Fitch Upgrades Simon Property Group to 'BBB+'; Revises Outlook to Positive

Business Wire, August 3, 2005

NEW YORK -- Fitch Ratings has upgraded Simon Property Group, Inc. and Simon Property Group, L.P (collectively, Simon) as follows:

--Senior unsecured debt to 'BBB ' from 'BBB';

--Senior unsecured revolving credit facility to 'BBB ' from 'BBB;

--Preferred stock to 'BBB' from 'BBB-'.

Fitch has also revised the Rating Outlook on Simon to Positive from Stable.

Simon's rating strengths are centered on its large and diverse portfolio of high quality regional shopping malls, Premium Outlet centers, and community/lifestyle centers. Property level metrics for Simon's portfolio have been impressive and are demonstrated by characteristics such as an average of $442 of sales per square foot for the six month period ended June, 30, 2005 as well as an average 22% quarterly increase in releasing spread since Jan. 1, 2000 in the regional shopping mall portfolio. Occupancy rates of over 92% in the regional mall portfolio and nearly 100% in the Premium Outlet center portfolio, in combination with Simon's demonstrated ability to move rents, provides further evidence of the quality and desirability of the company's existing portfolio.

The robust income stream created by Simon's assets has resulted in consistent and strong fixed charge and interest coverage metrics. Fitch's upgrade does not reflect the modestly higher interest coverage metrics generated in fiscal 2004 so much as it reflects the company's stable, robust income stream that has been stable to modestly increasing for the past six years. Furthermore, Simon's income stream is not reliant on a single state for more than 12% of base rents or a single tenant that contributes more than 4.1% of base rents. Fitch calculates Simon's fixed charge coverage as 2.2 times (x) for the trailing twelve month period ended June 30, 2005 as well as for fiscal 2004 and 2003. Simon also has not demonstrated any material reliance on gains on sale or partnership and fee income to meet its financial obligations.

Simon's leverage, defined as debt divided by undepreciated book capital, was 60.7% at midyear, and is down very slightly from year-end 2004. While this is on the high side for a retail REIT in the strong 'BBB' category, Fitch notes that leverage has remained in a relatively tight band between 58% and 62% since the late 1990's. As Simon's assets are held on balance sheet on average at a cost basis dating to pre-1995, there is likely significant additional market value in the portfolio.

Adequately capitalized from a risk-adjusted perspective, Simon receives low capital charges for its stabilized asset portfolio and, proportionally compared to similarly rated REITs, has a relatively conservative component of assets that traditionally require greater equity support such as development properties and equity investments in unconsolidated joint ventures.

The Positive Outlook reflects Fitch's view that Simon's financial ratios will remain within their historic band but that the overall diversity, quality and robustness of the asset pool will continue to improve. In this regard, Fitch notes three specific efforts that are being undertaken by Simon's management team:

--First, with the increasing saturation of the U.S. enclosed regional mall market, Simon has begun to look inward to maximize the productivity of its existing assets in a more creative and resourceful fashion than other direct regional mall competitors and even most others in the broader REIT universe. Simon has already been successful at programs such as the bank-issued gift card program, media contracts, beverage contracts, as well as synergistic property operating products and services stemming from vendor relationships. Now, the company seeks to add multi-family, office, hotel and possibly self storage to some of its existing retail locations by redeveloping portions of existing assets or improving the efficiency of underutilized real estate. Adding to the strengths of this strategy is management's decision to work with partners that specialize in the type of property being added rather than developing asset types that it is inexperienced at managing.

--Another key focus is the international expansion being pursued predominantly in Europe and Asia. Here, the company is diversifying its revenue stream while taking 'small bites' at a time by investing, in most cases, along side of seasoned, well capitalized joint venture partners. Over the long-term, this may help reduce Simon's sensitivity to the domestic U.S. economy. The over $480 per foot of productivity that the average international property is generating is a testament to managements selectivity in choosing these projects.

--The third component is the continued expansion in the U.S. through the development of modern, open-air shopping centers such as the community / lifestyle centers. In Fitch's view, these centers offer a convenience factor that many modern demographic trends support while providing access to retailers and brands that are more commonly found in enclosed shopping centers. Many of these assets are being constructed in combination with necessity based retailers. While the growing popularity of the community/lifestyle center concept by no means spells an end to the traditional enclosed mall, it is reflective of Simon management's adaptability and expertise at optimizing its resources and creating an ideal demographic fit.