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EX-32.2 - EXHIBIT 32.2 - Brookfield Property REIT Inc.ggp9302016ex-322.htm
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EX-31.2 - EXHIBIT 31.2 - Brookfield Property REIT Inc.ggp9302016ex-312.htm
EX-31.1 - EXHIBIT 31.1 - Brookfield Property REIT Inc.ggp9302016ex-311.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 September 30, 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 incorporating or organization)
 
(I.R.S. Employer 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.  
ý 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).  
ý 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.
ý
Large accelerated filer
 o
Accelerated filer
o
Non-accelerated filer
(Do not check if a smaller reporting company)
 o
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      ý No

Indicate by check mark 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 November 1, 2016 was 885,768,586.

 



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


2




GENERAL GROWTH PROPERTIES, INC.
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
 
September 30,
2016
 
December 31,
2015
 
(Dollars in thousands, except share and per share amounts)
Assets:
 
 
 
Investment in real estate:
 

 
 

Land
$
2,972,931

 
$
3,596,354

Buildings and equipment
15,497,006

 
16,379,789

Less accumulated depreciation
(2,611,194
)
 
(2,452,127
)
Construction in progress
344,479

 
308,903

Net property and equipment
16,203,222

 
17,832,919

Investment in and loans to/from Unconsolidated Real Estate Affiliates
3,844,177

 
3,506,040

Net investment in real estate
20,047,399

 
21,338,959

Cash and cash equivalents
656,769

 
356,895

Accounts and notes receivable, net
883,072

 
949,556

Deferred expenses, net
215,947

 
214,578

Prepaid expenses and other assets
910,002

 
997,334

Assets held for disposition

 
216,233

Total assets
$
22,713,189

 
$
24,073,555

 
 
 
 
Liabilities:
 

 
 
Mortgages, notes and loans payable
$
12,460,027

 
$
14,216,160

Investment in Unconsolidated Real Estate Affiliates
39,500

 
38,488

Accounts payable and accrued expenses
646,216

 
784,493

Dividend payable
184,634

 
172,070

Deferred tax liabilities
1,365

 
1,289

Junior subordinated notes
206,200

 
206,200

Liabilities held for disposition

 
58,934

Total liabilities
13,537,942

 
15,477,634

Redeemable noncontrolling interests:
 

 
 

Preferred
159,260

 
157,903

Common
131,583

 
129,724

Total redeemable noncontrolling interests
290,843

 
287,627

 
 
 
 
Commitments and Contingencies

 

 
 
 
 
Equity:
 

 
 

Common stock:
 
 
 
11,000,000,000 shares authorized, $0.01 par value, 968,993,571 issued, 885,564,986 outstanding as of September 30, 2016, and 966,096,656 issued, 882,397,202 outstanding as of December 31, 2015
9,415

 
9,386

Preferred Stock:
 
 
 
500,000,000 shares authorized, $0.01 par value, 10,000,000 shares issued and outstanding as of September 30, 2016 and December 31, 2015
242,042

 
242,042

Additional paid-in capital
11,396,557

 
11,362,369

Retained earnings (accumulated deficit)
(1,618,628
)
 
(2,141,549
)
Accumulated other comprehensive loss
(70,134
)
 
(72,804
)
Common stock in treasury, at cost, 55,969,390 shares as of September 30, 2016 and 56,240,259 shares as of December 31, 2015
(1,122,628
)
 
(1,129,401
)
Total stockholders’ equity
8,836,624

 
8,270,043

Noncontrolling interests in consolidated real estate affiliates
20,264

 
24,712

Noncontrolling interests related to long-term incentive plan common units
27,516

 
13,539

Total equity
8,884,404

 
8,308,294

Total liabilities, redeemable noncontrolling interests and equity
$
22,713,189

 
$
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 September 30,
 
Nine Months Ended September 30,
 
2016
 
2015
 
2016
 
2015
 
(Dollars in thousands, except share and per share amounts)
Revenues:
 

 
 

 
 

 
 

Minimum rents
$
347,676

 
$
358,716

 
$
1,082,220

 
$
1,094,384

Tenant recoveries
162,031

 
172,515

 
504,242

 
518,040

Overage rents
6,505

 
6,455

 
19,024

 
18,755

Management fees and other corporate revenues
20,428

 
19,496

 
73,087

 
65,313

Other
17,853

 
28,142

 
57,539

 
62,956

Total revenues
554,493

 
585,324

 
1,736,112

 
1,759,448

Expenses:
 
 
 
 
 
 
 
Real estate taxes
58,239

 
57,942

 
173,651

 
170,425

Property maintenance costs
11,576

 
11,707

 
41,014

 
44,491

Marketing
2,244

 
4,273

 
7,036

 
12,849

Other property operating costs
73,479

 
79,265

 
215,474

 
227,874

Provision for doubtful accounts
574

 
1,622

 
5,685

 
6,199

(Recovery of) provision for loan loss
(6,659
)
 

 
29,410

 

Property management and other costs
37,760

 
38,685

 
106,787

 
121,847

General and administrative
13,237

 
12,627

 
41,313

 
37,395

Provisions for impairment
28,276

 

 
73,039

 

Depreciation and amortization
182,350

 
154,228

 
499,269

 
483,026

Total expenses
401,076

 
360,349

 
1,192,678

 
1,104,106

Operating income
153,417

 
224,975

 
543,434

 
655,342

 
 
 
 
 
 
 
 
Interest and dividend income
14,114

 
13,232

 
43,507

 
34,896

Interest expense
(141,296
)
 
(144,891
)
 
(437,338
)
 
(460,289
)
(Loss) gain of foreign currency
(657
)
 
(25,092
)
 
16,172

 
(46,540
)
Gain from changes in control of investment properties and other
620,309

 
13,399

 
733,416

 
622,412

Income before income taxes, equity in income of Unconsolidated Real Estate Affiliates and allocation to noncontrolling interests
645,887

 
81,623

 
899,191

 
805,821

(Provision for) benefit from income taxes
(49
)
 
17,996

 
(728
)
 
29,082

Equity in income of Unconsolidated Real Estate Affiliates
35,651

 
16,584

 
127,759

 
41,115

Unconsolidated Real Estate Affiliates - gain on investment
259

 
11,163

 
40,765

 
320,950

Net income
681,748

 
127,366

 
1,066,987

 
1,196,968

Allocation to noncontrolling interests
(7,570
)
 
(3,514
)
 
(15,083
)
 
(16,447
)
Net income attributable to General Growth Properties, Inc.
674,178

 
123,852

 
1,051,904

 
1,180,521

Preferred Stock dividends
(3,984
)
 
(3,984
)
 
(11,951
)
 
(11,952
)
Net income attributable to common stockholders
$
670,194

 
$
119,868

 
$
1,039,953

 
$
1,168,569

 
 
 
 
 
 
 
 
Earnings Per Share:
 
 
 
 
 
 
 
Basic
$
0.76

 
$
0.14

 
$
1.18

 
$
1.32

Diluted
$
0.70

 
$
0.13

 
1.09

 
1.23

Dividends declared per share
$
0.20

 
$
0.18

 
$
0.58

 
$
0.52

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

4


GENERAL GROWTH PROPERTIES, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Continued)

(UNAUDITED)
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2016
 
2015
 
2016
 
2015
 
(Dollars in thousands, except share and per share amounts)
Comprehensive Income, Net:
 

 
 

 
 

 
 

Net income
$
681,748

 
$
127,366

 
$
1,066,987

 
$
1,196,968

Other comprehensive income (loss)
 
 
 
 
 
 
 
Foreign currency translation
(994
)
 
(19,816
)
 
14,640

 
(34,622
)
Reclassification adjustment for realized gains on available-for-sale securities included in net income

 
8,635

 
(11,978
)
 
8,635

Net unrealized gains (losses) on other financial instruments
(16
)
 
16

 
4

 
16

Other comprehensive income (loss)
(1,010
)
 
(11,165
)
 
2,666

 
(25,971
)
Comprehensive income
680,738

 
116,201

 
1,069,653

 
1,170,997

Comprehensive income allocated to noncontrolling interests
(7,563
)
 
(3,434
)
 
(15,079
)
 
(16,160
)
Comprehensive income attributable to General Growth Properties, Inc.
673,175

 
112,767

 
1,054,574

 
1,154,837

Preferred Stock dividends
(3,984
)
 
(3,984
)
 
(11,951
)
 
(11,952
)
Comprehensive income, net, attributable to common stockholders
$
669,191

 
$
108,783

 
$
1,042,623

 
$
1,142,885


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


 


 


 
1,180,521

 


 


 
3,340

 
1,183,861

Distributions to noncontrolling interests in consolidated Real Estate Affiliates


 


 


 


 


 


 
(53,888
)
 
(53,888
)
Long Term Incentive Plan Common Unit grants, net (1,655,576 LTIP Units)
 
 
 
 
 
 
 
 
 
 
 
 
8,286

 
8,286

Restricted stock grants, net (223,244 common shares)
2

 

 
2,769

 


 


 


 


 
2,771

Employee stock purchase program (116,936 common shares)
1

 


 
2,764

 


 


 


 


 
2,765

Stock option grants, net of forfeitures (1,216,723 common shares)
13

 


 
33,938

 


 


 


 


 
33,951

Cancellation of repurchased common shares (3,963,675 common shares)
(40
)
 
 
 
(51,700
)
 
(48,859
)
 
 
 
100,599

 
 
 

Treasury stock purchase (4,053,620 common shares)
 
 
 
 
 
 
 
 
 
 
(102,797
)
 
 
 
(102,797
)
Cash dividends reinvested (DRIP) in stock (17,658 common shares)


 


 
487

 


 


 


 


 
487

Other comprehensive loss


 


 


 


 
(25,684
)
 


 


 
(25,684
)
Cash distributions declared ($0.52 per share)


 


 


 
(459,965
)
 


 


 


 
(459,965
)
Cash distributions on Preferred Stock


 


 


 
(11,952
)
 


 


 


 
(11,952
)
Fair value adjustment for noncontrolling interest in Operating Partnership


 


 
22,339

 


 


 


 


 
22,339

 


 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance at September 30, 2015
$
9,385

 
$
242,042

 
$
11,362,222

 
$
(2,162,995
)
 
$
(77,437
)
 
$
(1,124,862
)
 
$
37,339

 
$
8,285,694

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

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


 


 


 
1,051,904

 


 


 
2,835

 
1,054,739

Distributions to noncontrolling interests in consolidated Real Estate Affiliates


 


 


 


 


 


 
(1,986
)
 
(1,986
)
Acquisition/disposition of partner's noncontrolling interests in consolidated Real Estate Affiliates
 
 
 
 
(18,416
)
 
 
 
 
 
 
 
(2,971
)
 
(21,387
)
Long Term Incentive Plan Common Unit grants, net (684,216 LTIP Units)
 
 
 
 
73

 
(950
)
 
 
 
 
 
11,651

 
10,774

Restricted stock grants, net (339,551 common shares)
3

 

 
2,429

 


 


 


 


 
2,432

Employee stock purchase program (107,476 common shares)
1

 


 
3,694

 


 


 


 


 
3,695

Stock option grants, net of forfeitures (2,699,998 common shares)
27

 


 
51,599

 


 


 


 


 
51,626

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

 
 
 

Cash dividends reinvested (DRIP) in stock (20,759 common shares)

 

 
601

 
(213
)
 


 


 


 
388

Other comprehensive income


 


 


 


 
14,564

 


 


 
14,564

Amounts reclassified from accumulated other comprehensive income
 
 
 
 
 
 
 
 
(11,894
)
 
 
 
 
 
(11,894
)
Cash distributions declared ($0.58 per share)


 


 


 
(512,513
)
 


 


 


 
(512,513
)
Cash distributions on Preferred Stock


 


 


 
(11,951
)
 


 


 


 
(11,951
)
Fair value adjustment for noncontrolling interest in Operating Partnership


 


 
(2,377
)
 
 
 


 


 


 
(2,377
)
 
 
 
 
 
 
 
 
 
 
 


 
 
 
 
Balance at September 30, 2016
$
9,415

 
$
242,042

 
$
11,396,557

 
$
(1,618,628
)
 
$
(70,134
)
 
$
(1,122,628
)
 
$
47,780

 
$
8,884,404


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


7


GENERAL GROWTH PROPERTIES, INC
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
 
Nine Months Ended September 30,
 
2016
 
2015
 
(Dollars in thousands)
Cash Flows provided by Operating Activities:
 

 
 

Net income
$
1,066,987

 
$
1,196,968

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

 
 

Equity in income of Unconsolidated Real Estate Affiliates
(127,759
)
 
(41,115
)
Distributions received from Unconsolidated Real Estate Affiliates
79,928

 
47,763

Provision for doubtful accounts
5,685

 
6,199

Depreciation and amortization
499,269

 
483,026

Amortization/write-off of deferred finance costs
8,880

 
8,887

Accretion/write-off of debt market rate adjustments
(4,119
)
 
13,305

Amortization of intangibles other than in-place leases
36,450

 
50,560

Straight-line rent amortization
(13,997
)
 
(22,776
)
Deferred income taxes
(692
)
 
(36,244
)
Cost of debt extinguishment
5,403

 

Gain on dispositions, net
(27,266
)
 
(13,635
)
Unconsolidated Real Estate Affiliates - gain on investment, net
(40,765
)
 
(320,950
)
Gain from changes in control of investment properties and other
(733,416
)
 
(622,412
)
Provisions for impairment
73,039

 

Provisions for loan loss
29,410

 

(Gain) loss on foreign currency
(16,172
)
 
46,540

Net changes:
 

 
 

Accounts and notes receivable, net
271

 
(20,925
)
Prepaid expenses and other assets
(9,504
)
 
(11,287
)
Deferred expenses, net
(36,117
)
 
(29,503
)
Restricted cash
113

 
1,185

Accounts payable and accrued expenses
3,602

 
6,624

Other, net
24,347

 
24,782

Net cash provided by operating activities
823,577

 
766,992

 
 
 
 
Cash Flows provided by (used in) Investing Activities:
 

 
 

Acquisition of real estate and property additions
(94,744
)
 
(342,055
)
Development of real estate and property improvements
(400,429
)
 
(509,916
)
Loans to joint venture partners
(52,970
)
 
(271,219
)
Proceeds from repayment of loans to joint venture partners
7,578

 

Proceeds from sales of investment properties and Unconsolidated Real Estate Affiliates
1,300,703

 
1,092,003

Contributions to Unconsolidated Real Estate Affiliates
(103,210
)
 
(134,552
)
Distributions received from Unconsolidated Real Estate Affiliates in excess of income
60,891

 
120,981

Sale (acquisition) of marketable securities
46,408

 
(33,300
)
Decrease (increase) in restricted cash
28,460

 
(27,238
)
Other, net
662

 

Net cash provided by (used in) investing activities
793,349


(105,296
)
 
 
 
 
Cash Flows used in Financing Activities:
 

 
 

Proceeds from refinancing/issuance of mortgages, notes and loans payable
663,479

 
1,297,440

Principal payments on mortgages, notes and loans payable
(1,466,675
)
 
(1,575,138
)
Deferred finance costs
(13,771
)
 
(2,138
)
Treasury stock purchases

 
(100,599
)
Cash distributions to noncontrolling interests in consolidated real estate affiliates
(23,075
)
 
(53,888
)
Cash distributions paid to common stockholders
(503,599
)
 
(451,714
)
Cash distributions reinvested (DRIP) in common stock
601

 

Cash distributions paid to preferred stockholders
(11,951
)
 
(11,952
)
Cash distributions and redemptions paid to unit holders
(3,173
)
 
(1,471
)
Other, net
41,112

 
25,963

Net cash used in financing activities
(1,317,052
)
 
(873,497
)
 
 
 
 
Net change in cash and cash equivalents
299,874

 
(211,801
)
Cash and cash equivalents at beginning of period
356,895

 
372,471

Cash and cash equivalents at end of period
$
656,769

 
$
160,670


8


GENERAL GROWTH PROPERTIES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(UNAUDITED)
 
Nine Months Ended September 30,
 
2016
 
2015
 
(Dollars in thousands)
 
 
 
 
Supplemental Disclosure of Cash Flow Information:
 

 
 

Interest paid
$
437,099

 
$
456,196

Interest capitalized
3,876

 
10,270

Income taxes paid
2,805

 
9,323

Accrued capital expenditures included in accounts payable and accrued expenses
88,515

 
145,802

Non-Cash acquisition of Treasury Shares
 
 
 
Liabilities

 
(2,198
)
Equity

 
2,198

Sale of Ala Moana and Fashion Show (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 September 30, 2016, we are the owner, either entirely or with joint venture partners, of 126 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 September 30, 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 GGPN and GGPLP. 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. 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.

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
 
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

11

GENERAL GROWTH PROPERTIES, INC.

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


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 September 30, 2016
 

 
 

 
 

Tenant leases:
 

 
 

 
 

In-place value
$
321,452

 
$
(219,077
)
 
$
102,375

 
 
 
 
 
 
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 September 30,
 
Nine Months Ended September 30,
 
2016
 
2015
 
2016
 
2015
Amortization/accretion effect on continuing operations
$
(23,014
)
 
$
(33,336
)
 
$
(72,118
)
 
$
(111,224
)

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
 
$
19,624

2017
 
63,906

2018
 
41,740

2019
 
25,970

2020
 
18,732


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 nine months ended September 30, 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

12

GENERAL GROWTH PROPERTIES, INC.

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


and reduced by distributions received. Under the cost method, the cost of our investment is not adjusted for our share of the earnings of such Unconsolidated Real Estate Affiliates from the date of acquisition and distributions are treated as earnings when 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.
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.

13

GENERAL GROWTH PROPERTIES, INC.

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


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 September 30,
 
Nine Months Ended September 30,
 
2016
 
2015
 
2016
 
2015
Management fees from affiliates (1)
$
20,428

 
$
19,496

 
$
60,015

 
$
65,313

Management fee expense
(8,250
)
 
(7,640
)
 
(23,964
)
 
(22,575
)
Net management fees from affiliates
$
12,178

 
$
11,856

 
$
36,051

 
$
42,738

(1) Excludes a $13.1 million gain recognized in management fees and other corporate revenues on the divestiture of our investment in Seritage Growth Properties during the nine months ended September 30, 2016.

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 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.

14

GENERAL GROWTH PROPERTIES, INC.

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



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 nine months ended September 30, 2016, we recorded a $73.0 million impairment charge (of which $28.3 million relates to the three months ended September 30, 2016) on our Consolidated Statements of Comprehensive Income related to three operating properties. During the nine months ended September 30, 2016, we received bona fide purchase offers for two properties which were less than their respective carrying values. The other property had non-recourse debt maturing during the nine months ended September 30, 2016 that exceeded the fair value of the operating property. This property was transferred to a special servicer during the nine months ended September 30, 2016. No provisions for impairment were recognized for the three and nine months ended September 30, 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 and nine months ended September 30, 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 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, including the accordion, 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 September 30, 2016 and December 31, 2015, respectively.



15

GENERAL GROWTH PROPERTIES, INC.

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


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.

In March 2016, the FASB issued ASU 2016-07 which eliminates the requirement for retrospective application of equity method accounting when an investment previously accounted for by another method initially qualifies for the equity method. This standard is effective for all entities for fiscal years beginning after December 15, 2016 with earlier application permitted. The Company does not expect the adoption of this standard to materially impact its consolidated financial statements.

In June 2016, the FASB issued ASU 2016-13 which changes the model for the measurement of credit losses on financial instruments. Specifically, the amendments in the ASU replace the incurred loss impairment methodology in current GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. The amendments in this ASU will be effective January 1, 2020 with early adoption permitted on January 1, 2019. The Company is evaluating the potential impact of this pronouncement on its consolidated financial statements.

In August 2016, the FASB issued ASU 2016-15 which provides guidance on the statement of cash flows presentation of certain transactions where diversity in practice exists. The effective date will be the first quarter of fiscal year 2019, with early adoption permitted. The ASU should be adopted using a retrospective transition approach. The Company is evaluating the potential impact of this pronouncement on its Consolidated Statements of Cash Flows.

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

16

GENERAL GROWTH PROPERTIES, INC.

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


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.

NOTE 3        ACQUISITIONS, SALES AND JOINT VENTURE ACTIVITY

On September 15, 2016, joint ventures we formed with Simon Property Group and Authentic Brands Group LLC acquired Aeropostale, Inc. ("Aeropostale") for $80.0 million in total cash which included cash for working capital requirements of the retail business. In connection with the transaction, our total investment was $20.4 million of cash contributed to the ventures for an effective ownership of approximately 26% in the two joint ventures. Aeropostale is a tenant at certain of our properties for which we receive rental income included in minimum rents on the Consolidated Statements of Comprehensive Income.

On August 1, 2016, we closed on the sale of Rogue Valley Mall located in Medford, Oregon for a sales price of $61.5 million. This transaction netted proceeds of approximately $6.4 million and resulted in a loss of $0.8 million recognized in gain from changes in control of investment properties and other for the three and nine months ended September 30, 2016.

On July 29, 2016, we reached an agreement on the sale of a 50% interest in Fashion Show located in Las Vegas, Nevada to TIAA-CREF Global Investments, LLC ("TIAACREF") for a sales price of $1.25 billion. We closed on the sale of the initial 49% and received proceeds of approximately $813.9 million on July 29, 2016, and we received the remaining $16.6 million for the closing of the final 1% interest on October 4, 2016. This transaction resulted in a gain on sale of $622.3 million recognized in gain from changes in control of investment properties and other for the three and nine months ended September 30, 2016.

The table below summarizes the gain calculation ($ in millions):
Cash received from joint venture partner
$
813.9

Less: Proportionate share of previous investment in Fashion Show
(191.6
)
Gain from change in control of investment property
$
622.3


On July 21, 2016, we closed on the sale of Newgate Mall located in Ogden, Utah for a sales price of $69.5 million. The transaction netted proceeds of approximately $8.4 million and resulted in a loss of $1.4 million recognized in gain from changes in control of investment properties and other for the three and nine months ended September 30, 2016.

On June 30, 2016, we closed on the acquisition of a property through a joint venture located at 218 West 57th Street in New York City for $81.5 million. In connection with the acquisition, we provided a $53.0 million mortgage loan to the joint venture that bears interest at the London Interbank Offered Rate ("LIBOR") plus 3.4%, subject to terms and conditions in the loan agreement, and matures on June 30, 2019, with two one year extension options. We own a 50% interest in the joint venture and our share of equity at closing was $15.1 million including prorated working capital. We also provided our joint venture partner with a $7.3 million loan upon closing.

On June 30, 2016, we closed on the sale of our 49.8% interest in One Stockton Partners, LLC in San Francisco, California to our joint venture partner for $49.8 million. In connection with the sale, $16.3 million in mortgage debt was assumed. This transaction netted proceeds of approximately $33.5 million and resulted in a gain of $22.7 million recognized in Unconsolidated Real Estate Affiliates - gain on investment on our Consolidated Statements of Comprehensive Income for the nine months ended September 30, 2016. In addition to the sale, the joint venture partner made an $8.0 million repayment of a note receivable.

On June 28, 2016, we closed on the sale of the office building and parking garage at Pioneer Place in Portland, Oregon for $121.8 million. This transaction netted proceeds of approximately $116.0 million and resulted in a gain on sale of $35.5 million recognized in gain from changes in control of investment properties and other for the nine months ended September 30, 2016.

On February 2, 2016, we closed on the acquisition of our joint venture partner's 25% interest in Spokane Valley Mall in Spokane, Washington for $37.5 million. This transaction resulted in a reduction of additional paid-in capital of $18.4 million due to the acquisition of our partner's noncontrolling interest.


17

GENERAL GROWTH PROPERTIES, INC.

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


On January 29, 2016 we closed on the sale of our 75% interest in Provo Towne Center in Provo, Utah to our joint venture partner for $37.5 million. Mortgage debt of $31.1 million was repaid upon closing. This transaction netted proceeds of approximately $2.8 million and resulted in a loss of $6.7 million recognized in gain from changes in control of investment properties and other for the nine months ended September 30, 2016.

On January 29, 2016, we closed on the sale of our 10% interest in 522 Fifth Avenue in New York City 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 nine months ended September 30, 2016.

On January 15, 2016, we closed on the sale of Eastridge Mall in San Jose, California for $225.0 million. This transaction netted proceeds of approximately $216.3 million and resulted in a gain on sale of $71.8 million recognized in gain from changes in control of investment properties and other for the nine months ended September 30, 2016.

On January 8, 2016, we closed on the sale of our 50% interest in Owings Mills Mall in Owings Mills, Maryland to our joint venture partner for $11.6 million. This transaction netted proceeds of approximately $11.6 million and resulted in a gain on sale of $0.6 million recognized in Unconsolidated Real Estate Affiliates - gain on investment for the nine months ended September 30, 2016.

On April 27, 2015, we sold the office portion of 200 Lafayette in New York City for $124.5 million. In connection with the transaction, debt of $67.0 million was repaid. The transaction netted proceeds of approximately $49.4 million and resulted in a gain on sale of $11.9 million recognized in gain from changes in control of investment properties and other on our Consolidated Statements of Comprehensive Income for the nine months ended September 30, 2015.

On April 17, 2015, we closed on the acquisition of the Crown Building located at 730 Fifth Avenue in New York City through a joint venture partner. The Crown Building was acquired for $1.78 billion, which was funded with $1.25 billion of secured debt. We own an effective 50% interest in the retail portion of the property. GGP and Jeff Sutton own, redevelop, lease and manage the retail portion of the property which was $1.30 billion of the purchase price. We own no effective interest in the office portion of the property. Vladislav Doronin’s Capital Group and Michael Shvo own, redevelop, lease and manage the office tower which was $475.0 million of the purchase price. The office tower will be redeveloped into luxury residential condominiums. At acquisition, our share of the retail property purchase price was $650.0 million, and our share of the equity was $208.5 million. In connection with the acquisition, we provided $204.3 million in loans to our joint venture partners.

On April 1, 2015, we closed on the acquisition of property through a joint venture located at 85 Fifth Avenue in New York City for $86.0 million. The acquisition was funded with $60.0 million of secured debt. We own a 50% interest in the joint venture and our share of the equity was $14.0 million. In connection with the acquisition, we provided a $7.0 million loan to our joint venture partner.

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. On December 14, 2015, GGP entered into agreements with two of its joint ventures to assign interest in 4 of the 12 anchor pads to the joint ventures. For the assignment and transfer of the assigned interests, GGP received net consideration of $74.0 million.

On January 29, 2015, we sold our 50% interest in a joint venture that owns Trails Village in Las Vegas, Nevada for $27.6 million. In connection with the sale, mortgage debt of $5.75 million was repaid. The transaction netted proceeds of approximately $22.0 million and resulted in a gain of $12.0 million recognized in Unconsolidated Real Estate Affiliates - gain on investment on our Consolidated Statements of Comprehensive Income.
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 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

18

GENERAL GROWTH PROPERTIES, INC.

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


$118.5 million 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 September 30, 2016, we recognized an additional $0.2 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 September 30, 2016. During the nine months ended September 30, 2016, we recognized an additional $12.7 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 September 30, 2016. We will recognize an additional $13.6 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 September 30, 2016, we recognized an additional $0.3 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 September 30, 2016. During the nine months ended September 30, 2016, we recognized an additional $6.5 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 September 30, 2016. We will recognize an additional $6.6 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:

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 nine months ended September 30, 2016
12.7

6.5

Estimated future gain from changes in control of investment properties and other
13.6


Estimated future Unconsolidated Real Estate Affiliates - gain on investment
$

$
6.6









19

GENERAL GROWTH PROPERTIES, INC.

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


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
Nine Months Ended 
 September 30, 2016
 
 
 
 
 
 
 
 
 
Investments in real estate (1)
$
219,165

 
$

 
$
131,000

 
$
88,165

 
(73,039
)
(1) Refer to Note 2 for more information regarding impairment.
 
 

Unobservable Quantitative Input
 
Range
Discount rates
 
9.0% to 11.0%
Terminal capitalization rates
 
16.0% to 17.0%

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 September 30, 2016 and December 31, 2015.
 
 
September 30, 2016
 
December 31, 2015
 
 
Carrying Amount (1)
 
Estimated Fair
Value
 
Carrying Amount (1)
 
Estimated Fair
Value
Fixed-rate debt
 
$
10,472,938

 
$
11,357,820

 
$
11,921,302

 
$
12,247,451

Variable-rate debt
 
1,987,089

 
1,992,723

 
2,294,858

 
2,304,551

 
 
$
12,460,027

 
$
13,350,543

 
$
14,216,160

 
$
14,552,002

 
(1) Includes market rate adjustments of $28.9 million and $33.0 million and deferred financing costs of $43.0 million and $40.2 million as of September 30, 2016 and December 31, 2015, respectively.

The fair value of our Junior Subordinated Notes approximates their carrying amount as of September 30, 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 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

20

GENERAL GROWTH PROPERTIES, INC.

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


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.

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.
 
 
December 31, 2015
 
 
Fair Value
 
Cost Basis
 
Unrealized Gain
Marketable securities:
 
 
 
 
 


     Seritage Growth Properties
 
$
45,278

 
$
33,300

 
$
11,978


During the nine months ended September 30, 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 income (loss).


21

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).
 
September 30, 2016
 
December 31, 2015
Condensed Combined Balance Sheets - Unconsolidated Real Estate Affiliates (1)
 

 
 

Assets:
 

 
 

Land
$
2,649,732

 
$
1,949,577

Buildings and equipment
13,384,485

 
12,344,045

Less accumulated depreciation
(3,504,490
)
 
(3,131,659
)
Construction in progress
574,614

 
828,521

Net property and equipment
13,104,341

 
11,990,484

Investment in unconsolidated joint ventures
465,376

 
421,778

Net investment in real estate
13,569,717


12,412,262

Cash and cash equivalents
467,611

 
426,470

Accounts and notes receivable, net
574,999

 
258,589

Deferred expenses, net
257,198

 
239,262

Prepaid expenses and other assets
433,350

 
472,123

Total assets
$
15,302,875

 
$
13,808,706

 
 
 
 
Liabilities and Owners’ Equity:
\

 
 

Mortgages, notes and loans payable
$
10,723,895

 
$
9,812,378

Accounts payable, accrued expenses and other liabilities
639,372

 
740,388

Cumulative effect of foreign currency translation ("CFCT")
(50,527
)
 
(67,224
)
Owners’ equity, excluding CFCT
3,990,135

 
3,323,164

Total liabilities and owners’ equity
$
15,302,875

 
$
13,808,706

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

 
 

Owners’ equity
$
3,939,608

 
$
3,255,940

Less: joint venture partners’ equity
(1,859,489
)
 
(1,518,581
)
Plus: excess investment/basis differences
1,544,558

 
1,550,193

Investment in and loans to/from
   Unconsolidated Real Estate Affiliates, net (equity method)
3,624,677

 
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
$
3,804,677

 
$
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
$
3,844,177

 
$
3,506,040

Liability - Investment in Unconsolidated Real Estate Affiliates
(39,500
)
 
(38,488
)
Investment in and loans to/from Unconsolidated Real Estate Affiliates, net
$
3,804,677

 
$
3,467,552

 
(1) The Condensed Combined Balance Sheets - Unconsolidated Real Estate Affiliates include Fashion Show as of September 30, 2016 as the property was contributed into a joint venture during the third quarter of 2016.

22

GENERAL GROWTH PROPERTIES, INC.

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


 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
 
2016
 
2015
 
2016
 
2015
Condensed Combined Statements of Income - Unconsolidated Real Estate Affiliates (1)
 
 

 
 

 
 
 
 
Revenues:
 
 

 
 

 
 
 
 
Minimum rents
 
$
278,396

 
$
264,333

 
$
800,167

 
$
742,168

Tenant recoveries
 
121,810

 
113,624

 
349,983

 
321,755

Overage rents
 
7,627

 
7,602

 
19,430

 
19,270

Condominium sales
 
91,788

 

 
445,434

 

Other
 
12,106

 
11,006

 
36,060

 
36,061

Total revenues
 
511,727

 
396,565

 
1,651,074

 
1,119,254

 
 
 
 
 
 
 
 
 
Expenses:
 
 

 
 

 
 
 
 
Real estate taxes
 
33,656

 
33,080

 
90,008

 
93,754

Property maintenance costs
 
9,767

 
9,373

 
30,116

 
32,316

Marketing
 
3,601

 
4,477

 
15,794

 
12,518

Other property operating costs
 
56,445

 
53,961

 
158,413

 
152,290

Condominium cost of sales
 
66,924

 

 
324,772

 

Provision for doubtful accounts
 
2,042

 
172

 
11,457

 
4,436

Property management and other costs (2)
 
17,477

 
15,859

 
50,946

 
46,731

General and administrative
 
482

 
952

 
1,777

 
9,415

Depreciation and amortization
 
126,408

 
99,475

 
347,267

 
293,387

Total expenses
 
316,802

 
217,349

 
1,030,550

 
644,847

Operating income
 
194,925

 
179,216

 
620,524

 
474,407

 
 
 
 
 
 
 
 
 
Interest income
 
2,692

 
1,837

 
6,792

 
5,399

Interest expense
 
(109,863
)
 
(100,766
)
 
(313,777
)
 
(294,132
)
Provision for income taxes
 
(215
)
 
(242
)
 
(589
)
 
(606
)
Equity in loss of unconsolidated joint ventures
 
(3,616
)
 
(13,252
)
 
(37,869
)
 
(22,466
)
Income from continuing operations
 
83,923

 
66,793

 
275,081

 
162,602

Allocation to noncontrolling interests
 
(22
)
 
(18
)
 
(96
)
 
(35
)
Net income attributable to the ventures
 
$
83,901

 
$
66,775

 
$
274,985

 
$
162,567

 
 
 
 
 
 
 
 
 
Equity In Income of Unconsolidated Real Estate Affiliates:
 
 

 
 

 
 
 
 
Net income attributable to the ventures
 
$
83,901

 
$
66,775

 
$
274,985

 
$
162,567

Joint venture partners’ share of income
 
(43,014
)
 
(31,676
)
 
(125,447
)
 
(78,240
)
Amortization of capital or basis differences
 
(5,236
)
 
(18,515
)
 
(21,779
)
 
(43,212
)
Equity in income of Unconsolidated Real Estate Affiliates
 
$
35,651

 
$
16,584

 
$
127,759

 
$
41,115

 
(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 and income from Fashion Show subsequent to the formation of the joint venture on July 29, 2016.
(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 26 domestic joint ventures, comprising 42 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 Kahikolu 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 nine months ended September 30, 2016.


23

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 in Cincinnati, Ohio (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.

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 $5.5 billion as of September 30, 2016, and $5.1 billion as of 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 $86.8 million at one property as of September 30, 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 September 30, 2016, we do not anticipate an inability to perform on our obligations with respect to Retained Debt.

NOTE 6        MORTGAGES, NOTES AND LOANS PAYABLE

Mortgages, notes and loans payable and the weighted-average interest rates are summarized as follows:
 
 
September 30, 2016 (1)