Simon Property Group Inc.'s (SPG) third-quarter profit dropped 9.7% as the nation's largest shopping mall owner reported falling occupancy, while rents rose.

Nonetheless, the results easily topped Wall Street expectations as Simon Property continued to receive kudos from analysts for being conservative and retaining an ample cash balance during the recession. The real-estate investment trust has even continued to raise rents while some of its peers cut rents and increase tenant concessions to keep valued retailers and stave off vacancies.

The company reported a profit of $112.1 million, or 38 cents a share, down from $124.1 million, or 50 cents a share, a year earlier. Funds from operations, a key profitability measure for REITs, fell to $1.38 a share from $1.61 a share. For the latest quarter, FFO were diluted by 23 cents a share due to the issuance of common stock earlier this year.

Revenue dropped 1.1% to $924.9 million.

Analysts surveyed by Thomson Reuters projected FFO of $1.32 a share and revenue of $892 million.

"This is a company... that under promises, but over delivers," said Alexander Goldfarb, an analyst with Sandler O'Neill & Partners LP.

Simon has built up its balance sheet, and as of Sept. 30, it had $4 billion in cash on hand--up from $2.9 billion in the prior quarter--and over $3 billion available on its revolving credit facility.

At the regional mall business, occupancy fell to 91.4% from 92.5% while average rents rose 2%. Outlet occupancy decreased to 97.5% from 98.8%, and rents rose 21%. Comparable-store sales per square foot dropped 11% at malls and 4.5% at outlets.

Meanwhile, Simon raised the low end of its full-year FFO target by 5 cents a share.

Mall REITs have been grappling with a retail industry hammered by steep declines in consumer spending and woes in the broader commercial property market as values plummet and foreclosures rise amid a continuing credit crunch and recession.

Simon's results follows those by smaller rivals including Taubman Centers Inc. (TCO) and Glimcher Realty Trust (GRT), which both reported declines in funds from operations.

Jim Sullivan, an analyst at Green Street Advisors, said that for the most part the retail landlords have done surprisingly well on maintaining occupancy. "They haven't lost as much as we had expected," because many mall landlords are cutting rents and providing rent relief for tenants, he said.

Chairman and Chief Executive David Simon said the company saw continued improvement in the capital markets and from its retailers.

Shares were down 0.4% to $67.90 in premarket trading. The stock is up nearly one-third this year.

-By A.D. Pruitt, Dow Jones Newswires; 212-416-2197; angela.pruitt@dowjones.com

(John Kell contributed to this report.)