |                 | 7.70-11.83% |            | 1/02  – 5/06 |        | $      | 0.2 |   |
| Interest Rate Swap                 |   | 3  month LIBOR             |   | $                | 71.0    |                 | 6.01%       |            | 7/11              |        | 1.3    |   |
|                               |   |                       |   |             |    |                 |        |            |              |             |   |
|                               |   |                       |   |             |    |                 |        |            |              | $           | 1.5    |   |
|                               |   |                       |   |             |    |                 |        |            |              |             |   |

 

             Asof June 30, 2001, Simon Group has recorded derivatives at their fair values of$1.1 million included in other assets and $7.9 million included in otherliabilities.  Simon Group’s exposure tomarket risk due to changes in interest rates primarily relates to Simon Group’slong-term debt obligations. Through its risk management strategy, Simon Groupmanages exposure to interest rate market risk by a combination of interest rateprotection agreements to effectively fix or cap a portion of variable rate debtand by refinancing fixed rate debt at times when rates and terms areappropriate. Simon Group is also exposed to foreign currency risk on financingsof certain foreign operations.  Tomanage foreign currency exchange rate risk as part of its risk managementstrategy, Simon Group has also entered into a foreign currency forwardcontract. Simon Group’s intent is to offset gains and losses that occur on theunderlying exposures, with gains and losses on the derivative contracts hedgingthese exposures.  Simon Group does notenter into either interest rate protection or foreign currency rate protectionagreements for speculative purposes.

***AccountingPolicies for Derivatives***

             Inthe normal course of business, Simon Group uses a variety of derivativefinancial instruments to manage, or hedge, interest rate and foreign currencyrisk and records all derivatives on the balance sheets at fair value.  Simon Group may enter into derivativecontracts relating to either wholly owned or joint venture properties.  Simon Group requires that hedging derivativeinstruments are effective in reducing the risk exposure that they aredesignated to hedge. For derivative instruments associated with the hedge of ananticipated transaction, hedge effectiveness criteria also require that it beprobable that the underlying transaction occurs.  Simon Group may hedge its exposure to the variability in futurecash flows for anticipated transactions over a maximum period of 12months.  Any instrument that meets thesehedging criteria is formally designated as a hedge at the inception of thederivative contract.  When the terms ofan underlying transaction are modified resulting in some ineffectiveness, theportion of the change in the derivative fair value related to ineffectivenessfrom period to period will be included in net income. If any derivativeinstrument used for risk management does not meet the hedging criteria then it ismarked-to-market each period, however, Simon Group intends for all derivativetransactions to meet all the hedge criteria and qualify as hedges.

             Onan ongoing quarterly basis, Simon Group adjusts its balance sheets to reflectcurrent fair market value of its derivatives. Changes in the fair value of derivatives are to be recorded each periodin earnings or comprehensive income, depending on whether the derivative isdesignated and effective as part of a hedged transaction, and on the type ofhedge transaction.  To the extent thatthe change in value of a derivative does not perfectly offset the change invalue of the instrument being hedged, the ineffective portion of the hedge isimmediately recognized in earnings. Over time, the unrealized gains and lossesheld in accumulated other comprehensive income will be reclassified toearnings.  This reclassification occurswhen the hedged items are also recognized in earnings.  Interest rate differentials that arise underinterest rate swap contracts are settled periodically based upon the terms ofthe contract and are recognized in interest expense over the life of thecontracts.  Simon Group has a policy ofonly entering into contracts with major financial institutions based upon theircredit ratings and other factors.

             Todetermine the fair values of derivative instruments, Simon Group uses a varietyof methods and assumptions that are based on market conditions and risksexisting at each balance sheet date.  For most derivatives, standard market conventions and techniques such asdiscounted cash flow analysis, option pricing models, and termination cost areused to determine fair value. All methods of assessing fair value result in ageneral approximation of value, and such value may never actually be realized.

**Note 6 - Investment in Unconsolidated Entities**

             Summaryfinancial information of Simon Group’s investment in partnerships and jointventures accounted for using the equity method of accounting and a summary ofSimon Group’s investment in and share of income from such partnerships andjoint ventures follow:

|                                                      | ***June 30,***                          |      | ***December 31,*** |      |
|-----------------------------------------------------------|-----------------------------------------|-----------|--------------------|-----------|
|                                                      | ***2001***                              |      | ***2000***         |      |
| **BALANCE SHEETS**                                        | ******                                  |      | ******             |      |
| **Assets:**                                               |                                    |      |               |      |
| Investment properties  at cost, net                       | $                                       | 6,523,733 |               | $         | 6,573,412 |   |
| Cash and cash  equivalents                                | 181,433                                 |      | 192,138            |      |
| Tenant receivables                                        | 160,161                                 |      | 165,918            |      |
| Other assets                                              | 278,175                                 |      | 276,975            |      |
|                                                      |                                         |      |                    |      |
|                                                      | Total assets                            | $         | 7,143,502          |      | $ | 7,208,443 |   |
|                                                      |                                    |           |               |           |   |
|                                                      |                                    |      |               |      |
| **Liabilities and Partners'  Equity:**                    |                                    |      |               |      |
| Mortgages and other  notes payable                        | $                                       | 5,245,429 |               | $         | 5,135,488 |   |
| Accounts payable, accrued  expenses and other liabilities | 326,933                                 |      | 347,733            |      |
|                                                      |                                         |      |                    |      |
|                                                      | Total liabilities                       | 5,572,362 |               | 5,483,221 |   |
| Partners' equity                                          | 1,571,140                               |      | 1,725,222          |      |
|                                                      |                                         |      |                    |      |
|                                                      | Total liabilities and  partners' equity | $         | 7,143,502          |      | $ | 7,208,443 |   |
|                                                      |                                         |      |                    |      |
|                                                      |                                    |      |               |      |
| **Simon Group’s Share of:**                          |                                    |      |               |      |
| Total assets                                              | $                                       | 2,911,074 |               | $         | 2,929,647 |   |
|                                                      |                                         |      |                    |      |
| Partners’ equity                                     | $                                       | 616,027   |               | $         | 679,591 |   |
| Add: Excess Investment                                    | 551,242                                 |      | 558,675            |      |
|                                                      |                                         |      |                    |      |
| Simon Group’s net  Investment in Joint Ventures      | $                                       | 1,167,269 |               | $         | 1,238,266 |   |
|                                                      |                                         |      |                    |      |

 

|                                                                                                 | ***For the Three Months Ended June 30,*** |    | ***For The Six Months Ended June 30,*** |    |
|------------------------------------------------------------------------------------------------------|-------------------------------------------|---------|-----------------------------------------|---------|
|                                                                                                 | ******                                    |    | ******                                  |    |
| **STATEMENTS OF OPERATIONS**                                                                         | ***2001***                                |    | ***2000***                              |    | ***2001*** |   | ***2000*** |   |
|                                                                                                 | ******                                    |    | ******                                  |    | ****** |   | ****** |   |
| **Revenue:**                                                                                         |                                      |    |                                    |    |   |   |   |   |
|                                                                                                 | Minimum rent                              | $       | 200,925                                 |    | $ | 183,652 |   | $ | 399,443 |   | $ | 364,451 |   |
|                                                                                                 | Overage rent                              | 3,718   |                                    | 3,184   |   | 9,525 |   | 9,028 |   |
|                                                                                                 | Tenant reimbursements                     | 99,531  |                                    | 92,576  |   | 196,399 |   | 184,110 |   |
|                                                                                                 | Other income                              | 16,023  |                                    | 12,173  |   | 27,644 |   | 22,259 |   |
|                                                                                                 |                                      |         |                                    |         |   |  |   |  |   |
|                                                                                                 | Total revenue                             | 320,197 |                                    | 291,585 |   | 633,011 |   | 579,848 |   |
|                                                                                                 |                                      |    |                                    |    |   |   |   |   |
| **Operating Expenses:**                                                                              |                                      |    |                                    |    |   |   |   |   |
|                                                                                                 | Operating expenses and  other             | 122,899 |                                    | 112,351 |   | 240,019 |   | 221,469 |   |
|                                                                                                 | Depreciation and  amortization            | 67,293  |                                    | 56,121  |   | 127,792 |   | 111,771 |   |
|                                                                                                 |                                      |         |                                    |         |   |  |   |  |   |
|                                                                                                 | Total operating  expenses                 | 190,192 |                                    | 168,472 |   | 367,811 |   | 333,240 |   |
|                                                                                                 |                                      |         |                                    |         |   |  |   |  |   |
|                                                                                                 |                                      |    |                                    |    |   |   |   |   |
| **Operating Income**                                                                                 | 130,005                                   |    | 123,113                                 |    | 265,200 |   | 246,608 |   |
| **Interest Expense**                                                                                 | 92,080                                    |    | 86,660                                  |    | 186,840 |   | 171,112 |   |
|                                                                                                 |                                           |    |                                         |    |  |   |  |   |
| **Income Before Extraordinary  Items and Cumulative Effect of Accounting Change (“IBEC”)** | 37,925                                    |    | 36,453                                  |    | 78,360 |   | 75,496 |   |
| **Extraordinary Items**                                                                              | (75                                       | )       | --                                      |    | (75 | ) | -- |   |
| **Cumulative Effect of  Accounting Change**                                                          | --                                        |    | --                                      |    | (2,883 | ) | (3,948 | ) |
|                                                                                                 |                                           |    |                                         |    |  |   |  |   |
| **Net Income**                                                                                       | $                                         | 37,850  |                                    | $       | 36,453 |   | $ | 75,402 |   | $ | 71,548 |   |
|                                                                                                 |                                           |    |                                         |    |  |   |  |   |
| **Third-Party Investors' Share  of IBEC**                                                            | 23,650                                    |    | 21,160                                  |    | 50,075 |   | 44,669 |   |
|                                                                                                 |                                           |    |                                         |    |  |   |  |   |
| **Simon Group’s Share of IBEC**                                                                 | $                                         | 14,275  |                                    | $       | 15,293 |   | $ | 28,285 |   | $ | 30,827 |   |
| **Amortization of Excess  Investment**                                                               | 6,002                                     |    | 5,310                                   |    | 10,948 |   | 10,583 |   |
|                                                                                                 |                                           |    |                                         |    |  |   |  |   |
| **Income from Unconsolidated  Entities**                                                             | $                                         | 8,273   |                                    | $       | 9,983 |   | $ | 17,337 |   | $ | 20,244 |   |
|                                                                                                 |                                           |    |                                         |    |  |   |  |   |
|                                                                                                      |                                           |         |                                         |         |  |  |  |  |  |  |  |  |  |  |

SimonGroup’s share of consolidated net income of the Management Company, excludedfrom the tables above, after intercompany profit eliminations, was $5,630 and$5,555 for the three-month periods ended June 30, 2001 and 2000, respectively,and $8,297 and $13,283 for the six month periods ended June 30, 2001 and 2000,respectively.  Simon Group’s netinvestment in the Management Company, excluded from the tables above, was$64,547 and $32,936 as of June 30, 2001 and December 31, 2000, respectively.

Inaddition, Simon Group has guaranteed its pro rata share of a joint venture'slease obligations up to $55.4 million.

**Note 7 - Debt**

             AtJune 30, 2001, of Simon Group’s combined consolidated debt $6,512,770 wasfixed-rate debt and $2,217,242 was variable-rate debt.  Simon Group’s pro rata share of indebtednessof the unconsolidated joint venture Properties as of June 30, 2001 was$2,214,475.

             OnJanuary 11, 2001, Simon Group issued $500,000 of unsecured debt toinstitutional investors pursuant to Rule 144A in two tranches.  The first tranche is $300,000 bearing aninterest rate of 7 3/8% due January 20, 2006 and the second tranche is $200,000bearing an interest rate of 7 3/4% due January 20, 2011.  The net proceeds of the offering were usedto repay the remaining portion of the indebtedness under the CPI MergerFacility due March 24, 2001 and to repay a portion of the CPI Merger Facilitydue September 24, 2001.

             Subsequentto June 30, 2001, Simon Group retired the third and final tranche of the CPImerger facility totaling $435.0 million. Funds used to retire this debt were generated primarily from a $277.0million financing of four mall properties at a fixed rate of 6.99% and a $110.0million financing of one office complex at LIBOR plus 115 basis points.

**Note 8 – Shareholders’ Equity**

             OnMarch 26, 2001, 474,625 Paired Shares of restricted stock were deemed earnedand awarded under The Simon Property Group 1998 Stock Incentive Plan (the “1998Plan”) at a value of $25.85 per Paired Share. The cost of restricted stock grants is based upon the stock’s fairmarket value at the time such stock is earned, awarded and issued and ischarged to shareholders’ equity and subsequently amortized against earnings ofSimon Group over the vesting period.  Inaddition, 1,032,583 stock options to purchase Paired Shares were granted underthe 1998 Plan on the same day.

             OnMay 22, 2001, 1,220 shares of SPG’s Series A Convertible Preferred Stock wereconverted into 46,355 Paired Shares.  Inaddition, another 442 Paired Shares were issued to the holders of theconvertible shares in lieu of the cash dividends allocable to those preferredshares.

**Note 9 - Commitments and Contingencies**

                           ***Litigation***

             *Triple Fiveof Minnesota, Inc., a Minnesota corporation, v. Melvin Simon, et. al.*Onor about November 9, 1999, Triple Five of Minnesota, Inc. (“Triple Five”)commenced an action in the District Court for the State of Minnesota, FourthJudicial District, against, among others, Mall of America, certain members ofthe Simon family and entities allegedly controlled by such individuals, andSimon Group. Two transactions form the basis of the complaint: (i) the sale byTeachers Insurance and Annuity Association of America of one-half of itspartnership interest in Mall of America Company and Minntertainment Company tothe SPG Operating Partnership and related entities (the “Teachers Sale”); and(ii) a financing transaction involving a loan in the amount of $312,000obtained from The Chase Manhattan Bank (“Chase”) that is secured by a mortgageplaced on Mall of America’s assets (the “Chase Mortgage”).

             Thecomplaint, which contains twelve counts, seeks remedies of damages, rescission,constructive trust, accounting, and specific performance. Although thecomplaint names all defendants in several counts, Simon Group is specificallyidentified as a defendant in connection with the Teachers Sale.

             TheSPG Operating Partnership has agreed to indemnify Chase and other nonparties tothe litigation that are related to the offering of certificates secured by theChase Mortgage against, among other things, (i) any and all litigation expensesarising as a result of litigation or threatened litigation brought by TripleFive, or any of its owners or affiliates, against any person regarding theChase Mortgage, the Teachers Sale, any securitization of the Chase Mortgage orany transaction related to the foregoing and (ii) any and all damages, awards,penalties or expenses payable to or on behalf of Triple Five (or payable to athird party as a result of such party’s obligation to pay Triple Five) arisingout of such litigation. These indemnity obligations do not extend toliabilities covered by title insurance.

             SimonGroup believes that the Triple Five litigation is without merit and intends todefend the action vigorously. Simon Group believes that neither the Triple Fivelitigation nor any potential payments under the indemnity, if any, will have amaterial adverse effect on Simon Group. Given the early stage of the litigationit is not possible to provide an assurance of the ultimate outcome of thelitigation or an estimate of the amount or range of potential loss, if any.

*             CarloAngostinelli et al. v. DeBartolo Realty Corp. et al.*OnOctober 16, 1996, a complaint was filed in the Court of Common Pleas ofMahoning County, Ohio, captioned Carlo Angostinelli et al. v. DeBartoloRealty Corp. et al. The named defendants are SD Property Group, Inc., anindirect 99%-owned subsidiary of SPG, and DeBartolo Properties Management,Inc., a subsidiary of the Management Company, and the plaintiffs are 27 formeremployees of the defendants. In the complaint, the plaintiffs alleged that theywere recipients of deferred stock grants under the DeBartolo Realty Corporation(“DRC”) Stock Incentive Plan (the “DRC Plan”) and that these grants immediatelyvested under the DRC Plan’s “change in control” provision as a result of theDRC Merger. Plaintiffs asserted that the defendants’ refusal to issue themapproximately 542,000 shares of DRC common stock, which is equivalent toapproximately 370,000 Paired Shares computed at the 0.68 exchange ratio used inthe DRC Merger, constituted a breach of contract and a breach of the impliedcovenant of good faith and fair dealing under Ohio law. Plaintiffs soughtdamages equal to such number of shares of DRC common stock, or cash in lieuthereof, equal to all deferred stock ever granted to them under the DRC Plan,dividends on such stock from the time of the grants, compensatory damages forbreach of the implied covenant of good faith and fair dealing, and punitivedamages. The plaintiffs and the defendants each filed motions for summaryjudgment. On October 31, 1997, the Court of Common Pleas entered a judgment infavor of the defendants granting their motion for summary judgment. Theplaintiffs appealed this judgment to the Seventh District Court of Appeals inOhio. On August 18, 1999, the District Court of Appeals reversed the summaryjudgment order in favor of the defendants entered by the Common Pleas Court andgranted plaintiffs’ cross motion for summary judgment, remanding the matter tothe Common Pleas Court for the determination of plaintiffs’ damages. Thedefendants petitioned the Ohio Supreme Court asking that they exercise theirdiscretion to review and reverse the Appellate Court decision, but the OhioSupreme Court did not grant the petition for review. The case was remanded tothe Court of Common Pleas of Mahoning County, Ohio, to conduct discoveryrelevant to each plaintiff’s damages and the counterclaims asserted by SimonGroup. The Trial Court referred these matters to a Magistrate. Plaintiffs fileda Supplemental Motion for Summary Judgment on the question of damages.  The Magistrate ruled on the counterclaimsand found in Defendants’ favor on one of them. On December 27, 2000, the TrialCourt rendered judgment for the plaintiffs in the combined total amount ofapproximately $12,000, which includes a set-off of approximately $2,000 withimpact to two of the plaintiffs. Defendants have appealed this judgment andplaintiffs have cross-appealed.  Thejudgment has accrued interest at 10% per annum from and after December 27,2000.  Those appeals are pending beforethe District Court of Appeals and there can be no execution upon the judgmentwhile the appeals are pending.  SimonGroup recorded a $12,000 loss in the third quarter of 1999 related to thislitigation as an unusual item.

*             RoelVento et al v. Tom Taylor et al.*An affiliate of SimonGroup is a defendant in litigation entitled Roel Vento et al v. Tom Tayloret al., in the District Court of Cameron County, Texas, in which a judgmentin the amount of $7,800 was entered against all defendants. This judgmentincludes approximately $6,500 of punitive damages and is based upon a jury’sfindings on four separate theories of liability including fraud, intentionalinfliction of emotional distress, tortious interference with contract and civilconspiracy arising out of the sale of a business operating under a temporarylicense agreement at Valle Vista Mall in Harlingen, Texas. Simon Group appealedthe verdict and on May 6, 1999, the Thirteenth Judicial District (CorpusChristi) of the Texas Court of Appeals issued an opinion reducing the trialcourt verdict to $3,364 plus interest. Simon Group filed a petition for a writof certiorari to the Texas Supreme Court requesting that they review andreverse the determination of the Appellate Court. The Texas Supreme Courtgranted certiorari and heard oral arguments on October 4, 2000.  On April 26, 2001, the Texas Supreme Courtrendered a unanimous 9-0 opinion against the Ventos and ordered that they takenothing from the Simon defendants. Plaintiffs have filed a motion forreconsideration with the Texas Supreme Court. The court has not yet ruled onPlaintiff’s motion.

             SimonGroup currently is not subject to any other material litigation other thanroutine litigation, claims and administrative proceedings arising in theordinary course of business. On the basis of consultation with counsel,management believes that such routine litigation, claims and administrativeproceedings will not have a material adverse impact on Simon Group's financialposition or its results of operations.

***Note 10 -Real Estate Disposals and Other***

             Duringthe first six months of 2001, Simon Group sold its ownership interest in oneregional mall, one community center, and one office building for a combinedgross sales price of $20.3 million. These sales resulted in a net combined gain of $2.7 million.

             On December 28, 2000, MontgomeryWard LLC and certain of its related entities (“Ward”) filed a voluntarypetition for relief under Chapter 11 of the Bankruptcy Code.   In late February 2001, a limited liabilitycompany, Kimsward LLC (“Kimsward”), was formed to designate persons or entitiesto whom the Ward real estate assets will be sold.  These transactions are subject to Bankruptcy Court approval.  The Management Company’s interest inKimsward is 18.5% and its remaining investment in Kimsward was $6.4 million asof June 30, 2001.  During the secondquarter of 2001 the Management Company recorded $10.1 million of equity inincome from Kimsward.  During the secondquarter, SPG, L.P. charged the Management Company a $5.7 million fee forservices rendered to the Management Company in connection with the Kimswardtransactions, which is included in other income in the accompanying condensedcombined statements of operations.

**Note 11 –Merger**

             Inorder to simplify the organizational structure of Simon Group, the Boards ofDirectors of SPG and SPG Properties, Inc. (“Properties, Inc.”), on May 8, 2001approved an agreement for the merger of Properties, Inc. into SPG.  The merger was completed on July 1,2001.  SPG previously owned  99.999% of the common stock of Properties,Inc.  In the  merger, shares of Properties, Inc.’s common stock (other thanthose held by SPG) were converted into the right to receive approximately $98in total and outstanding shares of Properties, Inc.’s preferred stock wereconverted into shares of SPG preferred stock having substantially identicalterms.  The merger became effective July1, 2001.

             Themerger will be accounted for under the purchase method of accounting during thethird quarter.  The pro forma effect ofthe merger on SPG’s balance sheet will be to reclassify the entire carryingamount SPG’s preferred stock of subsidiary to be included in the caption allseries of preferred stock within shareholders' equity.  In addition, the pro forma effect on thestatement of operations will be the reclassification of preferred dividends ofsubsidiary to preferred dividends.  Allother pro forma effects associated with this transaction are immaterial.

**Note 12 – New Accounting Pronouncements**

             OnJuly 20, 2001, the FASB issued SFAS No. 141, “Business Combinations” and SFASNo. 142 “Goodwill and Other Intangible Assets”.  SFAS 141 further clarifies the criteria to recognize intangibleassets separately from goodwill.  SFAS141 is effective for Simon Group for any business combination accounted forunder the purchase method that is completed after June 30, 2001.  SFAS No. 142 requires that goodwill andindefinite lived intangible assets are no longer amortized but are reviewedannually, or more frequently if impairment indicators arise, forimpairment.  Separable intangible assetsthat are not deemed to have an indefinite life will continue to be amortizedover their useful lives but with no maximum life.  The amortization provisions of SFAS 142 apply to goodwill andintangible assets acquired by Simon Group after June 30, 2001.  With respect to goodwill and intangibleassets acquired prior to July 1, 2001, Simon Group is required to adopt SFAS142 on January 1, 2002 at which time amortization of the remaining book valueof goodwill will cease and the new impairment-only approach will apply and maynot be applied retroactively.  SimonGroup is currently evaluating the impacts of SFAS 141 and SFAS 142.

**Item 2. Management's Discussionand Analysis of Financial Condition and Results of Operations**

**SIMON PROPERTY GROUP, INC. AND SPG REALTY CONSULTANTS, INC.COMBINED**

             Youshould read the following discussion in conjunction with the financialstatements and notes thereto that are included in this Form 10-Q. Certainstatements made in this report may constitute “forward-looking statements”within the meaning of the Private Securities Litigation Reform Act of 1995.These forward-looking statements involve known and unknown risks, uncertaintiesand other factors which may cause our actual results, performance orachievements to be materially different from any future results, performance orachievements expressed or implied by such forward-looking statements.  Those risks and uncertainties include, butare not limited to, the national, regional and local economic climate,competitive market forces, changes in market rental rates, trends in the retailindustry, the inability to collect rent due to the bankruptcy or insolvency oftenants or otherwise, and changes in market rates of interest and maintenanceof REIT status.  We undertake no duty orobligation to update or revise these forward-looking statements, whether as aresult of new information, future developments, or otherwise.

             ***Overview***

             Whowe are - Simon Property Group, Inc. ("SPG"), a Delaware corporation,is a self-administered and self-managed real estate investment trust("REIT"). Each share of common stock of SPG is paired (“PairedShares”) with 1/100th of a share of common stock of SPG RealtyConsultants, Inc. (“SRC” and together with SPG, the “Companies”). SimonProperty Group, L.P. (the “SPG Operating Partnership”) is the primarysubsidiary of SPG. Units of ownership interest (“Units”) in the SPG OperatingPartnership are paired (“Paired Units”) with a Unit in SPG Realty Consultants,L.P. (the “SRC Operating Partnership” and together with the SPG OperatingPartnership, the “Operating Partnerships”). The SRC Operating Partnership isthe primary subsidiary of SRC. In this Quarterly Report on Form 10-Q, the terms“we”, “us” and “our” refer to the Companies and the Operating Partnerships.

             Thefollowing Property acquisitions and openings impacted our consolidated resultsof operations in the comparative periods. In May 2000, we opened OrlandoPremium Outlots, in November 2000, we opened Arundel Mills, and in May 2001, weopened Montreal Forum.  In addition, wesold interests in several Properties throughout the comparative periods(collectively the “Property Transactions”). See “Liquity and Capital Resources” and Note 10 to the financialstatements for additional information about acquisitions, openings and disposalsduring the comparative period.

***Results of Operations***

*Three Months Ended June 30, 2001 vs. Three Months Ended June30, 2000*

             Operatingincome decreased $7.1 million or 3.3% in 2001 as compared to 2000.  This decrease primarily resulted from an$8.5 million increase in depreciation and amortization, a $12.1 milliondecrease in net tenant reimbursements, and a $4.4 million decrease in outlotland sales,  partially offset by a $11.9million increase in minimum rents, excluding our Simon Brand Venture("SBV")and Simon Business Network ("SBN") initiatives, a $1.2 millionincrease in consolidated revenues realized from our SBV and SBN initiatives,and a $1.3 million increase in miscellaneous income.  The increase in depreciation and amortization is primarily due toan increase in depreciable real estate realized through renovation andexpansion activities.  The decrease innet tenant reimbursements is the result of true-up billings and lower spendinglevels on recoverable expenditures.  Theincrease in miscellaneous income includes $5.7 million in fees associated withthe Kimsward transaction charged to the Management Company offset by a $3.8million decrease in miscellaneous income items in the prior year.  The increase in minimum rent primarilyresults from increased occupancy levels and the replacement of expiring tenantleases with renewal leases at higher minimum base rents.  The impact of Property Transactions is anincrease in operating income of $3.0 million for the comparative period.

             Incomefrom unconsolidated entities decreased $1.6 million in 2001, resulting from a$1.7 million decrease in income from unconsolidated partnerships and jointventures and a $0.1 million increase in income from the ManagementCompany.   Included in income from theManagement Company is $4.0 million of income from Kimsward, net of fees chargedby SPG, L.P. offset by a decrease in fee revenues and an increase in income taxexpense  . The decrease in joint ventureincome is primarily related to our pro rata share in the technology start upactivities of MerchantWired, LLC, which is partially offset by lower interestrates and the full period impact of opening two properties in 2000.

             Interestexpense during the three months ended June 30, 2001 decreased $5.2 million, or3.4% compared to the same period in 2000. This decrease is primarily due to lower interest rates during 2001 andreductions in the corporate credit facilities offset by the issuance of $500million of unsecured notes on January 11, 2001.

             Incomebefore allocation to limited partners was $70.0 million for the three monthsended June 30, 2001, which reflects a $5.9 million or 7.8% decrease over 2000,primarily for the reasons discussed above. Income before allocation to limited partners was allocated to the Companiesbased on SPG’s direct ownership of Ocean County Mall and certain net leaseassets, and the Companies’ preferred Unit preferences and weighted averageownership interests in the Operating Partnerships during the period.

             Thecomparability between SRC’s balance sheet as of June 30, 2001 and December 31,2000 and results of operations for the three-months ended June 30, 2001 andJune 30, 2000 have been affected by the following:

|   | • | Effective  March 31, 2001, ownership of clixnmortar was transferred from SRC to the  Management Company.  See Note 1 of the  Notes to Unaudited Condensed Financial Statements included in Item 1 of this  Form 10-Q for a discussion of the transfer. |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                        |
|   | • | Effective  January 1, 2001, ownership of SBV was transferred from SRC to the SPG  Operating Partnership.                                                                                                                                                    |

             Preferreddistributions of the SPG Operating Partnership represent distributions onpreferred Units issued in connection with the NED Acquisition. Preferreddividends of subsidiary represent distributions on preferred stock of SPGProperties, Inc., a 99.999% owned subsidiary of SPG, which was merged into SPGeffective July 1, 2001.

*Six Months Ended June 30, 2001 vs. Six Months Ended June 30,2000*

             Operating income decreased $4.9million or 1.2% in 2001 as compared to 2000. This decrease primarily resulted from a $17.4 million increase indepreciation and amortization, a $13.5 million decrease in net tenantreimbursements, a $1.2 million offset by a $22.6 million increase in minimumrents, excluding our SBV and SBN initiatives, a $10.3 million increase inconsolidated revenues realized from our SBV and SBN initiatives and a $2.5million decrease in other expenses.  Theincrease in depreciation and amortization is primarily due to an increase indepreciable real estate realized through renovation and expansion activities.  The decrease in net tenant reimbursements isthe result of true-up billings and lower spending levels on recoverableexpenditures. The decrease in miscellaneous income includes a $6.0 milliondecrease in various miscellaneous income items in the prior year offset by $5.7million in fees associated with the Kimsward transaction charged to theManagement Company.  The increase inminimum rent primarily results from increased occupancy levels and thereplacement of expiring tenant leases with renewal leases at higher minimumbase rents.  The increase in SBV and SBNrevenues include $5.6 million from a contract termination payment.  The decrease in other expenses reflect lowerpartnership taxes in select states and lower professional fees.  Theimpact of Property Transactions is a decrease in operating income of $0.7million for the comparative period.

             Income from unconsolidated entitiesdecreased $7.9 million in 2001, resulting from a $5.0 million decrease inincome from the Management Company and a $2.9 million decrease in income fromunconsolidated partnerships and joint ventures.  Included in income from the Management Company is $4.0 million ofincome from Kimsward, LLC net of fees charged by SPG, L.P. offset by a decreasein fee revenues and an increase in income tax expense.  The decrease in joint venture income isprimarily related to technology start up activities of MerchantWired, LLC,which is partially offset by lower interest rates and the full year impact ofopening two properties in 2000.

             Interest expense during the firstsix months of 2001 decreased $6.0 million, or 1.9% compared to the same periodin 2000.  This decrease is primarily dueto lower interest rates during 2001 and reductions in the corporate creditfacilities.

             During the first quarter of 2001 werecorded a $1.6 million expense as a cumulative effect of an accounting change,which includes our $1.4 million share from unconsolidated entities, due to theadoption of  SFAS 133  “Accounting for Derivative Instruments andHedging Activities,” as amended.  SeeNote 5 of the Notes to Unaudited Condensed Financial Statements included inItem 1 of this Form 10-Q for a discussion of the cumulative effect ofaccounting change.  During the firstquarter of 2000 we recorded a $12.3 million expense as a cumulative effect ofan accounting change, which includes our $1.8 million share from unconsolidatedentities, due to the adoption of Staff Accounting Bulletin No. 101, whichaddressed certain revenue recognition policies, including the accounting foroverage rent by a landlord.

             The $2.7 million net gain on thesales of assets in 2001 results from the sale of our interests in one regionalmall, one community center, and an office building for a gross sales price ofapproximately $20.3 million. In 2000, we recognized a net gain of $8.7 millionon the sale of two regional malls, three community centers, and one officebuilding.

             Income before allocation to limitedpartners was $132.1 million for the six months ended June 30, 2001, whichreflects a decrease of $2.2 million or 1.6% over 2000, primarily for thereasons discussed above.  Income beforeallocation to limited partners was allocated to the Companies based on SPG’sdirect ownership of Ocean County Mall and certain net lease assets, and theCompanies’ preferred Unit preferences and weighted average ownership interestsin the Operating Partnerships during the period.

             The comparability between SRC’sbalance sheet as of June 30, 2001 and December 31, 2000 and results ofoperations for the six months ended June 30, 2001 and June 30, 2000 have beenaffected by the following:

| • | Effective  March 31, 2001, ownership of clixnmortar transferred from SRC to the  Management Company.  See Note 1 of the  Notes to Unaudited Condensed Financial Statements included in Item 1 of this  Form 10-Q for a discussion of the transfer. |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                                                    |
| • | Effective  January 1, 2001, ownership of SBV transferred from SRC to the SPG Operating  Partnership.                                                                                                                                                    |

             Preferred distributions of the SPGOperating Partnership represent distributions on preferred Units issued inconnection with the NED Acquisition. Preferred dividends of subsidiaryrepresent distributions on preferred stock of SPG Properties, Inc.

             ***Liquidity and Capital Resources***

             As of June 30, 2001, our balance ofunrestricted cash and cash equivalents was $180.4 million, including $50.1million related to our gift certificate program, which we do not consideravailable for general working capital purposes.  We have a $1.25 billion unsecured revolving credit facility (the“Credit Facility”) which had available credit of $625.5 million at June 30,2001. The Credit Facility bears interest at LIBOR plus 65 basis points and hasan initial maturity of August 2002, with an additional one-year extensionavailable at our option. SPG and the SPG Operating Partnership also have accessto public equity and debt markets.  Ourcurrent corporate bond ratings are Baa1 by Moody’s Investors Service and BBB+by Standard & Poor’s.

             We anticipate that cash generatedfrom operating performance will provide the funds we need on a short- andlong-term basis for operating expenses, interest expense on outstandingindebtedness, recurring capital expenditures, and distributions to shareholdersin accordance with REIT requirements. Sources of capital for nonrecurring capitalexpenditures, such as major building renovations and expansions, as well as forscheduled principal payments, including balloon payments, on outstandingindebtedness are expected to be obtained from:

•            excess cash generated from operating performance•            working capital reserves•            additional debt financing and•            additional equity raised inthe public markets.

*Financingand Debt*

             At June 30, 2001, we had combinedconsolidated debt of $8.7 billion, of which $6.5 billion was fixed-rate debtbearing interest at a weighted average rate of 7.3% and $2.2 billion wasvariable-rate debt bearing interest at a weighted average rate of 5.0%.  As of June 30, 2001, we had interest rateprotection agreements related to combined consolidated variable-rate debt witha total carrying amount of $451.2 million. Our interest rate protectionagreements did not materially impact interest expense or weighted averageborrowing rates for the six months ended June 30, 2001 or 2000.

             Ourshare of total scheduled principal payments of mortgage and other indebtedness,including unconsolidated joint venture indebtedness over the next five years is$6.5 billion, with $4.3 billion thereafter. Our ratio of consolidateddebt-to-market capitalization was 51.9% and 57.0% at June 30, 2001 and December31, 2000, respectively.

             Subsequentto June 30, 2001, we retired the third and final tranche of the CPI mergerfacility totaling $435.0 million. We generated the funds used to retire thisdebt primarily from our $277.0 million financing of four mall properties atfixed rate of 6.99%, our $110.0 million financing of one office complex atLIBOR plus 115 basis points and along with excess cash flow.

             SeeNote 7 of the Notes to Unaudited Condensed Financial Statements included inItem 1 of this Form 10-Q for a discussion of the unsecured debt issued onJanuary 11, 2001.

*             Acquisitionsand Disposals*

             Wecontinue to review and evaluate a limited number of acquisition opportunities.We believe that acquisition activity in the near term will be a less significantcomponent of our growth strategy and amounts available under the CreditFacility, together with the ability to issue shares of common stock and/orUnits, provide adequate means to finance certain acquisitions. We cannot assureyou that we will not be required to, or will not elect to, even if not requiredto, obtain funds from outside sources, including through the sale of debt orequity securities, to finance significant acquisitions, if any.

             *Dispositions*

             During the first six months of2001, we sold our interests in one regional mall, one community center, and oneoffice building for a combined gross sales price of $20.3 million, resulting ina net combined gain of $2.7 million. The net proceeds of approximately $19.6million, were used for general working capital purposes.

             Inaddition to the Property sales described above, as a continuing part of ourlong-term strategic plan, we continue to pursue the sale of our remainingnon-retail holdings and a number of retail assets that are no longer aligned withour strategic criteria, including four Properties currently under contract forsale. We expect the sale prices of our non-core assets, if sold, will notdiffer materially from the carrying value of the related assets.

             DevelopmentActivity

*             New Developments.*Developmentactivities are an ongoing part of our business.  During 2000, we opened two new Properties aggregatingapproximately 1.7 million square feet of GLA. In total, we investedapproximately $179.6 million on new developments in 2000. With fewer newdevelopments currently under construction, we expect 2001 development costs tobe approximately $76.2 million*.*

*             StrategicExpansions and Renovations.*Oneof our key objectives is to increase the profitability and market share of theProperties through the completion of strategic renovations and expansions.During 2000, we invested approximately $201.6 million on redevelopment projectsand completed five major redevelopment projects, which added approximately 1.2million square feet of GLA to the Portfolio. We have a number of renovationand/or expansion projects currently under construction, or in preconstructiondevelopment and expect to invest approximately $121.0 million on redevelopmentin 2001.

*             InternationalExpansion*. The SPG OperatingPartnership and the Management Company have a combined 29% ownership interestin European Retail Enterprises, B.V. (“ERE”) which is accounted for using theequity method of accounting.  Prior toJanuary 2001, The Management Company had a 29% interest in Groupe BEG, S.A.("BEG"), which was accounted for using the equity method ofaccounting.  In January 2001, BEG mergedwith ERE and became a wholly-owned subsidiary of ERE.  BEG and ERE are fully integrated European retail real estatedevelopers, lessors and managers. Our total cash investment in ERE and BEG atJune 30, 2001 was approximately $45.8 million. The current estimated additional commitment is approximately $24.5million.  However, since our futurecommitments are subject to certain performance and other criteria, includingour approval of development projects, these additional committments mayvary.  The agreements with BEGand ERE are structured to allow us to acquire an additional 32.5% ownershipinterest over time. As of June 30, 2001, BEG and ERE had three Properties openin Poland and two in France.

             OnMay 4, 2001 Montreal Forum opened in Montreal, Canada.  The SPG Operating Partnership has a 35.625%ownership interest in this 243,000 square foot specialty retail center.

             *TechnologyInitiatives.*We continue withour technology initiatives through our association with several third partyparticipants.  Our technologyinitiatives include MerchantWired LLC, clixnmortar, and Constellation RealTechnologies including its investment in FacilityPro.com as described in ourannual report. The SPG Operating Partnership owns an approximately 53%noncontrolling interest in MerchantWired LLC and accounts for it using theequity method of accounting.

             Theseactivities may generate losses in the initial years of operation, whileprograms are being developed and customer bases are being established. We haveinvestments with a total carrying amount of approximately $51.2 million relatedto such programs through June 30, 2001. We expect to continue to invest in these programs over the next twoyears and together with the other members of MerchantWired, LLC have guaranteedour pro rata share of certain equipment lease payments.  We cannot assure you that our technologyprograms will succeed.

*             Distributions.* The Companies declared a common stock dividend of$0.525 per share in the second quarter of 2001, which represents a 4.0%increase over the previous quarter. The current combined annual distributionrate is $2.10 per Paired Share. Dividends during 2000 aggregated $2.02 per share. Future distributionswill be determined based on actual results of operations and cash available fordistribution.

             ***Investing and Financing Activities***

             Cashused in investing activities of $35.3 million for the six months ended June 30,2001 includes capital expenditures of $152.4 million, investments inunconsolidated joint ventures of $20.5 million, and advances to the ManagementCompany of $2.2 million.  Capitalexpenditures include development costs of $40.9 million, renovation andexpansion costs of $79.0 million and tenant costs and other operational capitalexpenditures of $32.5 million.  Thesecash uses are partially offset by distributions from unconsolidated entities of$112.0 million, cash from the consolidation of ASP of $8.2 million and netproceeds of $19.6 million from the sale of three properties previouslymentioned.

             Cashused in financing activities for the six months ended June 30, 2001 was $289.3million and includes net distributions of $286.8 million, and net payments of$2.5 million.

***EBITDA—Earningsfrom Operating Results before Interest, Taxes, Depreciation and Amortization***

             Webelieve that there are several important factors that contribute to our abilityto increase rent and improve profitability of our shopping centers, includingaggregate tenant sales volume, sales per square foot, occupancy levels andtenant costs. Each of these factors has a significant effect on EBITDA. Webelieve that EBITDA is an effective measure of shopping center operatingperformance because:

| • | it  is industry practice to evaluate real estate properties based on operating  income before interest, taxes, depreciation and amortization, which is  generally equivalent to EBITDA |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| • | EBITDA  is unaffected by the debt and equity structure of the property owner.                                                                                                          |

             However,you should understand that EBITDA:

•            doesnot represent cash flow from operations as defined by accounting principlesgenerally accepted in the United States•            should not be considered asan alternative to net income as a measure of operating performance•            is not indicative of cashflows from operating, investing and financing activities•            is not an alternative to cashflows as a measure of liquidity.

             TotalEBITDA for the Properties increased from $979.5 million  for the six months ended June 30, 2000 to$1,024.8 million for the same period in 2001, representing a 4.6%increase.  This growth is primarily theresult of increased rental rates, increased tenant sales, improved occupancylevels, effective control of operating costs and the addition of GLA to thePortfolio through expansions and renovations. During this period, the operating profit margin increased from 63.4% to63.6%. There were no major acquisitions during 2001.

             ***FFO-Funds from Operations***

             FFOis an important and widely used measure of the operating performance of REITs,which provides a relevant basis for comparison among REITs. FFO, as defined byNAREIT, means consolidated net income without giving effect to real estaterelated depreciation and amortization, gains or losses from extraordinary itemsand gains or losses on sales of real estate, plus the allocable portion, basedon economic ownership interest, of funds from operations of unconsolidatedjoint ventures, all determined on a consistent basis in accordance with accountingprinciples generally accepted in the United States. However, FFO:

•            doesnot represent cash flow from operations as defined by accounting principlesgenerally accepted in the United States•            should not be considered asan alternative to net income as a measure of operating performance•            is not an alternative to cashflows as a measure of liquidity.

             Thefollowing summarizes our FFO and that of the Companies and reconciles ourcombined income before extraordinary items and cumulative effect of accountingchange to our FFO for the periods presented:

 

|                                                                                  | For  the Three Months Ended June 30,                                                                       |    | For  the Six Months  Ended  June 30, |    |
|---------------------------------------------------------------------------------------|------------------------------------------------------------------------------------------------------------|---------|-------------------------------------------|---------|
|                                                                                  |                                                                                                            |    |                                           |    |
|                                                                                  | 2001                                                                                                       |    | 2000                                      |    | 2001 |   | 2000 |   |
|                                                                                  |                                                                                                            |    |                                           |    |  |   |  |   |
| (In thousands)                                                                        |                                                                                                       |    |                                      |    |   |   |   |   |
| Our FFO                                                                               | $                                                                                                          | 189,195 |                                      | $       | 180,468 |   | $ | 366,764 |   | $ | 350,693 |   |
|                                                                                  |                                                                                                            |    |                                           |    |  |   |  |   |
|                                                                                  |                                                                                                       |    |                                      |    |   |   |   |   |
| Reconciliation:                                                                       |                                                                                                       |    |                                      |    |   |   |   |   |
| Income Before  Extraordinary Items and Cumulative Effect of Accounting Change (1) (2) | $                                                                                                          | 69,970  |                                      | $       | 75,912 |   | $ | 133,745 |   | $ | 147,048 |   |
| Plus:                                                                                 |                                                                                                       |    |                                      |    |   |   |   |   |
|                                                                                  | Depreciation and  amortization from combined consolidated Properties                                       | 106,580 |                                      | 98,906  |   | 212,746 |   | 197,142 |   |
|                                                                                  | Our share of  depreciation and amortization from unconsolidated affiliates                                 | 33,463  |                                      | 28,055  |   | 64,720 |   | 56,856 |   |
| Less:                                                                                 |                                                                                                       |    |                                      |    |   |   |   |   |
|                                                                                  | (Gain) loss on sale of  asset, net of asset write downs of $0, $10,572, $0, and $10,572, respectively      | 28      |                                      | (1,562  | ) | (2,683 | ) | (8,658 | ) |
|                                                                                  | Minority interest  portion of depreciation and amortization                                                | (1,500  | )                                         | (1,475  | ) | (2,987 | ) | (2,955 | ) |
|                                                                                  | Preferred  distributions (including preferred distributions of a subsidiary and to  preferred unitholders) | (19,346 | )                                         | (19,368 | ) | (38,777 | ) | (38,740 | ) |
|                                                                                  |                                                                                                       |         |                                      |         |   |  |   |  |   |
|                                                                                  |                                                                                                       |    |                                      |    |   |   |   |   |
| Our FFO                                                                               | $                                                                                                          | 189,195 |                                      | $       | 180,468 |   | $ | 366,764 |   | $ | 350,693 |   |
|                                                                                  |                                                                                                            |    |                                           |    |  |   |  |   |
|                                                                                  |                                                                                                       |    |                                      |    |   |   |   |   |
| FFO Allocable to the  Companies                                                       | $                                                                                                          | 137,530 |                                      | $       | 131,039 |   | $ | 266,293 |   | $ | 254,542 |   |
|                                                                                  |                                                                                                            |    |                                           |    |  |   |  |   |

----

Notes:

(1)         Includesgains on land sales of $2.1 million and $2.7 million for the three months endedJune 30, 2001 and 2000, respectively, and $3.3 million and $4.5 million for thesix months ended June 30, 2001 and 2000, respectively

(2)         Includesstraight-line rent adjustments to minimum rent of $1.8 million and $5.3 millionfor the three months ended June 30, 2001 and 2000, respectively, and $6.1million and $10.3 million for the six months ended June 30, 2001 and 2000,respectively.

***Portfolio Data***

             Operatingstatistics do not include Properties located outside of the United States.

             *AggregateTenant Sales Volume*. For the six months ended June 30, 2001 comparedto the same period in 2000, total reported retail sales at mall andfreestanding GLA we own (“Owned GLA”) in the regional malls increased $0.3billion or 4.2% from $7,075 million to $7,370 million, primarily as a resultof  increased productivity of ourexisting tenant base and an overall increase in occupancy. Retail sales atOwned GLA affect revenue and profitability levels because they determine theamount of minimum rent that can be charged, the percentage rent realized, andthe recoverable expenses (common area maintenance, real estate taxes, etc.) thetenants can afford to pay.

             *OccupancyLevels*. Occupancy levels for Owned GLA at mall and freestandingstores in the regional malls increased from 90.0% at June 30, 2000, to 90.3% atJune 30, 2001. Owned GLA has decreased 0.03 million square feet from June 30,2000, to June 30, 2001, primarily as a result of dispositions.

             *Average Base Rents*. Average base rents persquare foot of mall and freestanding Owned GLA at regional malls increased4.4%, from $27.63 at June 30, 2000 to $28.84 at June 30, 2001.

***             Inflation***

             Inflationhas remained relatively low during the past four years and has had a minimalimpact on the operating performance of the Properties. Nonetheless,substantially all of the tenants’ leases contain provisions designed to lessenthe impact of inflation. These provisions include clauses enabling us toreceive percentage rentals based on tenants’ gross sales, which generallyincrease as prices rise, and/or escalation clauses, which generally increaserental rates during the terms of the leases. In addition, many of the leasesare for terms of less than ten years, which may enable us to replace existingleases with new leases at higher base and/or percentage rentals if rents of theexisting leases are below the then-existing market rate. Substantially all ofthe leases, other than those for anchors, require the tenants to pay aproportionate share of operating expenses, including common area maintenance,real estate taxes and insurance, thereby reducing our exposure to increases incosts and operating expenses resulting from inflation.

             However,inflation may have a negative impact on some of our other operating items.Interest and general and administrative expenses may be adversely affected byinflation as these specified costs could increase at a rate higher than rents.Also, for tenant leases with stated rent increases, inflation may have anegative effect as the stated rent increases in these leases could be lowerthan the increase in inflation at any given time.

             ***Seasonality***

             Theshopping center industry is seasonal in nature, particularly in the fourthquarter during the holiday season, when tenant occupancy and retail sales aretypically at their highest levels. In addition, shopping malls achieve most oftheir temporary tenant rents during the holiday season. As a result of the above,our earnings are generally highest in the fourth quarter of each year.

             ***Retail Climate and TenantBankruptcies***

             Anumber of local, regional, and national retailers, including both in-line andanchor tenants, have recently announced store closings or filed forbankruptcy.  Some changeover in tenantsis normal in our business.  We lost800,000 square feet of tenants in 2000 and 1,200,000 square feet in the firstsix months of 2001 to bankruptcies. Pressures which affect consumer confidence, job growth, energy costs andincome gains, however, can affect retail sales growth and a continuing softeconomic cycle may impact our ability to retenant property vacancies resultingfrom these store closings or bankruptcies.

             Thegeographical diversity of our portfolio mitigates some of our risk in the eventof an economic downturn.  In addition,the diversity of our tenant mix also is a factor because no single retailerrepresents neither more than 2.0% of total GLA nor more than 3.5% of ourannualized base minimum rent. Bankruptcies and store closings may, in some circumstances, createopportunities for us to release spaces at higher rents to tenants with enhancedsales performance.  Our previouslydemonstrated ability to successfully retenant anchor and in line storelocations reflects our resilience to fluctuations in economic cycles.  While these factors reflect some of theinherent strengths of our portfolio in a difficult retail environment,successful execution of a releasing strategy is not assured.

**Item 3. Qualitative andQuantitative Disclosure About Market Risk**

*             SensitivityAnalysis.* Our combined futureearnings, cash flows and fair values relating to financial instruments aredependent upon prevalent market rates of interest, primarily LIBOR. Based uponconsolidated indebtedness and interest rates at June 30, 2001, a 0.50% increasein the market rates of interest would decrease annual future earnings and cashflows by approximately $10.0 million, and would decrease the fair value of debtby approximately $446.8 million. A 0.50% decrease in the market rates ofinterest would increase annual future earnings and cash flows by approximately$10.0 million, and would increase the fair value of debt by approximately$513.8 million.  We manage our exposureto interest rate risk by a combination of interest rate protection agreementsto effectively fix or cap a portion of our variable rate debt and byrefinancing fixed rate debt at times when rates and terms are appropriate.

**Part II- Other Information**

             Item1:  Legal Proceedings

             Pleaserefer to Note 9 of the combined financial statements for a summary of materialpending litigation.

             Item4: Submissions of Matters to a Vote of Security Holders

                           Theannual meetings of the stockholders of SPG and SRC were held on April 2,2001.  The matters submitted to thestockholders for a vote included (a) the election of 6 directors to the SPG’sBoard of Directors and the election of 10 directors to the SRC’s Board ofDirectors; and (b) the ratification of the appointment Arthur Andersen LLP asindependent accountants for the fiscal year ending December 31, 2001.

                           Thefollowing tables set forth the results of voting on these matters:

**SPG:**

| **Matter:**                                         |   | **Number  of Votes FOR** |   | **Number  of Votes WITHHELD** |   | **Number  of Abstentions/Broker-Non Votes** |   |
|-----------------------------------------------------|--------|--------------------------|--------|-------------------------------|--------|---------------------------------------------|--------|
| ****                                                |   | ****                     |   | ****                          |   | ****                                        |   |
|                                                |   |                     |   |                          |   |                                        |   |
| Election of Directors:                              |   |                     |   |                          |   |                                        |   |
| Birch Bayh                                          |   | 135,383,335              |   | 4,222,062                     |   | None                                        |   |
| Hans C. Mautner                                     |   | 135,519,527              |   | 4,085,870                     |   | None                                        |   |
| G. William Miller                                   |   | 135,450,351              |   | 4,155,046                     |   | None                                        |   |
| J. Albert Smith, Jr.                                |   | 110,303,498              |   | 29,301,899                    |   | None                                        |   |
| Pieter S. van den Berg                              |   | 135,514,165              |   | 4,091,232                     |   | None                                        |   |
| Philip J. Ward                                      |   | 118,373,405              |   | 21,230,992                    |   | None                                        |   |
|                                                |   |                     |   |                          |   |                                        |   |
| Ratification of  appointment of Arthur Andersen LLP |   | 139,340,578              |   | 183,965                       |   | 80,854                                      |   |

 

**SRC:**

| **Matter:**                                         |   | **Number  of Votes FOR** |   | **Number  of Votes WITHHELD** |   | **Number  of Abstentions/Broker-Non Votes** |   |
|-----------------------------------------------------|--------|--------------------------|--------|-------------------------------|--------|---------------------------------------------|--------|
| ****                                                |   | ****                     |   | ****                          |   | ****                                        |   |
| Election of Directors:                              |   |                     |   |                          |   |                                        |   |
| Birch Bayh                                          |   | 135,444,275              |   | 4,161,122                     |   | None                                        |   |
| Hans C. Mautner                                     |   | 135,519,661              |   | 4,085,736                     |   | None                                        |   |
| G. William Miller                                   |   | 135,349,770              |   | 4,255,627                     |   | None                                        |   |
| Melvin Simon                                        |   | 135,461,039              |   | 4,144,358                     |   | None                                        |   |
| Herbert Simon                                       |   | 135,478,634              |   | 4,126,763                     |   | None                                        |   |
| David Simon                                         |   | 113,789,912              |   | 25,815,485                    |   | None                                        |   |
| J. Albert Smith, Jr.                                |   | 135,522,659              |   | 4,082,738                     |   | None                                        |   |
| Richard S. Sokolov                                  |   | 135,483,666              |   | 4,121,731                     |   | None                                        |   |
| Pieter S. van den Berg                              |   | 135,513,367              |   | 4,092,030                     |   | None                                        |   |
| Philip J. Ward                                      |   | 124,924,033              |   | 14,681,364                    |   | None                                        |   |
|                                                |   |                     |   |                          |   |                                        |   |
| Ratification of  appointment of Arthur Andersen LLP |   | 139,340,578              |   | 183,965                       |   | 80,854                                      |   |

 

             Membersof the SPG’s Board of Directors whose term of office as director continuedafter the Annual Meeting other than those elected are Melvin Simon, HerbertSimon, David Simon, Richard S. Sokolov, Frederick W. Petri and M. DeniseDeBartolo York.

             Item5:

             OnJune 11, 2001, SPG announced that it had appointed Melvyn E. Bergstein as adirector of SPG and SRC.

             Item6:  Exhibits and Reports on Form 8-K

(a)Exhibits

                                        None.

                           (b)Reports on Form 8-K

Onereport on Form 8-K was filed during the current period.

                           On May 11, 2001 underItem 5 - Other Events, SPG reported that it made available additional ownershipand operational information concerning the Companies, the OperatingPartnerships, and the properties owned or managed as of March 31, 2001, in theform of a Supplemental Information Package. A copy of the package was includedas an exhibit to the 8-K filing. In addition, SPG reported that, on May 8,2001, it issued a press release containing information on earnings as of March31, 2001 and other matters. A copy of the press release was included as anexhibit to the filing.

 

**SIGNATURE**

 

             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, INC. AND**                   |
|--------|-------------------------------------------------------|
|   | **SPG  REALTY CONSULTANTS, INC.**                     |
|   |                                                  |
|   | /s/  Stephen E. Sterrett                              |
|   |                                                       |
|   | Stephen  E. Sterrett,                                 |
|   | Executive  Vice President and Chief Financial Officer |
|   |                                                  |
|   |                                                  |
|   | Date:  August 14, 2001                                |