Rouse Properties, LLC - FORM 10-Q

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Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q



x	Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended March 31, 2015



o	Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the Transition Period from to

COMMISSION FILE NUMBER 001-35287

ROUSE PROPERTIES, INC.

(Exact name of registrant as specified in its charter)



Delaware		90-0750824
(State or other jurisdiction of		(I.R.S. Employer
incorporation or organization)		Identification Number)



1114 Avenue of the Americas, Suite 2800, New York, NY		10036
(Address of principal executive offices)		(Zip Code)

(212) 608-5108

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 (the “Exchange Act”) during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. x Yes o No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). x Yes o No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company.



Large accelerated filer o		Accelerated filer x

Non-accelerated filer o		Smaller reporting company o
(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). o Yes x No

The number of shares of Common Stock, $0.01 par value, outstanding on May 1, 2015 was 57,829,834.

Table of Contents

Rouse Properties Inc.

Index



			PAGE NUMBER
Part I	FINANCIAL INFORMATION
	Item 1.	Consolidated Financial Statements (Unaudited)
		Consolidated Balance Sheets as of March 31, 2015 and December 31, 2014	3
		Consolidated Statements of Operations and Comprehensive Income (Loss) for the three months ended March 31, 2015 and 2014	4
		Consolidated Statements of Equity for the three months ended March 31, 2015 and 2014	5
		Consolidated Statements of Cash Flows for the three months ended March 31, 2015 and 2014	6
		Notes to Consolidated Financial Statements	8
	Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations and Liquidity and Capital Resources	28
	Item 3.	Quantitative and Qualitative Disclosures about Market Risk	41
	Item 4.	Controls and Procedures	42

Part II	OTHER INFORMATION
	Item 1.	Legal Proceedings	43
	Item 1A.	Risk Factors	43
	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	43
	Item 3.	Defaults Upon Senior Securities	43
	Item 4.	Mine Safety Disclosures	43
	Item 5.	Other Information	43
	Item 6.	Exhibits	43
	SIGNATURE		45
	EXHIBIT INDEX		46

Table of Contents

ROUSE PROPERTIES, INC.

CONSOLIDATED BALANCE SHEETS

(UNAUDITED)



	March 31, 2015			December 31, 2014
	(In thousands)
Assets:
Investment in real estate:
Land	$	373,236		$	371,363
Buildings and equipment	1,845,858			1,820,072
Less accumulated depreciation	(195,183		)	(189,838		)
Net investment in real estate	2,023,911			2,001,597
Cash and cash equivalents	11,331			14,308
Restricted cash	52,491			48,055
Accounts receivable, net	34,471			35,492
Deferred expenses, net	50,380			52,611
Prepaid expenses and other assets, net	54,768			62,690
Assets of property held for sale	—			55,647
Total assets	$	2,227,352		$	2,270,400

Liabilities:
Mortgages, notes and loans payable, net	$	1,545,525		$	1,584,499
Accounts payable and accrued expenses, net	113,444			113,976
Liabilities of property held for sale	—			38,590
Total liabilities	1,658,969			1,737,065

Commitments and contingencies	—			—

Equity:
Preferred stock: $0.01 par value; 50,000,000 shares authorized, no shares issued and outstanding as of March 31, 2015 and December 31, 2014	—			—
Common stock: $0.01 par value; 500,000,000 shares authorized, 57,837,376 issued and 57,833,216 outstanding as of March 31, 2015 and 57,748,141 issued and 57,743,981 outstanding as of December 31, 2014	578			578
Additional paid-in capital	670,283			679,275
Accumulated deficit	(118,474		)	(162,881		)
Accumulated other comprehensive loss	(888		)	(482		)
Total stockholders' equity	551,499			516,490
Non-controlling interest	16,884			16,845
Total equity	568,383			533,335
Total liabilities and equity	$	2,227,352		$	2,270,400

The accompanying notes are an integral part of these consolidated financial statements.

Table of Contents

ROUSE PROPERTIES, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)

(UNAUDITED)



	Three Months Ended March 31,
	2015			2014
	(In thousands, except per share amounts)
Revenues:
Minimum rents	$	51,534		$	45,970
Tenant recoveries	19,949			19,184
Overage rents	1,590			1,464
Other	1,488			1,221
Total revenues	74,561			67,839
Expenses:
Property operating costs	16,875			16,736
Real estate taxes	7,474			6,193
Property maintenance costs	3,385			3,176
Marketing	389			541
Provision for doubtful accounts	497			193
General and administrative	6,470			5,941
Provision for impairment	2,900			—
Depreciation and amortization	25,986			21,045
Other	2,159			674
Total operating expenses	66,135			54,499
Operating income	8,426			13,340

Interest income	13			172
Interest expense	(19,151		)	(17,813		)
Gain on extinguishment of debt	22,840			—
Provision for income taxes	(236		)	(124		)
Income (loss) from continuing operations before gain on sale of real estate assets	11,892			(4,425		)
Gain on sale of real estate assets	32,509			—
Income (loss) from continuing operations	44,401			(4,425		)
Discontinued operations	—			—
Net income (loss)	44,401			(4,425		)
Net loss attributable to non-controlling interests	6			—
Net income (loss) attributable to Rouse Properties Inc.	$	44,407		$	(4,425	)


Net income (loss) per share attributable to Rouse Properties Inc - Basic	$	0.77		$	(0.08	)

Net income (loss) per share attributable to Rouse Properties Inc - Diluted	$	0.76		$	(0.08	)

Dividends declared per share	$	0.18		$	0.17

Other comprehensive income (loss):
Net income (loss)	$	44,401		$	(4,425	)
Other comprehensive loss:
Unrealized loss on financial instrument	(406		)	(286		)
Comprehensive income (loss)	$	43,995		$	(4,711	)

The accompanying notes are an integral part of these consolidated financial statements.

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ROUSE PROPERTIES, INC.

CONSOLIDATED STATEMENTS OF EQUITY

(UNAUDITED)



	Common Stock (shares)	Class B Common Stock (shares)	Common Stock		Class B Common Stock		Additional Paid-In Capital			Accumulated Deficit			Accumulated Other Comprehensive Loss			Non-controlling Interest			Total Equity
	(In thousands, except share amounts)
Balance at December 31, 2013	49,648,436	—	$	497	$	—	$	565,798		$	(111,125	)	$	—		$	111		$	455,281
Net loss	—	—	—		—		—			(4,425		)	—			—			(4,425		)
Comprehensive loss	—	—	—		—		—			—			(286		)	—			(286		)
Issuance of 8,050,000 shares of common stock, net of underwriting discount	8,050,000	—	81		—		150,616			—			—			—			150,697
Offering costs	—	—	—		—		(470		)	—			—			—			(470		)
Dividends to common shareholders ($0.13 per share for issuance of 8,050,000 shares and $0.17 per share for Q1 dividend)	—	—	—		—		(10,937		)	—			—			—			(10,937		)
Issuance and amortization of stock compensation	42,489	—	—		—		820			—			—			—			820
Balance at March 31, 2014	57,740,925	—	$	578	$	—	$	705,827		$	(115,550	)	$	(286	)	$	111		$	590,680

Balance at December 31, 2014	57,743,981	—	$	578	$	—	$	679,275		$	(162,881	)	$	(482	)	$	16,845		$	533,335
Net income (loss)	—	—	—		—		—			44,407			—			(6		)	44,401
Comprehensive loss	—	—	—		—		—			—			(406		)	—			(406		)
Dividends to common shareholders ($0.18 per share for Q1 dividend)	—	—	—		—		(10,410		)	—			—			—			(10,410		)
Issuance and amortization of stock compensation	53,550	—	—		—		865			—			—			—			865
Exercise of options	34,248	—	—		—		553			—			—			—			553
Net assets attributable to Non Controlling Interest (as a result of Business Combinations)	—	—	—		—		—			—			—			45			45
Issuance of shares under Employee Stock Purchase Plan ("ESPP")	1,437	—	—		—		—			—			—			—			—
Balance at March 31, 2015	57,833,216	—	$	578	$	—	$	670,283		$	(118,474	)	$	(888	)	$	16,884		$	568,383

The accompanying notes are an integral part of these consolidated financial statements.

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ROUSE PROPERTIES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)



	Three Months Ended March 31,
	2015			2014
	(In thousands)
Cash Flows from Operating Activities:
Net income (loss)	$	44,401		$	(4,425	)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Provision for doubtful accounts	497			193
Depreciation	23,715			19,161
Amortization	2,271			1,884
Amortization/write-off of deferred financing costs	899			1,272
Amortization/write-off of debt market rate adjustments	(9		)	500
Amortization of above/below market leases and tenant inducements	2,498			3,789
Straight-line rent amortization	42			(631		)
Stock based compensation	865			820
Provision for impairment	2,900			—
Gain on extinguishment of debt	(22,840		)	—
Gain on sale or real estate assets	(32,509		)	—
Net changes:
Accounts receivable	380			(2,737		)
Prepaid expenses and other assets	1,581			352
Deferred expenses	(2,889		)	(4,104		)
Restricted cash	(1,536		)	2,827
Accounts payable and accrued expenses	(1,779		)	(6,377		)
Net cash provided by operating activities	18,487			12,524

Cash Flows from Investing Activities:
Acquisition of investment in real estate	(48,000		)	—
Proceeds from sale of property, net	90,197			—
Development, building and tenant improvements	(27,388		)	(19,917		)
Demand deposit with affiliate	—			(50,051		)
Deposit for acquisition	—			(1,000		)
Restricted cash	1,917			(1,259		)
Net cash provided by (used in) investing activities	16,726			(72,227		)

Cash Flows from Financing Activities:
Proceeds received from equity offering	—			156,976
Discount from equity offering	—			(6,279		)
Proceeds received from stock option exercise	553			—
Payments for offering costs	—			(470		)
Proceeds from issuance of mortgages, notes and loans payable	31,850			—
Borrowings under revolving line of credit	40,000			10,000
Principal payments on mortgages, notes and loans payable	(50,487		)	(32,820		)
Repayments under revolving credit line	(50,000		)	(58,000		)
Dividends paid	(9,817		)	(7,506		)
Deferred financing costs	(289		)	(302		)
Net cash (used in) provided by financing activities	(38,190		)	61,599

Net change in cash and cash equivalents	(2,977		)	1,896
Cash and cash equivalents at beginning of period	14,308			14,224
Cash and cash equivalents at end of period	$	11,331		$	16,120

Supplemental Disclosure of Cash Flow Information:
Interest paid, net of capitalized interest	$	16,485		$	16,651
Capitalized interest	(446		)	(482		)

Non-Cash Transactions:
Change in accrued capital expenditures included in accounts payable and accrued expenses	$	(5,938	)	$	8,770

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ROUSE PROPERTIES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)



	Three Months Ended March 31,
	2015		2014
	(In thousands)
Dividends declared, not yet paid	10,478		9,884
Capitalized market rate adjustments and deferred financing amortization	61		76

Supplemental non-cash information related to gain on extinguishment of debt:
Land	(5,320	)	—
Buildings and equipment, net	(16,966	)	—
Accounts receivable	490		—
Deferred expenses, net	(681	)	—
Prepaid expenses and other assets	(224	)	—
Mortgages, notes and loans payable	(45,960	)	—
Accounts payable and accrued expenses	(1,803	)	—

The accompanying notes are an integral part of these consolidated financial statements.

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ROUSE PROPERTIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 ORGANIZATION

Readers of this Quarterly Report should refer to the Company’s (as defined below) audited Consolidated and Combined Financial Statements for the year ended December 31, 2014, which are included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2014 (the “Annual Report”), as certain footnote disclosures which would substantially duplicate those contained in the Annual Report have been omitted from this Quarterly Report. Capitalized terms used, but not defined in this Quarterly Report, have the same meanings as in the Annual Report.

General

Rouse Properties, Inc. is a Delaware corporation that was created to hold certain assets and liabilities of General Growth Properties, Inc. ("GGP"). Prior to January 12, 2012, Rouse Properties, Inc. and its subsidiaries ("Rouse" or the "Company") were a wholly-owned subsidiary of GGP Limited Partnership (“GGP LP”). GGP distributed the assets and liabilities of 30 of its wholly-owned properties (“RPI Businesses”) to Rouse on January 12, 2012 (the “Spin-Off Date”). Before the spin-off, the Company had not conducted any business as a separate company and had no material assets or liabilities. The operations, assets and liabilities of the business were transferred to the Company by GGP on the Spin-Off Date and are presented as if the transferred business was our business for all historical periods prior to the Spin-Off Date. As such, the Company's assets and liabilities on the Spin-Off Date were reflective of GGP's respective carrying values. Unless the context otherwise requires, references to “we”, “us” and “our” refer to Rouse.

Principles of Consolidation and Basis of Presentation

The accompanying consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP"). The accompanying consolidated financial statements include the accounts of Rouse, as well as all subsidiaries of Rouse and all joint ventures in which the Company has a controlling interest. For consolidated joint ventures, the non-controlling partner’s share of the assets, liabilities and operations of the joint ventures (generally computed as the joint venture partner’s ownership percentage) is included in non-controlling interests as permanent equity of the Company. All intercompany transactions have been eliminated in consolidation as of and for each of the three months ended March 31, 2015 and 2014.

The Company operates in a single reportable segment referred to as its retail segment, which includes the operation, development and management of regional malls. Each of the Company's operating properties is considered a separate operating segment, as each property earns revenues and incurs expenses, individual operating results are reviewed and discrete financial information is available. The Company does not distinguish its operations based on geography, size or type and all operations are within the United States. No customer or tenant comprises more than 10% of consolidated revenues, and the properties have similar economic characteristics.

NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Properties

Acquisition accounting was applied to real estate assets within the Rouse portfolio either when GGP emerged from bankruptcy in November 2010 or upon any subsequent acquisition. After acquisition accounting is applied, the real estate assets are carried at their cost basis less accumulated depreciation. Real estate taxes and interest costs incurred during development periods are capitalized. Capitalized interest costs are based on qualified expenditures and interest rates in place during the development period. Capitalized real estate taxes, interest and interest related costs are amortized over lives which are consistent with the developed assets.

Pre-development costs, which generally include legal and professional fees and other directly-related third party costs, are capitalized as part of the property being developed. In the event a development is no longer deemed to be probable, the costs previously capitalized are expensed.

Tenant improvements, either paid directly or in the form of construction allowances paid to tenants, are capitalized and depreciated over the shorter of the useful life or applicable lease term. Maintenance and repair costs are expensed when incurred. Expenditures for significant betterments and improvements are capitalized. In leasing tenant space, the Company may provide funding to the

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ROUSE PROPERTIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

lessee through a tenant allowance. In accounting for a tenant allowance, the Company determines whether the allowance represents funding for the construction of leasehold improvements and evaluates the ownership of such improvements. If the Company is considered the owner of the leasehold improvements for accounting purposes, it capitalizes the amount of the tenant allowance and depreciates it over the shorter of the useful life of the leasehold improvements or the related lease term. If the tenant allowance represents a payment for a purpose other than funding leasehold improvements, or in the event that the Company is not considered the owner of the improvements for accounting purposes, the allowance is capitalized as a lease incentive and is recognized over the lease term as a reduction of rental revenue on a straight-line basis.

Depreciation or amortization expense is computed using the straight-line method based upon the following estimated useful lives:



	Years
Buildings and improvements	40
Equipment and fixtures	5 - 10
Tenant improvements	Shorter of useful life or applicable lease term

The Company reviews depreciable lives of its properties periodically and makes adjustments when necessary to reflect a shorter economic life.

Impairment

Operating properties and intangible assets

Accounting for the impairment or disposal of long-lived assets requires that if impairment indicators exist and the undiscounted cash flows expected to be generated by an asset are less than its carrying amount, an impairment provision should be recorded to write down the carrying amount of such asset to its fair value. The Company reviews all real estate assets for potential impairment indicators whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. Impairment indicators are assessed separately for each property and include, but are not limited to, significant decreases in real estate property net operating income and occupancy percentages, high loan to value ratios, and carrying values in excess of the fair values. Impairment indicators for pre-development costs, which are typically costs incurred during the beginning stages of a potential development and developments in progress, are assessed by project and include, but are not limited to, significant changes to the Company’s plans with respect to the project, significant changes in projected completion dates, revenues or cash flows, development costs, market factors and sustainability of development projects.

If an indicator of potential impairment exists, the asset is tested for recoverability by comparing its carrying amount to the estimated future undiscounted cash flows. The cash flow estimates used both for determining recoverability and estimating fair value are inherently judgmental and reflect current and projected trends in rental, occupancy and capitalization rates, and estimated holding periods for the applicable assets. Although the estimated fair value of certain assets may exceed the carrying amount, a real estate asset is only considered to be impaired when its carrying amount cannot be recovered through estimated future undiscounted cash flows. To the extent a provision for impairment is determined to be necessary, the excess of the carrying amount of the asset over its estimated fair value is expensed to operations. The adjusted carrying amount, which represents the new cost basis of the asset, is depreciated over the remaining useful life of the asset.

The Company determined there were events and circumstances which changed management's estimated holding period for Collin Creek Mall during the year ended December 31, 2014. The Company is in discussions with the lender on the property's non-recourse mortgage debt, which matures in July 2016, to identify options regarding the property's disposition prior to the loan maturity. The lender has placed the loan into special servicing status. As a result of the continued decline in the operating results of the property, the Company recorded an impairment charge of $2.9 million during the three months ended March 31, 2015, as the aggregate carrying value was higher than the fair value of the property. This impairment charge is included in "Provision for impairment" on the Company's Consolidated Statements of Operations and Comprehensive Income (Loss).

No impairment charges were recorded for the three months ended March 31, 2014.

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ROUSE PROPERTIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Intangible Assets and Liabilities

The following table summarizes our intangible assets and liabilities as a result of the application of acquisition accounting:



	Gross Asset (Liability)			Accumulated (Amortization)/ Accretion			Net Carrying Amount
	(In thousands)
March 31, 2015
Tenant leases:
In-place value	$	87,361		$	(36,015	)	$	51,346
Above-market	100,139			(53,898		)	46,241
Below-market	(62,150		)	20,834			(41,316		)
Ground leases:
Below-market	3,682			(575		)	3,107

December 31, 2014
Tenant leases:
In-place value	$	97,745		$	(43,481	)	$	54,264
Above-market	109,862			(58,866		)	50,996
Below-market	(65,476		)	22,184			(43,292		)
Ground leases:
Below-market	3,682			(537		)	3,145

The gross asset balances of the in-place value of tenant leases are included in "Buildings and Equipment" on the Company's Consolidated Balance Sheets. Acquired in-place tenant leases are amortized over periods that approximate the related lease terms. The above-market tenant leases and below-market ground leases are included in "Prepaid expenses and other assets, net", and below-market tenant leases are included in "Accounts payable and accrued expenses, net" as detailed in Notes 4 and 6, respectively.

Amortization of in-place intangible assets and liabilities decreased the Company's income by $6.0 million and $5.9 million for the three months ended March 31, 2015 and 2014, respectively. Amortization of in-place intangibles is included in "Depreciation and amortization" on the Company's Consolidated Statements of Operations and Comprehensive Income (Loss).

Amortization of above-market and below-market lease intangibles decreased the Company's revenue by $2.5 million and $3.8 million for the three months ended March 31, 2015 and 2014, respectively. Amortization of above-market and below-market lease intangibles is included in "Minimum rents" on the Company's Consolidated Statements of Operations and Comprehensive Income (Loss).

Future amortization/accretion of these intangibles is estimated to decrease the Company's net income as follows:



Year	In-place lease intangibles		Above/(below) market leases, net
	(In thousands)
Remainder of 2015	$	13,735	$	5,286
2016	12,059		5,054
2017	7,149		3,179
2018	4,695		739
2019	3,296		(781		)
2020	2,677		(1,110		)

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ROUSE PROPERTIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Cash and Cash Equivalents

The Company considers all demand deposits with a maturity of three months or less, at the date of purchase, to be cash equivalents.

Restricted Cash

Restricted cash consists of security deposits and cash escrowed under loan agreements for debt service, real estate taxes, property insurance, tenant improvements, capital renovations and capital improvements.

Interest Rate Hedging Instruments

The Company recognizes its derivative financial instruments in either "Prepaid expenses and other assets, net" or "Accounts payable and accrued expenses, net", as applicable, in the Consolidated Balance Sheets and measures those instruments at fair value. The accounting for changes in fair value (i.e., gain or loss) of a derivative depends on whether it has been designated and qualifies as part of a hedging relationship, and further, on the type of hedging relationship. To qualify as a hedging instrument, a derivative must pass prescribed effectiveness tests, performed quarterly using both quantitative and qualitative methods. The Company entered into a derivative agreement as of March 31, 2014 that qualifies as a hedging instrument and was designated, based upon the exposure of being hedged, as a cash flow hedge. The fair value of this cash flow hedge as of March 31, 2015 was $0.9 million and is included in "Accounts payable and accrued expenses, net" in the Company's Consolidated Balance Sheets. The fair value of the Company's interest rate hedge is classified as Level 2 in the fair value measurement table. To the extent they are effective, changes in fair value of cash flow hedges are reported in "Accumulated other comprehensive income (loss)" ("AOCI/L") and reclassified into earnings in the same period or periods during which the hedged item affects earnings. The ineffective portion of the hedge, if any, is recognized in current earnings during the period of change in fair value. The gain or loss on the termination of an effective cash flow hedge is reported in AOCI/L and reclassified into earnings in the same period or periods during which the hedged item affects earnings. The Company also assesses the credit risk that the counterparty will not perform according to the terms of the contract.

Revenue Recognition and Related Matters

Minimum rent revenues are recognized on a straight-line basis over the terms of the related leases. Minimum rent revenues also include amounts collected from tenants to allow the termination of their leases prior to their scheduled expiration dates as well as the amortization related to above and below-market tenant leases on acquired properties and tenant inducements. Minimum rent revenues also includes percentage rents in lieu of minimum rent from those leases where the Company receives a percentage of tenant revenues.

The following is a summary of amortization of straight-line rent, lease termination income, net amortization related to above and below-market tenant leases, amortization of tenant inducements, and percentage rent in lieu of minimum rent for the three months ended March 31, 2015 and 2014:



	Three Months Ended March 31,
	2015			2014
	(In thousands)
Straight-line rent amortization	$	(42	)	$	625
Lease termination income	433			—
Net amortization of above and below-market tenant leases	(2,459		)	(3,757		)
Amortization of lease inducement	(8		)	—
Percentage rent in lieu of minimum rent	1,597			1,607

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ROUSE PROPERTIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Straight-line rent receivables represent the current net cumulative rents recognized prior to when billed and collectible, as provided by the terms of the leases. The following is a summary of straight-line rent receivables, which are included in "Accounts receivable, net," in the Company's Consolidated Balance Sheets and are reduced for allowances for doubtful accounts:



	March 31, 2015		December 31, 2014
	(In thousands)
Straight-line rent receivables, net	$	13,893	$	14,431

The Company provides an allowance for doubtful accounts against the portion of accounts receivable, including straight-line rents, which is estimated to be uncollectible. Such allowances are reviewed periodically based upon our recovery experience. The Company also evaluates the probability of collecting future rent which is recognized currently under a straight-line methodology. This analysis considers the long term nature of the Company's leases, as a certain portion of the straight-line rent currently recognizable will not be billed to the tenant until future periods. The Company's experience relative to unbilled straight-line rent receivable is that a certain portion of the amounts recorded as straight-line rental revenue are never collected from (or billed to) tenants due to early lease terminations. For that portion of the recognized deferred rent that is not deemed to be probable of collection, an allowance for doubtful accounts has been provided. Accounts receivable are shown net of an allowance for doubtful accounts of $3.8 million and $3.4 million as of March 31, 2015 and December 31, 2014, respectively.

Tenant recoveries are recoveries from tenants that are established in the leases or computed based upon a formula related to real estate taxes, insurance and other property operating expenses and are generally recognized as revenues in the period in which the related costs are incurred. The Company makes certain assumptions and judgments in estimating the reimbursements at the end of each reporting period. The Company does not expect the actual results to materially differ from the estimated reimbursement.

Overage rent is paid by a tenant when its sales exceed an agreed-upon minimum amount. Overage rent is calculated by multiplying the sales in excess of the minimum amount by a percentage defined in the lease. Overage rent is recognized on an accrual basis once tenant sales exceed contractual tenant lease thresholds.

Other revenues generally consist of amounts earned by the Company for vending, advertising, and marketing revenues earned at the Company's malls and is recognized on an accrual basis over the related service period.

Income (Loss) Per Share

Basic net income (loss) per share is computed by dividing the net income (loss) applicable to common stockholders by the weighted-average number of shares of common stock outstanding for the period. Diluted net income per share is calculated similarly; however, it reflects potential dilution of securities by adding the incremental weighted average shares that would have been outstanding assuming all potentially dilutive securities were converted into common stock at the earliest date possible to the weighted-average number of shares of common stock outstanding for the period. As of March 31, 2015 and 2014, there were 4,104,412 and 3,294,071 stock options outstanding, respectively, that potentially could be converted into shares of common stock and 145,939 and 219,642 shares of non-vested restricted stock outstanding, respectively. The impact of dilutive stock options and non-vested restricted stock have been considered in the calculation of diluted weighted average shares outstanding for the three months ended March 31, 2015. The stock options and shares of restricted stock are excluded from the weighted average shares dilution computation for the three months ended March 2014, as their effect is anti-dilutive.

Fair Value

The objective of fair value is to determine the price that would be received upon the sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (the exit price). GAAP establishes a fair value hierarchy that prioritizes observable and unobservable inputs used to measure fair value:


•	Level 1 — quoted prices (unadjusted) in active markets that are accessible at the measurement date for assets or liabilities;


•	Level 2 — observable prices that are based on inputs not quoted in active markets, but corroborated by market data; and

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


•	Level 3 — unobservable inputs that are used when little or no market data is available.

The fair value hierarchy gives the highest priority to Level 1 inputs and the lowest priority to Level 3 inputs. In determining fair value, the Company utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible, as well as consider counterparty credit risk in our assessment of fair value. Considerable judgment is necessary to interpret Level 2 and 3 inputs in determining the fair value of our financial and non-financial assets and liabilities. Accordingly, the Company's fair value estimates, which are made at the end of each reporting period, may be different than the amounts that may ultimately be realized upon the sale or disposition of these assets.

The following table sets forth information regarding the Company's financial and non-financial instruments that are measured at fair value on a recurring and non-recurring basis by the above categories:



	Total Fair Value Measurement			Quoted Price in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)			Significant Unobservable Inputs (Level 3)
	(In thousands)
March 31, 2015
Recurring basis:
Assets:
Interest rate cap	$	—		$	—	$	—		$	—
Liabilities:
Interest rate swap	$	(888	)	$	—	$	(888	)	$	—
Non-recurring basis:
Investment in Real Estate ⁽¹⁾	$	48,528		$	—	$	—		$	48,528
December 31, 2014
Recurring basis:
Assets:
Interest rate cap	$	1		$	—	$	1		$	—
Liabilities:
Interest rate swap	$	(482	)			$	(482	)	$	—
Non-recurring basis:
Investment in Real Estate ⁽¹⁾	$	74,237		$	—	$	—		$	74,237

Explanatory Note:

⁽¹⁾ The carrying value includes each mall's respective land, building, and in-place lease value.

The following is a reconciliation of the carrying value of properties that were impaired and disposed of during the three months ended March 31, 2015:



	Collin Creek Mall ⁽¹⁾⁽²⁾			Steeplegate Mall ⁽³⁾
	(In thousands)
Beginning carrying value, January 1, 2015	$	51,767		$	22,659
Capital expenditures	75			—
Depreciation and amortization expense	(414		)	(219		)
Loss on impairment of real estate	(2,900		)	—
Disposition of real estate asset	—			(22,440		)
Ending carrying value, March 31, 2015	$	48,528		$	—

Explanatory Notes:

⁽¹⁾ The carrying value includes the mall's respective land, building, in-place lease value, and above and below market lease values.

⁽²⁾The fair valued derermined using a terminal capitalization rate as of March 31, 2015.

⁽³⁾The property was conveyed to its mortgage lender during the three months ended March 31, 2015.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The Company estimates fair value relating to impairment assessments utilizing a direct capitalization rate on forecasted net operating income or discounted cash flows that include all projected cash inflows and outflows over a specific holding period. Such projected cash flows are comprised of contractual rental revenues and forecasted rental revenues and expenses based upon market conditions and expectations for growth. Capitalization rates and discount rates utilized in these models are based on a reasonable range of current market rates for each property analyzed. The determination of which method to use is based on expected market conditions specific to the property being assessed. Based upon these inputs, the Company determined that its valuation of a property using a discounted cash flow model was classified within Level 3 of the fair value hierarchy.

The following table sets forth quantitative information about the unobservable inputs of the Company's Level 3 real estate, which is recorded at fair value as of March 31, 2015:



Unobservable Quantitative Inputs
Terminal Capitalization Rate	9.5	%

The Company uses interest rate swaps and caps to mitigate the effect of interest rate movements on its variable-rate debt. The Company has one interest rate swap and one interest rate cap as of March 31, 2015 and the interest rate swap qualified for hedge accounting. The interest rate swap has met the effectiveness test criteria since inception and changes in its fair value are reported in "Other comprehensive income/(loss)" ("OCI/L") and are reclassified into earnings in the same period or periods during which the hedged item affects earnings. The interest rate cap did not qualify for hedge accounting and changes in its fair value are reported in earnings during the period incurred. The fair value of the Company's interest rate hedges, classified under Level 2, are determined based on prevailing market data for contracts with matching durations, current and anticipated LIBOR information, consideration of the Company's credit standing, credit risk of the counterparty, and reasonable estimates about relevant future market conditions. See Note 7 for additional information regarding the Company's interest rate hedging instruments.

The Company's financial instruments are short term in nature and as such their fair values approximate their carrying amount in our Consolidated Balance Sheets except for debt. As of March 31, 2015 and December 31, 2014, management’s estimates of fair value are presented below. The Company estimated the fair value of the debt by using a future discounted cash flow analysis based on the use and weighting of multiple market inputs. As a result of the frequency and availability of market data, the inputs used to measure the estimated fair value of debt are Level 3 inputs. The primary sensitivity in these calculations is based on the selection of appropriate discount rates.



	March 31, 2015				December 31, 2014
	Carrying Amount		Estimated Fair Value		Carrying Amount		Estimated Fair Value
	(In thousands)
Fixed-rate debt	$	1,220,430	$	1,231,948	$	1,249,195	$	1,248,928
Variable-rate debt	325,095		326,916		335,304		336,791
Total mortgages, notes and loans payable, net	$	1,545,525	$	1,558,864	$	1,584,499	$	1,585,719

Deferred Expenses

Deferred expenses are comprised of deferred lease costs incurred in connection with obtaining new tenants or renewals of lease agreements with current tenants, which are amortized on a straight-line basis over the terms of the related leases and included in "Depreciation and amortization" on the Company's Consolidated Statements of Operations and Comprehensive Income (Loss). Deferred financing costs are amortized on a straight-line basis (which approximates the effective interest method) over the lives of the related mortgages, notes, and loans payable and included in "Interest expense" on the Company's Consolidated Statements of Operations and Comprehensive Income (Loss). The following table summarizes our deferred lease and financing costs:

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



	Gross Asset		Accumulated Amortization			Net Carrying Amount
	(In thousands)
March 31, 2015
Deferred lease costs	$	53,582	$	(13,847	)	$	39,735
Deferred financing costs	16,753		(6,108		)	10,645
Total	$	70,335	$	(19,955	)	$	50,380

December 31, 2014
Deferred lease costs	$	55,647	$	(14,683	)	$	40,964
Deferred financing costs	19,151		(7,504		)	11,647
Total	$	74,798	$	(22,187	)	$	52,611

Asset Retirement Obligations

The Company evaluates any potential asset retirement obligations, including those related to disposal of asbestos containing materials and environmental remediation liabilities. The Company recognizes the fair value of such obligations in the period incurred if a reasonable estimate of fair value can be determined. As of March 31, 2015 and December 31, 2014, a preliminary estimate of the cost of the environmental remediation liability was approximately $4.5 million, which is included in "Accounts payable and accrued expenses, net" on the Company's Consolidated Balance Sheets. The Company does not believe that actual remediation costs will be materially different than the estimates as of March 31, 2015.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions. These estimates and assumptions affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. For example, estimates and assumptions have been made with respect to fair values of assets and liabilities for purposes of applying the acquisition method of accounting, the useful lives of assets, capitalization of development and leasing costs, recoverable amounts of receivables, impairment of long-lived assets, valuation of hedging instruments and fair value of debt. Actual results could differ from these and other estimates.

Discontinued Operations

Prior to 2014, the Company reclassified to discontinued operations any material operations and gains or losses on disposal related to properties that were held for sale or disposed of during the period in accordance with the applicable accounting standards. In 2014, the Company early adopted Accounting Standards Update (ASU) No. 2014-08, "Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity" issued by the Financial Accounting Standards Board (FASB). ASU No. 2014-08 changes the definition of a discontinued operation to include only those disposals of components of an entity that represent a strategic shift that has (or will have) a major effect on an entity's operations and financial results. The Company applied the revised definition to all disposals on a prospective basis beginning January 1, 2014.

Recent Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Updated ("ASU") ASU 2014-09 “Revenue from Contracts with Customers (Topic 606).” This topic provides for five principles which should be followed to determine the appropriate amount and timing of revenue recognition for the transfer of goods and services to customers. The principles in this ASU should be applied to all contracts with customers regardless of industry. The amendments in this ASU are effective for reporting periods beginning after December 15, 2016, with two transition methods of adoption allowed. Early adoption for reporting periods prior to December 15, 2016 is not permitted. On April 1, 2015, the FASB board voted to postpone the effective date of the new revenue recognition standard by one year. The ASU is now effective for the reporting periods after December 15, 2017. The Company is evaluating the financial statement impact of the guidance in this ASU and determining which transition method we will utilize.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

In August 2014, the FASB issued ASU 2014-15, “Disclosure of Uncertainties about an Entity's Ability to Continue as a Going Concern." This topic provides guidance on management’s responsibility to evaluate whether there is substantial doubt about a company’s ability to continue as a going concern and requires related footnote disclosures. The amendments in this ASU are effective for the annual period after December 15, 2016, and for annual and interim periods thereafter. Early adoption is permitted. The Company is currently evaluating the impact of the guidance in this ASU.

In April 2015, the FASB issued ASU 2015-03, "Simplifying the Presentation of Debt Issuance Costs", which requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of the related debt liability. For public business entities, the ASU is effective for financial statements issued for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years. Entities should apply the new guidance on a retrospective basis, wherein the balance sheet of each individual period presented should be adjusted to reflect the period-specific effects of applying the new guidance. The Company is currently evaluating the impact of the guidance in this ASU.

NOTE 3 ACQUISITIONS

The Company includes the results of operations of real estate assets acquired in the Company's Consolidated Statements of Operations and Comprehensive Income (Loss) from the date of the related transactions.

The following table presents the Company's acquisitions as of March 31, 2015 and December 31, 2014:



	Date Acquired	Property Name	Location	Square Footage Acquired	Purchase Price
2015 Acquisitions					(In thousands)
	01/28/2015	Mt. Shasta Mall ⁽¹⁾⁽²⁾	Redding, CA	521,000	$	49,000
			2015 Acquisitions Total	521,000	$	49,000
2014 Acquisitions
	05/22/2014	Bel Air Mall ⁽¹⁾⁽³⁾	Mobile, AL	1,004,439	$	131,917
	08/29/2014	The Mall at Barnes Crossing ⁽⁴⁾	Tupelo, MS	736,607	98,850
			2014 Acquisitions Total	1,741,046	$	230,767

Explanatory Notes:

⁽¹⁾ Rouse acquired a 100% interest in the mall.


⁽²⁾	The Company closed on a new $31.9 million non-recourse mortgage loan that bears interest at 4.19%, matures in March 2025, is interest only for the first three years and amortizes over 30 years, thereafter.

⁽³⁾ The Company assumed an existing $112.5 million non-recourse mortgage loan with the acquisition. The loan bears interest at a fixed rate of 5.30%, amortizes on a 30 year schedule, and matures in December 2015.

⁽⁴⁾Rouse acquired a 51% controlling interest in the mall and related properties. In conjunction with the closing of this transaction, the Company closed on a new $67.0 million non-recourse mortgage loan that bears interest at a fixed rate of 4.29%, matures in September 2024, is interest only for the first three years and amortizes on a 30 year schedule thereafter. See Note 12 for further details.

The following table presents certain additional information regarding the Company's acquisitions as of March 31, 2015 and December 31, 2014:



	Property Name	Land		Building and Improvements		Acquired Lease Intangibles		Acquired Above Market Lease Intangibles		Acquired Below Market Lease Intangibles			Other
2015 Acquisitions		(In thousands)
	Mt. Shasta Mall	$	7,809	$	38,008	$	3,779	$	915	$	(1,813	)	$	302
	Total	$	7,809	$	38,008	$	3,779	$	915	$	(1,813	)	$	302
2014 Acquisitions
	Bel Air Mall	$	8,969	$	111,206	$	11,329	$	3,952	$	(6,889	)	$	3,350
	The Mall at Barnes Crossing	17,969		75,949		6,973		4,700		(8,100		)	1,359
	Total	$	26,938	$	187,155	$	18,302	$	8,652	$	(14,989	)	$	4,709

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ROUSE PROPERTIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The Company incurred acquisition and transaction related costs of $0.4 million and $0.2 million for the three months ended March 31, 2015 and 2014, respectively. Acquisition and transaction related costs consist of due diligence costs such as legal fees, environmental studies and closing costs. These costs were recorded in "Other" on the Company's Consolidated Statements of Operations and Comprehensive Income (Loss).

During the three months ended March 31, 2015, the Company recorded approximately $1.3 million in revenues and $0.03 million in net loss related to the acquisition of Mt. Shasta Mall. There were no acquisitions made during the three months ended March 31, 2014.

The following condensed pro forma financial information for the three months ended March 31, 2015 includes pro forma adjustments related to the acquisition of Mt. Shasta Mall, which is presented assuming the acquisition had been consummated as of January 1, 2014.

The following condensed pro forma financial information is not necessarily indicative of what the actual results of operations of the Company would have been assuming the acquisition had been consummated as of January 1, nor does it purport to represent the results of operations for future periods. Pro forma adjustments include above and below-market amortization, straight-line rent, interest expense, and depreciation and amortization.



	Three months ended March 31,
	2015		2014
	As Adjusted (Unaudited)
	(In thousands, except per share amounts)
Total revenues	$	75,195	$	69,741
Net loss	44,385		(4,473		)

Net income (loss) per share - basic	$	0.77	$	(0.08	)

Net income (loss) per share - diluted	$	0.76	$	(0.08	)

Weighted average shares - basic	57,603,340		56,129,522
Weighted average shares - diluted	58,287,256		56,129,522

NOTE 4 PREPAID EXPENSES AND OTHER ASSETS, NET

The following table summarizes the significant components of prepaid expenses and other assets, net:



	March 31, 2015		December 31, 2014
	(In thousands)
Above-market tenant leases, net (Note 2)	$	46,241	$	50,996
Prepaid expenses	3,145		4,755
Below-market ground leases, net (Note 2)	3,107		3,145
Deposits	414		1,447
Other	1,861		2,347
Total prepaid expenses and other assets, net	$	54,768	$	62,690

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ROUSE PROPERTIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 5 MORTGAGES, NOTES AND LOANS PAYABLE, NET

Mortgages, notes and loans payable are summarized as follows:



	March 31, 2015		December 31, 2014		Interest Rate at March 31, 2015		Scheduled Maturity Date
Fixed-rate debt:	(in thousands)
Steeplegate Mall	$	—	$	45,858	—	%	—
Bel Air Mall ⁽¹⁾	110,712		111,276		5.30		December 2015
Greenville Mall	40,394		40,602		5.29		December 2015
Vista Ridge Mall	67,824		68,537		6.87		April 2016
Washington Park Mall	—		10,505		—		—
The Centre at Salisbury	115,000		115,000		5.79		May 2016
The Mall at Turtle Creek	77,379		77,648		6.54		June 2016
Collin Creek Mall	57,572		58,128		6.78		July 2016
Grand Traverse Mall	59,224		59,479		5.02		February 2017
West Valley Mall ⁽²⁾	59,000		59,000		3.24		September 2018
Pierre BossierMall	46,453		46,654		4.94		May 2022
Pierre Bossier Anchor	3,615		3,637		4.85		May 2022
Southland Center (MI)	75,722		76,037		5.09		July 2022
Chesterfield Towne Center	107,659		107,967		4.75		October 2022
Animas Valley Mall	49,825		50,053		4.41		November 2022
Lakeland Square	67,739		68,053		4.17		March 2023
Valley Hills Mall	66,204		66,492		4.47		July 2023
Chula Vista Center ⁽¹⁾⁽³⁾	70,000		70,000		4.18		July 2024
The Mall at Barnes Crossing ⁽¹⁾	67,000		67,000		4.29		September 2024
Bayshore Mall ⁽¹⁾	46,500		46,500		3.96		October 2024
Mt. Shasta Mall ⁽¹⁾	31,850		—		4.19		March 2025
Total fixed-rate debt	$	1,219,672	$	1,248,426
Add: Market rate adjustments	759		769
	$	1,220,431	$	1,249,195
Variable-rate debt:
NewPark Mall ⁽⁴⁾	$	65,094	$	65,304	3.43	%	May 2017
2013 Term Loan⁽⁵⁾	260,000		260,000		2.93		November 2018
2013 Revolver ⁽⁵⁾	—		10,000		2.93		November 2017
Total variable-rate debt:	$	325,094	$	335,304

Total mortgages, notes and loans payable, net	$	1,545,525	$	1,584,499

Explanatory Notes:

⁽¹⁾See the significant property loan refinancings and acquisitions table below, under "—Property-Level Debt" in this Note 5 for additional information regarding the debt related to each property.

⁽²⁾During January 2014, the Company entered into a swap transaction which fixes the interest rate on the loan for this property to 3.24%. See Note 7 for further details.

⁽³⁾On July 1, 2014, the Company removed Chula Vista Center from the 2013 Senior Facility (as defined below) collateral pool and placed a new non-recourse mortgage loan on Chula Vista Center. Sikes Senter debt was repaid on July 1, 2014 from proceeds from the Chula Vista Center refinancing and upon repayment Sikes was added to the 2013 Senior Facility collateral pool with no change to the outstanding 2013 Senior Facility collateral pool balance.

⁽⁴⁾During July 2014, the Company reduced the spread fromLIBOR (30 day) plus 405 basis points to LIBOR (30 day) plus 325 basis points.

⁽⁵⁾LIBOR (30 day) plus 275 basis points.

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ROUSE PROPERTIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Property-Level Debt

The Company had individual property-level debt (the “Property-Level Debt”) on 19 of its 35 assets, totaling $1.28 billion (excluding $0.8 million of market rate adjustments) as of March 31, 2015. As of March 31, 2015, the Property-Level Debt had a weighted average interest rate of 5.0% and an average remaining term of 4.8 years. The Property-Level Debt is generally non-recourse to the Company and is stand-alone (i.e., not cross-collateralized) first mortgage debt with the exception of customary contingent guarantees and indemnities.

The following is a summary of significant property loan refinancings and acquisitions that have occurred during the three months March 31, 2015 and the year ended December 31, 2014 ($ in thousands):



Property	Date	Balance at Date of Refinancing		Interest Rate		Balance of New Loan		New Interest Rate		Net Proceeds ⁽¹⁾		Maturity
March 31, 2015:
Mt. Shasta Mall ⁽²⁾	February 2015	$	—	—	%	$	31,850	4.19	%	$	—	March 2025

December 31, 2014:
Bayshore Mall ⁽²⁾	October 2014	$	—	—	%	$	46,500	3.96	%	$	43,400	October 2024
The Mall at Barnes Crossing ⁽²⁾	August 2014	—		—	%	67,000		4.29	%	—		September 2024
Chula Vista Center ⁽³⁾	July 2014	—		—	%	70,000		4.18	%	15,000		July 2024
Sikes Senter ⁽³⁾	July 2014	54,618		5.20	%	—		—	%	—		—
Bel Air Mall	May 2014	—		—	%	112,505		5.30	%	—		December 2015

Explanatory Notes:

⁽¹⁾Net proceeds are net of closing costs.

⁽²⁾The loan is interest-only for the first three years.

⁽³⁾On July 1, 2014, the Company removed Chula Vista Center, located in Chula Vista, CA, from the 2013 Senior Facility collateral pool and placed a new non-recourse mortgage loan on the property. Sikes Senter, located in Wichita Falls, TX, had an outstanding mortgage loan which was repaid on July 1, 2014 from proceeds from the Chula Vista Center refinancing. Upon repayment Sikes Senter was added to the 2013 Senior Facility collateral pool with no change to the outstanding 2013 Senior Facility balance.

In January 2015, the loan associated with The Shoppes at Knollwood with a mortgage debt balance of $35.1 million was defeased simultaneously with the sale of the property. As of December 31, 2014, the loan was shown as a component of "Liabilities of property held for sale" on the Consolidated Balance Sheets.

In February 2015, the Company repaid the $10.4 million mortgage debt balance on Washington Park Mall which had a fixed interest rate of 5.35%.

In February 2015, the loan associated with Vista Ridge Mall was transferred to special servicing.

In March 2015, the loan associated with Steeplegate Mall was conveyed to the lender in full satisfaction of the debt. The loan had an outstanding balance of approximately $45.9 million.

Corporate Facilities

2013 Senior Facility

On November 22, 2013, the Company entered into a $510.0 million secured credit facility that provides borrowings on a revolving basis of up to $250.0 million (the "2013 Revolver") and a $260.0 million senior secured term loan (the "2013 Term Loan" and together with the 2013 Revolver, the "2013 Senior Facility"). Borrowings on the 2013 Senior Facility bear interest at LIBOR plus 185 to 300 basis points based on the Company's corporate leverage. The Company has the option, subject to the satisfaction of certain conditions precedent, to exercise an "accordion" provision to increase the commitments under the 2013 Revolver and/or incur additional term loans in the aggregate amount of $250.0 million such that the aggregate amount of the commitments and outstanding loans under the 2013 Secured Facility does not exceed $760.0 million. During the year ended December 31, 2014, the Company exercised a portion of its "accordion" feature on the 2013 Senior Facility to increase the available borrowings of the

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ROUSE PROPERTIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

2013 Revolver thereunder from $250.0 million to $285.0 million. The term and rates of the Company's 2013 Senior Facility were otherwise unchanged.

The 2013 Revolver has an initial term of four years with a one year extension option and the 2013 Term Loan has a term of five years. As of March 31, 2015, there was no outstanding balance on the 2013 Revolver. As of December 31, 2014 , the Company had $10.0 million outstanding on the 2013 Revolver. The default interest rate following a payment event of default under the 2013 Senior Facility is 3.00% more than the then-applicable interest rate. The Company is required to pay an unused fee related to the 2013 Revolver equal to 0.20% per year if the aggregate unused amount is greater than or equal to 50% of the 2013 Revolver or 0.30% per year if the aggregate unused amount is less than 50% of the 2013 Revolver. During each of the three months ended March 31, 2015 and March 31, 2014, the Company incurred $0.2 million of unused fees related to the 2013 Revolver. Under the 2013 Term Loan, letters of credit totaling $1.1 million were outstanding as of March 31, 2015 in connection with four of its properties. Additionally, the Company had $4.1 million of letters of credit outstanding in relation to The Shoppes at Knollwood. During the three months ended March 31, 2015 and 2014, the Company incurred $0.04 million and $0.02 million, respectively, of letter of credit fees.

The 2013 Senior Facility contains representations and warranties, affirmative and negative covenants and defaults that are customary for such a real estate loan. In addition, the 2013 Senior Facility requires compliance with certain financial covenants, including borrowing base loan to value and debt yield, corporate maximum leverage ratio, minimum ratio of adjusted consolidated earnings before interest, tax, depreciation and amortization to fixed charges, minimum tangible net worth, minimum mortgaged property requirement, maximum unhedged variable rate debt and maximum recourse indebtedness. Failure to comply with the covenants in the 2013 Senior Facility would result in a default thereunder and, absent a waiver or an amendment from our lenders, permit the acceleration of all outstanding borrowings under the 2013 Senior Facility. No assurance can be given that the Company would be successful in obtaining such waiver or amendment in this current financial climate, or that any accommodations that the Company were able to negotiate would be on terms as favorable as those in the 2013 Senior Facility. In December 2014, the Company entered into an amendment of the 2013 Senior Facility whereby certain modifications were made to the financial covenant calculations. As of March 31, 2015, the Company was in compliance with all of the debt covenants related to the 2013 Senior Facility.

As of March 31, 2015, $2.12 billion of land, buildings and equipment (before accumulated depreciation) have been pledged as collateral for our mortgages, notes and loans payable. Certain mortgage notes payable may be prepaid but are generally subject to a prepayment penalty equal to a yield-maintenance premium, defeasance or a percentage of the loan balance.

The weighted-average interest rate on our collateralized mortgages, notes and loans payable was approximately 4.6% as of March 31, 2015 and December 31, 2014. As of March 31, 2015, the average remaining term was 4.6 years.

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ROUSE PROPERTIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 6 ACCOUNTS PAYABLE AND ACCRUED EXPENSES, NET

The following table summarizes the significant components of accounts payable and accrued expenses, net:



	March 31, 2015		December 31, 2014
	(In thousands)
Below market tenant leases, net (Note 2)	$	41,316	$	43,292
Construction payable	20,671		16,272
Accounts payable and accrued expenses	10,480		9,901
Accrued dividend	10,478		9,885
Accrued real estate taxes	9,317		9,028
Accrued interest	6,543		4,380
Deferred income	4,611		5,471
Asset retirement obligation liability	4,515		4,545
Accrued payroll and other employee liabilities	2,852		9,352
Tenants and other deposits	1,369		1,336
Other	1,292		514
Total accounts payable and accrued expenses, net	$	113,444	$	113,976

NOTE 7 DERIVATIVES

Cash Flow Hedges of Interest Rate Risk

The Company records its derivative instruments in its Consolidated Balance Sheets at fair value. The accounting for changes in the fair value of a derivative depends on the intended use of the derivative, whether the derivative has been designated as a hedge and, if so, whether the hedge has met the criteria necessary to apply hedge accounting.

The Company's objectives in using interest rate derivatives are to add stability to interest expense and to manage its exposure to interest rate movements. To accomplish these objectives, the Company primarily uses interest rate swaps and caps as part of its interest rate risk management strategy. Interest rate swaps designated as cash flow hedges involve the receipt of variable-rate amounts from the counterparty in exchange for the Company making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount. Interest rate caps designated as cash flow hedges involve the receipt of variable-rate amounts from a counterparty if interest rates rise above the strike rate on the contract in exchange for an up-front premium.

The effective portion of changes in fair value of derivatives designated and that qualify as cash flow hedges is recorded in accumulated other comprehensive income (loss) ("AOCI/L") and is subsequently reclassified into earnings in the period in which the hedged forecasted transactions affect earnings. During the three months ended March 31, 2015 and March 31, 2014, such derivatives were used to hedge the variable cash flows associated with existing variable-rate borrowings. The ineffective portion of the change in fair value of the derivatives is recognized in earnings. During the three months ended March 31, 2015 and March 31, 2014, the Company recorded no hedge ineffectiveness for the interest rate swap.

Amounts reported in AOCI/L related to derivatives are reclassified to interest expense as interest payments are made on the Company’s variable-rate debt. As of March 31, 2015, the Company expects that an additional $0.7 million will be reclassified as an increase to interest expense over the next 12 months.

Interest Rate Swap

The Company entered into an interest rate swap to hedge the risk of changes in cash flows on borrowings related to the West Valley Mall in January 2014. The interest related to this loan was computed at a variable rate of LIBOR + 1.75% and the Company

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

swapped this for a fixed rate of 1.49% plus a spread of 1.75%. The interest rate swap protects the Company from increases in the hedged cash flows attributable to increases in LIBOR. The interest rate swap matures in June 2018.

As of March 31, 2015, the Company had the following outstanding interest rate derivative that was designated as a cash flow hedge of interest rate risk:



Interest Rate Derivative	Number of Instruments	Notional Amount
		(in thousands)
Interest rate swap	1	$59,000

Non-Designated Hedges - Interest Rate Caps

Derivatives not designated as hedges are not speculative and are used to manage the Company’s exposure to interest rate movements and other identified risks but do not meet the hedge accounting requirements. Changes in the fair value of the derivative not designated as hedges are recorded directly in earnings. For the three months ended March 31, 2015 and 2014, such amounts equaled $475 and $0.01 million, respectively. As of March 31, 2015, the Company had the following outstanding derivative that was not designated as a hedge in qualifying hedging relationships:



Interest Rate Derivative	Number of Instruments	Notional Amount
		(in thousands)
Interest rate cap	1	$65,095

The table below presents the fair value of the Company’s derivative financial instruments as well as their classification on the Company's Consolidated Balance Sheets as of March 31, 2015 and December 31, 2014:



Instrument Type	Location in consolidated balance sheets	Notional Amount		Designated Benchmark Interest Rate	Strike Rate		Fair Value at March 31, 2015			Fair Value at December 31, 2014			Maturity Date
Derivative not designated as hedging instruments		(dollars in thousands)
Interest Rate Cap	Prepaid expenses and other assets, net	$	65,095	One-month LIBOR	4.5	%	$	—		$	1		May 2016
Derivative designated as hedging instruments
Pay fixed / receive variable rate swap	Accounts payable and accrued expenses, net	$	59,000	One-month LIBOR	1.49	%	$	(888	)	$	(482	)	June 2018

The table below presents the effect of the Company’s derivative financial instruments on the Company's Consolidated Statements of Operations and Comprehensive Income (Loss) for the three months ended March 31, 2015. The Company had no cash flow hedges during the three months ended March 31, 2014.



							Location of Losses Reclassified from OCI/L Into Earnings (Effective Portion)					Location of Gain (Loss) Recognized in Earnings (Ineffective Portion)
Hedging Instrument	Gain (Loss) Recognized in OCI/L (Effective Portion)							Loss Recognized in Earnings (Effective Portion)					Gain Recognized in Earnings (Ineffective Portion)
	(dollars in thousands)
Three Months Ended March 31,	2015			2014				2015		2014			2015		2014

Pay fixed / receive variable rate swap	$	(601	)	$	(411	)	Interest expense	$	195	$	125	n.a.	$	—	$	—

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Credit Risk-Related Contingent Features

The Company has an agreement with its derivative counterparty that contains a provision whereby if the Company defaults on any of its indebtedness, including a default whereby repayment of such indebtedness has not been accelerated by the lender, the Company could also be declared in default on its derivative obligations. The Company has not posted any collateral related to this agreement. As of March 31, 2015, the fair value of the derivative liability, which includes accrued interest but excludes any adjustment for nonperformance risk, related to this agreement was $1.0 million. If the Company had breached this provision as of March 31, 2015, it would have been required to settle its obligations under the agreement at its termination value of $1.0 million.

NOTE 8 DISPOSITIONS OF REAL ESTATE ASSETS

In the first quarter of 2014, the Company adopted ASU 2014-08, which changed the definition and criteria of property dispositions classified as discontinued operations, on a prospective basis. As a result of applying this accounting guidance, the following dispositions were not reclassified to discontinued operations as a prior disposition was.

The results of operations of the properties below, as well as any gain on extinguishment of debt and impairment losses related to the properties, are included in "Income from continuing operations" on the Company's Consolidated Statements of Operations and Comprehensive Income (Loss) for all periods presented, as applicable.

The Shoppes at Knollwood Mall

In January 2015, the Company sold The Shoppes at Knollwood Mall located in St. Louis Park, MN, for gross proceeds of $106.7 million. The mortgage debt of $35.1 million was defeased simultaneously with the sale of the property. The Company recognized a gain of $32.5 million as a result of the disposition, which is reflected in "Gain on sale of real estate assets" on the Company's Consolidated Statements of Operations and Comprehensive Income (Loss) for the three months ended March 31, 2015.

At closing, the Company entered into a Development Agreement with the buyer to complete the redevelopment of the property. The buyer escrowed $7.9 million in funds to settle the remaining development costs incurred by the Company. The redevelopment is expected to be completed by June 30, 2015. Escrowed funds in excess of the remaining development costs will be recorded as a "Gain on sale of real estate assets" on the Company's Consolidated Statements of Operations and Comprehensive Income (Loss)in the period the development is completed and the funds are released.

Steeplegate Mall

In March 2015, the Company conveyed Steeplegate Mall located in Concord, NH to its mortgage lender in full satisfaction of the debt. The loan had a net outstanding balance of approximately $45.9 million. The Company recognized a $22.8 million gain related to the debt extinguishment which is reflected in "Gain on extinguishment of debt" on the Company's Consolidated Statements of Operations and Comprehensive Income (Loss) for the three months ended March 31, 2015.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 9 INCOME TAXES

The Company elected to be taxed as a Real Estate Investment Trust ("REIT") beginning with the filing of its tax return for the 2011 fiscal year. As of March 31, 2015, the Company has met the requirements of a REIT and has filed its tax returns for the 2013 calendar year accordingly. Subject to its ability to meet the requirements of a REIT, the Company intends to maintain this status in future periods.

To qualify as a REIT, the Company must meet a number of organizational and operational requirements, including requirements to distribute at least 90% of its ordinary taxable income and to either distribute capital gains to stockholders, or pay corporate income tax on the undistributed capital gains. In addition, the Company is required to meet certain asset and income tests.

As a REIT, the Company will generally not be subject to corporate level federal income tax on taxable income that it distributes currently to its stockholders. If the Company fails to qualify as a REIT in any taxable year, it will be subject to federal income taxes at regular corporate rates, including any applicable alternative minimum tax, and may not be able to qualify as a REIT for four subsequent taxable years. Even if the Company qualifies for tax treatment as a REIT, it may be subject to certain state and local taxes on its income or property, and to federal income and excise taxes on its undistributed taxable income.

The Company has a subsidiary that it elected to treat as a Taxable REIT Subsidiary ("TRS"), which is subject to federal and state income taxes. For each of the three months ended March 31, 2015 and 2014, the Company incurred approximately $0.01 million and $0.02 million, respectively, in taxes associated with the TRS, which are recorded in "Provision for income taxes" on the Company's Consolidated Statements of Operations and Comprehensive Income (Loss).

NOTE 10 COMMON STOCK

On January 13, 2014, the Company issued 8,050,000 shares of common stock in an underwritten public offering at a public offering price of $19.50 per share. Net proceeds of the public offering were approximately $150.7 million after deducting the underwriting discount of $6.3 million, but before deducting offering expenses.

Brookfield Asset Management, Inc. and its affiliates (collectively, “Brookfield”) owned approximately 33.5% of the Company's common stock as of March 31, 2015.

Dividends

On February 26, 2015, the Company's Board of Directors declared a first quarter common stock dividend of $0.18 per share, which was paid on April 30, 2015 to stockholders of record on April 15, 2015.

Dividend Reinvestment and Stock Purchase Plan

On May 12, 2014, the Company established a Dividend Reinvestment and Stock Purchase Plan ("DRIP"). Under the DRIP, the Company's stockholders may purchase additional shares of common stock by automatically reinvesting all or a portion of the cash dividends paid on their shares of common stock or by making optional cash payments, or both, at fees described in the DRIP prospectus. The DRIP commenced with the payment of the second quarter dividend which was paid on July 31, 2014 to stockholders of record on July 15, 2014. To date, the Company has purchased the shares needed to satisfy the DRIP elections in the open market. No additional shares have been issued.

Employee Stock Purchase Plan

On July 1, 2014, the Company commenced enrollment under its Employee Stock Purchase Plan (the "ESPP"). The ESPP was implemented to provide eligible employees of the Company and its participating subsidiaries with an opportunity to purchase common stock of the Company at a discount of 5%, through accumulated payroll deductions or other permitted contributions. The ESPP was adopted by the Company's Board of Directors on February 27, 2014 and approved by its stockholders on May 9, 2014. The first offering period commenced on August 1, 2014 and had a duration of three months, closing on October 31, 2014. The maximum number of shares of common stock that may be issued under the ESPP is 500,000 subject to adjustments under certain circumstances. As of March 31, 2015, 2,813 shares have been issued under the ESPP since the ESPP was implemented.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 11 STOCK BASED COMPENSATION PLANS

Incentive Stock Plans

On January 12, 2012, the Company adopted the Rouse Properties, Inc. 2012 Equity Incentive Plan (the "Equity Plan").

Stock Options

Pursuant to the Equity Plan, the Company granted stock options to certain employees of the Company. The vesting terms of these grants are specific to the individual grant. In general, participating employees are required to remain employed for vesting to occur (subject to certain limited exceptions). In the event that a participating employee ceases to be employed by the Company, any options that have not vested will generally be forfeited. Stock options generally vest annually over a five year period.

The following tables summarize stock option activity for the Equity Plan for the three months ended March 31, 2015 and 2014:



	2015			2014
	Shares		Weighted Average Exercise Price	Shares		Weighted Average Exercise Price
Stock options outstanding at January 1,	3,313,869		$15.89	2,579,171		$15.14
Granted	857,000		17.18	750,300		18.40
Exercised	(34,248	)	15.11	—		—
Forfeited	(32,209	)	17.18	(35,400	)	15.13
Expired	—		—	—		—
Stock options outstanding at March 31,	4,104,412		$16.16	3,294,071		$15.89



	Stock Options Outstanding ⁽¹⁾
Issuance	Shares	Weighted Average Remaining Contractual Term (in years)	Weighted Average Exercise Price
March 2012	1,463,417	7.00	$14.72
May 2012	21,900	7.17	13.71
August 2012	36,400	7.42	13.75
October 2012	297,257	7.58	14.47
February 2013	671,400	7.92	16.48
February 2014	728,840	8.92	18.40
July 2014	28,198	9.33	17.20
February 2015	857,000	9.92	17.18
Stock options outstanding at March 31, 2015	4,104,412	8.16	$16.16

Explanatory Note:

⁽¹⁾As of March 31, 2015, 1,427,143 stock options are fully vested and are currently exercisable. As of March 31, 2015, the intrinsic value of these options was $5.1 million, and such stock options had a weighted average exercise price of $15.39 and a weighted average remaining contractual term of 7.5 years.

The Company recognized $0.5 million and $0.4 million in compensation expense related to the stock options for the three months ended March 31, 2015 and 2014, respectively, which is recorded in "General and administrative" on the Company's Consolidated Statements of Operations and Comprehensive Income (Loss).

Restricted Stock

Pursuant to the Equity Plan, the Company granted restricted stock to certain employees and non-employee directors. The vesting terms of these grants are specific to the individual grant, and are generally three to four year periods. In general, participating

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employees are required to remain employed for vesting to occur (subject to certain limited exceptions). In the event that a participating employee ceases to be employed by the Company, any shares that have not vested will generally be forfeited. Dividends are paid on restricted stock and are not returnable, even if the underlying stock does not ultimately vest.

The following table summarizes restricted stock activity for the three months ended March 31, 2015 and 2014:



	2015			2014
	Shares		Weighted Average Grant Date Fair Value	Shares		Weighted Average Grant Date Fair Value
Non-vested restricted stock grants outstanding at January 1,	205,731		$15.45	278,617		$14.85
Granted	53,550		17.18	42,489		18.40
Forfeited	—		—	—		—
Canceled	—		—	—		—
Vested	(113,342	)	14.99	(101,464	)	14.95
Non-vested restricted stock grants outstanding at March 31,	145,939		$16.21	219,642		$15.49

The weighted average remaining contractual term (in years) of granted, non-vested restricted stock awards as of March 31, 2015 was 1.3 years.

The Company recognized $0.4 million in compensation expense related to the restricted stock for each of the three months ended March 31, 2015 and 2014, respectively, which is recorded in "General and administrative" on the Company's Consolidated Statements of Operations and Comprehensive Income (Loss).

Other Disclosures

As of March 31, 2015, there was $9.8 million of total unrecognized compensation expense related to all nonvested options and restricted stock grants. Of this total, $3.0 million in 2015, $3.2 million in 2016, $1.8 million in 2017, $1.1 million in 2018, $0.6 million in 2019 and $0.1 million in 2020, will be recognized, respectively, in "General and administrative" on the Company's Consolidated Statements of Operations and Comprehensive Income (Loss). These amounts may be impacted by future grants, changes in forfeiture estimates or vesting terms, and actual forfeiture rates differing from estimated forfeiture rates.

NOTE 12 NON-CONTROLLING INTEREST

The non-controlling interest on the Company's Consolidated Balance Sheets represents Series A Cumulative Non-Voting Preferred Stock ("Preferred Shares") of Rouse Holdings, Inc. ("Holdings"), a subsidiary of Rouse, and the interest in the Mall at Barnes Crossing entities.

Holdings issued 111 Preferred Shares at a par value of $1,000 per share to third parties on June 29, 2012. The Preferred Shareholders are entitled to a cumulative preferential annual cash dividend of 12.5%. These Preferred Shares may only be redeemed at the option of Holdings for $1,000 per share plus all accrued and unpaid dividends. Furthermore, in the event of a voluntary or involuntary liquidation of Holdings, the Preferred Shareholders are entitled to a liquidation preference of $1,000 per share plus all accrued and unpaid dividends. The Preferred Shares are not convertible into or exchangeable for any property or securities of Holdings.

On August 29, 2014, the Company purchased a 51% interest in three limited liability companies which together own and operate the Mall at Barnes Crossing, the Market Center, a strip shopping center located adjacent to the property, and various vacant land parcels associated with the development (collectively referred to as "The Mall at Barnes Crossing"). The Company determined it holds the controlling interest in the The Mall at Barnes Crossing. As a result, the joint venture is presented on the Company's Consolidated Financial Statements as of March 31, 2015 and December 31,2014 and for the three months ended March 31, 2015 on a consolidated basis, with the interests of the third parties reflected as a non-controlling interest.

In connection with the acquisition, the Company formed a joint venture with the other interest holders in the properties. Pursuant to the joint venture arrangements, the Company has the exclusive authority to manage the business of the joint venture, except for certain actions (e.g., disposing of the properties and incurring debt under certain circumstances) that would require the consent of a third-party partner. At any time after August 29, 2017 (or earlier under certain circumstances), the Company will have the right to purchase its partners’ interests in the joint venture at a purchase price generally equal to their fair market value (the “Call Price”). Consideration paid to our partners for their interests in the joint venture may, under certain circumstances, be in the form of shares of our common stock and/or common units (“Units”) of our operating partnership, Rouse Properties, LP (the “Operating Partnership”). If the consideration for the Call Price includes Units, the Company, the Operating Partnership and a third-party partner will enter into a tax protection agreement that will provide for indemnification of such partner under certain circumstances against certain tax liabilities incurred by such partner, if such liabilities result from a transaction involving a taxable disposition of The Mall at Barnes Crossing or the failure to offer to such partner the opportunity to guarantee certain indebtedness.

NOTE 13 EARNINGS PER SHARE

Earnings per share ("EPS") is calculated using the two class method, which allocates earnings among common stock and participating securities to calculate EPS when an entity's capital structure includes either two or more classes of common stock or common stock and participating securities. Unvested share-based payment awards that contain non-forfeitable rights to dividends or dividend equivalents (whether paid or unpaid) are participating securities. As such, unvested restricted stock of the Company are considered participating securities. The dilutive effect of options and their equivalents (including fixed awards and nonvested stock issued under stock-based compensation plans), is computed using the “treasury” method.

The following table presents a reconciliation of net income (loss) used in basic and diluted EPS calculations ($ in thousands, except per share data):

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS




	Three Months Ended March 31,
	2015			2014
Net income (loss) attributable to Rouse Properties Inc.	$	44,407		$	(4,425	)
Net loss attributable to non-controlling interests	(6		)	—
Income (loss) attributable to Rouse Properties Inc. and allocable to common shareholders and Participating Security Holders	$	44,401		$	(4,425	)

Earnings allocable to common shares:
Numerator for basic and diluted earnings per share
Net income (loss) attributable to Rouse Properties Inc. and allocable to common shareholders	$	43,759		$	(4,425	)

Denominator for basic and diluted earnings per share
Weighted average common shares outstanding - basic	57,603,340			56,129,522
Add: effect of assumed shares issued under treasury stock method for stock options and restricted shares	683,916			—
Weighted average common shares outstanding - diluted	58,287,256			56,129,522

Basic and Diluted earnings per share
Net income (loss) attributable to Rouse Properties Inc. and allocable to common shareholders- basic	$	0.76		$	(0.08	)

Net income (loss) attributable to Rouse Properties Inc. and allocable to common shareholders- diluted	$	0.75		$	(0.08	)

Earnings allocable to Participating Security Holders
Numerator for basic and diluted earnings per share
Net income (loss) attributable to Rouse Properties Inc and allocable to Participating Security Holders	$	519		$	—

Denominator for basic and diluted earnings per share
Weighted average common shares outstanding - basic	57,603,340			56,129,522
Add: effect of assumed shares issued under treasury stock method for stock options and restricted shares	683,916
Weighted average common shares outstanding - diluted	58,287,256			56,129,522

Basic and Diluted earnings per share
Net income (loss) attributable to Rouse Properties Inc. and allocable to common shareholders- basic	$	0.01		$	—

Net income (loss) attributable to Rouse Properties Inc. and allocable to common shareholders- diluted	$	0.01		$	—

NOTE 14 RELATED PARTY TRANSACTIONS

Office Lease with Brookfield

Upon its spin-off from GGP, the Company assumed a 10-year lease agreement with Brookfield, as landlord, for office space for its corporate office in New York City. Costs associated with the office lease were $0.3 million for each of the three months ended March 31, 2015 and 2014. There were no outstanding amounts payable as of March 31, 2015 and December 31, 2014.

Business Information and Technology Costs

As part of the spin-off from GGP, the Company commenced the development of its initial information technology platform ("Brookfield Platform"). The development of the Brookfield Platform required us to purchase, design and create various information technology applications and infrastructure. Brookfield Corporate Operations, LLC ("BCO") had been engaged to

assist in the project development and to procure the various applications and infrastructure of the Company. As of March 31, 2015, the Company had approximately $8.3 million of infrastructure costs which were capitalized in "Buildings and equipment" on the Company's Consolidated Balance Sheets. As of March 31, 2015, no costs were outstanding and payable.

The Company was also required to pay a monthly information technology services fee to BCO. Approximately $0.5 million and $0.8 million in costs were incurred for the three months ended March 31, 2015 and 2014, respectively. As of March 31, 2015 and December 31, 2014, $0.5 million and $0.3 million of costs were outstanding and payable, respectively.

Currently, the Company is undertaking the development of its own information technology platform ("Rouse Platform"). As of March 31, 2015, the Company had incurred approximately $9.8 million of infrastructure costs, of which $8.5 million was incurred for the Rouse Platform. As of March 31, 2015, $7.0 million is included in "Buildings and equipment" on the Company's Consolidated Balance Sheets that is related to the purchase, design and implementation of various technology applications and infrastructure of the Rouse Platform. The remaining $1.5 million is included in "Other" on the Company's Consolidated Statements of Operations and Comprehensive Income (Loss) that is related to the planning, scoping and data governance of developing the Rouse Platform. As of March 31, 2015 and December 31, 2014, $0.3 million of costs were outstanding and payable.

In connection with the development of the Rouse Platform, the Company accelerated the remaining depreciation of the costs related to the initial move to the Brookfield Platform resulting in additional depreciation expense of $1.3 million for the three months ended March 31, 2015, which is included in "Depreciation and amortization" on the Company's Consolidated Statements of Operations and Comprehensive Income (Loss).

Financial Service Center

During 2013, the Company engaged BCO's financial service center to manage certain administrative services of Rouse, such as accounts payable and receivable, lease administration, and other similar types of services. Approximately $0.03 million and $0.8 million in costs were incurred for the three months ended March 31, 2015 and 2014, respectively. As of March 31, 2015 and December 31, 2014, there were $0.2 million outstanding and payable.

Demand Deposit from Brookfield U.S. Holdings

In August 2012, the Company entered into an agreement with Brookfield U.S. Holdings ("U.S. Holdings") to place funds into an interest bearing account which earns interest at LIBOR plus 1.05% per annum. The demand deposit was secured by a note from U.S. Holdings and is guaranteed by Brookfield Asset Management Inc. The demand deposit had an original maturity of February 14, 2013 and was extended to November 14, 2014. However, the Company may have demanded the funds earlier by providing U.S. Holdings with three days notice. The Company earned approximately $0.2 million in interest income for the three months ended March 31, 2014. As of the year ended December 31, 2014, the agreement has been terminated.

NOTE 15 SUBSEQUENT EVENTS

On April 30, 2015, the Company conveyed its interest in Collin Creek Mall located in Plano, TX, to its mortgage lender in full satisfaction of the debt.

On May 04, 2015, the Company's Board of Directors declared a second quarter common stock dividend of $0.18 per share which will be paid on July 31, 2015 to stockholders of record on July 15, 2015.

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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

All references to numbered Notes are to specific footnotes to our Consolidated Financial Statements included in this Quarterly Report and which descriptions are incorporated into the applicable response by reference. The following discussion should be read in conjunction with such Consolidated Financial Statements and related Notes. Capitalized terms used, but not defined, in this Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) have the same meanings as in such Notes.

Forward-looking information

We may make forward-looking statements in this Quarterly Report and in other reports that we file with the Securities and Exchange Commission (the "SEC"). In addition, our senior management may make forward-looking statements orally to analysts, investors, creditors, the media and others.

Forward-looking statements include:


•	Descriptions of plans or objectives for future operations


•	Projections of our revenues, net operating income (“NOI”), core net operating income (“Core NOI”), earnings per share, funds from operations (“FFO”), core funds from operations (“Core FFO”), capital expenditures, income tax and other contingent liabilities, dividends, leverage, capital structure or other financial items


•	Forecasts of our future economic performance


•	Descriptions of assumptions underlying or relating to any of the foregoing

Forward-looking statements discuss matters that are not historical facts. Because they discuss future events or conditions, forward-looking statements often include words such as “anticipate,” “believe,” “estimate,” “expect,” “intend,” “plan,” “project,” “target,” “can,” “could,” “may,” “should,” “would” or similar expressions. Forward-looking statements should not be unduly relied upon. They give our expectations about the future and are not guarantees. Forward-looking statements speak only as of the date they are made and we might not update them to reflect changes that occur after the date they are made.

There are several factors, many beyond our control, which could cause results to differ materially from our expectations, some of which are described in "Item 1A. Risk Factors" in our Annual Report. These factors are incorporated herein by reference. Any factor could by itself, or together with one or more other factors, adversely affect our business, results of operations or financial condition.

Overview—Introduction

As of March 31, 2015, our portfolio consisted of 35 regional malls in 21 states totaling over 24.9 million square feet of retail and ancillary space which were 90.1% leased and 87.7% occupied. Including anchors, our properties were 94.7% leased and 93.6% occupied. We elected to be treated as a REIT beginning with the filing of our federal income tax return for the 2011 taxable year. As of March 31, 2015, we have met the requirements of a REIT and have filed our tax returns for the 2013 fiscal year accordingly. Subject to our ability to meet the requirements of a REIT, we intend to maintain this status in future periods.

The majority of the income from our properties is derived from rents received through long-term leases with retail tenants. These long-term leases generally require the tenants to pay base rent which is a fixed amount specified in the lease. The base rent is often subject to scheduled increases during the term of the lease. Our financial statements refer to this as "minimum rents." Certain of our leases also include a component which requires tenants to pay amounts related to all or substantially all of their share of real estate taxes and certain property operating expenses, including common area maintenance and insurance. The revenue earned attributable to real estate tax and operating expense recoveries are recorded as "tenant recoveries." Another component of income is overage rent. Overage rent is paid by a tenant when its sales exceed an agreed upon minimum amount. Overage rent is calculated by multiplying the tenant's sales in excess of the minimum amount by a percentage defined in the lease. Overage rent is typically earned in the fourth quarter.

Our objective is to achieve growth in NOI, Core NOI, FFO and Core FFO by leasing, operating and repositioning retail properties with locations that are either market dominant (the only mall within an extended distance) or trade area dominant (the premier mall serving the defined regional consumer). We seek to continue to control costs and to deliver an appropriate tenant mix, higher occupancy rates and increased sales productivity, resulting in higher minimum rents.

We believe that the most significant operating factor affecting incremental cash flow, NOI, Core NOI, FFO and Core FFO is increased aggregate rents collected from tenants at our properties. These rental revenue increases are primarily achieved by:

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•	Increasing occupancy at the properties so that more space is generating rent;


•	Increasing tenant sales in which we participate through overage rent;


•	Re-leasing existing space and renewing expiring leases at rates higher than expiring or existing rates; and


•	Prudently investing capital into our properties to generate an increased overall return.

Overview—Basis of Presentation

We were formed in August 2011 for the purpose of holding certain assets and assuming certain liabilities of GGP. Following the distribution of these assets and liabilities to us on January 12, 2012, we began operating our business as a stand-alone owner and operator of regional malls. The financial information included in this Quarterly Report has been presented on a consolidated basis for the periods presented.

Recent Developments

In January 2015, we sold The Shoppes at Knollwood in St. Louis Park, MN, for gross proceeds of $106.7 million. The mortgage debt balance of $35.1 million was defeased simultaneously with the sale of the property. Net proceeds of $54.7 million were available for general corporate purposes, including acquisitions and ongoing capital investments within the existing portfolio.

In January 2015, we acquired Mt. Shasta Mall located in Redding, CA, for a total purchase price of $49.0 million. In February 2015, we placed a new $31.9 million non-recourse mortgage loan on the property. The loan bears interest at 4.19%, matures in March 2025, is interest only for the first three years and amortizes on a 30 year schedule, thereafter.

In February 2015, we repaid the $10.4 million mortgage debt balance on Washington Park Mall which had a fixed interest rate of 5.35%..

In February 2015, the Board of Directors declared a first quarter common stock dividend of $0.18 per share, which was paid on April 30, 2015 to stockholders of record on April 15, 2015.

In February 2015, the loan associated with Vista Ridge Mall was transferred to special servicing.

In March 2015, we conveyed our interest in Steeplegate Mall to the lender of the loan related to the property. The loan had a net outstanding balance of approximately $45.9 million. The Company recognized a $22.8 million gain related to the debt extinguishment.

Results of Operations

As of March 31, 2015, our total portfolio consisted of 35 properties (which excludes Knollwood Mall and Steeplgate Mall, which were disposed of during the three months ended March 31, 2015). Properties that were in operation and owned as of January 1, 2014, excluding properties that are undergoing redevelopment with significant disruption and three assets that have been reclassified as special consideration assets⁽¹⁾, are referred to as our Same Property portfolio. As of March 31, 2015, our Same Property portfolio consisted of 27 properties. The following table identifies which of our properties were excluded from our Same Property portfolio:



Property		Location
Acquisitions:
Mt. Shasta		Redding, CA
The Mall at Barnes Crossing		Tupelo, MS
Bel Air Mall		Mobile,AL

Redevelopments:
Gateway Mall		Springfield, OR
NewPark Mall		Newark, NJ
Spring Hill Mall		West Dundee, IL

Special Consideration Assets:⁽¹⁾
Collin Creek Mall		Plano, TX
Vista Ridge Mall		Lewisville, TX

Dispositions:
Knollwood Mall		St. Louis Park, MN
Steeplegate Mall		Concord, NH

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Explanatory Note:

⁽¹⁾ An asset is designated as a special consideration asset when a property has a heightened probability of being conveyed to its lender absent substantive renegotiation.

Three Months Ended March 31, 2015 compared to the Three Months Ended March 31, 2014



		March 31, 2015			March 31, 2014			$ Change			% Change
	(In thousands)
Revenues:
Minimum rents		$	51,534		$	45,970		$	5,564		12.1	%
Tenant recoveries		19,949			19,184			765			4.0
Overage rents		1,590			1,464			126			8.6
Other		1,488			1,221			267			21.9
Total revenues		74,561			67,839			6,722			9.9
Expenses:
Property operating costs		16,875			16,736			139			0.8
Real estate taxes		7,474			6,193			1,281			20.7
Property maintenance costs		3,385			3,176			209			6.6
Marketing		389			541			(152		)	(28.1	)
Provision for doubtful accounts		497			193			304			>100.0
General and administrative		6,470			5,941			529			8.9
Provision for impairment		2,900			—			2,900			100.0
Depreciation and amortization		25,986			21,045			4,941			23.5
Other		2,159			674			1,485			>100.0
Total operating expenses		66,135			54,499			11,636			21.4
Operating income		8,426			13,340			(4,914		)	(36.8	)

Interest income		13			172			(159		)	(92.4	)
Interest expense		(19,151		)	(17,813		)	(1,338		)	(7.5	)
Gain on extinguishment of debt		22,840			—			22,840			100.0
Provision for income taxes		(236		)	(124		)	(112		)	(90.3	)
Income (loss) from continuing operations before gain on sale of real estate assets		11,892			(4,425		)	16,317			>100.0
Gain on sale of real estate assets		32,509			—			32,509			100.0
Income (loss) from continuing operations		44,401			(4,425		)	48,826			>100.0
Discontinued operations		—			—			—			—
Net income (loss)		$	44,401		$	(4,425	)	$	48,826		>100.0

Revenues

Total revenues increased $6.7 million for the three months ended March 31, 2015 compared to the three months ended March 31, 2014. The increase in revenues was primarily due to an increase in minimum rents due to the acquisitions of Bel Air Mall, The Mall at Barnes Crossing and Mt. Shasta Mall, which were all acquired subsequent to March 31, 2014.

Operating Expenses

Property operating expenses increased $1.8 million for the three months ended March 31, 2015 compared to the three months ended March 31, 2014. Property operating expenses include property operating costs, real estate taxes, property maintenance costs, marketing, and provision for doubtful accounts. Real estate taxes increased $1.3 million for the three months ended March 31, 2015 compared to the three months ended March 31, 2014, of which $0.8 million was related to the acquisitions that we

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acquired in 2014 and the remaining increase was related to property tax litigation fees and property tax refunds that we received during the three months ended March 31, 2014.

General and administrative expenses increased by $0.5 million for the three months ended March 31, 2015 compared to the three months ended March 31, 2014. The increase was a result of a full three months of compensation and employee related costs in 2015 from additional staffing completed in 2014.

Provision for impairment increased $2.9 million during the three months ended March 31, 2015. As a result of a continued decline in operating results at Collin Creek Mall, we recorded an impairment charge for the excess carrying amount over the estimated fair value of the property.

Depreciation and amortization expenses increased $4.9 million for the three months ended March 31, 2015 compared to the three months ended March 31, 2014. The increase was primarily attributable to the properties we acquired throughout 2015 and 2014.

Other Income and Expenses

Interest expense increased $1.3 million for the three months ended March 31, 2015 compared to the three months ended March 31, 2014. The increase was primarily related to the loans associated with the properties acquired subsequent to March 31, 2014.

Gain on extinguishment of debt increased $22.8 million for the three months ended March 31, 2015 compared to the three months ended March 31, 2014 as a result of the conveyance of Steeplegate Mall to its lender.

Gain on sale of real estate assets increased $32.5 million for the three months ended March 31, 2015 compared to the three months ended March 31, 2014 as a result of the sale of The Shoppes at Knollwood Mall.

Operating Metrics

Leasing Volume

The following table represents the leases signed during the three months ended March 31, 2015:



2015 Leasing Activity⁽¹⁾⁽²⁾	Number of Leases	Square Feet	Term (in years)	Initial Inline Rent PSF ⁽⁴⁾⁽⁵⁾		Initial Freestanding Rent PSF ⁽⁴⁾⁽⁶⁾		Average Inline Rent PSF⁽⁵⁾⁽⁷⁾		Average Freestanding Rent PSF ⁽⁶⁾⁽⁷⁾
New Leases
Under 10,000 sq. ft.	31	110,270	7.6	$36.85		$37.88		$42.15		$40.17
Over 10,000 sq. ft.	3	62,808	6.5	16.39		—		17.02		—
Total New Leases	34	173,078	7.2	29.23		37.88		32.80		40.17

Renewal Leases
Under 10,000 sq. ft.	64	167,877	2.3	$36.97		$21.49		$37.90		$21.49
Over 10,000 sq. ft.	3	83,356	4.8	—		—		—		—
Total Renewal Leases	67	251,233	3.1	36.97		21.49		37.90		21.49

Sub-Total	101	424,311	4.8	$	32.97	$	26.30	$	35.26	$	26.97

Percent in Lieu	14	32,468	n.a.	n.a.		n.a		n.a.		n.a

Total Q1 2015 ⁽³⁾	115	456,779	4.8	$32.97		$26.30		$35.26		$26.97

Explanatory Notes:

⁽¹⁾Excludes anchors and specialty leasing. An anchor is defined as a department store or discount department store in traditional spaces whose merchandise appeals to a broad range of shoppers or spaces which are greater than 70,000 square feet.

⁽²⁾Represents signed leases as of March 31, 2015.

⁽³⁾The total leasing commissions were approximately $2.3 million for the three months ended March 31, 2015. There were no material tenant concessions with respect to the leases signed during the three months ended March 31, 2015.

⁽⁴⁾ Represents initial rent at time of rent commencement consisting of base minimum rent, common area costs, and real estate taxes.

⁽⁵⁾Inline spaces are all mall shop locations excluding anchor and freestanding stores.

⁽⁶⁾Freestanding spaces are outparcel retail locations (locations that are not attached to the primary complex of buildings that comprise a shopping center). Excludes anchor stores.

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⁽⁷⁾ Represents average rent over the lease term consisting of base minimum rent, common area costs, and real estate taxes.

The following table represents our weighted average in-place rent for freestanding and mall space that is less than 10,000 square feet for the three months ended March 31, 2015 for our Same Property portfolio:



	In-Place Rent < 10k SF ⁽¹⁾
	March 31, 2015
Freestanding ⁽²⁾	$20.65
Mall ⁽³⁾	$40.58
Total Same Property portfolio	$38.11

Explanatory Notes:

⁽¹⁾Rent is presented on a cash basis and consists of base minimum rent, common area maintenance costs, and real estate taxes.

⁽²⁾Freestanding spaces are outparcel retail locations (locations that are not attached to the primary complex of buildings that comprise a shopping center). Excludes anchor stores.

⁽³⁾Mall shop locations excluding anchor and freestanding stores.

New and Renewal Lease Spread

The following table represents leasing and rent spread information for renewals and new leases that we signed during the three months ended March 31, 2015, as compared to the rents of the expiring leases on the same space:



New and Renewal Lease Spread ⁽¹⁾

	Number of Leases	Square Feet	Term (in years)	Initial Rent PSF ⁽²⁾	Average Rent PSF ⁽³⁾	Expiring Rent PSF ⁽⁴⁾	Initial Rent Spread		Average Rent Spread
Three Months Ended March 31, 2015	75	276,053	3.9	$30.33	$32.29	$27.00	$3.33	12.3%	$5.30	19.6%

Explanatory Notes:

⁽¹⁾Excludes anchors, percent in lieu, and specialty leasing.

⁽²⁾ Represents initial rent per square foot at time of rent commencement, with rent consisting of base minimum rent, common area costs, and real estate taxes.

⁽³⁾ Represents average rent per square foot over the lease term, with rent consisting of base minimum rent, common area costs, and real estate taxes.

⁽⁴⁾Represents expiring rent per square foot at end of lease, with rent consisting of base minimum rent, common area costs, and real estate taxes.

Same Property Trends


•	Same Property Core NOI was $36.6 million for the three months ended March 31, 2015 compared to $35.8 million for the three months ended March 31, 2014. See "—Non-GAAP Financial Measures" for a discussion of Core NOI and a reconciliation of Same Property Core NOI and Core NOI from the consolidated net income as computed in accordance with GAAP.


•	Average total rent for mall spaces that are less than 10,000 square feet increased 4.9%, to $40.58 as of March 31, 2015 from $38.67 per square foot as of March 31, 2014 in our Same Property portfolio. The increase is attributable to higher rents on new and renewal lease as compared to existing rents of the Same Property portfolio.

Liquidity and Capital Resources

Our primary uses of cash include payment of operating expenses, working capital, capital expenditures, debt repayments, including principal and interest, reinvestment in properties, development and redevelopment of properties, acquisitions, tenant allowances, and dividends.

Our primary sources of cash are operating cash flow, refinancings of existing loans, equity offerings, and borrowings under our 2013 Revolver.

Our short-term (less than one year) liquidity requirements include scheduled debt maturities, recurring operating costs, capital expenditures, debt service requirements, and dividend requirements on our shares of common stock. We anticipate that these needs will be met with cash flows provided by operations and funds available under our 2013 Revolver.

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Our long-term (greater than one year) liquidity requirements include scheduled debt maturities, capital expenditures to maintain, renovate and expand existing malls, property acquisitions, and development projects. Management anticipates that net cash provided by operating activities, asset sales, the funds available under our 2013 Revolver, and funds received from subsequent equity offerings will provide sufficient capital resources to meet our long-term liquidity requirements.

As of March 31, 2015, our combined contractual debt, excluding non-cash debt market rate adjustments, was approximately $1.54 billion. The aggregate principal and interest payments due on our outstanding indebtedness as of March 31, 2015 are approximately $217.3 million for the year ending 2015 and approximately $374.0 million for the year ending 2016.

Property-Level Debt

We had individual Property-Level Debt on 19 of our 35 assets, totaling $1.28 billion (excluding $0.8 million of market rate adjustments) as of March 31, 2015. As of March 31, 2015, the Property-Level Debt had a weighted average interest rate of 5.0% and an average remaining term of 4.8 years. The Property-Level Debt is generally non-recourse to us and is stand-alone (i.e, not cross-collateralized) first mortgage debt with the exception of customary contingent guarantees/indemnities.

The following is a summary of significant property loan refinancings and acquisitions that have occurred as of March 31, 2015 and as of December 31, 2014 ($ in thousands):



Property	Date	Balance at Date of Refinancing		Interest Rate		Balance of New Loan		New Interest Rate		Net Proceeds ⁽¹⁾		Maturity
March 31, 2015
Mt. Shasta Mall ⁽²⁾	February 2015	$	—	—	%	$	31,850	4.19	%	$	—	March 2025
December 31, 2014
Bayshore Mall ⁽²⁾	October 2014	$	—	—	%	$	46,500	3.96	%	$	43,400	October 2024
The Mall at Barnes Crossing ⁽²⁾	August 2014	—		—	%	67,000		4.29	%	—		September 2024
Chula Vista Center⁽³⁾	July 2014	—		—	%	70,000		4.18	%	15,000		July 2024
Sikes Senter ⁽³⁾	July 2014	54,618		5.2	%	—		—	%	—		—
Bel Air Mall	May 2014	—		—	%	112,505		5.30	%	—		December 2015

Explanatory Notes:

⁽¹⁾Net proceeds are net of closing costs.

⁽²⁾The loan is interest-only for the first three years.

⁽³⁾On July 1, 2014, we removed Chula Vista Center, located in Chula Vista, CA, from the 2013 Senior Facility collateral pool and placed a new non-recourse mortgage loan on the property. Sikes Senter, located in Wichita Falls, TX, had an outstanding mortgage loan which was repaid on July 1, 2014 from proceeds from the Chula Vista Center refinancing. Upon repayment, Sikes Senter was added to the 2013 Senior Facility collateral pool with no change to the outstanding 2013 Senior Facility balance.

In February 2015, we repaid the $10.4 million mortgage debt balance on Washington Park Mall which had a fixed interest rate of 5.35%.

In February 2015, the loan associated with Vista Ridge Mall was transferred to special servicing.

In March 2015, Steeplegate Mall was conveyed to its lender in full satisfaction of the debt. The loan had an outstanding balance of approximately $45.9 million.

Corporate Facilities

2013 Senior Facility

On November 22, 2013, we entered into a $510.0 million secured credit facility that provides borrowings on a revolving basis of up to $250.0 million (the "2013 Revolver") and a $260.0 million senior secured term loan (the "2013 Term Loan" and together

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with the 2013 Revolver, the "2013 Senior Facility"). Borrowings on the 2013 Senior Facility bear interest at LIBOR plus 185 to 300 basis points based on our corporate leverage. We have the option, subject to the satisfaction of certain conditions precedent, to exercise an "accordion" provision to increase the commitments under the 2013 Revolver and/or incur additional term loans in the aggregate amount of $250.0 million such that the aggregate amount of the commitments and outstanding loans under the 2013 Secured Facility does not exceed $760.0 million. During the year ended December 31, 2014, we exercised a portion of the "accordion" feature on the 2013 Senior Facility to increase the available borrowings of the 2013 Revolver thereunder from $250.0 million to $285.0 million. The term and rates of the 2013 Senior Facility were otherwise unchanged.

The 2013 Revolver has an initial term of four years with a one year extension option and the 2013 Term Loan has a term of five years. As of March 31, 2015, there was no outstanding balance on the 2013 Revolver. As of December 31, 2014, we had $10.0 million outstanding on the 2013 Revolver. The default interest rate following a payment event of default under the 2013 Senior Facility is 3.00% more than the then-applicable interest rate. We are required to pay an unused fee related to the 2013 Revolver equal to 0.20% per year if the aggregate unused amount is greater than or equal to 50% of the 2013 Revolver or 0.30% per year if the aggregate unused amount is less than 50% of the 2013 Revolver. During each of the three months ended March 31, 2015 and March 31, 2014, we incurred $0.2 million of unused fees related to the 2013 Revolver. Under the 2013 Term Loan, letters of credit totaling $1.1 million were outstanding as of March 31, 2015 in connection with four of our properties. Additionally, we had $4.1 million of letters of credit outstanding in relation to The Shoppes at Knollwood. During three months ended March 31, 2015 and 2014, we incurred $0.04 million and $0.02 million, respectively, of letter of credit fees.

The 2013 Senior Facility contains representations and warranties, affirmative and negative covenants and defaults that are customary for such a real estate loan. In addition, the 2013 Senior Facility requires compliance with certain financial covenants, including borrowing base loan to value and debt yield, corporate maximum leverage ratio, minimum ratio of adjusted consolidated earnings before interest, tax, depreciation and amortization to fixed charges, minimum tangible net worth, minimum mortgaged property requirement, maximum unhedged variable rate debt and maximum recourse indebtedness. Failure to comply with the covenants in the 2013 Senior Facility would result in a default thereunder and, absent a waiver or an amendment from our lenders, permit the acceleration of all outstanding borrowings under the 2013 Senior Facility. No assurance can be given that we would be successful in obtaining such waiver or amendment in this current financial climate, or that any accommodations that we were able to negotiate would be on terms as favorable as those in the 2013 Senior Facility. In December 2014, we entered into an amendment of the 2013 Senior Facility whereby certain modifications were made to the financial covenant calculations. As of March 31, 2015, we were in compliance with all of the debt covenants related to the 2013 Senior Facility.

Hedging Instruments

Our objectives in using interest rate derivatives are to add stability to interest expense and to manage our exposure to interest rate movements. To accomplish these objectives, we primarily use interest rate swaps and caps as part of our interest rate risk management strategy. Interest rate swaps designated as cash flow hedges involve the receipt of variable-rate amounts from the counterparty in exchange for us making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount. Interest rate caps designated as cash flow hedges involve the receipt of variable-rate amounts from a counterparty if interest rates rise above the strike rate on the contract in exchange for an up-front premium.

The table below presents the fair value of our derivative financial instruments as well as their classification on our Consolidated Balance Sheets as of March 31, 2015 and December 31, 2014:



Instrument Type	Location in consolidated balance sheets	Notional Amount		Designated Benchmark Interest Rate	Strike Rate		Fair Value at March 31, 2015			Fair Value at December 31, 2014			Maturity Date
Derivative not designated as hedging instruments		(dollars in thousands)
Interest Rate Cap	Prepaid expenses and other assets, net	$	65,095	One-month LIBOR	4.5	%	$	—		$	1		May 2016
Derivative designated as hedging instruments
Pay fixed / receive variable rate swap	Accounts payable and accrued expenses, net	59,000		One-month LIBOR	1.49	%	(888		)	(482		)	June 2018

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Capital Expenditures

Redevelopment

We continue to evaluate and execute the redevelopment of various malls within our portfolio in order to generate increased returns. A component of our business strategy is to identify value creation initiatives for our properties and to then invest capital to reposition and refresh our properties. These redevelopment opportunities are typically commenced in conjunction with leasing activity for the respective space. We anticipate funding our redevelopment projects with the net cash provided by operating activities and corporate and property level borrowings.

The table below describes our current redevelopment projects, which have commenced (dollars in thousands):



Property	Description	Total Project Square Feet	Total Estimated Project Cost	Cost as of March 31, 2015

Knollwood Mall St. Louis Park, MN	De-mall and construct new exterior facing junior boxes including Nordstrom Rack, small shops, and a new outparcel building.	118,000	$32,200	$32,200

Newpark Mall Newark, CA	140,000 SF of new entertainment, including AMC Theater and a two level restaurant pavilion with patio seating.	175,000	$52,500⁽¹⁾	$19,036

Gateway Mall Springfield, OR	De-mall and construct new exterior facing junior boxes including Marshall's, Hobby Lobby, Petco and new outparcels.	288,000	$43,300	$8,284

Southland Center Taylor, MI	Demolish vacant anchor and construct new 50,000 SF Cinemark Theater and new restaurants.	62,000	$12,100	$790

Explanatory Note:

⁽¹⁾After deducting the estimated benefit of the NPV of municipal incentives.

Operating Property Capital Expenditures

The table below describes our current operating property capital expenditures for the three months ended March 31, 2015 (in thousands):




Ordinary capital expenditures ⁽¹⁾	$	906
Cosmetic capital expenditures	4,153
Tenant improvements and allowances ⁽²⁾	3,236
Total	$	8,295

Explanatory Notes:

⁽¹⁾Includes non-tenant recurring and non-recurring capital expenditures.

⁽²⁾Includes tenant improvements and allowances on current operating properties, excluding anchors and strategic projects.

Summary of Cash Flows

Three Months Ended March 31, 2015 compared to the Three Months Ended March 31, 2014

Cash Flows from Operating Activities

Net cash provided by operating activities was $18.5 million for the three months ended March 31, 2015 compared to $12.5 million for the three months ended March 31, 2014. The increase in cash provided by operating activities was primarily the result of improvements to working capital in comparison to the same period in the prior year. Net operating income generated by the property acquisitions of Bel Air Mall, the Mall at Barnes Crossing joint venture and Mt. Shasta Mall was offset by a decrease in net operating income from the special consideration assets.

Cash Flows from Investing Activities

Net cash provided by investing activities was $16.7 million for the three months ended March 31, 2015, compared to net cash used in investing activities of $72.2 million for the three months ended March 31, 2014. During the three months ended March

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31, 2015, cash of $90.2 million was generated by the sale of The Shoppes at Knollwood Mall which was used to purchase Mt. Shasta Mall and the continued redevelopment of existing properties. For the three months ended March 31, 2014, $50.1 million was invested in a demand deposit with an affiliate and $19.9 million was used in the redevelopment of properties.

Cash Flows from Financing Activities

Net cash used in financing activities was $38.2 million for the three months ended March 31, 2015, compared to $61.6 million provided by financing activities for the three months ended March 31, 2014. For the three months ended March 31, 2015, cash was used to repay the mortgage debt on The Shoppes at Knollwood Mall and Washington Park Mall along with $10.0 million used to repay the balance outstanding on the 2013 Revolver. Partially offsetting the use of cash were proceeds from the financing of Mt. Shasta Mall of $31.9 million. For the three months ended March 31, 2014, net cash was primarily provided by $150.7 million in net proceeds received from our common stock offering in January 2014. The net proceeds were offset by a $48.0 million repayment on the Corporate Revolver and $32.8 million in loan repayments.

Contractual Cash Obligations and Commitments

The following table aggregates our contractual cash obligations and commitments as of March 31, 2015:



	2015		2016		2017		2018		2019		Thereafter		Total
	(in thousands)
Long-term debt-principal⁽¹⁾	$	162,425	$	322,645	$	130,759	$	329,279	$	12,292	$	587,366	$	1,544,766
Interest payments⁽²⁾	54,904		51,378		38,307		35,549		26,871		95,716		302,725
Operating lease obligations	993		1,340		1,409		1,421		1,356		2,230		8,749
Total	$	218,322	$	375,363	$	170,475	$	366,249	$	40,519	$	685,312	$	1,856,240

Explanatory Notes:

⁽¹⁾Excludes $0.8 million of non-cash debt market rate adjustments.

⁽²⁾Based on rates as of March 31, 2015. Variable rates are based on LIBOR rate of 0.18%.

We lease land or buildings at certain properties from third parties. The leases generally provide us with a right of first refusal in the event of a proposed sale of the property by the landlord. Rental payments are expensed as incurred and have, to the extent applicable, been straight-lined over the term of the lease.

Off-Balance Sheet Financing Arrangements

We do not have any off-balance sheet financing arrangements.

REIT Requirements

In order to maintain our qualification as a REIT for federal income tax purposes, among other requirements, we must distribute or pay tax on 100% of our capital gains and we must distribute at least 90% of our ordinary taxable income to stockholders. To avoid current entity level U.S. federal income taxes, we plan to distribute 100% of our capital gains and ordinary income to our stockholders annually. We may not have sufficient liquidity to meet these distribution requirements. We have no present intention to pay any dividends on our common stock in the future other than in order to maintain our REIT status. Our Board of Directors may decide to pay dividends in the form of cash, common stock or a combination of cash and common stock.

Seasonality

Although we have a year-long temporary leasing program, occupancies for short-term tenants and, therefore, rental income recognized, are higher during the second half of the year. In addition, the majority of our tenants have December or January lease years for purposes of calculating annual overage rent amounts. Accordingly, overage rent thresholds are most commonly achieved in the fourth quarter. As a result, revenue production is generally highest in the fourth quarter of each year.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions. These estimates and assumptions affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. For example, estimates and assumptions have been made with respect to fair values of assets and liabilities for purposes of applying the acquisition method of accounting, the useful lives of assets, capitalization of development and leasing costs, recoverable amounts of receivables, initial valuations and related amortization periods of deferred costs and intangibles, particularly with respect to acquisitions,

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impairment of long-lived assets, fair value of debt, valuation of stock options granted and hedging instruments. Actual results could differ from these and other estimates.

Critical Accounting Policies

Critical accounting policies are those that are both significant to the overall presentation of our financial condition and results of operations and require management to make difficult, complex or subjective judgments. Our critical accounting policies are discussed in our Annual Report and have not changed as of March 31, 2015.

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Non-GAAP Financial Measures

Real Estate Property Net Operating Income and Core Net Operating Income

We present NOI and Core NOI, as defined below, in this Quarterly Report as supplemental measures of our performance that are not required by, or presented in accordance with, GAAP. We believe that NOI and Core NOI are useful supplemental measures of our operating performance. We define NOI as operating revenues (minimum rents, including lease termination fees, tenant recoveries, overage rents, and other income) less property and related expenses (real estate taxes, repairs and maintenance, marketing, other property expenses, and provision for doubtful accounts). We define Core NOI as NOI excluding straight-line rent, amortization of tenant inducements, amortization of above and below-market tenant leases, and amortization of above and below-market ground rent expense. Other real estate companies may use different methodologies for calculating NOI and Core NOI and, accordingly, our NOI and Core NOI may not be comparable to other real estate companies.

Because NOI and Core NOI exclude general and administrative expenses, interest expense, depreciation and amortization, impairment, reorganization items, strategic initiatives, provision for income taxes, gain on extinguishment of debt, straight-line rent, above and below-market tenant leases, and above and below-market ground leases, we believe that NOI and Core NOI provide performance measures that, when compared year over year, reflect the revenues and expenses directly associated with owning and operating regional shopping malls and the impact on operations from trends in occupancy rates, rental rates and operating costs. These measures thereby provide an operating perspective not immediately apparent from GAAP operating income (loss) or net income (loss). We use NOI and Core NOI to evaluate our operating performance on a property-by-property basis because NOI and Core NOI allow us to evaluate the impact that factors such as lease structure, lease rates and tenant base, which vary by property, have on our operating results, gross margins and investment returns.

In addition, management believes that NOI and Core NOI provide useful information to the investment community about our operating performance. However, due to the exclusions noted above, NOI and Core NOI should only be used as supplemental measures of our financial performance and not as an alternative to GAAP operating income (loss) or net income (loss). For reference, and as an aid in understanding management's computation of NOI and Core NOI, a reconciliation from the consolidated net loss as computed in accordance with GAAP to NOI and Core NOI (including Same Property portfolio Core NOI and Same Property portfolio CORE NOI, as adjusted) is presented below:

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	For the three months ended March 31,
	2015									2014
	Consolidated			Non- Controlling Interest			Total			Consolidated			Non- Controlling Interest		Total
	(In thousands)
Net income (loss)	$	44,401		$	6		$	44,407		$	(4,425	)	$	—	$	(4,425	)
Gain on extinguishment of debt	(22,840		)	—			(22,840		)	—			—		—
Gain on sale of real estate assets	(32,509		)	—			(32,509		)	—			—		—
Provision for income taxes	236			—			236			124			—		124
Interest expense	19,151			(357		)	18,794			17,813			—		17,813
Interest income	(13		)	—			(13		)	(172		)	—		(172		)
Other	2,159			—			2,159			674			—		674
Provision for impairment	2,900			—			2,900			—			—		—
Depreciation and amortization	25,986			(596		)	25,390			21,045			—		21,045
General and administrative	6,470			—			6,470			5,941			—		5,941
NOI	$	45,941		$	(947	)	$	44,994		$	41,000		$	—	$	41,000
Above and below market ground rent expense, net	39			—			39			31			—		31
Above and below market tenant leases, net	2,459			5			2,464			3,757			—		3,757
Amortization of tenant inducements	8			—			8			—			—		—
Amortization of straight line rent	42			(15		)	27			(625		)	—		(625		)
Core NOI	$	48,489		$	(957	)	$	47,532		$	44,163		$	—	$	44,163
Non same property assets ⁽¹⁾	(10,484		)	—			(10,484		)	(8,395		)	—		(8,395		)
Termination income	(434		)	—			(434		)	—			—		—
Same Property Core NOI	$	37,571		$	(957	)	$	36,614		$	35,768		$	—	$	35,768

Explanatory Note:

⁽¹⁾Represents Bel Air Mall, The Mall at Barnes Crossing and Mt. Shasta, which were acquired in May 2014, August 2014 and January 2015, respectively, and the disposition of The Shoppes at Knollwood Mall and Steeplegate Mall in January 2015 and March 2015, respectively. Same Property portfolio also excludes Gateway Mall, NewPark Mall and Spring Hill Mall, which are undergoing redevelopment with significant disruption. Collin Creek Mall and Vista Ridge Mall are special consideration assets, which are also excluded from our Same Property portfolio. An asset is designated as a special consideration asset when a property has a heightened probability of being conveyed to its lender absent substantive renegotiation.

Funds from Operations and Core Funds from Operations

Consistent with real estate industry and investment community practices, we use FFO, as defined by the National Association of Real Estate Investment Trusts ("NAREIT"), as a supplemental measure of our operating performance. NAREIT defines FFO as net income (loss) (computed in accordance with GAAP), excluding impairment write-downs on depreciable real estate, gains or losses from cumulative effects of accounting changes, extraordinary items and sales of depreciable properties, plus real estate related depreciation and amortization. We also include Core FFO as a supplemental measurement of operating performance. We define Core FFO as FFO excluding straight-line rent, amortization of tenant inducements, amortization of above- and below-market tenant leases, amortization of above- and below-market ground rent expense, reorganization items, amortization of deferred financing costs, mark-to-market adjustments on debt, write-off of market rate adjustments on debt, write-off of deferred financing costs, debt extinguishment costs, provision for income taxes, gain on extinguishment of debt, and other costs. Other real estate companies may use different methodologies for calculating FFO and Core FFO and, accordingly, our FFO and Core FFO may not be comparable to other real estate companies.

We consider FFO and Core FFO useful supplemental measures and a complement to GAAP measures because they facilitate an understanding of the operating performance of our properties. FFO does not include real estate depreciation and amortization required by GAAP because these amounts are computed to allocate the cost of a property over its useful life. Since values for well-maintained real estate assets have historically increased or decreased based upon prevailing market conditions, we believe that FFO provides investors with a clearer view of our operating performance, particularly with respect to our mall properties. Core FFO does not include certain items that are non-cash and certain non-comparable items. FFO and Core FFO are not measurements of our financial performance under GAAP and should not be considered as an alternative to revenues, operating

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income (loss), net income (loss) or any other performance measures derived in accordance with GAAP or as an alternative to cash flows from operating activities as a measure of our liquidity.

For reference, and as an aid in understanding management's computation of FFO and Core FFO, a reconciliation from the consolidated net loss as computed in accordance with GAAP to FFO and Core FFO is presented below:



	For the three months ended March 31,
	2015									2014
	Consolidated			Non- Controlling Interest			Total			Consolidated			Non- Controlling Interest		Total
	(In thousands)
Net income (loss)	$	44,401		$	6		$	44,407		$	(4,425	)	$	—	$	(4,425	)
Depreciation and amortization	25,986			(596		)	25,390			21,045			—		21,045
Provision for impairment	2,900			—			2,900			—			—		—
Gain on extinguishment of debt	(22,840		)	—			(22,840		)	—			—		—
Gain on sale of real estate assets	(32,509		)	—			(32,509		)	—			—		—
FFO	$	17,938		$	(590	)	$	17,348		$	16,620		$	—	$	16,620
Provision for income taxes	236			—			236			124			—		124
Interest expense:
Amortization and write-off of market rate adjustments	50			—			50			574			—		574
Amortization and write-off of deferred financing costs	899			—			899			1,272			—		1,272
Debt extinguishment costs	—			—			—			—			—		—
Amortization of straight line rent for corporate and regional offices	5			—			5			6			—		6
Other	2,159			—			2,159			674			—		674
Above and below market ground rent expense, net	39			—			39			31			—		31
Above and below market tenant leases, net	2,459			5			2,464			3,757			—		3,757
Amortization of tenant inducements	8			—			8			—			—		—
Amortization of straight line rent	42			(15		)	27			(625		)	—		(625		)
Core FFO	$	23,835		$	(600	)	$	23,235		$	22,433		$	—	$	22,433

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ITEM 3 QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

There have been no material changes in the market risks described in our Annual Report.

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ITEM 4 CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

Our Chief Executive Officer ("CEO") and Chief Financial Officer ("CFO") participated in an evaluation by our management of the effectiveness of our disclosure controls and procedures as of the end of our fiscal quarter ended March 31, 2015. Based on their participation in that evaluation, our CEO and CFO concluded that our disclosure controls and procedures were effective as of March 31, 2015 to ensure that information required to be disclosed in our reports filed or submitted under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms, and to ensure that information required to be disclosed in our reports filed or furnished under the Securities Exchange Act of 1934 is accumulated and communicated to our management, including our CEO and CFO, as appropriate to allow timely decisions regarding required disclosures.

Our CEO and CFO also participated in an evaluation by our management of any changes in our internal control over financial reporting that occurred during the quarter ended March 31, 2015. That evaluation did not identify any changes that have materially affected, or were reasonably likely to materially affect, our internal control over financial reporting.

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PART II OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

In the ordinary course of our business, we are from time to time involved in legal proceedings related to the ownership and operations of our properties. We are not currently involved in any legal or administrative proceedings that we believe are likely to have a materially adverse effect on our business, results of operations or financial condition.

ITEM 1A. RISK FACTORS

There are no material changes to the risk factors previously disclosed in Part I, Item 1A. in our Annual Report.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Unregistered Sales of Securities

There were no unregistered sales of equity securities during the three months ended March 31, 2015.

Issuer Purchases of Equity Securities



Period	Total Number of Shares Purchased ⁽¹⁾	Average Price Paid Per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs
January 1- January 31, 2015	15,302	$	19.85	—	—
February 1 - February 28, 2015	—	—		—	—
March 1 - March 31, 2015	11,184	$	19.17	—	—
Total	26,486	$	19.56	—	—

Explanatory Note:

⁽¹⁾These amounts represent shares surrendered to the Company to satisfy tax withholding obligations in connection with the vesting of employees restricted stock awards.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None

ITEM 4. MINE SAFETY DISCLOSURES

Not Applicable

ITEM 5. OTHER INFORMATION

None

ITEM 6. EXHIBITS

31.1 Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.


31.2	Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.


32.1	Certification of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.


32.2	Certification of Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

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101

The following financial information from Rouse Properties, Inc.’s. Quarterly Report on Form 10-Q for the three months ended March 31, 2015 has been filed with the SEC on May 4, 2015, formatted in XBRL (Extensible Business Reporting Language): (1) Consolidated Balance Sheets, (2) Consolidated Statements of Operations and Comprehensive Income (Loss), (3) Consolidated Statements of Equity, (4) Consolidated Statements of Cash Flows and (5) Notes to Consolidated Financial Statements, tagged as blocks of text.

Pursuant to Item 601(b)(4)(iii) of Regulation S-K, the registrant has not filed debt instruments relating to long-term debt that is not registered and for which the total amount of securities authorized thereunder does not exceed 10% of total assets of the registrant and its subsidiaries on a consolidated basis as of March 31, 2015. The registrant agrees to furnish a copy of such agreements to the SEC upon request.

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SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.



		ROUSE PROPERTIES, INC.
		(Registrant)


Date:	May 4, 2015	By:	/s/ John Wain
			John Wain
			Chief Financial Officer
			(on behalf of the Registrant and as Principal Financial Officer)

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Exhibit Index



31.1	Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2	Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1	Certification of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2	Certification of Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101	The following financial information from Rouse Properties, Inc’s. Quarterly Report on Form 10-Q for the three months ended March 31, 2015 has been filed with the SEC on May 4, 2015, formatted in XBRL (Extensible Business Reporting Language): (1) Consolidated Balance Sheets, (2) Consolidated Statements of Operations and Comprehensive Income (Loss), (3) Consolidated Statements of Equity, (4) Consolidated Statements of Cash Flows and (5) Notes to Consolidated Financial Statements, tagged as blocks of text.

Rouse Properties, LLC - FORM 10-Q - May 4, 2015

Attached files

Rouse Properties, LLC Reports