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EX-31.2 - EXHIBIT 31.2 - Brookfield Property REIT Inc.ggp3312016ex-312.htm
EX-31.1 - EXHIBIT 31.1 - Brookfield Property REIT Inc.ggp3312016ex-311.htm
EX-32.1 - EXHIBIT 32.1 - Brookfield Property REIT Inc.ggp3312016ex-321.htm
EX-32.2 - EXHIBIT 32.2 - Brookfield Property REIT Inc.ggp3312016ex-322.htm


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-Q
 
ý      Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 
For the quarterly period ended March 31, 2016
 
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 1-34948

GENERAL GROWTH PROPERTIES, INC.
(Exact name of registrant as specified in its charter)

Delaware
 
27-2963337
(State or other jurisdiction of
 
(I.R.S. Employer
incorporating or organization)
 
Identification Number)
110 N. Wacker Dr., Chicago, IL
 
60606
(Address of principal executive offices)
 
(Zip Code)
 
(312) 960-5000
(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.  ýYes  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).  ýYes  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 x
 
Accelerated filer o
 
 
 
Non-accelerated filer o (Do not check if a smaller reporting company)
 
Smaller reporting company o

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

Indicate by checkmark whether the Registrant has filed all documents and reports required to be filed by Sections 12,13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.  ý Yes  o No

The number of shares of Common Stock, $.01 par value, outstanding on May 2, 2016 was 883,196,593.
 



GENERAL GROWTH PROPERTIES, INC.
INDEX
 
 
PAGE
NUMBER
 
 
 
Part I
FINANCIAL INFORMATION
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 


2




GENERAL GROWTH PROPERTIES, INC.
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
 
March 31,
2016
 
December 31,
2015
 
(Dollars in thousands, except share and per share amounts)
Assets:
 
 
 
Investment in real estate:
 

 
 

Land
$
3,584,640

 
$
3,596,354

Buildings and equipment
16,342,374

 
16,379,789

Less accumulated depreciation
(2,504,856
)
 
(2,452,127
)
Construction in progress
297,711

 
308,903

Net property and equipment
17,719,869

 
17,832,919

Investment in and loans to/from Unconsolidated Real Estate Affiliates
3,535,457

 
3,506,040

Net investment in real estate
21,255,326

 
21,338,959

Cash and cash equivalents
193,099

 
356,895

Accounts and notes receivable, net
962,397

 
949,556

Deferred expenses, net
215,484

 
214,578

Prepaid expenses and other assets
940,008

 
997,334

Assets held for disposition

 
216,233

Total assets
$
23,566,314

 
$
24,073,555

 
 
 
 
Liabilities:
 

 
 
Mortgages, notes and loans payable
$
13,868,216

 
$
14,216,160

Investment in Unconsolidated Real Estate Affiliates
39,208

 
38,488

Accounts payable and accrued expenses
667,410

 
784,493

Dividend payable
175,326

 
172,070

Deferred tax liabilities
4,665

 
1,289

Junior subordinated notes
206,200

 
206,200

Liabilities held for disposition

 
58,934

Total liabilities
14,961,025

 
15,477,634

 
 
 
 
Redeemable noncontrolling interests:
 

 
 

Preferred
167,732

 
157,903

Common
141,738

 
129,724

Total redeemable noncontrolling interests
309,470

 
287,627

 
 
 
 
Commitments and Contingencies

 

 
 
 
 
Equity:
 

 
 

Common stock:
 
 
 
11,000,000,000 shares authorized, $0.01 par value, 966,551,630 issued, 883,123,045 outstanding as of March 31, 2016, and 966,096,656 issued, 882,397,202 outstanding as of December 31, 2015
9,391

 
9,386

Preferred Stock:
 
 
 
500,000,000 shares authorized, $0.01 par value, 10,000,000 shares issued and outstanding as of March 31, 2016 and December 31, 2015
242,042

 
242,042

Additional paid-in capital
11,331,647

 
11,362,369

Retained earnings (accumulated deficit)
(2,125,825
)
 
(2,141,549
)
Accumulated other comprehensive loss
(77,750
)
 
(72,804
)
Common stock in treasury, at cost, 55,969,390 shares as of March 31, 2016 and 56,240,259 shares as of December 31, 2015
(1,122,628
)
 
(1,129,401
)
Total stockholders’ equity
8,256,877

 
8,270,043

Noncontrolling interests in consolidated real estate affiliates
20,586

 
24,712

Noncontrolling interests related to long-term incentive plan common units
18,356

 
13,539

Total equity
8,295,819

 
8,308,294

Total liabilities, redeemable noncontrolling interests and equity
$
23,566,314

 
$
24,073,555

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

3


GENERAL GROWTH PROPERTIES, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(UNAUDITED)
 
Three Months Ended March 31,
 
2016
 
2015
 
(Dollars in thousands, except share and per share amounts)
Revenues:
 

 
 

Minimum rents
$
371,132

 
$
374,112

Tenant recoveries
172,448

 
177,482

Overage rents
8,145

 
8,815

Management fees and other corporate revenues
33,741

 
19,086

Other
21,566

 
14,648

Total revenues
607,032

 
594,143

Expenses:
 
 
 
Real estate taxes
58,103

 
55,987

Property maintenance costs
17,483

 
19,881

Marketing
2,054

 
4,821

Other property operating costs
70,394

 
76,183

Provision for doubtful accounts
3,401

 
3,271

Provision for loan loss
36,069

 

Property management and other costs
30,745

 
42,793

General and administrative
13,427

 
12,446

Provision for impairment
40,705

 

Depreciation and amortization
160,671

 
175,948

Total expenses
433,052

 
391,330

Operating income
173,980

 
202,813

 
 
 
 
Interest and dividend income
16,058

 
8,821

Interest expense
(147,677
)
 
(172,651
)
Gain (loss) on foreign currency
8,936

 
(22,910
)
Gain from changes in control of investment properties and other
74,555

 
591,245

Income before income taxes, equity in income of Unconsolidated Real Estate Affiliates and allocation to noncontrolling interests
125,852

 
607,318

(Provision for) benefit from income taxes
(2,920
)
 
11,159

Equity in income of Unconsolidated Real Estate Affiliates
57,491

 
11,253

Unconsolidated Real Estate Affiliates - gain on investment
14,914

 
12,020

Net income
195,337

 
641,750

Allocation to noncontrolling interests
(3,557
)
 
(7,019
)
Net income attributable to General Growth Properties, Inc.
191,780

 
634,731

Preferred Stock dividends
(3,984
)
 
(3,984
)
Net income attributable to common stockholders
$
187,796

 
$
630,747

 
 
 
 
Earnings Per Share:
 
 
 
Basic
$
0.21

 
$
0.71

Diluted
$
0.20

 
$
0.66

Dividends declared per share
$
0.19

 
$
0.17

 
 
 
 
 
 
 
 
 
 
 
 

4


GENERAL GROWTH PROPERTIES, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Continued)

(UNAUDITED)
 
Three Months Ended March 31,
 
2016
 
2015
 
(Dollars in thousands, except share and per share amounts)
Comprehensive Income, Net:
 

 
 

Net income
$
195,337

 
$
641,750

Other comprehensive loss
 
 
 
Foreign currency translation
6,961

 
(17,718
)
Reclassification adjustment for realized gains on available-for-sale securities included in net income
(11,978
)
 

Net unrealized gains (losses) on other financial instruments
9

 
(21
)
Other comprehensive loss
(5,008
)
 
(17,739
)
Comprehensive income
190,329

 
624,011

Comprehensive income allocated to noncontrolling interests
(3,495
)
 
(6,790
)
Comprehensive income attributable to General Growth Properties, Inc.
186,834

 
617,221

Preferred Stock dividends
(3,984
)
 
(3,984
)
Comprehensive income, net, attributable to common stockholders
$
182,850

 
$
613,237


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

5


GENERAL GROWTH PROPERTIES, INC.

CONSOLIDATED STATEMENTS OF EQUITY
(UNAUDITED)
 
Common
Stock
 
Preferred
Stock
 
Additional
Paid-In
Capital
 
Retained
Earnings
(Accumulated
Deficit)
 
Accumulated 
Other
Comprehensive
Income (Loss)
 
Common
Stock in
Treasury
 
Noncontrolling
Interests in Consolidated Real Estate Affiliates and Long Term Incentive Plan Common Units
 
Total
Equity
 
(Dollars in thousands, except for share amounts)
Balance at January 1, 2015
$
9,409

 
$
242,042

 
$
11,351,625

 
$
(2,822,740
)
 
$
(51,753
)
 
$
(1,122,664
)
 
$
79,601

 
$
7,685,520

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income


 


 


 
634,731

 


 


 
1,347

 
636,078

Distributions to noncontrolling interests in consolidated Real Estate Affiliates


 


 


 


 


 


 
(1,348
)
 
(1,348
)
Long Term Incentive Plan Common Unit grants, net (1,665,896 LTIP Units)
 
 
 
 
 
 
 
 
 
 
 
 
2,832

 
2,832

Restricted stock grants, net (240,943 common shares)
3

 

 
937

 


 


 


 


 
940

Employee stock purchase program (21,427 common shares)

 


 
525

 


 


 


 


 
525

Stock option grants, net of forfeitures (936,082 common shares)
9

 


 
20,324

 


 


 


 


 
20,333

Cash dividends reinvested (DRIP) in stock (4,149 common shares)


 


 
118

 


 


 


 


 
118

Other comprehensive loss


 


 


 


 
(17,510
)
 


 


 
(17,510
)
Cash distributions declared ($0.17 per share)


 


 


 
(150,732
)
 


 


 


 
(150,732
)
Cash distributions on Preferred Stock


 


 


 
(3,984
)
 


 


 


 
(3,984
)
Fair value adjustment for noncontrolling interest in Operating Partnership


 


 
(9,730
)
 


 


 


 


 
(9,730
)
 


 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance at March 31, 2015
$
9,421

 
$
242,042

 
$
11,363,799

 
$
(2,342,725
)
 
$
(69,263
)
 
$
(1,122,664
)
 
$
82,432

 
$
8,163,042

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

6


GENERAL GROWTH PROPERTIES, INC.

CONSOLIDATED STATEMENTS OF EQUITY (Continued)
(UNAUDITED)
 
Common
Stock
 
Preferred
Stock
 
Additional
Paid-In
Capital
 
Retained
Earnings
(Accumulated
Deficit)
 
Accumulated 
Other
Comprehensive
Income (Loss)
 
Common
Stock in
Treasury
 
Noncontrolling
Interests in Consolidated Real Estate Affiliates and Long Term Incentive Plan Common Units
 
Total
Equity
 
(Dollars in thousands, except for share amounts)
Balance at January 1, 2016
$
9,386

 
$
242,042

 
$
11,362,369

 
$
(2,141,549
)
 
$
(72,804
)
 
$
(1,129,401
)
 
$
38,251

 
$
8,308,294

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income


 


 


 
191,780

 


 


 
321

 
192,101

Distributions to noncontrolling interests in consolidated Real Estate Affiliates


 


 


 


 


 


 
(954
)
 
(954
)
Acquisition/disposition of partner's noncontrolling interests in consolidated Real Estate Affiliates
 
 
 
 
(16,384
)
 
 
 
 
 
 
 
(3,002
)
 
(19,386
)
Long Term Incentive Plan Common Unit grants, net (684,216 LTIP Units)
 
 
 
 
12

 
(950
)
 
 
 
 
 
4,326

 
3,388

Restricted stock grants, net (333,953 common shares)
3

 

 
673

 


 


 


 


 
676

Employee stock purchase program (66,666 common shares)
1

 


 
2,451

 


 


 


 


 
2,452

Stock option grants, net of forfeitures (318,826 common shares)
3

 


 
9,901

 


 


 


 


 
9,904

Cancellation of repurchased common shares (270,869 common shares)
(2
)
 
 
 
(3,415
)
 
(3,356
)
 
 
 
6,773

 
 
 

Cash dividends reinvested (DRIP) in stock (6,398 common shares)

 

 
170

 


 


 


 


 
170

Other comprehensive income


 


 


 


 
6,948

 


 


 
6,948

Amounts reclassified from accumulated other comprehensive income
 
 
 
 
 
 
 
 
(11,894
)
 
 
 
 
 
(11,894
)
Cash distributions declared ($0.19 per share)


 


 


 
(167,766
)
 


 


 


 
(167,766
)
Cash distributions on Preferred Stock


 


 


 
(3,984
)
 


 


 


 
(3,984
)
Fair value adjustment for noncontrolling interest in Operating Partnership


 


 
(24,130
)
 


 


 


 


 
(24,130
)
 
 
 
 
 
 
 
 
 
 
 


 
 
 
 
Balance at March 31, 2016
$
9,391

 
$
242,042

 
$
11,331,647

 
$
(2,125,825
)
 
$
(77,750
)
 
$
(1,122,628
)
 
$
38,942

 
$
8,295,819


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


7


GENERAL GROWTH PROPERTIES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
 
Three Months Ended March 31,
 
2016
 
2015
 
(Dollars in thousands)
Cash Flows provided by Operating Activities:
 

 
 

Net income
$
195,337

 
$
641,750

Adjustments to reconcile net income to net cash provided by operating activities:
 

 
 

Equity in income of Unconsolidated Real Estate Affiliates
(57,491
)
 
(11,253
)
Distributions received from Unconsolidated Real Estate Affiliates
26,609

 
7,940

Provision for doubtful accounts
3,401

 
3,271

Depreciation and amortization
160,671

 
175,948

Amortization/write-off of deferred finance costs
2,710

 
3,176

Accretion/write-off of debt market rate adjustments
(207
)
 
14,685

Amortization of intangibles other than in-place leases
11,530

 
23,063

Straight-line rent amortization
(5,447
)
 
(6,087
)
Deferred income taxes
2,118

 
(11,665
)
Gain on dispositions, net
(20,248
)
 

Unconsolidated Real Estate Affiliates - gain on investment, net
(14,914
)
 
(12,020
)
Gain from changes in control of investment properties and other
(74,555
)
 
(591,245
)
Provisions for impairment
40,705

 

Provisions for loan loss
36,069

 

(Gain) loss on foreign currency
(8,936
)
 
22,910

Net changes:
 

 
 

Accounts and notes receivable, net
(2,842
)
 
14,576

Prepaid expenses and other assets
(8,031
)
 
8,965

Deferred expenses, net
(9,547
)
 
(14,553
)
Restricted cash
6,981

 
5,619

Accounts payable and accrued expenses
(55,141
)
 
(60,305
)
Other, net
9,248

 
8,429

Net cash provided by operating activities
238,020

 
223,204

 
 
 
 
Cash Flows provided by Investing Activities:
 

 
 

Acquisition of real estate and property additions
(21,087
)
 
(164,659
)
Development of real estate and property improvements
(120,410
)
 
(199,726
)
Loans to joint venture partners
(20,957
)
 
(37,500
)
Proceeds from sales of investment properties and Unconsolidated Real Estate Affiliates
238,676

 
666,242

Contributions to Unconsolidated Real Estate Affiliates
(30,200
)
 
(57,046
)
Distributions received from Unconsolidated Real Estate Affiliates in excess of income
20,384

 
32,474

Proceeds from sale of marketable securities
46,409

 

Increase in restricted cash
(80
)
 
966

Net cash provided by investing activities
112,735


240,751

 
 
 
 
Cash Flows used in Financing Activities:
 

 
 

Proceeds from refinancing/issuance of mortgages, notes and loans payable

 
342,440

Principal payments on mortgages, notes and loans payable
(350,375
)
 
(874,033
)
Deferred finance costs

 
(618
)
Cash distributions to noncontrolling interests in consolidated real estate affiliates
(954
)
 

Cash distributions paid to common stockholders
(167,698
)
 
(150,393
)
Cash distributions reinvested (DRIP) in common stock
170

 

Cash distributions paid to preferred stockholders
(3,984
)
 
(3,984
)
Cash redemptions paid to holders of common units
(1,233
)
 
(192
)
Other, net
9,523

 
23,627

Net cash used in financing activities
(514,551
)
 
(663,153
)
 
 
 
 
Net change in cash and cash equivalents
(163,796
)
 
(199,198
)
Cash and cash equivalents at beginning of period
356,895

 
372,471

Cash and cash equivalents at end of period
$
193,099

 
$
173,273


8


GENERAL GROWTH PROPERTIES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(UNAUDITED)
 
Three Months Ended March 31,
 
2016
 
2015
 
(Dollars in thousands)
 
 
 
 
Supplemental Disclosure of Cash Flow Information:
 

 
 

Interest paid
$
145,398

 
$
166,573

Interest capitalized
1,466

 
4,255

Income taxes paid
544

 
4,237

Accrued capital expenditures included in accounts payable and accrued expenses
116,220

 
102,619

Non-Cash Sale of Ala Moana (Refer to Note 3)
 
 
 

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


9

GENERAL GROWTH PROPERTIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except share and per share amounts)
(Unaudited)



NOTE 1        ORGANIZATION

Readers of this Quarterly Report should refer to the Company’s (as defined below) audited consolidated financial statements for the year ended December 31, 2015 which are included in the Company’s Annual Report on Form 10-K (our "Annual Report") for the fiscal year ended December 31, 2015 (Commission File No. 1-34948), as certain footnote disclosures which would substantially duplicate those contained in our Annual Report have been omitted from this Quarterly Report. In the opinion of management, all adjustments necessary for a fair presentation (which include only normal recurring adjustments) have been included in this Quarterly Report. Capitalized terms used, but not defined in this Quarterly Report, have the same meanings as in our Annual Report.
 
General
 
General Growth Properties, Inc. ("GGP" or the "Company"), a Delaware corporation, was organized in July 2010 and is a self-administered and self-managed real estate investment trust, referred to as a "REIT". In these notes, the terms "we," "us" and "our" refer to GGP and its subsidiaries.
 
GGP, through its subsidiaries and affiliates, is an owner and operator of retail properties. As of March 31, 2016, we are the owner, either entirely or with joint venture partners, of 128 retail properties.
 
Substantially all of our business is conducted through GGP Operating Partnership, LP ("GGPOP"), GGP Nimbus, LP ("GGPN") and GGP Limited Partnership ("GGPLP", and together with GGPN and GGPOP, the "Operating Partnerships"), subsidiaries of GGP. The Operating Partnerships own an interest in the properties that are part of the consolidated financial statements of GGP. As of March 31, 2016, GGP held an approximate 99% common equity ownership (without giving effect to the potential conversion of the Preferred Units and LTIP Units as defined below) of the Operating Partnerships, while the remaining 1% is held by limited partners and certain previous contributors of properties to the Operating Partnerships or their predecessors.
 
GGPOP is the general partner of, and owns a 1.5% equity interest in, each Operating Partnership. GGPOP has common units of limited partnership ("Common Units"), which are redeemable for cash or, at our option, shares of GGP common stock. It also has preferred units of limited partnership interest ("Preferred Units"), of which, certain Preferred Units can be converted into Common Units and then redeemed for cash or, at our option, shares of GGP common stock (Note 9). GGPOP has full value long term incentive plan units and appreciation only long term incentive plan units (collectively "LTIP Units"), which are redeemable for cash or, at our option, shares of GGP common stock (Note 11).

In addition to holding ownership interests in various joint ventures, the Operating Partnerships generally conduct their operations through General Growth Management, Inc. ("GGMI"), General Growth Services, Inc. ("GGSI"), and GGP REIT Services, LLC ("GGPRS"). GGMI and GGSI are taxable REIT subsidiaries ("TRS"s), which provide management, leasing, tenant coordination, business development, marketing, strategic partnership and other services for a majority of our Unconsolidated Real Estate Affiliates (defined below) and for substantially all of our Consolidated Properties, as defined below. GGSI also serves as a contractor to GGMI for these services. GGPRS generally provides financial, accounting, tax, legal, development, and other services to our Consolidated Properties.

We refer to our ownership interests in properties in which we own a majority or controlling interest and are consolidated under accounting principles generally accepted in the United States of America ("GAAP") as the "Consolidated Properties." We also own interests in certain properties through joint venture entities in which we own a noncontrolling interest ("Unconsolidated Real Estate Affiliates") and we refer to those properties as the "Unconsolidated Properties."

NOTE 2        SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation and Basis of Presentation

The accompanying consolidated financial statements include the accounts of GGP, our subsidiaries and joint ventures in which we have a controlling interest. For consolidated joint ventures, the noncontrolling 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 noncontrolling interests in consolidated real estate affiliates as permanent equity of the Company. Intercompany balances and

10

GENERAL GROWTH PROPERTIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except share and per share amounts)
(Unaudited)


transactions have been eliminated. Noncontrolling interests are included on our Consolidated Balance Sheets related to the Common, Preferred, and LTIP Units of GGPOP and are presented either as redeemable noncontrolling interests or as noncontrolling interests in our permanent equity. Through consideration of new consolidation guidance, we have concluded that each of the Operating Partnerships are variable interest entities as the limited partners do not have substantive kick-out rights or substantive participating rights. However, as the Company holds a majority voting interest in the Operating Partnerships, it qualifies for the exemption from providing certain of the disclosure requirements associated with variable interest entities.

We operate in a single reportable segment, which includes the operation, development and management of retail and other rental properties. Our portfolio is targeted to a range of market sizes and consumer tastes. Each of our 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's chief operating decision maker is comprised of a team of several members of executive management who use Company NOI in assessing segment operating performance. We do not distinguish or group our consolidated operations based on geography, size or type for purposes of making property operating decisions. Our operating properties have similar economic characteristics and provide similar products and services to our tenants. There are no individual operating segments that are greater than 10% of combined revenue, Company NOI or combined assets. Further, all material operations are within the United States and no customer or tenant comprises more than 10% of consolidated revenues. As a result, the Company’s operating properties are aggregated into a single reportable segment.

Reclassifications

A gain of $12.0 million that was previously recorded as equity in income of Unconsolidated Real Estate Affiliates on the Consolidated Statements of Comprehensive Income and Consolidated Statements of Cash Flows was separately presented as Unconsolidated Real Estate Affiliates—gain on investment for the three months ended March 31, 2015 to conform prior periods to the current year presentation. In addition, $0.1 million of expenses were reclassified from other property operating costs to marketing for the three months ended March 31, 2015 to conform prior periods to the current year presentation. The reclassifications are changes from one acceptable presentation to another acceptable presentation.

Properties

Real estate assets are stated at cost less any provisions for impairments. Expenditures for significant betterments and improvements are capitalized. Maintenance and repairs are charged to expense when incurred. Construction and improvement costs incurred in connection with the development of new properties or the redevelopment of existing properties are capitalized. Real estate taxes, interest costs, and internal costs associated with leasing and development overhead incurred during construction periods are capitalized. Capitalization is based on qualified expenditures and interest rates. Capitalized real estate taxes, interest costs, and internal costs associated with leasing and development overhead are amortized over lives which are consistent with the related assets.

Pre-development costs, which generally include legal and professional fees and other third-party costs directly related to the construction assets, are capitalized as part of the property being developed. In the event a development is no longer deemed to be probable of occurring, the capitalized costs are expensed (see also our impairment policies in this note below).

We periodically review the estimated useful lives of our properties, and may adjust them as necessary. The estimated useful lives of our properties range from 10 - 45 years.

Depreciation or amortization expense is computed using the straight-line method based upon the following estimated useful lives:
 
Years
Buildings and improvements
10 - 45
Equipment and fixtures
3 - 20
Tenant improvements
Shorter of useful life or applicable lease term
 

11

GENERAL GROWTH PROPERTIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except share and per share amounts)
(Unaudited)


Acquisitions of Operating Properties (Note 3)

Acquisitions of properties are accounted for utilizing the acquisition method of accounting and, accordingly, the results of operations of acquired properties have been included in the results of operations from the respective dates of acquisition. Estimates of future cash flows and other valuation techniques are used to allocate the purchase price of acquired property between land, buildings and improvements, equipment, assumed debt liabilities and identifiable intangible assets and liabilities such as amounts related to in-place tenant leases, acquired above and below-market tenant and ground leases, and tenant relationships.

Identifiable intangible assets and liabilities are calculated for above-market and below-market tenant and ground leases where we are either the lessor or the lessee. The difference between the contractual rental rates and our estimate of market rental rates is measured over a period equal to the remaining non-cancelable term of the leases, including significantly below-market renewal options for which exercise of the renewal option appears to be reasonably assured. The remaining term of leases with renewal options at terms significantly below market reflect the assumed exercise of such below-market renewal options and assume the amortization period would coincide with the extended lease term.

The gross asset balances of the in-place value of tenant leases are included in buildings and equipment in our Consolidated Balance Sheets.
 
Gross Asset
 
Accumulated
Amortization
 
Net Carrying
Amount
 
 
 
 
 
 
As of March 31, 2016
 

 
 

 
 

Tenant leases:
 

 
 

 
 

In-place value
$
370,134

 
$
(238,402
)
 
$
131,732

 
 
 
 
 
 
As of December 31, 2015
 
 
 
 
 
Tenant leases:
 
 
 
 
 
In-place value
$
409,637

 
$
(264,616
)
 
$
145,021


The above-market tenant leases and below-market ground leases are included in prepaid expenses and other assets (Note 13). The below-market tenant leases, above-market ground leases and above-market headquarters office lease are included in accounts payable and accrued expenses (Note 14) in our Consolidated Balance Sheets.

Amortization/accretion of all intangibles, including the intangibles in Note 13 and Note 14, had the following effects on our Income from continuing operations:
 
Three Months Ended March 31,
 
2016
 
2015
Amortization/accretion effect on continuing operations
$
(24,184
)
 
$
(48,880
)

Future amortization/accretion of all intangibles, including the intangibles in Note 13 and Note 14, is estimated to decrease results from continuing operations as follows:
Year
 
Amount
2016 Remaining
 
$
65,158

2017
 
66,733

2018
 
43,421

2019
 
26,220

2020
 
17,710



12

GENERAL GROWTH PROPERTIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except share and per share amounts)
(Unaudited)


Marketable Securities

Marketable securities are comprised of equity securities that are classified as available-for-sale. Available-for-sale securities are presented in prepaid expenses and other assets on our Consolidated Balance Sheets at fair value. Unrealized gains and losses resulting from the mark-to-market of these securities are included in other comprehensive income (loss). Realized gains and losses are recognized in earnings only upon the sale of the securities and are recorded based on the weighted average cost of such securities. During the three months ended March 31, 2016, we recognized gains of $13.1 million in management fees and other corporate revenues on the Consolidated Statements of Comprehensive Income from the sale of Seritage Growth Properties stock.
Investments in Unconsolidated Real Estate Affiliates (Note 5)
We account for investments in joint ventures where we own a non-controlling joint interest using either the equity method or the cost method. If we have significant influence but not control over the the investment, we utilize the equity method. If we have neither control nor significant influence, we utilize the cost method. Under the equity method, the cost of our investment is adjusted for our share of the earnings of such Unconsolidated Real Estate Affiliates from the date of acquisition, increased by our contributions and reduced by distributions received.
To determine the method of accounting for partially owned joint ventures, we evaluate the characteristics of associated entities and determine whether an entity is a variable interest entity ("VIE"). A limited partnership or other similar entity is considered a VIE unless a simple majority of limited partners (excluding limited partners that are under common control with the general partner) have substantive kick-out rights or participating rights. If an entity is determined to be a VIE, we determine which party is the primary beneficiary by analyzing whether we have both the power to direct the entity's significant economic activities and the obligation to absorb potentially significant losses or receive potentially significant benefits. Significant judgments and assumptions inherent in this analysis include the nature of the entity's operations, future cash flow projections, the entity's financing and capital structure, and contractual relationship and terms. We consolidate a VIE when we have determined that we are the primary beneficiary.
Primary risks associated with our VIEs include the potential of funding the entities' debt obligations or making additional contributions to fund the entities' operations.
Generally, the operating agreements with respect to our Unconsolidated Real Estate Affiliates provide that assets, liabilities and funding obligations are shared in accordance with our ownership percentages. Therefore, we generally also share in the profit and losses, cash flows and other matters relating to our Unconsolidated Real Estate Affiliates in accordance with our respective ownership percentages. Except for Retained Debt (as described in Note 5), differences between the carrying amount of our investment in the Unconsolidated Real Estate Affiliates and our share of the underlying equity of our Unconsolidated Real Estate Affiliates are typically amortized over lives ranging from 5 to 45 years. When cumulative distributions exceed our investment in the joint venture, the investment is reported as a liability in our consolidated financial statements. The liability is limited to our maximum potential obligation to fund contractual obligations, including recourse related to certain debt obligations.
Partially owned, non-variable interest joint ventures over which we have controlling financial interest are consolidated in our consolidated financial statements. In determining if we have a controlling financial interest, we consider factors such as ownership interest, authority to make decisions, kick-out rights and substantive participating rights. Partially owned joint ventures where we do not have a controlling financial interest, but have the ability to exercise significant influence, are accounted for using the equity method.
To the extent that we contribute assets to a joint venture accounted for using the equity method, our investment in the joint venture is recorded at our cost basis in the assets that were contributed to the joint venture. We will recognize gains and losses on the contribution of our real estate to joint ventures, relating solely to the outside partner’s interest, to the extent the buyer is independent of the Company, the collection of the sales price is reasonably assured, and we will not be required to support the operations of the property or its related obligations to an extent greater than our proportionate interest.
The combined summarized financial information of unconsolidated joint ventures is disclosed in Note 5 to the Consolidated Financial Statements.

13

GENERAL GROWTH PROPERTIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except share and per share amounts)
(Unaudited)


We continually analyze and assess reconsideration events, including changes in the factors mentioned above, to determine if the consolidation treatment remains appropriate. Decisions regarding consolidation of partially owned entities frequently require significant judgment by our management.
Revenue Recognition and Related Matters

Minimum rents are recognized on a straight-line basis over the terms of the related operating leases, including the effect of any free rent periods. Minimum rents also include lease termination income collected from tenants to allow for the tenant to vacate their space prior to their scheduled termination dates, as well as, accretion related to above-market and below-market tenant leases on acquired properties and properties that were recorded at fair value at the emergence from bankruptcy.
Overage rent is paid by a tenant when the tenant's sales exceed an agreed upon minimum amount and is recognized on an accrual basis once tenant sales exceed contractual tenant lease thresholds and is calculated by multiplying the sales in excess of the minimum amount by a percentage defined in the lease.
Tenant recoveries 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 the related costs are incurred.
Real estate sales are recognized whenever (1) a sale is consummated, (2) the buyer has demonstrated an adequate commitment to pay for the property, (3) the Company’s receivable is not subject to future subordination, and (4) the Company has transferred to the buyer the risks and rewards of ownership and does not have continuing involvement. Unless all conditions are met, recognition of all or a portion of the profit shall be postponed.
We provide 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.

Management Fees and Other Corporate Revenues

Management fees and other corporate revenues primarily represent management and leasing fees, development fees, financing fees and fees for other ancillary services performed for the benefit of certain of the Unconsolidated Real Estate Affiliates. Management fees are reported at 100% of the revenue earned from the joint venture in management fees and other corporate revenues on our Consolidated Statements of Comprehensive Income. Our share of the management fee expense incurred by the Unconsolidated Real Estate Affiliates is reported within equity in income of Unconsolidated Real Estate Affiliates on our Consolidated Statements of Comprehensive Income and in property management and other costs in the Condensed Combined Statements of Income in Note 5. The following table summarizes the management fees from affiliates and our share of the management fee expense:
 
Three Months Ended March 31,
 
2016
 
2015
Management fees from affiliates
$
20,669

 
$
19,086

Management fee expense
(7,902
)
 
(7,276
)
Net management fees from affiliates
$
12,767

 
$
11,810

 
Impairment

Operating properties
 
We regularly review our consolidated properties 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, significant decreases in occupancy percentage, debt maturities and management’s intent with respect to the properties and prevailing market conditions.
 
If an indicator of potential impairment exists, the property is tested for recoverability by comparing its carrying amount to the estimated future undiscounted cash flows. Although the carrying amount may exceed the estimated fair value of certain properties, a real estate asset is only considered to be impaired when its carrying amount cannot be recovered through estimated future

14

GENERAL GROWTH PROPERTIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except share and per share amounts)
(Unaudited)


undiscounted cash flows. To the extent an impairment provision is determined to be necessary, the excess of the carrying amount of the property over its estimated fair value is expensed to operations. In addition, the impairment provision is allocated proportionately to adjust the carrying amount of the asset group. The adjusted carrying amount, which represents the new cost basis of the property, is depreciated over the remaining useful life of the property.

Although we may market a property for sale, there can be no assurance that the transaction will occur until the sale is finalized. However, GAAP requires us to utilize the Company’s expected holding period of our properties when assessing recoverability. If we cannot recover the carrying value of these properties within the planned holding period, we will estimate the fair values of the assets and record impairment charges for properties when the estimated fair value is less than their carrying value.

Impairment indicators for pre-development costs, which are typically costs incurred during the beginning stages of a potential development and construction in progress, are assessed by project and include, but are not limited to, significant changes in the Company’s plans with respect to the project, significant changes in projected completion dates, tenant demand, anticipated revenues or cash flows, development costs, market factors and sustainability of development projects.

Impairment charges are recorded in the Consolidated Statements of Comprehensive Income when the carrying value of a property is not recoverable and it exceeds the estimated fair value of the property, which can occur in accounting periods preceding disposition and/or in the period of disposition.

During the three months ended March 31, 2016, we recorded a $40.7 million impairment charge on our Consolidated Statements of Comprehensive Income related to two operating properties. We received a bona fide purchase offer during the three months ended for one property which was less than the carrying value. The other property has non-recourse debt maturing within three months that exceeds the fair value of the underlying property. No impairment was recorded for the three months ended March 31, 2015.

Changes in economic and operating conditions that occur subsequent to our review of recoverability of our properties could impact the assumptions used in that assessment and could result in future impairment if assumptions regarding those properties differ from actual results.

Investment in Unconsolidated Real Estate Affiliates

A series of operating losses of an investee or other factors may indicate that an other-than-temporary decline in value of our investment in an Unconsolidated Real Estate Affiliate has occurred. The investment in each of the Unconsolidated Real Estate Affiliates is evaluated for valuation declines below the carrying amount. Accordingly, in addition to the property-specific impairment analysis that we perform for such joint ventures (as part of our operating property impairment process described above), we also considered whether there were other-than-temporary declines with respect to the carrying values of our Unconsolidated Real Estate Affiliates. No impairments related to our investments in Unconsolidated Real Estate Affiliates were recognized for the three months ended March 31, 2016 and 2015. Changes in economic and operating conditions that occur subsequent to our review of recoverability of our investments in Unconsolidated Real Estate Affiliates could impact the assumptions used in that assessment and could result in future impairment if assumptions regarding those investments differ from actual results.

Fair Value Measurements (Note 4)

The accounting principles for fair value measurements establish a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. These tiers include:

Level 1 - defined as observable inputs such as quoted prices for identical assets or liabilities in active markets;
Level 2 - defined as inputs other than quoted prices in active markets that are either directly or indirectly observable; and
Level 3 - defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions.

Note 4 includes a discussion of properties measured at fair value on a non-recurring basis using Level 2 and Level 3 inputs and the fair value of debt, which is estimated on a recurring basis using Level 2 and Level 3 inputs. Note 4 also includes a discussion

15

GENERAL GROWTH PROPERTIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except share and per share amounts)
(Unaudited)


of available-for-sale securities measured at fair value on a recurring basis using Level 1 inputs. Note 9 includes a discussion of certain redeemable noncontrolling interests that are measured at fair value using Level 1 inputs.
Concentrations of Credit Risk
Financial instruments that potentially subject us to significant concentrations of credit risk consist principally of cash and cash equivalents. We are exposed to credit risk with respect to cash held at various financial institutions and access to our credit facility. Our credit risk exposure with regard to our cash and the $1.5 billion available under our credit facility is spread among a diversified group of investment grade financial institutions. We had no outstanding balance and $315.0 million outstanding under our credit facility as of March 31, 2016 and December 31, 2015, respectively.

Recently Issued Accounting Pronouncements

Effective January 1, 2016, the Financial Accounting Standards Board ("FASB") issued an update that required us to evaluate whether we should consolidate certain legal entities. Specifically, the amendments: (i) modified the evaluation of whether limited partnerships and similar legal entities are variable interest entities ("VIEs") or voting interest entities, (ii) eliminated the presumption that a general partner should consolidate a limited partnership, (iii) affected the consolidation analysis of reporting entities that are involved with VIEs, and (iv) provided a scope exception for certain entities. The adoption of this standard did not materially impact our consolidated financial statements.

Effective January 1, 2016, companies are required to present debt issuance costs related to a recognized debt liability (excluding
revolving credit facility) as a direct deduction from the carrying amount of that debt liability on the balance sheet. The recognition and measurement guidance for debt issuance costs will not be affected. We elected to early adopt this pronouncement as of December 31, 2015 which resulted in the reclassification of unamortized capitalized loan fees from deferred expenses to a direct reduction of the Company’s indebtedness on our Consolidated Balance Sheets for all periods presented in our Annual Report for the fiscal year ended December 31, 2015.
Effective January 1, 2018, companies will be required to apply a five-step model in accounting for revenue arising from contracts with customers. The core principle of the revenue model is that a company recognizes revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. Lease contracts will be excluded from this revenue recognition criteria; however, the sale of real estate will be required to follow the new model. Expanded quantitative and qualitative disclosures regarding revenue recognition will be required for contracts that are subject to this pronouncement. The new standard can be adopted either retrospectively to each prior reporting period presented or as a cumulative effect adjustment as of the date of adoption. The Company is evaluating the potential impact of this pronouncement on its consolidated financial statements.
In February 2016, the FASB issued Accounting Standards Update ("ASU") 2016-02 which will require organizations that lease assets to recognize on the balance sheet the assets and liabilities for the rights and obligations created by those leases. Under ASU 2016-02, a lessee will be required to recognize assets and liabilities for leases with lease terms of more than 12 months. Lessor accounting remains substantially similar to current GAAP. In addition, disclosures of leasing activities are to be expanded to include qualitative along with specific quantitative information. For public entities, ASU 2016-02 is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. ASU 2016-02 mandates a modified retrospective transition method. The Company is evaluating the potential impact of this pronouncement on its consolidated financial statements.

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, provision for income taxes, recoverable amounts of receivables and deferred taxes, provision for loan loss, initial valuations and related amortization periods of deferred costs and intangibles, particularly with respect to acquisitions, impairment of long-lived assets, litigation related accruals and disclosures and fair value of debt. Actual results could differ from these and other estimates.


16

GENERAL GROWTH PROPERTIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except share and per share amounts)
(Unaudited)


NOTE 3        ACQUISITIONS, SALES AND JOINT VENTURE ACTIVITY

On February 2, 2016, we closed on the acquisition of our joint venture partner's 25% interest in Spokane Valley Mall for a gross acquisition price of $37.5 million. This transaction resulted in a reduction of additional paid-in capital of $16.4 million due to the acquisition of our partner's noncontrolling interest in the joint venture that was not a change in control.

On January 29, 2016 we closed on the sale of our interest in Provo Towne Center to our joint venture partner for a gross sales price
of $37.5 million. This transaction resulted in a loss of $4.0 million recognized in gain from changes in control of investment properties and other for the three months ended March 31, 2016.

On January 15, 2016, we closed on the sale of Eastridge Mall (CA) for a gross sales price of $225.0 million. This transaction resulted in a gain on sale of $71.8 million recognized in gain from changes in control of investment properties and other for the three months ended March 31, 2016.

On March 31, 2015, we acquired a 50% interest in a joint venture with Sears Holdings Corporation that owns anchor pads and in-place leases at 12 stores located at our properties for approximately $165.0 million. Subsequently, Sears Holdings Corporation sold its investment in the joint venture to Seritage Growth Properties, which was an affiliated company. We recorded the investment in the joint venture for approximately $164.5 million ($165.0 million net of prorations and acquisition costs) to investment in and loans to/from Unconsolidated Real Estate Affiliates on our Consolidated Balance Sheets. On December 14, 2015, GGP entered into agreements with GGP Homart II, LLC and Urban Shopping Centers, L.P. (Oakbrook) to assign interest in 4 of the 12 anchor pads. For the assignment and transfer of the assigned interests, GGP Homart II, LLC and Urban Shopping Centers, L.P. agreed to consideration of $34.1 million and $39.9 million, respectively.

On February 27, 2015, we sold a 25% interest in Ala Moana Center in Honolulu, Hawaii for net proceeds of $907.0 million. We received $670.0 million at closing and will receive the remaining proceeds of $237.0 million in late 2016 upon completion of the redevelopment and expansion. Subsequently on April 10, 2015, we sold an additional 12.5% interest in Ala Moana Center for net proceeds of $453.5 million to another joint venture partner. We received $335.0 million at closing and will receive the remaining proceeds of $118.5 million in late 2016 upon completion of the redevelopment and expansion. As a result, our joint venture partners own a combined 37.5% economic interest in the joint venture.

Upon sale of the 25% interest in Ala Moana Center and in accordance with applicable accounting standards for real estate sales with future development required, we recognized a $584.4 million gain on change in control of investment properties and other as of the closing date calculated on the percentage of the basis (real estate asset carrying value of Ala Moana Center and development costs incurred to date) as compared to the total estimated costs expected to be incurred through completion of the development. During the three months ended March 31, 2016, we recognized an additional $6.8 million gain on change of control of investment properties and other using the percentage of completion method for the construction completed from the closing date on February 27, 2015 through March 31, 2016. We will recognize an additional $19.5 million gain on change of control of investment properties and other through substantial completion of construction.

Upon sale of the 12.5% interest in Ala Moana Center and in accordance with applicable accounting standards for real estate sales with future development required, we recognized a $295.9 million gain in Unconsolidated Real Estate Affiliates - gain on investment as of the closing date calculated on the percentage of the basis (real estate asset carrying value of Ala Moana Center and development costs incurred to date) as compared to the total estimated costs expected to be incurred through completion of the development. During the three months ended March 31, 2016, we recognized an additional $3.3 million gain in Unconsolidated Real Estate Affiliates - gain on investment using the percentage of completion method for the construction completed from the closing date on April 10, 2015 through March 31, 2016. We will recognize an additional $9.8 million gain in Unconsolidated Real Estate Affiliates - gain on investment through substantial completion of construction.

We account for the 62.5% interest in the joint venture that owns Ala Moana Center under the equity method of accounting (Note 5) because we share control over major decisions with the joint venture partners which resulted in the partners obtaining substantive participating rights. Ala Moana Center was previously wholly owned by GGP and accounted for on a consolidated basis.

The table below summarizes the gain calculation ($ in millions) for the 25% and 12.5% interests sold:


17

GENERAL GROWTH PROPERTIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except share and per share amounts)
(Unaudited)


Gain on Sale of Interests in Ala Moana Center
25.0%
12.5%
Total proceeds (net of transaction costs of $6.8 million and $2.5 million, respectively)
$
900.2

$
451.0

Joint venture partner share of debt
462.5

231.3

Total consideration
1,362.7

682.3

Less: JV partner proportionate share of investment in Ala Moana Center and estimated development costs
(714.0
)
(357.9
)
Total gain from changes in control of investment properties and other
648.7


Total Unconsolidated Real Estate Affiliates - gain on investment

324.4

Gain attributable to JV partner proportionate share of investment in Ala Moana Center at closing
584.4

295.9

Gain attributable to post-sale development activities through December 31, 2015
38.0

15.4

Gain attributable to post-sale development activities for the three months ended March 31, 2016
6.8

3.3

Estimated future gain from changes in control of investment properties and other
19.5


Estimated future Unconsolidated Real Estate Affiliates - gain on investment
$

$
9.8


NOTE 4        FAIR VALUE
 
Nonrecurring Fair Value of Operating Properties
 
We estimate fair value relating to impairment assessments based upon discounted cash flow and direct capitalization models that include all projected cash inflows and outflows over a specific holding period, or the negotiated sales price, if applicable. 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. Based upon these inputs, we determined that our valuations of properties using a discounted cash flow or a direct capitalization model were classified within Level 3 of the fair value hierarchy. For our properties for which the estimated fair value was based on negotiated sales prices, we determined that our valuation was classified within Level 2 of the fair value hierarchy.

 
Total Fair Value
Measurement
 
Quoted Prices in Active Markets for Identical Assets (Level 1)
 
Significant Other Observable Inputs (Level 2)
 
Significant Unobservable Inputs (Level 3)
 
Provisions for impairment
Three Months Ending March 31, 2016
 
 
 
 
 
 
 
 
 
Investments in real estate (1)
$
187,800

 
$

 
$
69,500

 
$
118,300

 
(40,705
)
(1) Refer to Note 2 for more information regarding impairment.
 
 

Unobservable Quantative Input
 
Range
Discount rates
 
9.0% to 11.0%
Terminal capitalization rates
 
9.0% to 10.0%


18

GENERAL GROWTH PROPERTIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except share and per share amounts)
(Unaudited)


Nonrecurring Fair Value of Notes Receivable

We estimate fair value relating to the note receivable from Rique (defined in Note 12). Based on current information and events, we believe it is probable that we will be unable to collect all amounts due according to the contractual terms of the note receivable. As the Rique note receivable is a collateral dependent loan, we have estimated the provision for loss based on the fair value of the market price of the Aliansce (defined in Note 12) shares which serve as the collateral for the loan.
 
Based on the market price and Brazilian Real exchange rate of the Aliansce stock, the note with based on is measured at fair value on our Consolidated Balance Sheets using Level 1 inputs and included in accounts and notes receivable, net. The fair value is shown below.
 
Total Fair Value
Measurement
 
Quoted Prices in Active Markets for Identical Assets (Level 1)
 
Significant Other Observable Inputs (Level 2)
 
Significant Unobservable Inputs (Level 3)
 
Provision for loan loss
Balance at March 31, 2016
 
 
 
 
 
 
 
 
 
Notes Receivable
$
71,013

 
$
71,013

 
$

 
$

 
$
(36,069
)

Disclosure of Fair Value of Financial Instruments

The fair values of our financial instruments approximate their carrying amount in our consolidated financial statements except for debt. Management’s estimates of fair value are presented below for our debt as of March 31, 2016 and December 31, 2015.
 
 
March 31, 2016
 
December 31, 2015
 
 
Carrying Amount (1)
 
Estimated Fair
Value
 
Carrying Amount (1)
 
Estimated Fair
Value
Fixed-rate debt
 
$
11,886,319

 
$
12,558,609

 
$
11,921,302

 
$
12,247,451

Variable-rate debt
 
1,981,897

 
1,987,645

 
2,294,858

 
2,304,551

 
 
$
13,868,216

 
$
14,546,254

 
$
14,216,160

 
$
14,552,002

 
(1) Includes market rate adjustments of $32.8 million and $33.0 million and deferred financing costs of $37.5 million and $40.2 million as of March 31, 2016 and December 31, 2015, respectively.

The fair value of our Junior Subordinated Notes approximates their carrying amount as of March 31, 2016 and December 31, 2015. We estimated the fair value of mortgages, notes and other loans payable using Level 2 and Level 3 inputs based on recent financing transactions, estimates of the fair value of the property that serves as collateral for such debt, historical risk premiums for loans of comparable quality, current London Interbank Offered Rate ("LIBOR"), U.S. treasury obligation interest rates and on the discounted estimated future cash payments to be made on such debt. The discount rates estimated reflect our judgment as to what the approximate current lending rates for loans or groups of loans with similar maturities and assume that the debt is outstanding through maturity. We have utilized market information as available or present value techniques to estimate the amounts required to be disclosed. Since such amounts are estimates that are based on limited available market information for similar transactions and do not acknowledge transfer or other repayment restrictions that may exist in specific loans, it is unlikely that the estimated fair value of any such debt could be realized by immediate settlement of the obligation.










19

GENERAL GROWTH PROPERTIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except share and per share amounts)
(Unaudited)


Recurring Fair Value of Marketable Securities

Marketable securities are measured at fair value on our Consolidated Balance Sheets using Level 1 inputs and included in Prepaid expenses and other assets. The fair values are shown below.
 
 
March 31, 2016
 
December 31, 2015
 
 
Fair Value
 
Cost Basis
 
Unrealized Gain
 
Fair Value
 
Cost Basis
 
Unrealized Gain
Marketable securities:
 
 
 
 
 
 
 
 
 
 
 


     Seritage Growth Properties
 
$

 
$

 
$

 
$
45,278

 
$
33,300

 
$
11,978


During the three months ended March 31, 2016, we divested the entire investment in Seritage Growth Properties, recognized a gain of $13.1 million in management fees and other corporate revenues, and reclassified $12.0 million out of other comprehensive loss.


20

GENERAL GROWTH PROPERTIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except share and per share amounts)
(Unaudited)


NOTE 5        UNCONSOLIDATED REAL ESTATE AFFILIATES

Following is summarized financial information for all of our Unconsolidated Real Estate Affiliates accounted for using the equity method and a reconciliation to our total investment in Unconsolidated Real Estate Affiliates, inclusive of investments accounted for using the cost method (Note 2).
 
March 31, 2016
 
December 31, 2015
Condensed Combined Balance Sheets - Unconsolidated Real Estate Affiliates
 

 
 

Assets:
 

 
 

Land
$
1,985,176

 
$
1,949,577

Buildings and equipment
12,464,359

 
12,344,045

Less accumulated depreciation
(3,211,755
)
 
(3,131,659
)
Construction in progress
639,623

 
828,521

Net property and equipment
11,877,403

 
11,990,484

Investment in unconsolidated joint ventures
423,652

 
421,778

Net investment in real estate
12,301,055


12,412,262

Cash and cash equivalents
343,959

 
426,470

Accounts and notes receivable, net
405,610

 
258,589

Deferred expenses, net
261,669

 
239,262

Prepaid expenses and other assets
445,345

 
472,123

Total assets
$
13,757,638

 
$
13,808,706

 
 
 
 
Liabilities and Owners’ Equity:
\

 
 

Mortgages, notes and loans payable
$
9,874,214

 
$
9,812,378

Accounts payable, accrued expenses and other liabilities
595,280

 
740,388

Cumulative effect of foreign currency translation ("CFCT")
(59,350
)
 
(67,224
)
Owners’ equity, excluding CFCT
3,347,494

 
3,323,164

Total liabilities and owners’ equity
$
13,757,638

 
$
13,808,706

 
 
 
 
Investment In and Loans To/From Unconsolidated Real Estate Affiliates, Net:
 

 
 

Owners’ equity
$
3,288,144

 
$
3,255,940

Less: joint venture partners’ equity
(1,523,252
)
 
(1,518,581
)
Plus: excess investment/basis differences
1,551,357

 
1,550,193

Investment in and loans to/from
   Unconsolidated Real Estate Affiliates, net (equity method)

3,316,249

 
3,287,552

Investment in and loans to/from
   Unconsolidated Real Estate Affiliates, net (cost method)

180,000

 
180,000

Investment in and loans to/from
   Unconsolidated Real Estate Affiliates, net

$
3,496,249

 
$
3,467,552

 
 
 
 
Reconciliation - Investment In and Loans To/From Unconsolidated Real Estate Affiliates:
 

 
 

Asset - Investment in and loans to/from Unconsolidated Real Estate Affiliates
$
3,535,457

 
$
3,506,040

Liability - Investment in Unconsolidated Real Estate Affiliates
(39,208
)
 
(38,488
)
Investment in and loans to/from Unconsolidated Real Estate Affiliates, net
$
3,496,249

 
$
3,467,552



21

GENERAL GROWTH PROPERTIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except share and per share amounts)
(Unaudited)


 
 
Three Months Ended March 31,
 
 
2016
 
2015
Condensed Combined Statements of Income - Unconsolidated Real Estate Affiliates (1)
 
 

 
 

Revenues:
 
 

 
 

Minimum rents
 
$
258,122

 
$
223,959

Tenant recoveries
 
115,446

 
98,024

Overage rents
 
7,527

 
6,152

Condominium sales
 
282,838

 

Other
 
12,104

 
12,529

Total revenues
 
676,037

 
340,664

 
 
 
 
 
Expenses:
 
 

 
 

Real estate taxes
 
30,546

 
26,879

Property maintenance costs
 
10,995

 
12,655

Marketing
 
8,508

 
3,980

Other property operating costs
 
50,510

 
47,569

Condominium cost of sales
 
206,221

 

Provision for doubtful accounts
 
3,732

 
3,337

Property management and other costs (2)
 
16,907

 
15,254

General and administrative
 
273

 
1,115

Depreciation and amortization
 
109,281

 
93,922

Total expenses
 
436,973

 
204,711

Operating income
 
239,064

 
135,953

 
 
 
 
 
Interest income
 
1,899

 
1,954

Interest expense
 
(101,018
)
 
(92,297
)
Provision for income taxes
 
(169
)
 
(205
)
Equity in loss of unconsolidated joint ventures
 
(32,437
)
 
(180
)
Income from continuing operations
 
107,339

 
45,225

Allocation to noncontrolling interests
 
(32
)
 
(8
)
Net income attributable to the ventures
 
$
107,307

 
$
45,217

 
 
 
 
 
Equity In Income of Unconsolidated Real Estate Affiliates:
 
 

 
 

Net income attributable to the ventures
 
$
107,307

 
$
45,217

Joint venture partners’ share of income
 
(40,459
)
 
(22,243
)
Amortization of capital or basis differences
 
(9,357
)
 
(11,721
)
Equity in income of Unconsolidated Real Estate Affiliates
 
$
57,491

 
$
11,253

 
(1) The Condensed Combined Statements of Income - Unconsolidated Real Estate Affiliates include income from Ala Moana Center subsequent to the formation of the joint venture on February 27, 2015.
(2) Includes management fees charged to the unconsolidated joint ventures by GGMI and GGSI.
 
The Unconsolidated Real Estate Affiliates represents our investments in real estate joint ventures that are not consolidated. We hold interests in 24 domestic joint ventures, comprising 41 U.S. retail properties and one joint venture in Brazil. Generally, we share in the profits and losses, cash flows and other matters relating to our investments in Unconsolidated Real Estate Affiliates in accordance with our respective ownership percentages. We manage most of the properties owned by these joint ventures. We account for investments in joint ventures where we own a non-controlling joint interest using either the equity method or the cost method. If we have significant influence but not control over the the investment, we utilize the equity method. If we have neither control or significant influence, we utilize the cost method.

On March 7, 2014, we formed a joint venture, AMX Partners, LLC ("AMX"), with Kahiolu Partners, LLC ("MKB") for the purpose of constructing a luxury residential condominium tower on a site located within the Ala Moana Shopping Center. AMX commenced recognizing revenues and cost of sales from the sale of condominiums using the percentage of completion method during the three months ended March 31, 2016.


22

GENERAL GROWTH PROPERTIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except share and per share amounts)
(Unaudited)


In accordance with GAAP, sales of condominiums have been recognized using the percentage of completion method. Under this method, revenue is recognized when (1) construction is beyond a preliminary stage, (2) buyers are unable to receive refunds of down-payments except in the event of non-delivery, (3) a substantial percentage of the condominiums are under firm contracts, (4) collection of the sales price is reasonably assured and (5) sales proceeds and costs can be reasonably estimated. The revenue from condominium sales is calculated based on the percentage of completion, as determined by the construction contract costs incurred to date in relation to the total estimated construction costs.

On March 24, 2016, Kenwood Towne Centre (property included in a joint venture of which we are 50% owner) acquired fee title to a portion of the property previously held under ground lease for a gross purchase price of $43.0 million.

On January 29, 2016, we sold our interest in 522 Fifth Avenue to our joint venture partner, for $25.0 million, inclusive of the repayment of previously existing notes receivable from our joint venture partner. We received proceeds of $10.0 million upon closing and will receive the remaining $15.0 million in proceeds on December 1, 2016. This transaction resulted in a gain on sale of $11.0 million recognized in Unconsolidated Real Estate Affiliates - gain on investment for the three months ended March 31, 2016.

On January 8, 2016, we closed on the sale of our 50% interest in Owings Mills to our joint venture partner for a gross sales price
of $11.6 million. This transaction resulted in a gain on sale of $0.6 million recognized in Unconsolidated Real Estate Affiliates - gain on investment for the three months ended March 31, 2016.

On January 29, 2015, we sold our interest in a joint venture that owns Trails Village, which resulted in our recognition of a gain of $12.0 million. The $12.0 million is recognized within Unconsolidated Real Estate Affiliates - gain on investment on our Consolidated Statements of Comprehensive Income.
Unconsolidated Mortgages, Notes and Loans Payable, and Retained Debt

Our proportionate share of the mortgages, notes and loans payable of the unconsolidated joint ventures was $5.1 billion as of March 31, 2016 and December 31, 2015, including Retained Debt (as defined below). There can be no assurance that the Unconsolidated Properties will be able to refinance or restructure such debt on acceptable terms or otherwise, or that joint venture operations or contributions by us and/or our partners will be sufficient to repay such loans.

We have debt obligations in excess of our pro rata share of the debt for one of our Unconsolidated Real Estate Affiliates ("Retained Debt"). This Retained Debt represents distributed debt proceeds of the Unconsolidated Real Estate Affiliates in excess of our pro rata share of the non-recourse mortgage indebtedness. The proceeds of the Retained Debt which were distributed to us are included as a reduction in our investment in Unconsolidated Real Estate Affiliates. We had retained debt of $87.5 million at one property as of March 31, 2016, and $87.9 million as of December 31, 2015. We are obligated to contribute funds on an ongoing basis, as needed, to our Unconsolidated Real Estate Affiliates in amounts sufficient to pay debt service on such Retained Debt. If we do not contribute such funds, our distributions from such Unconsolidated Real Estate Affiliates, or our interest in, could be reduced to the extent of such deficiencies. As of March 31, 2016, we do not anticipate an inability to perform on our obligations with respect to Retained Debt.


23

GENERAL GROWTH PROPERTIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except share and per share amounts)
(Unaudited)


NOTE 6        MORTGAGES, NOTES AND LOANS PAYABLE

Mortgages, notes and loans payable and the weighted-average interest rates are summarized as follows:
 
 
March 31, 2016 (1)
 
Weighted-Average
Interest Rate (2)
 
December 31, 2015 (3)
 
Weighted-Average
Interest Rate (2)
 
 
 
 
 
 
 
 
 
Fixed-rate debt:
 
 

 
 

 
 

 
 

Collateralized mortgages, notes and loans payable (4)
 
$
11,886,319

 
4.43
%
 
$
11,921,302

 
4.43
%
Total fixed-rate debt
 
11,886,319

 
4.43
%
 
11,921,302

 
4.43
%
Variable-rate debt:
 
 

 
 

 
 

 
 

Collateralized mortgages, notes and loans payable (4)
 
1,992,483

 
2.26
%
 
1,991,022

 
2.08
%
Revolving credit facility (5)
 
(10,586
)
 

 
303,836

 
1.89
%
Total variable-rate debt
 
1,981,897

 
2.26
%
 
2,294,858

 
2.05
%
 
 
 
 
 
 
 
 
 
Total Mortgages, notes and loans payable
 
$
13,868,216

 
4.12
%
 
$
14,216,160

 
4.05
%
 
 
 
 
 
 
 
 
 
Junior subordinated notes
 
$
206,200

 
2.07
%
 
$
206,200

 
1.77
%
 
(1) Includes $32.8 million of market rate adjustments and $37.5 million of deferred financing costs.
(2) Represents the weighted-average interest rates on our contractual principal balances.
(3) Includes $33.0 million of market rate adjustments and $40.2 million of deferred financing costs.
(4) $1.4 billion of the variable-rate balance is cross-collateralized.
(5) Includes deferred financing costs, which are shown as a reduction to the debt balance. See table below for the balance excluding deferred financing costs.
 
Collateralized Mortgages, Notes and Loans Payable

As of March 31, 2016, $18.1 billion of land, buildings and equipment (before accumulated depreciation) and construction in progress have been pledged as collateral for our mortgages, notes and loans payable. Certain of these consolidated secured loans, representing $1.4 billion of debt, are cross-collateralized with other properties. Although a majority of the $13.9 billion of fixed and variable rate collateralized mortgages, notes and loans payable are non-recourse, $1.5 billion of such mortgages, notes and loans payable are recourse to the Company as guarantees on secured financings. In addition, certain mortgage loans contain other credit enhancement provisions which have been provided by GGP. Certain mortgages, notes and loans 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.

During the year ended December 31, 2015, we refinanced consolidated mortgage notes totaling $710.0 million at four properties and generated net proceeds of $240.9 million. The prior loans totaling $469.1 million had a weighted-average term-to-maturity of 1.3 years, and a weighted-average interest rate of 5.6%. The new loans have a weighted-average term-to-maturity of 10.0 years,and a weighted-average interest rate of 3.8%. In addition, we paid down $594.3 million of consolidated mortgage notes at five properties. The prior loans had a weighted-average term-to-maturity of 1.5 years, and a weighted-average interest rate of 5.3%. We also obtained new mortgage notes totaling $250.0 million on two properties with a weighted-average term-to-maturity of 10.0 years and a weighted-average interest rate of 4.3%.

We did not refinance any consolidated mortgage notes during the three months ended March 31, 2016.


24

GENERAL GROWTH PROPERTIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except share and per share amounts)
(Unaudited)


Corporate and Other Unsecured Loans

We have certain unsecured debt obligations, the terms of which are described below:
 
 
March 31, 2016 (1)
 
Weighted-Average
Interest Rate
 
December 31, 2015 (2)
 
Weighted-Average
Interest Rate
Unsecured debt:
 
 

 
 

 
 

 
 

Revolving credit facility
 
$

 

 
$
315,000

 
1.89
%
Total unsecured debt
 
$

 

 
$
315,000

 
1.89
%
 
(1) Excludes deferred financing costs of $10.6 million in 2016 that decrease the total amount that appears outstanding in our
Consolidated Balance Sheets.
(2) Excludes deferred financing costs of $11.2 million in 2015 that decrease the total amount that appears outstanding in our
Consolidated Balance Sheets.

Our revolving credit facility (the "Facility") as amended on October 30, 2015, provides for revolving loans of up to $1.1 billion. The Facility has an uncommitted accordion feature for a total facility of up to $1.5 billion. The Facility is scheduled to mature in October 2020 and is unsecured. Borrowings under the Facility bear interest at a rate equal to LIBOR plus 130 to 190 basis points or at a base rate plus 30 to 90 basis points, which is determined by the Company’s leverage level. The Facility contains certain restrictive covenants which limit material changes in the nature of our business conducted, including, but not limited to, mergers, dissolutions or liquidations, dispositions of assets, liens, incurrence of additional indebtedness, dividends, transactions with affiliates, prepayment of subordinated debt, negative pledges and changes in fiscal periods. In addition, we are required not to exceed a maximum net debt-to-value ratio, a maximum leverage ratio and a minimum net cash interest coverage ratio; we are not aware of any instances of non-compliance with such covenants as of March 31, 2016. As of March 31, 2016, no amount was outstanding on the Facility.

Junior Subordinated Notes

GGP Capital Trust I, a Delaware statutory trust (the "Trust") and a wholly-owned subsidiary of GGPN, completed a private placement of $200.0 million of trust preferred securities ("TRUPS") in 2006. The Trust also issued $6.2 million of Common Securities to GGPOP. The Trust used the proceeds from the sale of the TRUPS and Common Securities to purchase $206.2 million of floating rate Junior subordinated notes of GGPOP due 2036. Distributions on the TRUPS are equal to LIBOR plus 1.45%. Distributions are cumulative and accrue from the date of original issuance. The TRUPS mature on April 30, 2036, but may be redeemed beginning on April 30, 2011 if the Trust exercises its right to redeem a like amount of Junior subordinated notes. The Junior subordinated notes bear interest at LIBOR plus 1.45% and are fully recourse to the Company. Though the Trust currently is a wholly-owned subsidiary of GGPN, we are not the primary beneficiary of the Trust and, accordingly, it is not consolidated for accounting purposes. We have recorded the Junior subordinated notes as a liability and our common equity interest in the Trust as prepaid expenses and other assets in our Consolidated Balance Sheets as of March 31, 2016 and December 31, 2015.

Letters of Credit and Surety Bonds

We had outstanding letters of credit and surety bonds of $50.8 million as of March 31, 2016 and $76.1 million as of December 31, 2015. These letters of credit and bonds were issued primarily in connection with insurance requirements, special real estate assessments and construction obligations.

We are not aware of any instances of non-compliance with our financial covenants related to our mortgages, notes and loans payable as of March 31, 2016.


25

GENERAL GROWTH PROPERTIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except share and per share amounts)
(Unaudited)


NOTE 7        INCOME TAXES

We have elected to be taxed as a REIT under the Internal Revenue Code. We intend to maintain REIT status. To qualify as a REIT, the Company must meet a number of organizational and operational requirements, including a requirement to distribute at least 90% of our taxable ordinary income. In addition, the Company is required to meet certain asset and income tests.

As a REIT, we will generally not be subject to corporate level Federal income tax on taxable income we distribute currently to our stockholders. If we fail to qualify as a REIT in any taxable year, we 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 we qualify for taxation as a REIT, we may be subject to certain state and local taxes on our income or property, and to Federal income and excise taxes on our undistributed taxable income and capital gains. We are currently statutorily open to audit by the Internal Revenue Service for the years ended December 31, 2012 through 2015 and are statutorily open to audit by state taxing authorities for the years ended December 31, 2011 through 2015.

We have no unrecognized tax benefits recorded pursuant to uncertain tax positions as of March 31, 2016.

NOTE 8        WARRANTS

Brookfield owns 73,930,000 warrants (the "Warrants") to purchase common stock of GGP with an initial weighted average exercise price of $10.70. Each Warrant was fully vested upon issuance, has a term of seven years and expires on November 9, 2017. Below is a summary of Warrants that were originally issued and are still outstanding.

Initial Warrant Holder
 
 Number of Warrants
 
Initial Exercise Price
Brookfield - A
 
57,500,000

 
$
10.75

Brookfield - B
 
16,430,000

 
10.50

 
 
73,930,000

 
 

 
The exercise prices of the Warrants are subject to adjustment for future dividends, stock dividends, distribution of assets, stock splits or reverse splits of our common stock or certain other events. In accordance with the agreement, these calculations adjust both the exercise price and the number of shares issuable for the originally issued 73,930,000 Warrants. During 2015 and 2016, the number of shares issuable upon exercise of the outstanding Warrants changed as follows:

 
 
 
 
Exercise Price
Record Date
 
Issuable Shares
 
 Brookfield - A
 
Brookfield - B
April 15, 2015
 
87,856,714

 
9.05

 
8.84

July 15, 2015
 
88,433,357

 
8.99

 
8.78

October 15, 2015
 
89,039,571

 
8.93

 
8.72

December 15, 2015
 
89,697,535

 
8.86

 
8.66


Brookfield has the option for 57,500,000 Warrants to either full share settle (i.e. deliver cash for the exercise price of the Warrants in the amount of approximately $618 million in exchange for approximately 70 million shares of common stock) or net share settle. The remaining 16,430,000 Warrants owned or managed by Brookfield must be net share settled. As of March 31, 2016, the Warrants are exercisable into approximately 63 million common shares of the Company, at a weighted-average exercise price of approximately $8.82 per share. Due to their ownership of Warrants, Brookfield’s potential ownership of the Company may change as a result of payments of dividends and changes in our stock price.


26

GENERAL GROWTH PROPERTIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except share and per share amounts)
(Unaudited)


NOTE 9        EQUITY AND REDEEMABLE NONCONTROLLING INTERESTS

Allocation to Noncontrolling Interests

Noncontrolling interests consists of the redeemable interests related to GGPOP Common, Preferred and LTIP Units and the noncontrolling interest in our consolidated joint ventures. The following table reflects the activity included in the allocation to noncontrolling interests.
 
 
Three Months Ended March 31,
 
 
2016
 
2015
Distributions to preferred GGPOP units
 
$
(2,201
)
 
$
(2,232
)
Net income allocation to noncontrolling interests in GGPOP from continuing operations (common units)
 
(1,035
)
 
(3,440
)
Net income allocation to noncontrolling interests in GGPOP from continuing operations (LTIP units)
 
(490
)
 
(906
)
Net loss (income) allocated to noncontrolling interest in consolidated real estate affiliates
 
169

 
(441
)
Allocation to noncontrolling interests
 
(3,557
)
 
(7,019
)
Other comprehensive loss allocated to noncontrolling interests
 
62

 
229

Comprehensive income allocated to noncontrolling interests
 
$
(3,495
)
 
$
(6,790
)

Redeemable Noncontrolling Interests

The noncontrolling interest related to the Common, Preferred, and LTIP Units of GGPOP are presented either as redeemable noncontrolling interests or as noncontrolling interests in our permanent equity on our Consolidated Balance Sheets. Classification as redeemable or permanent equity is considered on a tranche-by-tranche basis and is dependent on whether we could be required, under certain events outside of our control, to redeem the securities for cash by the holders of the securities. Those tranches for which we could be required to redeem the security for cash are included in redeemable equity. If we control the decision to redeem the securities for cash, the securities are classified as permanent equity.

The Common and Preferred Units of GGPOP are recorded at the greater of the carrying amount adjusted for the noncontrolling interest’s share of the allocation of income or loss (and its share of other comprehensive income or loss) and dividends or their redemption value (i.e. fair value) as of each measurement date. The excess of the fair value over the carrying amount from period to period is recorded within additional paid-in capital in our Consolidated Balance Sheets. Allocation to noncontrolling interests is presented as an adjustment to net income to arrive at Net income (loss) attributable to General Growth Properties, Inc.

The common redeemable noncontrolling interests have been recorded at fair value for all periods presented. One tranche of preferred redeemable noncontrolling interests has been recorded at fair value, while the other tranches of preferred redeemable noncontrolling interests have been recorded at carrying value.

Generally, the holders of the Common Units share in any distributions by GGPOP with our common stockholders. However, the GGPOP operating partnership agreement permits distributions solely to GGP if such distributions were required to allow GGP to comply with the REIT distribution requirements or to avoid the imposition of excise tax. Under certain circumstances, the conversion rate for each Common Unit is required to be adjusted to give effect to stock distributions. If the holders had requested redemption of the Common and Preferred Units as of March 31, 2016, the aggregate amount of cash we would have paid would have been $141.7 million and $167.7 million, respectively.

GGPOP issued Preferred Units that are convertible into Common Units of GGPOP at the rates below (subject to adjustment). The holder may convert the Preferred Units into Common Units of GGPOP at any time, subject to certain restrictions. The Common Units are convertible into common stock at approximately a one-to-one ratio at the current stock price.

27

GENERAL GROWTH PROPERTIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except share and per share amounts)
(Unaudited)


 
 
Number of Common Units for each Preferred Unit
 
Number of Contractual Preferred Units Outstanding as of March 31, 2016
 
Converted Basis to Common Units Outstanding as of March 31, 2016
 
Conversion Price
 
Redemption Value (1)
Series B
 
3.00000

 
1,250

 
3,901

 
$
16.66670

 
$
115,962

Series D
 
1.50821

 
533

 
835

 
33.15188

 
26,637

Series E
 
1.29836

 
503

 
679

 
38.51000

 
25,133

 
 
 

 
 

 
 

 
 

 
$
167,732

 
(1) The conversion price of Series B preferred units is lower than the GGP March 31, 2016 closing common stock price of $29.73; therefore, the March 31, 2016 common stock price of $29.73, and an additional conversion rate of 1.0397624 shares is used to calculate the Series B redemption value.

The following table reflects the activity of the redeemable noncontrolling interests for the three months ended March 31, 2016, and 2015.
Balance at January 1, 2015
$
299,296

Net income
3,440

Distributions
(1,109
)
Redemption of GGPOP units
(713
)
Other comprehensive loss
(229
)
Fair value adjustment for noncontrolling interests in Operating Partnership
9,730

Balance at March 31, 2015
$
310,415

 
 
Balance at January 1, 2016
$
287,627

Net income
1,035

Distributions
(1,668
)
Redemption of GGPOP units
(1,592
)
Other comprehensive loss
(62
)
Fair value adjustment for noncontrolling interests in Operating Partnership
24,130

Balance at March 31, 2016
$
309,470


Common Stock Dividend

Our Board of Directors declared common stock dividends during 2016 and 2015 as follows:

Declaration Date