Simon Property (SPG) 10-Q 2001 Q2 Quarterly report

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.  20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE 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 the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for 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 shares of common stock, par value $0.0001 per share, 3,200,000 shares of Class B common stock, par value $0.0001 per share, and 4,000 shares of Class C common stock, par value $0.0001 per share of Simon Property Group, Inc. were outstanding, and were paired with 1,748,104  shares of common stock, par value $0.0001 per share, of SPG Realty Consultants, Inc.

SIMON PROPERTY GROUP, INC. AND
SPG 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

Simon Property Group, Inc. and SPG Realty Consultants, Inc.  Condensed Combined Balance Sheets

(Dollars in 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

(Dollars in 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 of Cash Flows

(Dollars in 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 Balance Sheets

(Dollars in 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 Consolidated Statements of Operations

(Dollars in 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 Consolidated Statements of Cash Flows

(Dollars in 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 Balance Sheets

(Dollars in 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 Consolidated Statements of Operations

(In thousands, 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.

SPG Realty Consultants, Inc.  Condensed Consolidated Statements of Cash Flows

(Dollars in 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
SPG REALTY CONSULTANTS, INC.

Notes to Unaudited Condensed Financial Statements

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

Note 1 – Organization

             Simon Property Group, Inc. ("SPG"), a Delaware corporation, is a self-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 a beneficial interest in 1/100^th of a share of common stock of SPG Realty Consultants, Inc., also a Delaware corporation (“SRC” and together with SPG, the “Companies”).

             Simon Property Group, L.P. (the “SPG Operating Partnership”) is the primary subsidiary of SPG. Units of ownership interest (“Units”) in the SPG Operating Partnership are paired with a Unit in SPG Realty Consultants, L.P. (“Paired Units”) (the “SRC Operating Partnership” and together with the SPG Operating Partnership, the “Operating Partnerships”). The SRC Operating Partnership is the primary subsidiary of SRC. The Companies together with the Operating Partnerships 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 real estate properties, primarily regional malls and community shopping centers. As of June 30, 2001, SPG and the SPG Operating Partnership owned or held an interest in 250 income-producing properties in the United States, which consisted of 164 regional malls, 72 community shopping centers, five specialty retail centers, four office and mixed-use properties and five value-oriented super-regional malls in 36 states (the “Properties”) and six additional retail real estate properties operating in Europe and Canada. SPG and the SPG Operating Partnership also owned an interest in one property currently under construction and 11 parcels of land held for future development, which together with the Properties are hereafter referred to as the “Portfolio Properties”.  At June 30, 2001 and December 31, 2000, the Companies’ direct and indirect ownership interests in the Operating Partnerships were 72.5% and 72.4% respectively.  The SPG Operating Partnership also holds substantially all of the economic interest in M.S. Management Associates, Inc. (the “Management Company”).   Effective January 1, 2001, the Management Company elected to become a taxable REIT subsidiary (“TRS”).

             SRC, primarily through the SRC Operating Partnership, engages primarily in activities that capitalize on the resources, customer base and operating activities of SPG, which could not be engaged in by SPG without potentially impacting its status as a REIT.  These activities included a technology subsidiary, clixnmortar.  Minority interest on the SRC balance sheet as of December 31, 2000 represents an 8.3% outside ownership interest in clixnmortar. Effective March 31, 2001, the SPG Operating Partnership purchased clixnmortar from the SRC Operating Partnership at its carrying value utilizing the inter-company note.  SRC also has noncontrolling interests in two joint ventures which each own land held for sale, which are located adjacent to Properties.  The SPG Operating Partnership subsequently contributed clixnmortar to the Management Company in exchange for preferred stock of the Management Company.  During 2000, SRC’s wholly-owned insurance subsidiary, Marigold Indemnity, Ltd (“Marigold”), began providing general liability insurance coverage to a third party that provides outsourcing services at certain properties.  Marigold reinsures the majority of the risk through a third party indemnity company.

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

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

Note 2 - Basis of Presentation

             The accompanying condensed financial statements are unaudited; however, they have been prepared in accordance with generally accepted accounting principles for interim financial information and in conjunction with the rules and regulations of the Securities and Exchange Commission. Accordingly, they do not include all of the disclosures required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments necessary for fair presentation, consisting of only normal recurring adjustments, have been included. The results for the interim period ended June 30, 2001 are not necessarily indicative of the results to be obtained for the full fiscal year. These unaudited financial statements have been prepared in accordance with the accounting policies described in the Companies’ combined annual report on Form 10-K for the year ended December 31, 2000, except for the change in accounting policy discussed in Note 5, and should be read in conjunction therewith.  Investments in securities classified as available for sale are reflected in deferred costs and other assets in the accompanying balance sheets at market value with the changes in market value reflected as comprehensive income or loss in shareholders’ equity.

             The accompanying condensed combined financial statements include SPG and SRC and their subsidiaries. The accompanying condensed consolidated financial statements for SPG and SRC include SPG and its subsidiaries and SRC and its subsidiaries, respectively. All significant intercompany amounts have been eliminated.

             Net operating results of the Operating Partnerships are allocated to the Companies based first on the Companies' preferred unit preference, if applicable, and then on their remaining ownership interests in the Operating Partnerships during the period. The Companies’ remaining weighted average ownership interests in the Operating Partnerships for both the six-month periods ended June 30, 2001 and June 30, 2000 was 72.4%.

             Certain reclassifications of prior period amounts have been made in the financial statements to conform to the 2001 presentation. These reclassifications have no impact on the net operating results previously reported.

Note 3 -  Per Share Data

             Basic earnings per share is based on the weighted average number of shares of common stock outstanding during the period and diluted earnings per share is based on the weighted average number of shares of common stock outstanding combined with the incremental weighted average shares that would have been outstanding if all dilutive potential common shares would have been converted into shares at the earliest date possible. The following table sets forth the computation for the Companies’ basic and diluted earnings per share.  The extraordinary items and cumulative effect of accounting change amounts presented in the reconciliation below represent the common shareholders’ 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

             None of the series of convertible preferred stock issued and outstanding during the comparative periods had a dilutive effect on earnings per share, nor did any of the convertible preferred Units of the SPG Operating Partnership outstanding, which are convertible into Paired Shares on or after August 27, 2004 if certain conditions are met. Paired Units held by limited partners in the Operating Partnerships may be exchanged for Paired Shares, on a one-for-one basis in certain circumstances. If exchanged, the paired Units would not have a dilutive effect.

Note 4 - Cash Flow Information

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

Note 5 - Cumulative Effect of Accounting Change

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

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

             Within the next twelve months, Simon Group expects to reclassify to earnings approximately $3.0 million of expense of the current balance held in accumulated other comprehensive income.  Amounts included in these reclassifications attributable to joint ventures and minority interests were not material.  The amount of hedge ineffectiveness recorded during the three months ended June 30, 2001 was not material.

The following table summarizes the notional 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

             As of 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 other liabilities.  Simon Group’s exposure to market risk due to changes in interest rates primarily relates to Simon Group’s long-term debt obligations. Through its risk management strategy, Simon Group manages exposure to interest rate market risk by a combination of interest rate protection agreements to effectively fix or cap a portion of variable rate debt and by refinancing fixed rate debt at times when rates and terms are appropriate. Simon Group is also exposed to foreign currency risk on financings of certain foreign operations.  To manage foreign currency exchange rate risk as part of its risk management strategy, Simon Group has also entered into a foreign currency forward contract. Simon Group’s intent is to offset gains and losses that occur on the underlying exposures, with gains and losses on the derivative contracts hedging these exposures.  Simon Group does not enter into either interest rate protection or foreign currency rate protection agreements for speculative purposes.

Accounting Policies for Derivatives

             In the normal course of business, Simon Group uses a variety of derivative financial instruments to manage, or hedge, interest rate and foreign currency risk and records all derivatives on the balance sheets at fair value.  Simon Group may enter into derivative contracts relating to either wholly owned or joint venture properties.  Simon Group requires that hedging derivative instruments are effective in reducing the risk exposure that they are designated to hedge. For derivative instruments associated with the hedge of an anticipated transaction, hedge effectiveness criteria also require that it be probable that the underlying transaction occurs.  Simon Group may hedge its exposure to the variability in future cash flows for anticipated transactions over a maximum period of 12 months.  Any instrument that meets these hedging criteria is formally designated as a hedge at the inception of the derivative contract.  When the terms of an underlying transaction are modified resulting in some ineffectiveness, the portion of the change in the derivative fair value related to ineffectiveness from period to period will be included in net income. If any derivative instrument used for risk management does not meet the hedging criteria then it is marked-to-market each period, however, Simon Group intends for all derivative transactions to meet all the hedge criteria and qualify as hedges.

             On an ongoing quarterly basis, Simon Group adjusts its balance sheets to reflect current fair market value of its derivatives.  Changes in the fair value of derivatives are to be recorded each period in earnings or comprehensive income, depending on whether the derivative is designated and effective as part of a hedged transaction, and on the type of hedge transaction.  To the extent that the change in value of a derivative does not perfectly offset the change in value of the instrument being hedged, the ineffective portion of the hedge is immediately recognized in earnings. Over time, the unrealized gains and losses held in accumulated other comprehensive income will be reclassified to earnings.  This reclassification occurs when the hedged items are also recognized in earnings.  Interest rate differentials that arise under interest rate swap contracts are settled periodically based upon the terms of the contract and are recognized in interest expense over the life of the contracts.  Simon Group has a policy of only entering into contracts with major financial institutions based upon their credit ratings and other factors.

             To determine the fair values of derivative instruments, Simon Group uses a variety of methods and assumptions that are based on market conditions and risks existing at each balance sheet date.   For most derivatives, standard market conventions and techniques such as discounted cash flow analysis, option pricing models, and termination cost are used to determine fair value. All methods of assessing fair value result in a general approximation of value, and such value may never actually be realized.

Note 6 - Investment in Unconsolidated Entities

             Summary financial information of Simon Group’s investment in partnerships and joint ventures accounted for using the equity method of accounting and a summary of Simon Group’s investment in and share of income from such partnerships and joint 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

Simon Group’s share of consolidated net income of the Management Company, excluded from 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 net investment 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.

In addition, Simon Group has guaranteed its pro rata share of a joint venture's lease obligations up to $55.4 million.

Note 7 - Debt

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

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

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

Note 8 – Shareholders’ Equity

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

             On May 22, 2001, 1,220 shares of SPG’s Series A Convertible Preferred Stock were converted into 46,355 Paired Shares.  In addition, another 442 Paired Shares were issued to the holders of the convertible shares in lieu of the cash dividends allocable to those preferred shares.

Note 9 - Commitments and Contingencies

                           Litigation

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

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

             The SPG Operating Partnership has agreed to indemnify Chase and other nonparties to the litigation that are related to the offering of certificates secured by the Chase Mortgage against, among other things, (i) any and all litigation expenses arising as a result of litigation or threatened litigation brought by Triple Five, or any of its owners or affiliates, against any person regarding the Chase Mortgage, the Teachers Sale, any securitization of the Chase Mortgage or any 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 a third party as a result of such party’s obligation to pay Triple Five) arising out of such litigation. These indemnity obligations do not extend to liabilities covered by title insurance.

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

             Carlo Angostinelli et al. v. DeBartolo Realty Corp. et al.On October 16, 1996, a complaint was filed in the Court of Common Pleas of Mahoning County, Ohio, captioned Carlo Angostinelli et al. v. DeBartolo Realty Corp. et al. The named defendants are SD Property Group, Inc., an indirect 99%-owned subsidiary of SPG, and DeBartolo Properties Management, Inc., a subsidiary of the Management Company, and the plaintiffs are 27 former employees of the defendants. In the complaint, the plaintiffs alleged that they were recipients of deferred stock grants under the DeBartolo Realty Corporation (“DRC”) Stock Incentive Plan (the “DRC Plan”) and that these grants immediately vested under the DRC Plan’s “change in control” provision as a result of the DRC Merger. Plaintiffs asserted that the defendants’ refusal to issue them approximately 542,000 shares of DRC common stock, which is equivalent to approximately 370,000 Paired Shares computed at the 0.68 exchange ratio used in the DRC Merger, constituted a breach of contract and a breach of the implied covenant of good faith and fair dealing under Ohio law. Plaintiffs sought damages equal to such number of shares of DRC common stock, or cash in lieu thereof, 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 for breach of the implied covenant of good faith and fair dealing, and punitive damages. The plaintiffs and the defendants each filed motions for summary judgment. On October 31, 1997, the Court of Common Pleas entered a judgment in favor of the defendants granting their motion for summary judgment. The plaintiffs appealed this judgment to the Seventh District Court of Appeals in Ohio. On August 18, 1999, the District Court of Appeals reversed the summary judgment order in favor of the defendants entered by the Common Pleas Court and granted plaintiffs’ cross motion for summary judgment, remanding the matter to the Common Pleas Court for the determination of plaintiffs’ damages. The defendants petitioned the Ohio Supreme Court asking that they exercise their discretion to review and reverse the Appellate Court decision, but the Ohio Supreme Court did not grant the petition for review. The case was remanded to the Court of Common Pleas of Mahoning County, Ohio, to conduct discovery relevant to each plaintiff’s damages and the counterclaims asserted by Simon Group. The Trial Court referred these matters to a Magistrate. Plaintiffs filed a Supplemental Motion for Summary Judgment on the question of damages.  The Magistrate ruled on the counterclaims and found in Defendants’ favor on one of them. On December 27, 2000, the Trial Court rendered judgment for the plaintiffs in the combined total amount of approximately $12,000, which includes a set-off of approximately $2,000 with impact to two of the plaintiffs. Defendants have appealed this judgment and plaintiffs have cross-appealed.  The judgment has accrued interest at 10% per annum from and after December 27, 2000.  Those appeals are pending before the District Court of Appeals and there can be no execution upon the judgment while the appeals are pending.  Simon Group recorded a $12,000 loss in the third quarter of 1999 related to this litigation as an unusual item.

             Roel Vento et al v. Tom Taylor et al.An affiliate of Simon Group is a defendant in litigation entitled Roel Vento et al v. Tom Taylor et al., in the District Court of Cameron County, Texas, in which a judgment in the amount of $7,800 was entered against all defendants. This judgment includes approximately $6,500 of punitive damages and is based upon a jury’s findings on four separate theories of liability including fraud, intentional infliction of emotional distress, tortious interference with contract and civil conspiracy arising out of the sale of a business operating under a temporary license agreement at Valle Vista Mall in Harlingen, Texas. Simon Group appealed the verdict and on May 6, 1999, the Thirteenth Judicial District (Corpus Christi) of the Texas Court of Appeals issued an opinion reducing the trial court verdict to $3,364 plus interest. Simon Group filed a petition for a writ of certiorari to the Texas Supreme Court requesting that they review and reverse the determination of the Appellate Court. The Texas Supreme Court granted certiorari and heard oral arguments on October 4, 2000.  On April 26, 2001, the Texas Supreme Court rendered a unanimous 9-0 opinion against the Ventos and ordered that they take nothing from the Simon defendants. Plaintiffs have filed a motion for reconsideration with the Texas Supreme Court. The court has not yet ruled on Plaintiff’s motion.

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

Note 10 - Real Estate Disposals and Other

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

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

Note 11 –Merger

             In order to simplify the organizational structure of Simon Group, the Boards of Directors of SPG and SPG Properties, Inc. (“Properties, Inc.”), on May 8, 2001 approved 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 than those held by SPG) were converted into the right to receive approximately $98 in total and outstanding shares of Properties, Inc.’s preferred stock were converted into shares of SPG preferred stock having substantially identical terms.  The merger became effective July 1, 2001.

             The merger will be accounted for under the purchase method of accounting during the third quarter.  The pro forma effect of the merger on SPG’s balance sheet will be to reclassify the entire carrying amount SPG’s preferred stock of subsidiary to be included in the caption all series of preferred stock within shareholders' equity.  In addition, the pro forma effect on the statement of operations will be the reclassification of preferred dividends of subsidiary to preferred dividends.  All other pro forma effects associated with this transaction are immaterial.

Note 12 – New Accounting Pronouncements

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

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

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

             You should read the following discussion in conjunction with the financial statements and notes thereto that are included in this Form 10-Q. Certain statements 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, uncertainties and other factors which may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements.  Those risks and uncertainties include, but are not limited to, the national, regional and local economic climate, competitive market forces, changes in market rental rates, trends in the retail industry, the inability to collect rent due to the bankruptcy or insolvency of tenants or otherwise, and changes in market rates of interest and maintenance of REIT status.  We undertake no duty or obligation to update or revise these forward-looking statements, whether as a result of new information, future developments, or otherwise.

             Overview

             Who we 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 (“Paired Shares”) with 1/100^th of a share of common stock of SPG Realty Consultants, Inc. (“SRC” and together with SPG, the “Companies”). Simon Property Group, L.P. (the “SPG Operating Partnership”) is the primary subsidiary of SPG. Units of ownership interest (“Units”) in the SPG Operating Partnership are paired (“Paired Units”) with a Unit in SPG Realty Consultants, L.P. (the “SRC Operating Partnership” and together with the SPG Operating Partnership, the “Operating Partnerships”). The SRC Operating Partnership is the 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.

             The following Property acquisitions and openings impacted our consolidated results of operations in the comparative periods. In May 2000, we opened Orlando Premium Outlots, in November 2000, we opened Arundel Mills, and in May 2001, we opened Montreal Forum.  In addition, we sold interests in several Properties throughout the comparative periods (collectively the “Property Transactions”).  See “Liquity and Capital Resources” and Note 10 to the financial statements for additional information about acquisitions, openings and disposals during the comparative period.

Results of Operations

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

             Operating income 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 million decrease in net tenant reimbursements, and a $4.4 million decrease in outlot land sales,  partially offset by a $11.9 million increase in minimum rents, excluding our Simon Brand Venture("SBV") and Simon Business Network ("SBN") initiatives, a $1.2 million increase 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 to an increase in depreciable real estate realized through renovation and expansion activities.  The decrease in net tenant reimbursements is the result of true-up billings and lower spending levels on recoverable expenditures.  The increase in miscellaneous income includes $5.7 million in fees associated with the Kimsward transaction charged to the Management Company offset by a $3.8 million decrease in miscellaneous income items in the prior year.  The increase in minimum rent primarily results from increased occupancy levels and the replacement of expiring tenant leases with renewal leases at higher minimum base rents.  The impact of Property Transactions is an increase in operating income of $3.0 million for the comparative period.

             Income from unconsolidated entities decreased $1.6 million in 2001, resulting from a $1.7 million decrease in income from unconsolidated partnerships and joint ventures and a $0.1 million increase in income from the Management Company.   Included in income from the Management Company is $4.0 million of income from Kimsward, net of fees charged by SPG, L.P. offset by a decrease in fee revenues and an increase in income tax expense  . The decrease in joint venture income is primarily related to our pro rata share in the technology start up activities of MerchantWired, LLC, which is partially offset by lower interest rates and the full period impact of opening two properties in 2000.

             Interest expense during the three months ended June 30, 2001 decreased $5.2 million, or 3.4% compared to the same period in 2000.  This decrease is primarily due to lower interest rates during 2001 and reductions in the corporate credit facilities offset by the issuance of $500 million of unsecured notes on January 11, 2001.

             Income before allocation to limited partners was $70.0 million for the three months ended 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 Companies based on SPG’s direct ownership of Ocean County Mall and certain net lease assets, and the Companies’ preferred Unit preferences and weighted average ownership interests in the Operating Partnerships during the period.

             The comparability 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 and June 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.

             Preferred distributions of the SPG Operating Partnership represent distributions on preferred Units issued in connection with the NED Acquisition. Preferred dividends of subsidiary represent distributions on preferred stock of SPG Properties, Inc., a 99.999% owned subsidiary of SPG, which was merged into SPG effective July 1, 2001.

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

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

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

             Interest expense during the first six months of 2001 decreased $6.0 million, or 1.9% compared to the same period in 2000.  This decrease is primarily due to lower interest rates during 2001 and reductions in the corporate credit facilities.

             During the first quarter of 2001 we recorded 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 the adoption of  SFAS 133  “Accounting for Derivative Instruments and Hedging Activities,” as amended.  See Note 5 of the Notes to Unaudited Condensed Financial Statements included in Item 1 of this Form 10-Q for a discussion of the cumulative effect of accounting change.  During the first quarter of 2000 we recorded a $12.3 million expense as a cumulative effect of an accounting change, which includes our $1.8 million share from unconsolidated entities, due to the adoption of Staff Accounting Bulletin No. 101, which addressed certain revenue recognition policies, including the accounting for overage rent by a landlord.

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

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

             The comparability between SRC’s balance sheet as of June 30, 2001 and December 31, 2000 and results of operations for the six months ended June 30, 2001 and June 30, 2000 have been affected 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 SPG Operating Partnership represent distributions on preferred Units issued in connection with the NED Acquisition. Preferred dividends of subsidiary represent distributions on preferred stock of SPG Properties, Inc.

             Liquidity and Capital Resources

             As of June 30, 2001, our balance of unrestricted cash and cash equivalents was $180.4 million, including $50.1 million related to our gift certificate program, which we do not consider available 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 has an initial maturity of August 2002, with an additional one-year extension available at our option. SPG and the SPG Operating Partnership also have access to public equity and debt markets.  Our current corporate bond ratings are Baa1 by Moody’s Investors Service and BBB+ by Standard & Poor’s.

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

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

Financing and Debt

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

             Our share 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 consolidated debt-to-market capitalization was 51.9% and 57.0% at June 30, 2001 and December 31, 2000, respectively.

             Subsequent to June 30, 2001, we retired the third and final tranche of the CPI merger facility totaling $435.0 million. We generated the funds used to retire this debt primarily from our $277.0 million financing of four mall properties at fixed rate of 6.99%, our $110.0 million financing of one office complex at LIBOR plus 115 basis points and along with excess cash flow.

             See Note 7 of the Notes to Unaudited Condensed Financial Statements included in Item 1 of this Form 10-Q for a discussion of the unsecured debt issued on January 11, 2001.

             Acquisitions and Disposals

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

             Dispositions

             During the first six months of 2001, we sold our interests in one regional mall, one community center, and one office building for a combined gross sales price of $20.3 million, resulting in a net combined gain of $2.7 million. The net proceeds of approximately $19.6 million, were used for general working capital purposes.

             In addition to the Property sales described above, as a continuing part of our long-term strategic plan, we continue to pursue the sale of our remaining non-retail holdings and a number of retail assets that are no longer aligned with our strategic criteria, including four Properties currently under contract for sale. We expect the sale prices of our non-core assets, if sold, will not differ materially from the carrying value of the related assets.

             Development Activity

             New Developments. Development activities are an ongoing part of our business.  During 2000, we opened two new Properties aggregating approximately 1.7 million square feet of GLA. In total, we invested approximately $179.6 million on new developments in 2000. With fewer new developments currently under construction, we expect 2001 development costs to be approximately $76.2 million.

             Strategic Expansions and Renovations. One of our key objectives is to increase the profitability and market share of the Properties through the completion of strategic renovations and expansions. During 2000, we invested approximately $201.6 million on redevelopment projects and completed five major redevelopment projects, which added approximately 1.2 million square feet of GLA to the Portfolio. We have a number of renovation and/or expansion projects currently under construction, or in preconstruction development and expect to invest approximately $121.0 million on redevelopment in 2001.

             International Expansion. The SPG Operating Partnership and the Management Company have a combined 29% ownership interest in European Retail Enterprises, B.V. (“ERE”) which is accounted for using the equity method of accounting.  Prior to January 2001, The Management Company had a 29% interest in Groupe BEG, S.A. ("BEG"), which was accounted for using the equity method of accounting.  In January 2001, BEG merged with ERE and became a wholly-owned subsidiary of ERE.  BEG and ERE are fully integrated European retail real estate developers, lessors and managers. Our total cash investment in ERE and BEG at June 30, 2001 was approximately $45.8 million. The current estimated additional commitment is approximately $24.5 million.  However, since our future commitments are subject to certain performance and other criteria, including our approval of development projects, these additional committments may vary.  The agreements with BEG and ERE are structured to allow us to acquire an additional 32.5% ownership interest over time. As of June 30, 2001, BEG and ERE had three Properties open in Poland and two in France.

             On May 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.

             Technology Initiatives. We continue with our technology initiatives through our association with several third party participants.  Our technology initiatives include MerchantWired LLC, clixnmortar, and Constellation Real Technologies including its investment in FacilityPro.com as described in our annual report. The SPG Operating Partnership owns an approximately 53% noncontrolling interest in MerchantWired LLC and accounts for it using the equity method of accounting.

             These activities may generate losses in the initial years of operation, while programs are being developed and customer bases are being established. We have investments with a total carrying amount of approximately $51.2 million related to such programs through June 30, 2001.  We expect to continue to invest in these programs over the next two years and together with the other members of MerchantWired, LLC have guaranteed our pro rata share of certain equipment lease payments.  We cannot assure you that our technology programs 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 distribution rate is $2.10 per Paired Share.  Dividends during 2000 aggregated $2.02 per share. Future distributions will be determined based on actual results of operations and cash available for distribution.

             Investing and Financing Activities

             Cash used in investing activities of $35.3 million for the six months ended June 30, 2001 includes capital expenditures of $152.4 million, investments in unconsolidated joint ventures of $20.5 million, and advances to the Management Company of $2.2 million.  Capital expenditures include development costs of $40.9 million, renovation and expansion costs of $79.0 million and tenant costs and other operational capital expenditures of $32.5 million.  These cash uses are partially offset by distributions from unconsolidated entities of $112.0 million, cash from the consolidation of ASP of $8.2 million and net proceeds of $19.6 million from the sale of three properties previously mentioned.

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

EBITDA—Earnings from Operating Results before Interest, Taxes, Depreciation and Amortization

             We believe that there are several important factors that contribute to our ability to increase rent and improve profitability of our shopping centers, including aggregate tenant sales volume, sales per square foot, occupancy levels and tenant costs. Each of these factors has a significant effect on EBITDA. We believe that EBITDA is an effective measure of shopping center operating performance 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:

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

             Total EBITDA 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 the result of increased rental rates, increased tenant sales, improved occupancy levels, effective control of operating costs and the addition of GLA to the Portfolio through expansions and renovations.  During this period, the operating profit margin increased from 63.4% to 63.6%. There were no major acquisitions during 2001.

             FFO-Funds from Operations

             FFO is an important and widely used measure of the operating performance of REITs, which provides a relevant basis for comparison among REITs. FFO, as defined by NAREIT, means consolidated net income without giving effect to real estate related depreciation and amortization, gains or losses from extraordinary items and gains or losses on sales of real estate, plus the allocable portion, based on economic ownership interest, of funds from operations of unconsolidated joint ventures, all determined on a consistent basis in accordance with accounting principles generally accepted in the United States. However, FFO:

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

             The following summarizes our FFO and that of the Companies and reconciles our combined income before extraordinary items and cumulative effect of accounting change 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)         Includes gains on land sales of $2.1 million and $2.7 million for the three months ended June 30, 2001 and 2000, respectively, and $3.3 million and $4.5 million for the six months ended June 30, 2001 and 2000, respectively

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

Portfolio Data

             Operating statistics do not include Properties located outside of the United States.

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

             Occupancy Levels. Occupancy levels for Owned GLA at mall and freestanding stores in the regional malls increased from 90.0% at June 30, 2000, to 90.3% at June 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 per square foot of mall and freestanding Owned GLA at regional malls increased 4.4%, from $27.63 at June 30, 2000 to $28.84 at June 30, 2001.

             Inflation

             Inflation has remained relatively low during the past four years and has had a minimal impact on the operating performance of the Properties. Nonetheless, substantially all of the tenants’ leases contain provisions designed to lessen the impact of inflation. These provisions include clauses enabling us to receive percentage rentals based on tenants’ gross sales, which generally increase as prices rise, and/or escalation clauses, which generally increase rental rates during the terms of the leases. In addition, many of the leases are for terms of less than ten years, which may enable us to replace existing leases with new leases at higher base and/or percentage rentals if rents of the existing leases are below the then-existing market rate. Substantially all of the leases, other than those for anchors, require the tenants to pay a proportionate share of operating expenses, including common area maintenance, real estate taxes and insurance, thereby reducing our exposure to increases in costs 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 by inflation as these specified costs could increase at a rate higher than rents. Also, for tenant leases with stated rent increases, inflation may have a negative effect as the stated rent increases in these leases could be lower than the increase in inflation at any given time.

             Seasonality

             The shopping center industry is seasonal in nature, particularly in the fourth quarter during the holiday season, when tenant occupancy and retail sales are typically at their highest levels. In addition, shopping malls achieve most of their 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 Tenant Bankruptcies

             A number of local, regional, and national retailers, including both in-line and anchor tenants, have recently announced store closings or filed for bankruptcy.  Some changeover in tenants is normal in our business.  We lost 800,000 square feet of tenants in 2000 and 1,200,000 square feet in the first six months of 2001 to bankruptcies.  Pressures which affect consumer confidence, job growth, energy costs and income gains, however, can affect retail sales growth and a continuing soft economic cycle may impact our ability to retenant property vacancies resulting from these store closings or bankruptcies.

             The geographical diversity of our portfolio mitigates some of our risk in the event of an economic downturn.  In addition, the diversity of our tenant mix also is a factor because no single retailer represents neither more than 2.0% of total GLA nor more than 3.5% of our annualized base minimum rent.  Bankruptcies and store closings may, in some circumstances, create opportunities for us to release spaces at higher rents to tenants with enhanced sales performance.  Our previously demonstrated ability to successfully retenant anchor and in line store locations reflects our resilience to fluctuations in economic cycles.  While these factors reflect some of the inherent strengths of our portfolio in a difficult retail environment, successful execution of a releasing strategy is not assured.

Item 3. Qualitative and Quantitative Disclosure About Market Risk

             Sensitivity Analysis. Our combined future earnings, cash flows and fair values relating to financial instruments are dependent upon prevalent market rates of interest, primarily LIBOR. Based upon consolidated indebtedness and interest rates at June 30, 2001, a 0.50% increase in the market rates of interest would decrease annual future earnings and cash flows by approximately $10.0 million, and would decrease the fair value of debt by approximately $446.8 million. A 0.50% decrease in the market rates of interest 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 exposure to interest rate risk by a combination of interest rate protection agreements to effectively fix or cap a portion of our variable rate debt and by refinancing fixed rate debt at times when rates and terms are appropriate.

Part II - - Other Information

             Item 1:  Legal Proceedings

             Please refer to Note 9 of the combined financial statements for a summary of material pending litigation.

             Item 4: Submissions of Matters to a Vote of Security Holders

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

                           The following 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

             Members of the SPG’s Board of Directors whose term of office as director continued after the Annual Meeting other than those elected are Melvin Simon, Herbert Simon, David Simon, Richard S. Sokolov, Frederick W. Petri and M. Denise DeBartolo York.

             Item 5:

             On June 11, 2001, SPG announced that it had appointed Melvyn E. Bergstein as a director of SPG and SRC.

             Item 6:  Exhibits and Reports on Form 8-K

(a) Exhibits

                                        None.

                           (b) Reports on Form 8-K

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

                           On May 11, 2001 under Item 5 - Other Events, SPG reported that it made available additional ownership and operational information concerning the Companies, the Operating Partnerships, and the properties owned or managed as of March 31, 2001, in the form of a Supplemental Information Package. A copy of the package was included as 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 March 31, 2001 and other matters. A copy of the press release was included as an exhibit to the filing.

SIGNATURE

             Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly 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