Fitch Affirms Simon Property Group's IDR at 'A-'; Outlook Stable

Business Wire, March 14, 2008

NEW YORK -- Fitch Ratings has affirmed the ratings of Simon Property Group, Inc. and Simon Property Group, L.P. (Simon) as follows:

--Issuer Default Rating (IDR) at 'A-';

--Unsecured revolving credit facility at 'A-';

--Senior unsecured notes at 'A-';

--Preferred stock at 'BBB '.

The Rating Outlook is Stable.

Simon's rating strengths are centered on its stable and predictable cash flows generated from long-term leases across a large and well-diversified portfolio of retail assets within five major business platforms. Simon's platforms, including regional malls, premium outlet centers, community/lifestyle centers, Mills properties, and international investments, remain strong and are fairly well-positioned to manage through an economic downturn. Simon has a decades-long track record of successfully managing through various economic cycles.

While 2008 is expected to present a challenging retail environment, Simon maintains a solid leasing profile that includes long-term leases with a large and well-diversified tenant base. Simon's tenant base is very large, with approximately 5,100 tenants occupying 28,600 stores. Simon's largest tenant, Gap Inc., represents 2.5% of the portfolio's minimum base rents. All other tenants represent fewer than 2% of minimum annual base rents. Simon's also has a manageable lease expiration schedule, with fewer than 12% of annual base rents expiring in any year over the next 10 years.

Simon is not overly reliant on operations in individual regions within the U.S. and the international portfolio continues to grow steadily. Simon maintains access to capital from a wide variety of sources.

A significant portion of Simon's growth is coming from three areas: (1) new ground-up development in the U.S., (2) redevelopment and expansion projects at existing centers, and (3) international growth from new development with well-capitalized partners in Europe and Asia. While Simon's share of capital needs from the current development and redevelopment pipeline is approximately $1.5 billion, the projects underway have significant commitments from anchors and other major tenants.

Simon also has not demonstrated any material reliance on gains on sale or fee income from joint ventures to meet its financial obligations. This is particularly noteworthy given the current volatility in the capital markets, which is causing real estate transaction activity to slow significantly.

Simon has maintained healthy interest and fixed charge coverage metrics over the past several years, even as the company's portfolio has increased materially in size and scope, most notably as result of large acquisitions including Chelsea Property Group in 2004 and The Mills Corporation in 2007. Fitch calculates Simon's interest coverage (as defined by recurring EBITDA divided by the sum of interest expense and capitalized interest) to be 2.5 times (x) for the year ended Dec. 31, 2007, off slightly from 2.6x in both 2006 and 2005. Fitch calculated Simon's fixed charge coverage (as defined by recurring EBITDA less capitalized expenditures and straight line rents divided by total interest expense plus preferred dividends) to be 2.3x for 2007, 2006, and 2005.

Simon's debt service coverage ratios are supported by positive re-leasing spreads that have been well into the double digits on a percentage basis across the portfolio over the past several years. Market rents would have to fall significantly before Simon's large mark-to-market cushion would evaporate on new leases.

Occupancy in Simon's consolidated portfolio continued to improve in 2007, with the regional mall portfolio reaching 93.5%, the U.S. Premium Outlet centers reaching 99.7%, U.S. community centers reaching 92.9%, the international Premium Outlet centers at 100%, and the European shopping centers reaching 98.7% as of Dec. 31, 2007.

Simon also maintains a large pool of unencumbered assets that is representative of the company's overall portfolio. At Dec. 31, 2007, this pool consisted of approximately 150 assets representing a gross book value of over $15 billion. As Simon's assets have been on the books for an average of approximately 15 years and a sizable portion were also developed from the ground up, Fitch recognizes that the book value of these assets is significantly below reasonable estimates of current market values. Thus, Fitch notes that Simon's unencumbered asset coverage using a market value formula based on a 7% capitalization rate was 2.3x as of Dec. 31, 2007. This coverage is appropriate for the rating category.

Simon's leverage metrics are currently reasonable for the rating category. Simon market value leverage has fluctuated somewhat over the past several years, as the company's stock price has ebbed and flowed with market sentiments. Simon's total debt to total market capitalization (including pro rata share of JV debt) was approximately 47% at Dec. 31, 2007. Total On-Balance-Sheet Debt to recurring annualized EBITDA has gradually increased as well in recent years, from 6.6x to 6.8x in 2006 and 7.0x in 2007. However, this metric fell to 6.1x for the quarter ended Dec. 31, 2007. Fitch will continue to monitor these statistics and a meaningful, sustained increase in leverage could cause pressure on the ratings going forward.