By Ilaina Jonas

Simon, the largest U.S. mall owner and operator, said third-quarter FFO, a performance measure for real estate investment trusts, rose to $463.9 million, or $1.61 per share, from $418.7 million, or $1.46 per share, a year earlier.

Analysts on average expected $1.57 per share, according to Reuters Estimates.

FFO removes from net earnings the profit-reducing effect of depreciation, a noncash accounting item.

Indianapolis-based Simon, which also has a stake in 385 malls and high-end outlet centers and shopping centers in the United States, Europe and Asia, nudged up the lower end of its full-year earnings outlook.

"Overall, results are solid," UBS analyst Jeffrey Spector said in a research note, "and of course we're glad to see slight bump to guidance, especially considering today's declining earnings environment and expectations of downward revisions across the broader market."

Net operating income rose 1.9 percent at malls Simon has owned at least a year and jumped 7.7 percent at its premium outlets.

During the quarter, average mall rent rose 6.3 percent to $39.26 per square foot, while rent in the outlet centers rose 6.6 percent to $27.12 per square foot.

Sales per square foot at the malls rose 0.4 percent in stores open more than a year, compared with a 3.6 percent rise in the year-earlier quarter. Sales per square foot at the outlet centers rose 4.2 percent, a slower rate than the 8 percent increase seen in third quarter 2007.

Occupancy fell at both the malls and outlet centers.

For the year, Simon raised the lower end of its earnings forecast to $6.40 from $6.38 and held the top end at $6.45. Analysts had forecast $6.40.

At the end of the quarter, Simon had $950 million of cash on hand, including its share of joint ventures, and a credit line of more than $2.5 billion.

As far as the overall retail real estate sector is concerned, Property & Portfolio Research expects U.S. shopping center vacancy to rise 4.19 percentage points to 15 percent by year-end and to 17.1 percent in 2009. It has forecast rent levels falling 3.6 percent to $18.10 per square foot in 2008 and 5.6 percent to $17.78 per square foot in 2009.

Simon shares were down 4.2 percent at $64.20 in morning trading.

(Reporting by Ilaina Jonas; Editing by Steve Orlofsky and Lisa Von Ahn)