UPDATE: Simon rents, occupancy buck shopping decline

Sales still are suffering at shopping centers owned by Simon Property Group Inc., but the Indianapolis-based
mall giant managed in the second quarter to keep occupancy steady and eke out an increase in average rent rates.

Simon
today said sales per square foot at its regional malls fell 10.5 percent for the quarter ended June 30, while sales at outlet
centers fell 3.3 percent. But mall occupancy remained steady at about 91 percent for regional malls and 97 percent for outlet
malls.

Average rents rose about 4 percent, to $40.29 per square foot, for regional malls and 22 percent, to $32.74
per square foot, for outlets.

The company’s shares were up about 2 percent this morning, to $58 each.

Simon
CEO David Simon said in a conference call this morning that the top-producing malls have seen the most precipitous sales drops,
while middle-market malls have remained more stable.

“Even though the economy seems to be shifting in the right direction,
I think it’s safe to say that retail is somewhat lacking, but we’re still doing business, still opening stores, retailers
are growing,” Simon said. “We are battling it out—I mean, it’s not easy—but we’re figuring a way to get it done.”

The
company reported a $20.8 million second-quarter loss in what it called a “difficult retail environment.” The loss of 8 cents
per share compared to earnings of $76.6 million, or 34 cents per share, a year ago.

Second-quarter funds from operations
fell to $313 million, or 96 cents per share, from $428 million, or $1.49 per share, for the same quarter last year. Funds
from operations are a key measure of operating performance for real estate investments trusts.

Simon took an impairment
charge of $140.5 million, or 42 cents per share, during the quarter because of a decline in value of about 35 million shares
it owns in British mall giant Liberty International.

Excluding the charge, Simon had funds from operations of $1.38
per share-a penny per share ahead of analyst expectations.

Quarterly revenue fell to $903.6 million, down from $922.9
million in the year-ago period.

The company declared a quarterly dividend, payable in cash and company shares, of 60
cents per share.

The company has sold new shares and notes to bolster an already strong balance sheet. The company
now has liquidity of $6 billion, including about $3 billion in cash.

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