UPDATE 4-Simon Property quarterly results beat Street

* Q2 FFO $1.38/share vs Street view $1.34

* Sales at mall and outlet tenants' stores up 4.9 pct

* Maintains 2010 forecast

* Shares rise 1.7 percent (Adds CEO comments, updates stock price)

By Ilaina Jonas

NEW YORK, July 30 (Reuters) - Simon Property Group Inc (SPG.N) reported higher-than-expected quarterly funds from operations on Friday, citing lower expenses and higher occupancy at its malls and outlet centers.

The largest U.S. mall owner is rebounding from the economic downturn, although it is still dealing with the bankruptcies of some of its tenants, store closings and rent breaks it gave to help some retailers to survive.

"We are in a recovery mode," David Simon, chairman and chief executive, told analysts on a conference call. "The mood is much better. It's not in the period that we were in in the '06-07 period. It may take a little more time, but it is moving in that direction."

The company also is cautiously spending more of its multibillion-dollar cash pile by paying down debt, developing new outlet centers at home and abroad, and redeveloping and expanding certain U.S. malls, following its failed attempt to buy rival General Growth Properties Inc (GGP.N).

"We are going to continue to de-lever if there are not the acquisitions opportunities to pursue," Simon said.

The company also has dusted off plans for about 15 to 20 redevelopment projects shelved during the credit crisis, and it plans to double its development budget to $200 million this year. Yet Simon also said acquisition opportunities may return, given the uncertainty of the U.S. economy.

Simon reported that second-quarter funds from operations, or FFO, rose 55 percent to $487.7 million, or $1.38 per share, from $313.1 million or 96 cents per share a year earlier when it recorded a noncash charge of 42 cents a share.

Analysts on average expected $1.34 per share, according to Thomson Reuters I/B/E/S.

FFO, a measure of performance for real estate investment trusts, removes the profit-reducing effect of depreciation of the company's malls and shopping centers.

Simon maintained its forecast for full-year FFO of $5.30 to $5.40, including an earlier debt-related charge. Analysts estimate $5.37 per share. But the original forecast anticipated that its Prime Outlet acquisitions already occurred. David Simon said it would be revised once that deal closes.

Quarterly net operating income, which measures the net amount of cash properties generate, rose 1.9 percent from a year earlier, a sign that business is improving after the downturn.

The Indianapolis-based company owns or has an interest in 373 properties comprising 256 million square feet of leasable space in North America, Europe and Asia. It owns such well-trafficked malls as Roosevelt Field on New York's Long Island and Sawgrass Mills Circle near Fort Lauderdale, Florida, as well as outlet centers such as Woodbury Commons north of New York City.

Simon recently lost its battle to buy General Growth, the No. 2 U.S. mall owner. It dropped out of the bidding after another suitor, a group lead by Brookfield Asset Management, agreed to bankroll General Growth's exit from bankruptcy in exchange for most of the company and more than 100 million warrants.

As of the end of June, Simon was sitting on $2.6 billion of cash and had access to $3.3 billion under its revolving credit line.

"One of the great lessons of the credit crisis is having extra cash is good thing," Sandler O'Neill analyst Alex Goldfarb said.

The company said on Friday it expects to record a gain of $280 million in the third quarter on the sale of Simon Ivanhoe, which owns seven shopping centers in France and Poland, to Unibail-Rodamco (UNBP.PA).

In the second quarter, sales at its mall and outlet tenants' stores rose 4.9 percent to $474 per square foot from $456 a year earlier. Mall owners receive a percentage of their tenants' sales above a certain threshold. Higher sales also generally allow a landlord to charge more rent.

Second-quarter occupancy increased to 93.1 percent from 92.3 percent. Average rent rose slightly, to $38.62 per square foot from $38.49 a year earlier.

Shares of Simon were up 1.7 percent at $89.42 in late trade on the New York Stock Exchange. (Reporting by Ilaina Jonas; Editing by John Wallace and Steve Orlofsky and Matthew Lewis)