Brookfield Property REIT Inc. - FORM 10-Q - November 5, 2014

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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, 2014
 
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.  ýYes  o No

The number of shares of Common Stock, $.01 par value, outstanding on November 3, 2014 was 884,107,377.
 


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


2

GENERAL GROWTH PROPERTIES, INC.

CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
 
September 30,
2014
 
December 31,
2013
 
(Dollars in thousands, except share and per share amounts)
Assets:
 
 
 
Investment in real estate:
 

 
 

Land
$
4,268,569

 
$
4,320,597

Buildings and equipment
18,261,100

 
18,270,748

Less accumulated depreciation
(2,210,100
)
 
(1,884,861
)
Construction in progress
557,354

 
406,930

Net property and equipment
20,876,923

 
21,113,414

Investment in and loans to/from Unconsolidated Real Estate Affiliates
2,512,129

 
2,407,698

Net investment in real estate
23,389,052

 
23,521,112

Cash and cash equivalents
279,576

 
577,271

Accounts and notes receivable, net
603,735

 
478,899

Deferred expenses, net
176,296

 
189,452

Prepaid expenses and other assets
871,249

 
995,569

Total assets
$
25,319,908

 
$
25,762,303

 
 
 
 
Liabilities:
 

 
 
Mortgages, notes and loans payable
$
15,898,090

 
$
15,672,437

Investment in Unconsolidated Real Estate Affiliates
19,017

 
17,405

Accounts payable and accrued expenses
865,441

 
970,995

Dividend payable
148,443

 
134,476

Deferred tax liabilities
21,511

 
24,667

Tax indemnification liability
321,958

 
321,958

Junior subordinated notes
206,200

 
206,200

Total liabilities
17,480,660

 
17,348,138

 
 
 
 
Redeemable noncontrolling interests:
 

 
 

Preferred
145,771

 
131,881

Common
113,844

 
97,021

Total redeemable noncontrolling interests
259,615

 
228,902

 
 
 
 
Commitments and Contingencies
—

 
—

 
 
 
 
Equity:
 

 
 

Common stock: 11,000,000,000 shares authorized, $0.01 par value, 967,495,204 issued, 884,066,619 outstanding as of September 30, 2014, and 966,998,908 issued, 911,194,605 outstanding as of December 31, 2013
9,400

 
9,395

Preferred stock:
 
 
 
500,000,000 shares authorized, $.01 par value, 10,000,000 shares issued and outstanding as of September 30, 2014 and December 31, 2013
242,042

 
242,042

Additional paid-in capital
11,372,184

 
11,372,443

Retained earnings (accumulated deficit)
(2,957,989
)
 
(2,915,723
)
Accumulated other comprehensive loss
(43,290
)
 
(38,173
)
Common stock in treasury, at cost, 55,969,390 shares as of September 30, 2014 and 28,345,108 shares as of December 31, 2013
(1,122,664
)
 
(566,863
)
Total stockholders’ equity
7,499,683

 
8,103,121

Noncontrolling interests in consolidated real estate affiliates
79,950

 
82,142

Total equity
7,579,633

 
8,185,263

Total liabilities, redeemable noncontrolling interests and equity
$
25,319,908

 
$
25,762,303

 

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,
 
2014
 
2013
 
2014
 
2013
 
(Dollars in thousands, except per share amounts)
Revenues:
 

 
 

 
 
 
 
Minimum rents
$
400,188

 
$
382,718

 
$
1,182,200

 
$
1,159,091

Tenant recoveries
186,123

 
176,756

 
552,767

 
534,079

Overage rents
9,277

 
9,666

 
24,486

 
27,387

Management fees and other corporate revenues
17,355

 
17,336

 
51,759

 
50,575

Other
18,861

 
19,636

 
63,242

 
55,211

Total revenues
631,804

 
606,112

 
1,874,454

 
1,826,343

Expenses:
 
 
 
 
 
 
 
Real estate taxes
57,705

 
58,176

 
173,495

 
177,352

Property maintenance costs
13,618

 
13,955

 
49,848

 
51,747

Marketing
4,345

 
5,794

 
15,109

 
18,061

Other property operating costs
85,671

 
93,190

 
255,165

 
263,018

Provision for doubtful accounts
398

 
1,017

 
5,319

 
3,326

Property management and other costs
34,516

 
41,446

 
119,572

 
123,344

General and administrative
12,778

 
10,522

 
52,609

 
34,578

Depreciation and amortization
184,033

 
188,079

 
534,096

 
566,470

Total expenses
393,064

 
412,179

 
1,205,213

 
1,237,896

Operating income
238,740

 
193,933

 
669,241

 
588,447

 
 
 
 
 
 
 
 
Interest and dividend income
8,536

 
388

 
19,801

 
1,277

Interest expense
(174,120
)
 
(172,930
)
 
(528,283
)
 
(549,545
)
Loss on foreign currency
(15,972
)
 
—

 
(7,017
)
 
—

Warrant liability adjustment
—

 
—

 
—

 
(40,546
)
Gains from changes in control of investment properties
—

 
—

 
—

 
219,784

Loss on extinguishment of debt
—

 
—

 
—

 
(36,478
)
Income before income taxes, equity in income of Unconsolidated Real Estate Affiliates, discontinued operations and allocation to noncontrolling interests
57,184

 
21,391

 
153,742

 
182,939

Benefit from (provision for) income taxes
4,800

 
287

 
(2,836
)
 
(1,236
)
Equity in income of Unconsolidated Real Estate Affiliates
7,391

 
13,984

 
33,868

 
41,165

Equity in income of Unconsolidated Real Estate Affiliates - (loss) gain on investment (the three and nine months ended September 30, 2013 includes ($109.9 million) accumulated other comprehensive loss reclassifications for net foreign currency translation losses)
—

 
(2,800
)
 
—

 
648

Income from continuing operations
69,375

 
32,862

 
184,774

 
223,516

Discontinued operations:
 
 
 
 
 
 
 
Income (loss) from discontinued operations, including gains (losses) on dispositions
8,024

 
(2,008
)
 
134,927

 
(13,366
)
Gain on extinguishment of debt
—

 
—

 
66,679

 
25,894

Discontinued operations, net
8,024


(2,008
)
 
201,606

 
12,528

Net income
77,399

 
30,854

 
386,380

 
236,044

Allocation to noncontrolling interests
(2,791
)
 
(3,371
)
 
(10,008
)
 
(10,707
)
Net income attributable to General Growth Properties, Inc.
74,608

 
27,483

 
376,372

 
225,337

Preferred stock dividends
(3,984
)
 
(3,984
)
 
(11,952
)
 
(10,094
)
Net income attributable to common stockholders
$
70,624

 
$
23,499

 
$
364,420

 
$
215,243

 
 
 
 
 
 
 
 
Basic Earnings Per Share:
 
 
 
 
 
 
 
Continuing operations
$
0.07

 
$
0.03

 
$
0.18

 
$
0.22

Discontinued operations
0.01

 
—

 
0.23

 
0.01

Total basic earnings per share
$
0.08

 
$
0.03

 
$
0.41

 
$
0.23

 
 
 
 
 
 
 

Diluted Earnings Per Share:
 
 
 
 
 
 
 
Continuing operations
$
0.06

 
$
0.02

 
$
0.18

 
$
0.22


4

GENERAL GROWTH PROPERTIES, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(UNAUDITED)
Discontinued operations
0.01

 
—

 
0.21

 
0.01

Total diluted earnings per share
$
0.07

 
$
0.02

 
$
0.39

 
$
0.23

Dividends declared per share
$
0.16

 
$
0.13

 
$
0.46

 
$
0.37

 
 
 
 
 
 
 
 
Comprehensive Income, Net:
 

 
 

 
 
 
 
Net income
$
77,399

 
$
30,854

 
$
386,380

 
$
236,044

Other comprehensive income
 
 
 
 
 
 
 
Net unrealized gains on financial instruments
6

 
—

 
(26
)
 
—

Foreign currency translation (the three and nine months ended September 30, 2013 includes reclassification of ($109.9 million) accumulated other comprehensive loss into Net income attributable to common stockholders)
(12,270
)
 
105,107

 
(5,124
)
 
54,181

Unrealized gains on available-for-sale securities
—

 
(996
)
 
—

 
(66
)
Other comprehensive income (loss)
(12,264
)
 
104,111

 
(5,150
)
 
54,115

Comprehensive income
65,135

 
134,965

 
381,230

 
290,159

Comprehensive income allocated to noncontrolling interests
(2,904
)
 
(3,733
)
 
(9,975
)
 
(10,729
)
Comprehensive income attributable to General Growth Properties, Inc.
62,231

 
131,232

 
371,255

 
279,430

Preferred stock dividends
(3,984
)
 
(3,984
)
 
(11,952
)
 
(10,094
)
Comprehensive income, net, attributable to common stockholders
$
58,247

 
$
127,248

 
$
359,303

 
$
269,336


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
 
Total
Equity
 
(Dollars in thousands, except for share amounts)
Balance at January 1, 2013
$
9,392

 
$
—

 
$
10,432,447

 
$
(2,732,787
)
 
$
(87,354
)
 
$
—

 
$
83,322

 
$
7,705,020

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income


 


 


 
225,337

 


 


 
2,146

 
227,483

Issuance of Preferred Stock, net of issuance costs


 
242,042

 
—

 


 


 


 


 
242,042

Distributions to noncontrolling interests in consolidated Real Estate Affiliates


 


 


 


 


 


 
(2,620
)
 
(2,620
)
Restricted stock grants, net (7,240 common shares)
—

 
—

 
7,148

 


 


 


 


 
7,148

Employee stock purchase program (112,371 common shares)
—

 


 
2,247

 


 


 


 


 
2,247

Stock option grants, net of forfeitures (314,167 common shares)
3

 


 
31,178

 


 


 


 


 
31,181

Treasury stock purchases (28,345,108 common shares)
 
 
 
 
 
 
 
 
 
 
(566,863
)
 
 
 
(566,863
)
Cash dividends reinvested (DRIP) in stock (21,106 common shares)
—

 
—

 
446

 


 


 


 


 
446

Other comprehensive loss before reclassifications


 


 


 


 
(55,768
)
 


 


 
(55,768
)
Amounts reclassified from Accumulated Other Comprehensive Loss
 
 
 
 
 
 
 
 
109,861

 
 
 
 
 
109,861

Cash distributions declared ($0.37 per share)


 


 


 
(343,795
)
 


 


 


 
(343,795
)
Cash distributions on Preferred Stock


 


 


 
(10,094
)
 


 


 


 
(10,094
)
Fair value adjustment for noncontrolling interest in GGPOP


 


 
5,138

 


 


 


 


 
5,138

Common stock warrants


 


 
895,513

 


 


 


 


 
895,513

 


 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance at September 30, 2013
$
9,395

 
$
242,042

 
$
11,374,117

 
$
(2,861,339
)
 
$
(33,261
)
 
$
(566,863
)
 
$
82,848

 
$
8,246,939

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance at January 1, 2014
$
9,395

 
$
242,042

 
$
11,372,443

 
$
(2,915,723
)
 
$
(38,173
)
 
$
(566,863
)
 
$
82,142

 
$
8,185,263

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income


 


 


 
376,372

 


 


 
1,262

 
377,634

Distributions to noncontrolling interests in consolidated Real Estate Affiliates


 


 


 


 


 


 
(3,454
)
 
(3,454
)
Restricted stock grants, net (24,744 common shares)
1

 
—

 
2,037

 


 


 


 


 
2,038


6

GENERAL GROWTH PROPERTIES, INC.

CONSOLIDATED STATEMENTS OF EQUITY
(UNAUDITED)
Employee stock purchase program (119,869 common shares)
1

 


 
2,497

 


 


 


 


 
2,498

Stock option grants, net of forfeitures (334,216 common shares)
3

 


 
22,574

 


 


 


 


 
22,577

Treasury stock purchases (27,624,282 common shares)


 


 


 


 


 
(555,801
)
 


 
(555,801
)
Cash dividends reinvested (DRIP) in stock (17,467 common shares)
—

 
—

 
384

 


 


 


 


 
384

Other comprehensive income


 


 


 


 
(5,117
)
 


 


 
(5,117
)
Cash distributions declared ($0.46 per share)


 


 


 
(406,686
)
 


 


 


 
(406,686
)
Cash distributions on Preferred stock


 


 


 
(11,952
)
 


 


 


 
(11,952
)
Fair value adjustment for noncontrolling interest in certain properties
 
 
 
 
3,169

 
 
 
 
 
 
 
 
 
3,169

Fair value adjustment for noncontrolling interest in GGPOP and other


 


 
(30,920
)
 


 


 


 


 
(30,920
)
 
 
 
 
 
 
 
 
 
 
 


 
 
 
 
Balance at September 30, 2014
$
9,400

 
$
242,042

 
$
11,372,184

 
$
(2,957,989
)
 
$
(43,290
)
 
$
(1,122,664
)
 
$
79,950

 
$
7,579,633


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,
 
2014
 
2013
 
(Dollars in thousands)
Cash Flows provided by Operating Activities:
 

 
 

Net income
$
386,380

 
$
236,044

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

 
 

Equity in income of Unconsolidated Real Estate Affiliates
(33,868
)
 
(41,165
)
Equity in income of Unconsolidated Real Estate Affiliates - gain on investment, net
—

 
(648
)
Distributions received from Unconsolidated Real Estate Affiliates
28,041

 
36,334

Provision for doubtful accounts
5,328

 
3,651

Depreciation and amortization
536,938

 
579,835

Amortization/write-off of deferred finance costs
10,231

 
6,900

Accretion/write-off of debt market rate adjustments
13,040

 
7,395

Amortization of intangibles other than in-place leases
57,990

 
65,335

Straight-line rent amortization
(37,530
)
 
(36,760
)
Deferred income taxes
(4,289
)
 
(653
)
Litigation loss
17,854

 
—

(Gain) loss on dispositions, net
(129,757
)
 
838

Gains from changes in control of investment properties
—

 
(219,784
)
Gain on extinguishment of debt
(66,679
)
 
(25,894
)
Provisions for impairment
—

 
4,975

Loss on foreign currency
7,017

 
—

Warrant liability adjustment
—

 
40,546

Net changes:
 

 
 

Accounts and notes receivable
(1,365
)
 
12,056

Prepaid expenses and other assets
(8,904
)
 
(987
)
Deferred expenses
(12,132
)
 
(31,015
)
Restricted cash
(4,526
)
 
14,430

Accounts payable and accrued expenses
22,916

 
(62,653
)
Other, net
19,713

 
17,433

Net cash provided by operating activities
806,398

 
606,213

 
 
 
 
Cash Flows (used in) provided by Investing Activities:
 

 
 

Acquisition of real estate and property additions
(507,966
)
 
(149,327
)
Development of real estate and property improvements
(453,718
)
 
(316,715
)
Deposits paid for acquisitions
—

 
(90,000
)
Proceeds from sales of investment properties
274,242

 
872,307

Contributions to Unconsolidated Real Estate Affiliates
(99,095
)
 
(73,165
)
Distributions received from Unconsolidated Real Estate Affiliates in excess of income
364,966

 
172,460

Decrease in restricted cash
3,727

 
8,467

Net cash (used in) provided by investing activities
(417,844
)

424,027

 
 
 
 
Cash Flows used in Financing Activities:
 

 
 

Proceeds from refinancing/issuance of mortgages, notes and loans payable
1,886,636

 
5,067,622

Principal payments on mortgages, notes and loans payable
(1,595,058
)
 
(4,839,289
)
Deferred finance costs
(12,930
)
 
(18,484
)
Net proceeds from issuance of Preferred stock
—

 
242,042

Purchase of Warrants
—

 
(633,229
)
Common stock purchases
(555,801
)
 
(566,863
)
Distributions to noncontrolling interests in consolidated real estate affiliates
(3,454
)
 
(2,620
)
Cash distributions paid to common stockholders
(392,699
)
 
(328,742
)
Cash distributions reinvested (DRIP) in common stock
384

 
446

Cash distributions paid to preferred stockholders
(11,952
)
 
(6,109
)
Cash redemptions paid to holders of common units
—

 
(4,756
)
Other, net
(1,375
)
 
38,445


8

GENERAL GROWTH PROPERTIES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(UNAUDITED)
 
Nine Months Ended September 30,
 
2014
 
2013
 
(Dollars in thousands)
Net cash used in financing activities
(686,249
)
 
(1,051,537
)
 
 
 
 
Net change in cash and cash equivalents
(297,695
)
 
(21,297
)
Cash and cash equivalents at beginning of period
577,271

 
624,815

Cash and cash equivalents at end of period
$
279,576

 
$
603,518

 
 
 
 
Supplemental Disclosure of Cash Flow Information:
 

 
 

Interest paid
$
518,773

 
$
661,295

Interest capitalized
12,718

 
7,356

Income taxes paid
8,486

 
5,555

Accrued capital expenditures included in accounts payable and accrued expenses
89,720

 
95,282

Non-Cash Transactions:
 
 
 
Notes receivable related to property sale
—

 
151,127

Gain on investment in Unconsolidated Real Estate Affiliates
—

 
648

Amendment of warrant agreement
—

 
895,513

Non-Cash Sale of Property
 
 
 
Assets
21,426

 
71,881

Liabilities and equity
(21,426
)
 
(71,881
)
Non-Cash Acquisition of Quail Springs - Refer to Note 3
 
 
 
Non-Cash Sale of The Grand Canal Shoppes and the Shoppes at The Palazzo - 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, 2013 which are included in the Company’s Annual Report on Form 10-K (the “Annual Report”) for the fiscal year ended December 31, 2013 (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, 2014, we are the owner, either entirely or with joint venture partners of 127 retail properties.  In addition to retail properties, as of September 30, 2014, we owned 7 strip/other retail properties, as well as six stand-alone office buildings.
 
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, 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, 2014, GGP held approximately a 99% common equity ownership (without giving effect to the potential conversion of the Preferred Units, as defined below) of the Operating Partnerships, while the remaining 1% was 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 (“Convertible Preferred Units”)
(Note 10).
 
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, as a result, 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

10
GENERAL GROWTH PROPERTIES, INC.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except share and per share amounts)
(Unaudited)


noncontrolling interests in consolidated real estate affiliates as permanent equity of the Company. Intercompany balances and transactions have been eliminated.
 
We operate in a single reportable segment which includes the operation, development and management of retail and other rental properties, primarily regional malls.  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.  We do not distinguish or group our consolidated operations based on geography, size or type. Our operating properties have similar economic characteristics and provide similar products and services to our tenants. 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
 
Certain prior period amounts included in the Consolidated Statements of Comprehensive Income and related footnotes associated with properties we have disposed of have been reclassified to discontinued operations for all periods presented. Additionally, $18.4 million of accrued interest related to the Tax indemnification liability (Note 16) was reclassified from Accounts payable and accrued expenses to Tax indemnification liability in our Consolidated Balance Sheets presented as of December 31, 2013, as presented herein.
 
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
 
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.
 

11
GENERAL GROWTH PROPERTIES, INC.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except share and per share amounts)
(Unaudited)


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 September 30, 2014
 

 
 

 
 

Tenant leases:
 

 
 

 
 

In-place value
$
643,819

 
$
(367,830
)
 
$
275,989

 
 
 
 
 
 
As of December 31, 2013
 
 
 
 
 
Tenant leases:
 
 
 
 
 
In-place value
$
797,311

 
$
(420,370
)
 
$
376,941

 
The above-market tenant leases and below-market ground leases are included in Prepaid expenses and other assets (Note 14); the below-market tenant leases, above-market ground leases and above-market headquarters office lease are included in Accounts payable and accrued expenses (Note 15) in our Consolidated Balance Sheets.
 
Amortization/accretion of all intangibles, including the intangibles in Note 14 and Note 15, had the following effects on our Income (loss) from continuing operations:
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2014
 
2013
 
2014
 
2013
Amortization/accretion effect on continuing operations
$
(46,913
)
 
$
(60,059
)
 
$
(152,426
)
 
$
(185,213
)
 
Future amortization/accretion of all intangibles, including the intangibles in Note 14 and Note 15, is estimated to decrease results from continuing operations as follows:
Year
 
Amount
2014 Remaining
 
$
40,546

2015
 
138,235

2016
 
107,613

2017
 
81,278

2018
 
53,808

 
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 6.  The following table summarizes the management fees from affiliates and our share of the management fee expense:


12
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,
 
2014
 
2013
 
2014
 
2013
Management fees from affiliates
$
17,355

 
$
17,324

 
$
51,759

 
$
50,463

Management fee expense
(6,555
)
 
(6,534
)
 
(19,805
)
 
(18,651
)
Net management fees from affiliates
$
10,800

 
$
10,790


$
31,954


$
31,812

 
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, 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 be complete 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.
 
There were no provisions for impairment for the three and nine months ended September 30, 2014 and 2013, included in continuing operations of our Consolidated Statements of Comprehensive Income. There was no provision for impairment for the three and nine months ended September 30, 2014, in Discontinued operations in our Consolidated Statements of Comprehensive Income. During the nine months ended September 30, 2013, we recorded $5.0 million of impairment charges in Discontinued operations, net in our Consolidated Statements of Comprehensive Income, which was incurred as a result of the sale of two operating properties. One of the operating properties was previously transferred to a special servicer, and was sold in a lender-directed sale in full satisfaction of the related debt. This resulted in the recognition of a gain on extinguishment of debt of $25.9 million (Note 4). The other operating property related to a regional mall where the sales price of the property was lower than its carrying value.
 
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

13
GENERAL GROWTH PROPERTIES, INC.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except share and per share amounts)
(Unaudited)


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, 2014, and 2013.
 
Fair Value Measurements (Note 5)
 
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.
 
The impairment section above includes a discussion of all impairments recognized during the three and nine months ended September 30, 2014, and 2013, which were based on Level 2 inputs.  Note 5 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 9 includes a discussion of our outstanding Warrants, which were measured at fair value using Level 3 inputs until the Warrant agreement was amended on March 28, 2013.  Note 10 includes a discussion of certain redeemable noncontrolling interests that are measured at fair value using Level 1 inputs.
 
Recently Issued Accounting Pronouncements
 
Effective January 1, 2015 with early adoption permitted January 1, 2014 the definition of discontinued operations has been revised to limit what qualifies for this classification and presentation to disposals of components of a company that represent strategic shifts that have (or will have) a major effect on the company’s operations and financial results. Required expanded disclosures for disposals or disposal groups that qualify for discontinued operations are intended to provide users of financial statements with enhanced information about the assets, liabilities, revenues and expenses of such discontinued operations. In addition, in accordance with this pronouncement, companies are required to disclose the pretax profit or loss of an individually significant component that does not qualify for discontinued operations treatment. Pursuant to its terms, we have elected to adopt this pronouncement effective January 1, 2015. This definition will be applied prospectively after the adoption and is anticipated to substantially reduce the number of transactions, going forward, that qualify for discontinued operations as compared to historical results.

Effective January 1, 2017, 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 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, initial valuations and related

14
GENERAL GROWTH PROPERTIES, INC.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except share and per share amounts)
(Unaudited)


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 AND JOINT VENTURE ACTIVITY

On September 30, 2014, we contributed $8.3 million to a joint venture that acquired a retail condominium unit located at 522 5th Avenue in New York, New York for a gross purchase price of $165.0 million with $83.3 million in gross property-level financing. The retail condominium comprises approximately 26,500 square feet of retail space on the ground and second level floors. We have an effective 10% interest in the joint venture and account for the joint venture under the equity method of accounting because we share control over major decisions with our joint venture partners. The property will be accounted for as an Unconsolidated Real Estate Affiliate, and is recorded within Investment in and loans to/from Unconsolidated Real Estate Affiliates on our Consolidated Balance Sheets (Note 6). In connection with the acquisition we provided a $5.3 million loan to our joint venture partner (Note 13).

On September 15, 2014, we contributed $244.7 million to a joint venture that acquired a 20% interest in a development located in Miami, Florida and an 85.67% interest in a regional mall located in Bellevue, Washington. The joint venture's 20% interest in the Miami Design District Associates, LLC ("MDDA") was acquired for a purchase price of $280.0 million. We have a 12.5% share of this investment and account for it as a cost method investment. The investment is recorded within Investment in and loans to/from Unconsolidated Real Estate Affiliates on our Consolidated Balance Sheets (Note 6). The joint venture partner contributed a property, The Shops at the Bravern, LLC ("Bravern"), for a net contribution of $79.0 million. Through the formation of the joint venture, we have a 40% interest in the property and account for the joint venture under the equity method of accounting because we share control over major decisions with our joint venture partner and limited partners. The property will be accounted for as an Unconsolidated Real Estate Affiliate, and is recorded within Investment in and loans to/from Unconsolidated Real Estate Affiliates on our Consolidated Balance Sheets (Note 6).

On June 27, 2014, we contributed $106.6 million to a joint venture that acquired 685 5th Avenue in New York, New York for a gross purchase price of $521.4 million with $340.0 million in gross property-level financing. The property comprises approximately 25,000 square feet of retail space and 115,000 square feet of office space. We have a 50% interest in the joint venture and account for the joint venture under the equity method of accounting because we share control over major decisions with our joint venture partner. The property will be accounted for as an Unconsolidated Real Estate Affiliate, and is recorded within Investment in and loans to/from Unconsolidated Real Estate Affiliates on our Consolidated Balance Sheets (Note 6). In connection with the acquisition we provided an $85.3 million loan to our joint venture partner (Note 13).

On June 28, 2013, we acquired the remaining 50% interest in Quail Springs Mall in Oklahoma City, Oklahoma, from our joint venture partner, for total consideration of $90.5 million, which included $55.5 million of cash and the assumption of the remaining 50% of debt. The investment property was previously recorded under the equity method of accounting and is now consolidated. The acquisition resulted in a remeasurement of the net assets acquired to fair value and as such, we recorded Gains from changes in control of investment properties of $19.8 million for the three and nine months ended September 30, 2013, as the fair value of the net assets acquired was greater than our investment in the Unconsolidated Real Estate Affiliate and the cash paid to acquire our joint venture partner’s interest. The table below summarizes the gain calculation:

Total fair value of net assets acquired
$
110,893

Previous investment in Quail Springs Mall
(35,610
)
Cash paid to acquire our joint venture partners' interest
(55,507
)
Gains from changes in control of investment properties
$
19,776


The following table summarizes the allocation of the purchase price to the net assets acquired at the date of acquisition. These allocations were based on the relative fair values of the assets acquired and liabilities assumed.


15
GENERAL GROWTH PROPERTIES, INC.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except share and per share amounts)
(Unaudited)


Investment in real estate, including intangible assets and liabilities
$
186,627

Fair value of debt
(77,204
)
Net working capital
1,470

Net assets acquired
$
110,893


On May 16, 2013, we formed a joint venture with TIAA-CREF Global Investments, LLC (‘‘TIAACREF’’) that holds 100% of The Grand Canal Shoppes and The Shoppes at The Palazzo in Las Vegas, Nevada. We received $411.5 million in cash, net of debt assumed of $311.9 million, and TIAACREF received a 49.9% economic interest in the joint venture. We recorded Gains from changes in control of investment properties of $200.0 million on our Consolidated Statements of Comprehensive Income for the three and nine months ended September 30, 2013, as a result of this transaction. We are the general partner, however we account for the joint venture under the equity method of accounting because we share control over major decisions with TIAACREF and TIAACREF has substantive participating rights. The table below summarizes the gain calculation:

Cash received from our joint venture partner
$
411,476

Proportionate share of previous investment in The Grand Canal Shoppes and The Shoppes at The Palazzo
(211,468
)
Gains from changes in control of investment properties
$
200,008




NOTE 4                         DISCONTINUED OPERATIONS AND GAINS (LOSSES) ON DISPOSITIONS OF OPERATING PROPERTIES
 
All of our dispositions of consolidated operating properties for which there is no continuing involvement are included in discontinued operations in our Consolidated Statements of Comprehensive Income for all periods presented and are summarized in the table below.  Gains on disposition and gains on debt extinguishment are recorded in the Consolidated Statements of Comprehensive Income in the period the property is disposed.
 
During the nine months ended September 30, 2014, one property, which was previously transferred to a special servicer, was sold in a lender-directed sale in full satisfaction of the debt. This resulted in a gain on extinguishment of debt of $66.7 million and a reduction of property-level debt of $79.0 million. Additionally, we sold three assets for $278.6 million, which resulted in a gain of $125.2 million. We used the net proceeds from these transactions to repay debt of $127.0 million.
 
During the nine months ended September 30, 2013, we sold our interests in three assets totaling approximately 2 million square feet of gross leasable area (“GLA”), which reduced our property level debt by $121.2 million. One property, which was previously transferred to a servicer, was sold in a lender-directed sale in full satisfaction of the debt.  This resulted in a gain on extinguishment of debt of $25.9 million.
 
The following table summarizes the operations of the properties included in discontinued operations.

16
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,
 
2014
 
2013
 
2014
 
2013
 
 
 
 
 
 
 
 
Retail and other revenue
$
1,473

 
$
14,904

 
$
12,086

 
$
47,404

Total revenues
1,473

 
14,904


12,086


47,404

Retail and other operating expenses
734

 
11,574

 
4,738

 
36,374

Provisions for impairment
—

 
—

 
—

 
4,975

Total expenses
734

 
11,574


4,738


41,349

Operating income
739


3,330


7,348


6,055

Interest expense, net
(317
)
 
(5,255
)
 
(2,178
)
 
(18,574
)
Gains (losses) on dispositions
7,602

 
(83
)
 
129,757

 
(847
)
Net income (loss) from operations
8,024

 
(2,008
)

134,927


(13,366
)
Gain on debt extinguishment
—

 
—

 
66,679

 
25,894

Net income (loss) from discontinued operations
$
8,024

 
$
(2,008
)

$
201,606


$
12,528


NOTE 5                         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.
 
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, 2014 and December 31, 2013.

 
 
September 30, 2014
 
December 31, 2013
 
 
Carrying Amount (1)
 
Estimated Fair
Value
 
Carrying Amount (1)
 
Estimated Fair
Value
Fixed-rate debt
 
$
13,646,509

 
$
14,112,268

 
$
13,919,820

 
$
13,957,952

Variable-rate debt
 
2,251,581

 
2,259,358

 
1,752,617

 
1,787,139

 
 
$
15,898,090

 
$
16,371,626

 
$
15,672,437

 
$
15,745,091

 
(1) Includes market rate adjustments of $19.4 million and $0.9 million as of September 30, 2014 and December 31, 2013, respectively.
 
The fair value of our Junior Subordinated Notes approximates their carrying amount as of September 30, 2014 and December 31, 2013.  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

17
GENERAL GROWTH PROPERTIES, INC.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except share and per share amounts)
(Unaudited)


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.

NOTE 6                         UNCONSOLIDATED REAL ESTATE AFFILIATES

The following is summarized financial information for all of our Unconsolidated Real Estate Affiliates.
 
September 30, 2014
 
December 31, 2013
Condensed Combined Balance Sheets - Unconsolidated Real Estate Affiliates
 

 
 

Assets:
 

 
 

Land
$
1,144,842

 
$
1,046,354

Buildings and equipment
9,437,203

 
8,670,976

Less accumulated depreciation
(2,491,940
)
 
(2,301,054
)
Construction in progress
77,485

 
46,339

Net property and equipment
8,167,590

 
7,462,615

Investment in unconsolidated joint ventures
16,656

 
—

Net investment in real estate
8,184,246

 
7,462,615

Cash and cash equivalents
290,229

 
260,405

Accounts and notes receivable, net
185,291

 
187,533

Deferred expenses, net
270,239

 
254,949

Prepaid expenses and other assets
468,424

 
147,182

Total assets
$
9,398,429

 
$
8,312,684

 
 
 
 
Liabilities and Owners’ Equity:
\

 
 

Mortgages, notes and loans payable
$
7,511,656

 
$
6,503,686

Accounts payable, accrued expenses and other liabilities
324,787

 
324,620

Cumulative effect of foreign currency translation (“CFCT”)
(27,740
)
 
(22,896
)
Owners’ equity, excluding CFCT
1,589,726

 
1,507,274

Total liabilities and owners’ equity
$
9,398,429

 
$
8,312,684

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

 
 

Owners’ equity
$
1,561,986

 
$
1,484,378

Less: joint venture partners’ equity
(774,789
)
 
(760,804
)
Plus: excess investment/basis differences
1,705,915

 
1,666,719

Investment in and loans to/from Unconsolidated Real Estate Affiliates, net
$
2,493,112

 
$
2,390,293

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

 
 

Asset - Investment in and loans to/from Unconsolidated Real Estate Affiliates
$
2,512,129

 
$
2,407,698

Liability - Investment in Unconsolidated Real Estate Affiliates
(19,017
)
 
(17,405
)
Investment in and loans to/from Unconsolidated Real Estate Affiliates, net
$
2,493,112

 
$
2,390,293


18
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,
 
 
2014
 
2013
 
2014
 
2013
Condensed Combined Statements of Income - Unconsolidated Real Estate Affiliates
 
 

 
 

 
 
 
 
Revenues:
 
 

 
 

 
 
 
 
Minimum rents
 
$
205,375

 
$
196,941

 
$
603,917

 
$
564,339

Tenant recoveries
 
90,328

 
84,872

 
265,224

 
244,161

Overage rents
 
6,303

 
7,020

 
15,401

 
15,443

Other
 
7,912

 
8,075

 
26,987

 
22,947

Total revenues
 
309,918

 
296,908

 
911,529

 
846,890

 
 
 
 
 
 
 
 
 
Expenses:
 
 

 
 

 
 
 
 
Real estate taxes
 
27,516

 
26,907

 
82,202

 
78,516

Property maintenance costs
 
8,582

 
8,422

 
28,588

 
24,684

Marketing
 
2,873

 
3,840

 
9,663

 
10,363

Other property operating costs
 
45,563

 
44,065

 
128,347

 
119,331

Provision for doubtful accounts
 
1,119

 
599

 
2,162

 
1,861

Property management and other costs (1)
 
13,963

 
13,491

 
42,156

 
38,615

General and administrative
 
2,299

 
565

 
8,109

 
1,739

Depreciation and amortization
 
81,197

 
71,184

 
233,854

 
204,895

Total expenses
 
183,112

 
169,073

 
535,081

 
480,004

Operating income
 
126,806

 
127,835

 
376,448

 
366,886

 
 
 
 
 
 
 
 
 
Interest income
 
1,449

 
390

 
4,297

 
955

Interest expense
 
(82,880
)
 
(73,468
)
 
(229,275
)
 
(208,971
)
Provision for income taxes
 
(341
)
 
(131
)
 
(619
)
 
(419
)
Income from continuing operations
 
45,034

 
54,626

 
150,851

 
158,451

Net income from disposed investment
 
—

 
8,774

 
—

 
26,884

Allocation to noncontrolling interests
 
(14
)
 
(12
)
 
(31
)
 
22

Net income attributable to the ventures
 
$
45,020

 
$
63,388

 
$
150,820

 
$
185,357

 
 
 
 
 
 
 
 
 
Equity In Income of Unconsolidated Real Estate Affiliates:
 
 

 
 

 
 
 
 
Net income attributable to the ventures
 
$
45,020

 
$
63,388

 
$
150,820

 
$
185,357

Joint venture partners’ share of income
 
(24,628
)
 
(34,337
)
 
(82,851
)
 
(102,078
)
Amortization of capital or basis differences
 
(13,001
)
 
(15,067
)
 
(34,101
)
 
(42,114
)
Equity in income of Unconsolidated Real Estate Affiliates
 
$
7,391

 
$
13,984

 
$
33,868

 
$
41,165

 
(1) 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 23 domestic joint ventures, comprising 32 regional malls and eight strip/other retail centers, 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.  As we have joint control of these ventures with our venture partners, we account for these joint ventures under the equity method.

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 $3.7 billion as of September 30, 2014 and $3.2 billion as of December 31, 2013, 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

19
GENERAL GROWTH PROPERTIES, INC.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except share and per share amounts)
(Unaudited)


$89.6 million at one property as of September 30, 2014, and $90.6 million as of December 31, 2013.  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, 2014, we do not anticipate an inability to perform on our obligations with respect to Retained Debt.

NOTE 7                         MORTGAGES, NOTES AND LOANS PAYABLE
 
Mortgages, notes and loans payable and the weighted-average interest rates are summarized as follows:
 
 
September 30, 2014 (1)
 
Weighted-Average
Interest Rate (2)
 
December 31, 2013 (3)
 
Weighted-Average
Interest Rate (2)
 
 
 
 
 
 
 
 
 
Fixed-rate debt:
 
 

 
 

 
 

 
 

Collateralized mortgages, notes and loans payable (4)
 
$
13,638,335

 
4.52
%
 
$
13,907,029

 
4.55
%
Corporate and other unsecured loans
 
8,174

 
4.41
%
 
12,791

 
4.41
%
Total fixed-rate debt
 
13,646,509

 
4.52
%
 
13,919,820

 
4.55
%
Variable-rate debt:
 
 

 
 

 
 

 
 

Collateralized mortgages, notes and loans payable (4)
 
2,251,581

 
2.00
%
 
1,700,817

 
2.61
%
Revolving credit facility
 
—

 
—

 
51,800

 
1.74
%
Total variable-rate debt
 
2,251,581

 
2.00
%
 
1,752,617

 
2.59
%
 
 
 
 
 
 
 
 
 
Total Mortgages, notes and loans payable
 
$
15,898,090

 
4.16
%
 
$
15,672,437

 
4.33
%
 
 
 
 
 
 
 
 
 
Junior Subordinated Notes
 
$
206,200

 
1.69
%
 
$
206,200

 
1.69
%
 
(1) Includes net $19.4 million of debt market rate adjustments.
(2) Represents the weighted-average interest rates on our contractual principal balances.
(3) Includes net $0.9 million of debt market rate adjustments.
(4) $101.3 million of the fixed-rate balance and $1.4 billion of the variable-rate balance is cross-collateralized.
 
Collateralized Mortgages, Notes and Loans Payable
 
As of September 30, 2014, $21.5 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 $1.5 billion of debt, are cross-collateralized with other properties.  Although a majority of the $15.9 billion of fixed and variable rate collateralized mortgages, notes and loans payable are non-recourse, $1.7 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 nine months ended September 30, 2014, we financed consolidated mortgage notes totaling $1.1 billion related to eight properties and generated net proceeds of $407.1 million.  The prior loans had a weighted-average term-to-maturity of 1.6 years, and a weighted-average interest rate of 4.8%.  The new loans have a weighted-average term-to-maturity of 7.1 years, and a weighted-average interest rate of 3.5%. In addition to these loans in the second quarter, we also obtained a $450.0 million construction loan at Ala Moana Center with an interest rate of LIBOR plus 1.9%. As of September 30, 2014, the Company has drawn $189.1 million under this loan.

On August 1, 2014, we amended our $1.4 billion corporate loan secured by cross-collateralized mortgages on 14 properties. This amendment lowered the interest rate on the loan from LIBOR plus 2.50% to LIBOR plus 1.75%. The loan matures on April 26, 2016, and then after, has two one-year maturity date extension options.
 

20
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:
 
 
September 30, 2014 (2)
 
Weighted-Average
Interest Rate
 
December 31, 2013 (3)
 
Weighted-Average
Interest Rate
Unsecured debt:
 
 

 
 

 
 

 
 

HHC Note (1)
 
$
8,373

 
4.41
%
 
$
13,179

 
4.41
%
Revolving credit facility
 
—

 
—

 
51,800

 
1.74
%
Total unsecured debt
 
$
8,373

 
4.41
%
 
$
64,979

 
2.28
%
 
(1) Matures in December 2015.
(2) Excludes a market rate discount of $0.2 million that decreases the total amount that appears outstanding in our Consolidated Balance Sheets.  The market rate discount amortizes as an addition to interest expense over the life of the loan.
(3) Excludes a market rate discount of $0.4 million that decreases the total amount that appears outstanding in our Consolidated Balance Sheets.  The market rate discount amortizes as an addition to interest expense over the life of the loan.
 
Our revolving credit facility (the “Facility”) as amended on October 23, 2013, provides for revolving loans of up to $1.0 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 2018 and is unsecured.  Borrowings under the Facility bear interest at a rate equal to LIBOR plus 132.5 to 195 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 September 30, 2014. No amounts are outstanding on the Facility, as of September 30, 2014.
 
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 September 30, 2014 and December 31, 2013.
 
Letters of Credit and Surety Bonds
 
We had outstanding letters of credit and surety bonds of $49.3 million as of September 30, 2014 and $19.4 million as of December 31, 2013. 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 September 30, 2014.
 

21
GENERAL GROWTH PROPERTIES, INC.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except share and per share amounts)
(Unaudited)


NOTE 8                         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 requirements to distribute at least 90% of our taxable ordinary income and to either distribute taxable capital gains to stockholders, or pay corporate income tax on the undistributed capital gains.  In addition, the Company is required to meet certain asset and income tests.
 
As a REIT, 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.  Generally, we are currently open to audit by the Internal Revenue Service for the years ended December 31, 2011 through 2013 and are open to audit by state taxing authorities for the years ended December 31, 2010 through 2013.
 
Based on our assessment of the expected outcome of existing examinations or examinations that may commence, or as a result of the expiration of the statute of limitations for specific jurisdictions, it is reasonably possible that the related unrecognized tax benefits, excluding accrued interest, for tax positions taken regarding previously filed tax returns will change from those recorded at September 30, 2014, although such change is not expected to have a material effect on our consolidated financial position, results of operations or liquidity.

NOTE 9                         WARRANTS
 
Pursuant to the terms of the Investment Agreements, the Plan Sponsors and Blackstone were issued 120,000,000 warrants (the “Warrants”) to purchase common stock of GGP with an initial weighted average exercise price of $10.63.  Each Warrant was originally recorded as a liability, as the holders of the Warrants could have required GGP to settle such Warrants in cash upon certain changes of control events.  The Warrants were fully vested upon issuance.  Each Warrant has a term of seven years and expires on November 9, 2017.  Below is a summary of the Warrants initially received by the Plan Sponsors and Blackstone.
 
Initial Warrant Holder
 
 Number of Warrants
 
Initial Exercise Price
Brookfield
 
57,500,000

 
$
10.75

Blackstone - B (2)
 
2,500,000

 
10.75

Fairholme (2)
 
41,070,000

 
10.50

Pershing Square (1)
 
16,430,000

 
10.50

Blackstone - A (2)
 
2,500,000

 
10.50

 
 
120,000,000

 
 

 
(1) On December 31, 2012, the Pershing Square Warrants were purchased by Brookfield; Brookfield owns or manages on behalf of third parties, all outstanding Warrants.
(2) On January 28, 2013, the Fairholme and Blackstone Warrants (A and B) were purchased by GGPOP.
 
The Brookfield Warrants and the Blackstone Warrants (A and B) were immediately exercisable, while the Fairholme Warrants and the Pershing Square Warrants were exercisable (for the initial 6.5 years from the issuance) only upon 90 days prior notice, but there is no obligation to exercise at any point from the end of the 90 day notification period through maturity.
 
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 120,000,000 Warrants that were initially issued to the Plan Sponsors.  During 2013 and 2014, the number of shares issuable upon exercise of the outstanding Warrants changed as follows:
 

22
GENERAL GROWTH PROPERTIES, INC.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except share and per share amounts)
(Unaudited)


 
 
 
 
Exercise Price
Record Date
 
Issuable Shares (1)
 
 Brookfield and Blackstone - B
 
Fairholme, Pershing Square and Blackstone - A
April 16, 2013
 
83,443,178

 
$
9.53

 
$
9.30

July 16, 2013
 
83,945,892

 
9.47

 
9.25

October 15, 2013
 
84,507,750

 
9.41

 
9.19

December 13, 2013
 
85,084,392

 
9.34

 
9.12

April 15, 2014
 
85,668,428

 
9.28

 
9.06

July 15, 2014
 
86,215,500

 
9.22

 
9.01

 
(1) Issuable shares as of April 16, 2013 exclude the Fairholme and Blackstone A and B Warrants purchased and exercised by GGPOP (Note 11).
 
The Fairholme and Blackstone A and B Warrants were purchased and subsequently exercised by GGPOP.  As of September 30, 2014, Brookfield owns or manages on behalf of third parties all of the remaining Warrants. 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 67,000,000 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 September 30, 2014, the remaining Warrants are exercisable into approximately 53 million common shares of the Company, at a weighted-average exercise price of approximately $9.17 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.
 
On March 28, 2013, we amended the Warrant agreement to replace the right of Warrant holders to receive cash from the Company under a change of control to the right to, instead, receive shares of the Company, changing the method of settlement. This amendment results in the classification of the Warrants as a component of permanent equity on our Consolidated Balance Sheets. Prior to the amendment, the Warrants were classified as a liability, due to the cash settlement feature, and marked to fair value, with changes in fair value recognized in earnings. As a result of the amendment, the fair value was determined as of March 28, 2013 with the change in fair value recognized in our Consolidated Statements of Comprehensive Income and the determined fair value was reclassified to equity.
 
The estimated fair value of the Warrants was $895.5 million as of March 28, 2013.  The fair value of the Warrants was estimated using the Black Scholes option pricing model using our stock price, the Warrant term, and Level 3 inputs (Note 2).  As discussed above, the modification of the warrant agreement resulted in the classification of the Warrants as equity as of March 28, 2013.  From December 31, 2012 through March 28, 2013, changes in the fair value of the Warrants were recognized in earnings.  An increase in GGP’s common stock price or in the expected volatility of the Warrants would increase the fair value; whereas, a decrease in GGP’s common stock price or an increase in the lack of marketability would decrease the fair value.
 
The following table summarizes the change in fair value of the Warrants which is measured on a recurring basis using Level 3 inputs:
 
Nine Months Ended September 30, 2013
Balance as of January 1,
$
1,488,196

Warrant liability adjustment
40,546

Purchase of Warrants by GGPOP
(633,229
)
Reclassification to equity
(895,513
)
Balance as of September 30,
$
—

 

23
GENERAL GROWTH PROPERTIES, INC.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except share and per share amounts)
(Unaudited)


The following table summarizes the estimated fair value of the Warrants and significant observable and unobservable inputs used in the valuation as of March 28, 2013:
 
March 28, 2013
Fair value of Warrants
$
895,513

 
 
Observable Inputs
 
GGP stock price per share
$
19.88

Warrant term
4.62

 
 
Unobservable Inputs
 
Expected volatility
30
%
Range of values considered
(15% - 65%)

 
 
Discount for lack of marketability
3
%
Range of values considered
(3% - 7%)


NOTE 10                         EQUITY AND REDEEMABLE NONCONTROLLING INTERESTS
 
Allocation to Noncontrolling Interests
 
Noncontrolling interests consists of the redeemable interests related to common and preferred GGPOP 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 September 30,
 
Nine Months Ended September 30,
 
 
2014
 
2013
 
2014
 
2013
Distributions to preferred GGPOP units
 
$
(2,232
)
 
$
(2,335
)
 
$
(6,697
)
 
$
(7,006
)
Net income allocation to noncontrolling interests in GGPOP from continuing operations (common units)
 
(412
)
 
(160
)
 
(2,049
)
 
(1,555
)
Net income allocated to noncontrolling interest in consolidated real estate affiliates
 
(147
)
 
(876
)
 
(1,262
)
 
(2,146
)
Allocation to noncontrolling interests
 
(2,791
)
 
(3,371
)
 
(10,008
)
 
(10,707
)
Other comprehensive loss allocated to noncontrolling interests
 
(113
)
 
(362
)
 
33

 
(22
)
Comprehensive income allocated to noncontrolling interests
 
$
(2,904
)
 
$
(3,733
)
 
$
(9,975
)
 
$
(10,729
)
 
Redeemable Noncontrolling Interests
 
The minority interest related to the Common and Preferred Units of GGPOP are presented as redeemable noncontrolling interests in our Consolidated Balance Sheets since it is possible we could be required, under certain events outside of our control, to redeem the securities for cash by the holders of the securities.
 
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.
 

24
GENERAL GROWTH PROPERTIES, INC.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except share and per share amounts)
(Unaudited)


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 Units as of September 30, 2014, the aggregate amount of cash we would have paid would have been $145.8 million.
 
GGPOP issued Convertible Preferred Units that are convertible into Common Units of GGPOP at the rates below (subject to adjustment).  The holder may convert the Convertible 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.
 
 
Number of Common Units for each Preferred Unit
 
Number of Contractual Convertible Preferred Units Outstanding as of September 30, 2014
 
Converted Basis to Common Units Outstanding as of September 30, 2014
 
Conversion Price
 
Redemption Value
Series B (1)
 
3.00000

 
1,279,632

 
3,991,540

 
$
16.66670

 
94,001

Series D
 
1.50821

 
532,750

 
803,499

 
33.15188

 
26,637

Series E
 
1.29836

 
502,658

 
652,631

 
38.51000

 
25,133

 
 
 

 
 

 
 

 
 

 
$
145,771

 
(1) The conversion price of Series B preferred units is lower than the GGP September 30, 2014 closing common stock price of $23.55; therefore, the September 30, 2014 common stock price of $23.55, 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 nine months ended September 30, 2014, and 2013.
Balance at January 1, 2013
$
268,219

Net income
1,555

Distributions
(2,343
)
Redemption of GGPOP units
(8,328
)
Other comprehensive income
22

Fair value adjustment for noncontrolling interests in GGPOP
(6,566
)
Balance at September 30, 2013
$
252,559

 
 
Balance at January 1, 2014
$
228,902

Net income
2,049

Distributions
(2,223
)
Other comprehensive loss
(33
)
Fair value adjustment for noncontrolling interests in GGPOP
30,920

Balance at September 30, 2014
$
259,615

 

25
GENERAL GROWTH PROPERTIES, INC.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except share and per share amounts)
(Unaudited)


Common Stock Dividend
 
Our Board of Directors declared common stock dividends during 2014 and 2013 as follows:
 
Declaration Date
 
Record Date
 
Payment Date
 
Dividend Per Share
2014
 
 
 
 
 
 
August 12
 
October 15
 
October 31, 2014
 
$
0.16

May 15
 
July 15
 
July 31, 2014
 
0.15

February 26
 
April 15
 
April 30, 2014
 
0.15

2013
 
 
 
 
 
 
October 28
 
December 13
 
January 2, 2014
 
$
0.14

July 29
 
October 15
 
October 29, 2013
 
0.13

May 10
 
July 16
 
July 30, 2013
 
0.12

February 4
 
April 16
 
April 30, 2013
 
0.12

 
Our Dividend Reinvestment Plan (“DRIP”) provides eligible holders of GGP’s common stock with a convenient method of increasing their investment in the Company by reinvesting all or a portion of cash dividends in additional shares of common stock.  Eligible stockholders who enroll in the DRIP on or before the fourth business day preceding the record date for a dividend payment will be able to have that dividend reinvested.  As a result of the DRIP elections, 17,467 shares were issued during the nine months ended September 30, 2014 and 21,106 shares were issued during the nine months ended September 30, 2013.
 
Preferred Stock
 
On February 13, 2013, we issued, in a public offering, 10,000,000 shares of 6.375% Series A Cumulative Perpetual Preferred Stock (the “Preferred Stock”) at a price of $25.00 per share, resulting in net proceeds of $242.0 million after issuance costs.  The Preferred Stock is recorded net of issuance costs within equity on our Consolidated Balance Sheets, and accrues a quarterly dividend at an annual rate of 6.375%.  The dividend is paid in arrears in preference to dividends on our common stock, and reduces net income available to common stockholders, and therefore, earnings per share.
 
The Preferred Stock does not have a stated maturity date but we may redeem the Preferred Stock after February 12, 2018, for $25.00 per share plus all accrued and unpaid dividends.  We may redeem the Preferred Stock prior to February 12, 2018, in limited circumstances that preserve ownership limits and/or our status as a REIT, as well as during certain circumstances surrounding a change of control.  Upon certain circumstances surrounding a change of control, holders of Preferred Stock may elect to convert each share of their Preferred Stock into a number of shares of GGP common stock equivalent to $25.00 plus accrued and unpaid dividends, but not to exceed a cap of 2.4679 common shares (subject to certain adjustments related to GGP common share splits, subdivisions, or combinations).
 
Our Board of Directors declared preferred stock dividends during 2014 and 2013 as follows:

26
GENERAL GROWTH PROPERTIES, INC.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except share and per share amounts)
(Unaudited)


Declaration Date
 
Record Date
 
Payment Date
 
Dividend Per Share
2014
 
 
 
 
 
 
August 12
 
September 15
 
October 1, 2014
 
$
0.3984

May 15
 
June 16
 
July 1, 2014
 
0.3984

February 26
 
March 17
 
April 1, 2014
 
0.3984

2013
 
 
 
 
 
 
October 28
 
December 13
 
January 2, 2014
 
$
0.3984

July 29
 
September 13
 
October 1, 2013
 
0.3984

May 10
 
June 14
 
July 1, 2013
 
0.3984

March 4
 
March 15
 
April 1, 2013
 
0.2125


NOTE 11                  EARNINGS PER SHARE
 
Basic earnings per share (“EPS”) is computed by dividing net income available to common stockholders by the weighted-average number of common shares outstanding.  Diluted EPS is computed after adjusting the numerator and denominator of the basic EPS computation for the effects of all potentially dilutive common shares.  The dilutive effect of the Warrants are computed using the “if-converted” method and the dilutive effect of options and their equivalents (including fixed awards and nonvested stock issued under stock-based compensation plans), is computed using the “treasury” method.
 

27
GENERAL GROWTH PROPERTIES, INC.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except share and per share amounts)
(Unaudited)


Information related to our EPS calculations is summarized as follows:

 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
 
2014
 
2013
 
2014
 
2013
Numerators - Basic and Diluted:
 
 

 
 

 
 
 
 
Income from continuing operations
 
$
69,375

 
$
32,862

 
$
184,774

 
$
223,516

Preferred Stock dividends
 
(3,984
)
 
(3,984
)
 
(11,952
)
 
(10,094
)
Allocation to noncontrolling interests
 
(2,741
)
 
(3,372
)
 
(8,916
)
 
(10,580
)
Income from continuing operations - attributable to common stockholders
 
62,650

 
25,506

 
163,906

 
202,842

 
 
 
 
 
 
 
 


Discontinued operations
 
8,024

 
(2,008
)
 
201,606

 
12,528

Allocation to noncontrolling interests
 
(50
)
 
1

 
(1,092
)
 
(127
)
Discontinued operations - net of noncontrolling interests
 
7,974

 
(2,007
)
 
200,514

 
12,401

 
 
 
 
 
 
 
 
 
Net income
 
77,399

 
30,854

 
386,380

 
236,044

Preferred Stock dividends
 
(3,984
)
 
(3,984
)
 
(11,952
)
 
(10,094
)
Allocation to noncontrolling interests
 
(2,791
)
 
(3,371
)
 
(10,008
)
 
(10,707
)
Net income attributable to common stockholders
 
$
70,624

 
$
23,499

 
$
364,420

 
$
215,243

 
 
 
 
 
 
 
 
 
Denominators:
 
 

 
 

 
 
 
 
Weighted-average number of common shares outstanding - basic
 
883,898

 
932,964

 
887,927

 
937,200

Effect of dilutive securities
 
59,025

 
47,803

 
55,988

 
3,454

Weighted-average number of common shares outstanding - diluted
 
942,923

 
980,767

 
943,915

 
940,654

 
 
 
 
 
 
 
 
 
Anti-dilutive Securities:
 
 

 
 

 
 
 
 
Effect of Preferred Units
 
5,506

 
5,526

 
5,506

 
5,526

Effect of Common Units
 
4,834

 
6,417

 
4,834

 
6,469

Effect of Stock Options
 
—

 
—

 
—

 
—

Effect of Warrants
 
—

 
—

 
—

 
46,934

 
 
10,340

 
11,943

 
10,340

 
58,929

 
For the three and nine months ended September 30, 2014, dilutive options and potentially dilutive shares related to the Warrants are included in the denominator of EPS. For the three and nine months ended September 30, 2013, options are included in the denominator of diluted EPS. Warrants were dilutive for the three months ended September 30, 2013, but were anti-dilutive for the nine months ended September 30, 2013, and as such, their effect has not been included in the calculation of diluted net loss per share. 

Outstanding Common Units have been excluded from the diluted EPS calculation for all periods presented because including such Common Units would also require that the share of GGPOP income attributable to such Common Units be added back to net income therefore resulting in no effect on EPS. Outstanding Preferred Units have been excluded from the diluted EPS calculation for all periods presented because including the Preferred Units would also require that the Preferred Unit dividend be added back to the net income, resulting in them being anti-dilutive.
 
During the year ended December 31, 2013, GGPOP repurchased 28,345,108 shares of GGP’s common stock for $566.9 million. These shares are presented as Common stock in treasury, at cost, on our Consolidated Balance Sheets.  Accordingly, these shares have been excluded from the calculation of EPS.  In addition, GGPOP was issued 27,459,195 shares of GGP common stock on March 26, 2013, as a result of GGPOP’s purchase and subsequent exercising of the Fairholme and Blackstone A and B Warrants.  These shares are presented as issued, but not outstanding on our Consolidated Balance Sheets.  Accordingly, these shares have been excluded from the calculation of EPS.
 

28
GENERAL GROWTH PROPERTIES, INC.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except share and per share amounts)
(Unaudited)


On February 10, 2014, GGPOP repurchased 27,624,282 shares of GGP’s common stock for $555.8 million. These shares are presented as Common stock in treasury, at cost, on our Consolidated Balance Sheets.  Accordingly, these shares have been excluded from the calculation of EPS.
 
On May 1, 2014, the shares of GGP common stock owned by GGPOP were contributed to GGPN, and as a result of these transactions, GGPN owns an aggregate of 83,428,585 shares of GGP common stock as of September 30, 2014, of which 55,969,390 are shown as treasury stock and 27,459,195 are shown as issued, but not outstanding on our Consolidated Balance Sheets.

NOTE 12                  STOCK-BASED COMPENSATION PLANS
 
The General Growth Properties, Inc. 2010 Equity Plan (the ‘‘Equity Plan’’) reserved for issuance of 4% of outstanding shares on a fully diluted basis. The Equity Plan provides for grants of nonqualified stock options, incentive stock options, stock appreciation rights, restricted stock, other stock-based awards and performance-based compensation (collectively, the ‘‘Awards’’). Directors, officers and other employees of GGP’s and its subsidiaries and affiliates are eligible for the Awards.  The Equity Plan is not subject to the Employee Retirement Income Security Act of 1974, as amended. No participant may be granted more than 4,000,000 shares, or the equivalent dollar value of such shares, in any year. Options granted under the Equity Plan will be designated as either nonqualified stock options or incentive stock options. An option granted as an incentive stock option will, to the extent it fails to qualify as an incentive stock option, be treated as a nonqualified option. The exercise price of an option may not be less than the fair value of a share of GGP’s common stock on the date of grant. The term of each option will be determined prior to the date of grant, but may not exceed 10 years.
 
Compensation expense related to stock-based compensation plans for the three and nine months ended September 30, 2014, and 2013 is summarized in the following table:
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2014
 
2013
 
2014
 
2013
Stock options - Property management and other costs
$
1,746

 
$
1,367

 
$
5,743

 
$
3,702

Stock options - General and administrative
3,626

 
2,303

 
11,896

 
6,580

Restricted stock - Property management and other costs
373

 
440

 
1,241

 
1,255

Restricted stock - General and administrative
279

 
1,941

 
834

 
5,897

Total
$
6,024

 
$
6,051

 
$
19,714

 
$
17,434

 
The following tables summarize stock option activity for the Equity Plan for GGP for the nine months ended September 30, 2014, and 2013:
 
2014
 
2013
 
Shares
 
Weighted Average
Exercise
Price
 
Shares
 
Weighted Average
Exercise
Price
Stock options Outstanding at January 1,
21,565,281

 
$
17.28

 
9,692,499

 
$
13.59

Granted
50,000

 
22.41

 
5,971,108

 
19.25

Exercised
(334,216
)
 
14.74

 
(309,220
)
 
14.32

Forfeited
(316,243
)
 
19.00

 
(233,302
)
 
14.22

Expired
(10,840
)
 
14.33

 
(21,510
)
 
15.36

Stock options Outstanding at September 30,
20,953,982

 
$
17.31

 
15,099,575

 
$
15.78

 
There was no significant restricted stock activity for the three months ended September 30, 2014, and 2013.
 
NOTE 13                  ACCOUNTS AND NOTES RECEIVABLE, NET
 

29
GENERAL GROWTH PROPERTIES, INC.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except share and per share amounts)
(Unaudited)


The following table summarizes the significant components of Accounts and notes receivable, net.
 
 
 
September 30, 2014
 
December 31, 2013
Trade receivables
 
$
108,564

 
$
123,522

Notes receivable
 
279,633

 
179,559

Straight-line rent receivable
 
225,697

 
190,332

Other accounts receivable
 
4,177

 
3,377

Total Accounts and notes receivable
 
618,071

 
496,790

Provision for doubtful accounts
 
(14,336
)
 
(17,891
)
Total Accounts and notes receivable, net
 
$
603,735

 
$
478,899


Notes receivable includes an $86.9 million note receivable from our joint venture partner related to the acquisition of 685 5th Avenue in New York, New York (Note 3). The note receivable bears interest at an interest rate of 7.5%, compounded quarterly with accrued but unpaid interest increasing the loan balance, and is collateralized by our partner's ownership interest in the joint venture, and matures on June 27, 2024.

Also included in notes receivable is a $142.0 million note receivable issued to Rique Empreendimentos e Participacoes Ltda. (“Rique”) in conjunction with our sale of Aliansce Shopping Centers, S.A. (“Aliansce”) to Rique and Canada Pension Plan Investment Board on September 30, 2013.  The note receivable is denominated in Brazilian Reais, bears interest at an effective interest rate of approximately 14%, is collateralized by shares of common stock in Aliansce, and requires annual principal and interest payments over the 5 years term.  We recognize the impact of changes in the exchange rate on the note receivable as Gain or loss on foreign currency in our Consolidated Statements of Comprehensive Income.

Within notes receivable is a $32.2 million note receivable from our joint venture partner related to the acquisition of a portfolio of two properties in the Union Square area of San Francisco in September 2013. The note receivable bears interest at an interest rate of 5.21% and is collateralized by our partners in the joint venture. The note receivable matures on September 16, 2023.

NOTE 14                  PREPAID EXPENSES AND OTHER ASSETS
 
The following table summarizes the significant components of Prepaid expenses and other assets.

30
GENERAL GROWTH PROPERTIES, INC.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except share and per share amounts)
(Unaudited)


 
September 30, 2014
 
December 31, 2013
 
Gross Asset
 
Accumulated
Amortization
 
Balance
 
Gross Asset
 
Accumulated
Amortization
 
Balance
Intangible assets:
 

 
 

 
 

 
 

 
 

 
 

Above-market tenant leases, net
904,054

 
(493,038
)
 
$
411,016

 
1,022,398

 
(478,998
)
 
$
543,400

Below-market ground leases, net
163,179

 
(16,799
)
 
$
146,380

 
164,017

 
(13,597
)
 
$
150,420

Real estate tax stabilization agreement, net
111,506

 
(24,568
)
 
$
86,938

 
111,506

 
(19,834
)
 
$
91,672

Total intangible assets
$
1,178,739


$
(534,405
)
 
$
644,334

 
$
1,297,921


$
(512,429
)
 
$
785,492

 
 
 
 
 
 
 
 
 
 
 
 
Remaining Prepaid expenses and other assets:
 

 
 

 
 

 
 

 
 

 
 

Security and escrow deposits
 

 
 

 
103,924

 
 
 
 
 
145,999

Prepaid expenses
 

 
 

 
81,773

 
 
 
 
 
23,283

Other non-tenant receivables
 

 
 

 
25,878

 
 
 
 
 
25,988

Deferred tax, net of valuation allowances
 

 
 

 
3,116

 
 
 
 
 
906

Other
 

 
 

 
12,224

 
 
 
 
 
13,901

Total remaining Prepaid expenses and other assets
 

 
 

 
226,915

 
 

 
 

 
210,077

Total Prepaid expenses and other assets
 

 
 

 
$
871,249

 
 

 
 

 
$
995,569

 
NOTE 15                  ACCOUNTS PAYABLE AND ACCRUED EXPENSES
 
The following table summarizes the significant components of Accounts payable and accrued expenses.
 

31
GENERAL GROWTH PROPERTIES, INC.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except share and per share amounts)
(Unaudited)


 
September 30, 2014
 
December 31, 2013
 
Gross Liability
 
Accumulated
Accretion
 
Balance
 
Gross Liability
 
Accumulated
Accretion
 
Balance
Intangible liabilities:
 

 
 

 
 

 
 

 
 

 
 

Below-market tenant leases, net
534,252

 
(262,537
)
 
$
271,715

 
622,710

 
(271,215
)
 
$
351,495

Above-market headquarters office leases, net
15,267

 
(6,433
)
 
$
8,834

 
15,268

 
(5,130
)
 
$
10,138

Above-market ground leases, net
9,127

 
(1,431
)
 
$
7,696

 
9,756

 
(1,181
)
 
$
8,575

Total intangible liabilities
$
558,646


$
(270,401
)
 
$
288,245

 
$
647,734


$
(277,526
)
 
$
370,208

 
 
 
 
 
 
 
 
 
 
 
 
Remaining Accounts payable and accrued expenses:
 

 
 

 
 

 
 

 
 

 
 

Accrued interest
 

 
 

 
52,962

 
 

 
 

 
58,777

Accounts payable and accrued expenses
 

 
 

 
84,416

 
 

 
 

 
102,246

Accrued real estate taxes
 

 
 

 
110,866

 
 

 
 

 
92,663

Deferred gains/income
 

 
 

 
103,495

 
 

 
 

 
115,354

Accrued payroll and other employee liabilities
 

 
 

 
51,142

 
 

 
 

 
34,006

Construction payable
 

 
 

 
89,718

 
 

 
 

 
103,988

Tenant and other deposits
 

 
 

 
22,005

 
 

 
 

 
21,434

Insurance reserve liability
 

 
 

 
16,772

 
 

 
 

 
16,643

Capital lease obligations
 

 
 

 
12,230

 
 

 
 

 
12,703

Conditional asset retirement obligation liability
 

 
 

 
10,284

 
 

 
 

 
10,424

Uncertain tax position liability
 

 
 

 
6,613

 
 

 
 

 
5,536

Other
 

 
 

 
16,693

 
 

 
 

 
27,013

Total remaining Accounts payable and accrued expenses
 

 
 

 
577,196

 
 

 
 

 
600,787

Total Accounts payable and accrued expenses
 

 
 

 
$
865,441

 
 

 
 

 
$
970,995

 
NOTE 16                  LITIGATION
 
In the normal course of business, from time to time, we are involved in legal proceedings relating to the ownership and operations of our properties. In management’s opinion, the liabilities, if any, that may ultimately result from such legal actions are not expected to have a material effect on our consolidated financial position, results of operations or liquidity.
 
Urban Litigation
 
In October 2004, certain limited partners (the "Urban Plaintiffs") of Urban Shopping Centers, L.P. ("Urban") filed a lawsuit against Urban's general partner, Head Acquisition, L.P. ("Head"), as well as The Rouse Company, LP ("TRCLP"), Simon Property Group, Inc., Westfield America, Inc., and various of their affiliates, including Head's general partners (collectively, the "Urban Defendants"), in Circuit Court in Cook County, Illinois. GGP, GGPOP and other affiliates were later included as Urban Defendants. The lawsuit alleged, among other things, that the Urban Defendants breached the Urban partnership agreement, unjustly enriched themselves through misappropriation of partnership opportunities, failed to grow the partnership, breached their fiduciary duties, and tortiously interfered with several contractual relationships. The plaintiffs sought relief in the form of unspecified monetary damages and equitable relief requiring, among other things, the Urban Defendants, including GGP, Inc. and its affiliates, to engage in certain future transactions through the Urban Partnership.  On May 19, 2014 the Company settled the litigation and recorded a loss of $17.9 million, which is included in General and administrative expense in our Consolidated Statements of Comprehensive Income. The Company invested $60.0 million in Urban and contributed, at fair value, a 5.6% interest in three assets in exchange for preferred equity interests. The Company has no obligation to engage in future activity through Urban other than transactions associated with partnership assets.

32
GENERAL GROWTH PROPERTIES, INC.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except share and per share amounts)
(Unaudited)


 
Tax Indemnification Liability
 
Pursuant to the Investment Agreements, the Company has indemnified HHC from and against 93.75% of any and all losses, claims, damages, liabilities and reasonable expenses to which HHC and its subsidiaries become subject, in each case solely to the extent directly attributable to MPC Taxes (as defined in the Investment Agreements) in an amount up to $303.8 million.  Under certain circumstances, the Company agreed to be responsible for interest or penalties attributable to such MPC Taxes in excess of the $303.8 million.  The IRS disagrees with the method used to report gains for income tax purposes that are the subject of the MPC taxes.  As a result of this disagreement, The Howard Hughes Company, LLC and Howard Hughes Properties, Inc. filed petitions in the United States Tax Court, contesting this liability for the 2007 and 2008 years and a trial was held in 2012.  The United States Tax Court rendered its opinion on June 2, 2014, in favor of the IRS. On September 15, 2014, the United States Tax Court formally entered its decision awarding the IRS $144.1 million in taxes for 2007 and 2008. Interest of approximately $60 million has accrued as of September 30, 2014 and will continue to accrue until paid. The parties have until December 15, 2014 to file a notice of appeal. The Internal Revenue Service has opened an audit for these two taxpayers for 2009 through 2011 with respect to MPC Taxes; however, the Company does not expect any material taxes or interest or penalties to be due for these years based on a change to the method outlined by the United States Tax Court.

The Company has accrued approximately $322 million related to the tax indemnification liability on our Consolidated Balance Sheets as of September 30, 2014, and December 31, 2013.  As a result of the Company's consideration of the risks associated with this matter, including the timing of recognition of indemnified and non-indemnified income by HHC, the use of specific deductions, and the ultimate amount of indemnified income recognized, as well as discussions with counsel, the Company believes that the aggregate liability recorded of approximately $322 million represents management’s best estimate of our liability as of September 30, 2014, and that the probability that the Company will incur a loss in excess of this amount is remote. 


NOTE 17                  COMMITMENTS AND CONTINGENCIES
 
We lease land or buildings at certain properties from third parties. The leases generally provide us with a right of first refusal in the event of a proposed sale of the property by the landlord. Rental payments are expensed as incurred and have, to the extent applicable, been straight-lined over the term of the lease. The following is a summary of our contractual rental expense as presented in our Consolidated Statements of Comprehensive Income:
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
 
2014
 
2013
 
2014
 
2013
 
 
(Dollars in thousands)
Contractual rent expense, including participation rent
 
$
3,528

 
$
3,346

 
$
9,981

 
$
10,304

Contractual rent expense, including participation rent and excluding amortization of above and below-market ground leases and straight-line rent
 
2,371

 
2,142

 
6,513

 
6,654

 
See Note 16 for our obligations related to uncertain tax positions and for disclosure of additional contingencies.



33
GENERAL GROWTH PROPERTIES, INC.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except share and per share amounts)
(Unaudited)


NOTE 18 SUBSEQUENT EVENTS

On October 22, 2014, we closed on the acquisition of a 50% joint venture interest in 530 5th Avenue located in New York, New York for net equity of $49.0 million. In connection with the acquisition, we provided a $39.4 million loan to our joint venture partner.

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

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

Overview
 
Our primary business is to be an owner and operator of best-in-class retail properties that provide an outstanding environment and experience for our communities, retailers, employees, consumers and shareholders.  Our properties are predominantly located in the United States.  As of September 30, 2014, we are the owner, either entirely or with joint venture partners, of 127 retail properties comprising approximately 127 million square feet of GLA.
 
We provide management and other services to substantially all of our properties, including properties which we own through joint venture arrangements and which are unconsolidated for GAAP purposes.  Our management operating philosophies and strategies are the same whether the properties are consolidated or unconsolidated.
 
We seek to increase long-term Company NOI (as defined below) growth through proactive management and leasing of our properties.  Our leasing strategy is to identify and provide the right stores to have appropriate merchandise mix. We believe that the most significant operating factor affecting incremental cash flow and Company NOI is increased rents earned from tenants at our properties.  These rental revenue increases are primarily achieved by:
 
•
increasing permanent occupancy;
•
increasing rental revenues by leasing at higher rents than those expiring; and
•
increasing tenant sales, which allow us to obtain higher rents, and in which we participate through overage rent.
 
Since September 30, 2013, our total occupancy has risen, but more importantly the level of long-term, or “permanent” occupancy, has increased from 90.2% as of September 30, 2013 to 91.2% as of September 30, 2014. During this same period, we have seen an increase in rents between the rent paid on expiring leases and the rent commencing under new leases, on a suite-to-suite basis. On a suite-to-suite basis, the leases commencing occupancy in 2014 exhibited initial rents that were 17.6% higher than the final rents paid on expiring leases.
 
We may recycle capital by strategically disposing of assets and opportunistically investing in high quality retail properties. Controlling operating expenses by leveraging our scale to maximize synergies is a critical component to Company NOI growth.
 
We have identified approximately $2.3 billion of income producing redevelopment projects within our portfolio, over 80% of which is being invested into Class A malls. We currently expect to achieve average returns of approximately 9-11% for all projects.
 
We believe our long-term strategy can provide our shareholders with a competitive risk-adjusted total return comprised of dividends and share price appreciation.

Financial Overview
 

34

Our Company NOI (as defined below) increased 4.8% from $1.6 billion for the nine months ended September 30, 2013 to $1.7 billion for the nine months ended September 30, 2014.  Operating income increased 13.7% from $588.4 million for the nine months ended September 30, 2013 to $669.2 million for the nine months ended September 30, 2014. Our Company FFO (as defined below) increased 11.9% from $802.6 million for the nine months ended September 30, 2013 to $898.2 million for the nine months ended September 30, 2014. Net income attributable to General Growth Properties, Inc. increased from $225.3 million for the nine months ended September 30, 2013 to $376.4 million for the nine months ended September 30, 2014.

See Non-GAAP Supplemental Financial Measures below for a discussion of Company NOI and Company FFO, along with a reconciliation to the comparable GAAP measures, Operating income and Net income attributable to General Growth Properties, Inc.

Operating Metrics
 
Same Store Operating Metrics
 
The following table summarizes selected operating metrics for our same store portfolio.
 
September 30, 2014 (1)
 
September 30, 2013 (1)
 
% Change
In-Place Rents per square foot (2)
 

 
 

 
 

Consolidated Properties
$
67.90

 
$
66.92

 
1.46
 %
Unconsolidated Properties
80.30

 
80.27

 
0.04
 %
Total
$
71.51

 
$
70.69

 
1.16
 %
 
 
 
 
 
 
Percentage Leased
 
 
 
 
 
Consolidated Properties
96.6
%
 
96.4
%
 
20 bps

Unconsolidated Properties
97.2
%
 
97.0
%
 
20 bps

Total
96.8
%
 
96.6
%
 
20 bps

 
 
 
 
 
 
Tenant Sales per square foot (3)
 
 
 
 
 
Consolidated Properties
$
513

 
$
518

 
(0.97
)%
Unconsolidated Properties
701

 
673

 
4.16
 %
Total
$
565

 
$
562

 
0.53
 %
 
 
 
 
 
 
Tenant Sales Volume (All Less Anchors) (3)
 
 
 
 
 
Consolidated Properties
13,472

 
13,395

 
0.57
 %
Unconsolidated Properties
6,713

 
6,284

 
6.83
 %
Total
$
20,185

 
$
19,679

 
2.57
 %
 
 
 
 
 
 
 
(1) Metrics exclude one property under development and one property acquired in the three months ended September 30, 2014.
(2) Represents average rent over the term consisting of base minimum rent and common area costs.
(3) Tenant Sales <10K SF is presented as sales per square foot in dollars, and Tenant Sales Volume (All Less Anchors) is presented as total sales volume in millions of dollars.
 
Lease Spread Metrics
 
The following table summarizes new and renewal leases that were scheduled to commence in 2014 and 2015 compared to expiring leases for the prior tenant in the same suite, for leases where the downtime between new and previous tenant was less than 24 months.
 
Number
of Leases
 
Square
Feet
 
Term/Years
 
Initial Rent Per
Square Foot(1)
 
Expiring Rent Per
Square Foot(2)
 
Initial Rent
Spread
 
% Change
Commencement 2014
1,565

 
4,593,771

 
6.5
 
$
62.44

 
$
53.11

 
$
9.33

 
17.6
%
Commencement 2015
229

 
757,797

 
6.8
 
71.75

 
63.06

 
8.69

 
13.8
%
Total 2014/2015
1,794

 
5,351,568

 
6.6
 
$
63.76

 
$
54.52

 
$
9.24

 
17.0
%

35

 
(1) Represents initial rent over the term consisting of base minimum rent and common area costs.
(2) Represents expiring rent at end of lease consisting of base minimum rent and common area costs.
 
Results of Operations
 
Three months ended September 30, 2014 and 2013
 
The following table is a breakout of the components of minimum rents:
 
Three Months Ended September 30,
 
 
 
 
 
2014
 
2013
 
$ Change
 
% Change
 
(Dollars in thousands)
 
 
 
 
Components of Minimum rents:
 

 
 

 
 

 
 

Base minimum rents
$
397,781

 
$
385,462

 
$
12,319

 
3.2
 %
Lease termination income
1,508

 
3,259

 
(1,751
)
 
(53.7
)
Straight-line rent
12,163

 
11,105

 
1,058

 
9.5

Above and below-market tenant leases, net
(11,264
)
 
(17,108
)
 
5,844

 
(34.2
)
Total Minimum rents
$
400,188

 
$
382,718

 
$
17,470

 
4.6
 %

Base minimum rents increased $12.3 million primarily due to increases in occupancy and rent between September 30, 2013 and September 30, 2014 and the acquisition of two operating properties during the fourth quarter of 2013.
 
Tenant recoveries increased $9.4 million primarily due to higher fixed operating expense recoveries and higher real estate tax recoveries in the third quarter of 2014.

Other property operating expenses decreased $7.5 million primarily due to the reduction of ground rent payments and professional fees incurred in the third quarter 2013.

Interest and dividend income increased $8.1 million primarily due to $4.9 million of interest income from the note receivable recorded in conjunction with the sale of Aliansce and $1.7 million of interest income from the note receivable related to the acquisition of 685 5th Avenue in New York, New York (Note 13).
 
The Loss on foreign currency represents a change in the value note receivable denominated in Brazilian Reais recorded in conjunction with the sale of Aliansce (Note 13).

Benefit from income taxes increased $4.5 million primarily due to the deferred federal income tax benefit related to the foreign currency translation loss on the note receivable recorded in conjunction with the sale of Aliansce in 2013 (Note 13).

Equity in income of Unconsolidated Real Estate Affiliates decreased $6.6 million primarily due to costs associated with the formation of two joint ventures during 2014 and the write-off of deferred financing costs in the third quarter of 2014 at Glendale Galleria.

Discontinued operations, net for the three months ended September 30, 2014, is primarily comprised of a $7.6 million gain related to the sale of two assets (Note 4).
 
Nine months ended September 30, 2014 and 2013
 

36

The following table is a breakout of the components of minimum rents:
 
Nine Months Ended September 30,
 
 
 
 
 
2014
 
2013
 
$ Change
 
% Change
 
(Dollars in thousands)
 
 
 
 
Components of Minimum rents:
 

 
 

 
 

 
 

Base minimum rents
$
1,186,567

 
$
1,164,745

 
$
21,822

 
1.9
 %
Lease termination income
8,700

 
10,046

 
(1,346
)
 
(13.4
)
Straight-line rent
37,280

 
35,784

 
1,496

 
4.2

Above and below-market tenant leases, net
(50,347
)
 
(51,484
)
 
1,137

 
(2.2
)
Total Minimum rents
$
1,182,200

 
$
1,159,091

 
$
23,109

 
2.0
 %

Base minimum rents increased $21.8 million primarily due to increases in occupancy and rent between September 30, 2013 and September 30, 2014, the acquisition of an additional 50% of Quail Springs Mall during the second quarter of 2013, and the acquisition of two operating properties during the fourth quarter of 2013. These increases were partially offset by our contribution of The Grand Canal Shoppes and the Shoppes at the Palazzo into a joint venture that was formed with TIAACREF during the second quarter of 2013, which resulted in less Base minimum rents during the nine months ended September 30, 2014 compared to the nine months ended September 30, 2013.

Tenant recoveries increased $18.7 million primarily due to higher fixed operating expense recoveries and higher real estate tax recoveries in the first nine months of 2014.

Other revenue increased by $8.0 million primarily due to a settlement related to land sold to a municipality in the first quarter of 2014.

General and administrative expenses increased $18.0 million primarily due to the $17.9 million loss from the settlement of litigation in the second quarter of 2014 (Note 16).

Interest and dividend income increased $18.5 million primarily due to $13.1 million of interest income received from the note receivable recorded in conjunction with the sale of Aliansce and $1.7 million of interest income from the note receivable related to the acquisition of 685 5th Avenue in New York, New York (Note 13).
 
Interest expense decreased $21.3 million primarily due to our contribution of The Grand Canal Shoppes and the Shoppes at the Palazzo into a joint venture that was formed with TIAACREF during the second quarter of 2013, the 2013 redemption of $700.5 million of unsecured corporate bonds, and an increase in capitalized interest primarily related to Ala Moana.
 
The Loss on foreign currency represents a change in the value note receivable denominated in Brazilian Reais recorded in conjunction with the sale of Aliansce (Note 13).

The Warrant liability adjustment for the nine months ended September 30, 2013 represents the non-cash income or expense recognized as a result of the change in the fair value of the Warrant liability. We incurred a net Warrant liability adjustment of $40.5 million during the first quarter of 2013. This adjustment reflects our purchase of the Warrants from Fairholme and Blackstone, as the amount paid exceeded the liability by approximately $55 million. This was partially offset by the revaluation of the remaining Warrants as of March 28, 2013. As of March 28, 2013, an amendment to the Warrant agreement changed the classification of the Warrants owned by Brookfield from a liability to a component of permanent equity. As a result, the Warrants have not been revalued after March 28, 2013. Refer to Note 9 for a discussion of transactions related to the Warrants.

The Gain from change in control of investment properties of $219.8 million in 2013 relates to our contribution of The Grand Canal Shoppes and The Shoppes at the Palazzo into a joint venture, of $200 million, and the purchase of our partner’s interest in Quail Springs Mall, previously held in a joint venture, of $19.8 million.

Loss on extinguishment of debt of $36.5 million in 2013 represents fees incurred for the early payoff of debt.  We expensed $20.5 million of fees as a result of the early redemption of the $608.7 million of 6.75% unsecured corporate bonds due November 9, 2015. In addition, we expensed $6.6 million in financing fees resulting from the refinancing of the $1.5 billion secured corporate loan, $3.6 million as a result of the early redemption of $91.8 million of 5.38% unsecured corporate bonds due November 26, 2013, and $5.8 million as a result of the early payoff of mortgage debt at one operating property.


37

Discontinued operations, net for the nine months ended September 30, 2014 is primarily comprised of a $129.8 million gain related to the sale of one property and three assets, and a $66.7 million Gain on extinguishment of debt related to a lender-directed sale of one property that was previously transferred to a special servicer. Discontinued operations, net for the nine months ended September 30, 2013, is comprised of a $25.9 million Gain on extinguishment of debt related to a lender-directed sale of one property that was previously transferred to a special servicer (Note 4).

Liquidity and Capital Resources
 
Our primary source of cash is from the ownership and management of our properties.  We may also raise cash from refinancings or borrowings under our revolving credit facility.  Our primary uses of cash include payment of operating expenses and capital, working capital, debt service, reinvestment in and redevelopment of properties, tenant allowances and dividends.
 
We anticipate maintaining financial flexibility by managing our future maturities, amortization of debt, cross collateralizations and corporate guarantees, improving operations and providing the necessary capital to fund growth.  We believe that we currently have sufficient liquidity to satisfy all of our commitments in the form of $279.6 million of consolidated unrestricted cash and $1.0 billion of available credit under our credit facility as of September 30, 2014, as well as anticipated cash provided by operations.
 
Our key financing and capital raising objectives include:
 
•to refinance our maturing debt and certain debt that is prepayable without penalty,
•to manage future debt maturities coming due in any one year; and
•to reduce the amount of debt that is recourse to us.
 
We may also raise capital through public or private issuances of debt securities, preferred stock, common stock, common units of GGPOP or other capital raising activities.
 
During the nine months ended September 30, 2014, we executed the following refinancing and capital transactions (at our proportionate share):
 
•acquired 27.6 million of GGP common shares held by Pershing Square Capital Management, L.P. at $20.12 per share for a total price of approximately $556 million, funded by a draw on our Facility;
 
•completed $1.6 billion of secured financings, lowering the average interest rate 70 basis points from 4.4% to 3.7%, lengthening our average term-to-maturity from 1.9 years to 8.1 years, and generating net proceeds of $694.0 million; and

•amended our $1.4 billion corporate loan secured by cross-collateralized mortgages on 14 properties, lowering the interest rate from LIBOR plus 2.50% to LIBOR plus 1.75%, thus reducing our annual interest expense by $10.4 million.  The loan matures on April 26, 2016, and then after, has two one-year maturity date extension options.

During the nine months ended September 30, 2014, the United States Tax Court entered an adverse opinion in our ongoing tax indemnification litigation. As a result, we may pay approximately $202 million in tax and related interest in the fourth quarter of 2014 (Note 16).

As of September 30, 2014, we have $2.0 billion of debt pre-payable without penalty.  We may pursue opportunities to refinance this debt at lower interest rates and longer maturities.
 
As a result of our financing efforts in 2014, we have reduced the amount of debt due in the next three years from $1.9 billion to $1.1 billion, representing 5.9% of our total debt at maturity.  The maximum amount due in any one of the next ten years is no more than $3.0 billion or approximately 16.3% of our total debt at maturity. In 2022, the $3.0 billion of debt maturing includes $1.4 billion for Ala Moana.
 
As of September 30, 2014, our proportionate share of total debt aggregated $19.7 billion.  Our total debt includes our consolidated debt of $16.1 billion, of which $15.9 billion is secured and $214.4 million is corporate unsecured. Our total debt also includes $3.6 billion of our share of the secured debt of our Unconsolidated Real Estate Affiliates. Of our proportionate

38

share of total debt, $1.9 billion is recourse to the Company or its subsidiaries (including the Facility) due to guarantees or other security provisions for the benefit of the note holder.
 
The following table illustrates the scheduled payments for our proportionate share of total debt as of September 30, 2014.  The $206.2 million of Junior Subordinated Notes are due in 2036, but we may redeem them any time after April 30, 2011 (Note 7).  As we do not expect to redeem the notes prior to maturity, they are included in the consolidated debt maturing subsequent to 2018.
 
Consolidated(1)
 
Unconsolidated(1)
 
(Dollars in thousands)
2014
$
37,691

 
$
10,497

2015
512,930

 
199,098

2016
693,824

 
22,905

2017
863,066

 
200,349

2018
1,831,756

 
232,072

Subsequent
12,028,031

 
3,047,450

 
$
15,967,298

 
$
3,712,371

 
(1) Excludes $19.5 million of adjustments related to special improvement district liabilities and debt market rate adjustment.
 
We generally believe that we will be able to extend the maturity date, repay or refinance the consolidated debt that is scheduled to mature in 2014.  We also believe that the joint ventures will be able to refinance the debt of our Unconsolidated Real Estate Affiliates upon maturity. However, there can be no assurance that we 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.

Acquisitions and Joint Venture Activity

From time-to-time we may acquire whole or partial interests in high-quality retail properties that are consistent with our strategy of owning and operating best-in-class retail properties. Such assets provide long-term embedded growth or potential redevelopment opportunities.

On September 30, 2014, we contributed $8.3 million to a joint venture that acquired a retail condominium unit located at 522 5th Avenue in New York, New York for a gross purchase price of $165.0 million with $83.3 million in gross property-level financing. The retail condominium comprises approximately 24,000 square feet of retail space on the ground and second level floors. We have an effective 10% interest in the joint venture and account for the joint venture under the equity method of accounting because we share control over major decisions with our joint venture partners. The property will be accounted for as an Unconsolidated Real Estate Affiliate, and is recorded within Investment in and loans to/from Unconsolidated Real Estate Affiliates on our Consolidated Balance Sheets (Note 6). In connection with the acquisition, we provided a $5.3 million loan to our joint venture partner (Note 13).

On September 15, 2014, we contributed $244.7 million to a joint venture that acquired a 20% interest in a development located in Miami, Florida and an 85.67% interest in a regional mall located in Bellevue, Washington. The joint venture's 20% interest in the Miami Design District Associates, LLC ("MDDA") was acquired for a purchase price of $280.0 million. We have a 12.5% share of this investment and account for it as a cost method investment. The investment is recorded within Investment in and loans to/from Unconsolidated Real Estate Affiliates on our Consolidated Balance Sheets (Note 6). The joint venture partner contributed a property, The Shops at the Bravern, LLC ("Bravern"), for a net contribution of $79.0 million. Through the formation of the joint venture, we have a 40% interest in the property and account for the joint venture under the equity method of accounting because we share control over major decisions with our joint venture partner and limited partners. The property will be accounted for as an Unconsolidated Real Estate Affiliate, and is recorded within Investment in and loans to/from Unconsolidated Real Estate Affiliates on our Consolidated Balance Sheets (Note 6).

On June 27, 2014, we contributed $106.6 million to a joint venture that acquired 685 5th Avenue in New York, New York for a gross purchase price of $521.4 million with $340.0 million in gross property-level financing. The property comprises approximately 25,000 square feet of retail space and 115,000 square feet of office space. We have a 50% interest in the joint venture and account for the joint venture under the equity method of accounting because we share control over major decisions

39

with our joint venture partner, which has substantive participating rights. The property will be accounted for as an Unconsolidated Real Estate Affiliate, and is recorded within Investment in and loans to/from Unconsolidated Real Estate Affiliates on our Consolidated Balance Sheets (Note 6). In connection with the acquisition, we provided an $85.3 million loan to our joint venture partner (Note 13).

The Company also entered into an agreement to acquire a 50% interest in approximately 58,000 square feet of retail space at 530 5th Avenue in New York City for a gross purchase price of approximately $300 million (approximately $150.0 million at our proportionate share). The acquisition closed in the fourth quarter of 2014 (Note 18).

The Company also entered into an agreement to acquire a 50% interest in 218 West 57th Street in New York City for a gross purchase price of $81.5 million ($40.8 million at our proportionate share). The property comprises approximately 35,000 square feet of retail space. The acquisition is expected to close in mid-2016.

Warrants and Brookfield Investor Ownership
 
Brookfield owns or manages on behalf of third parties all of the Company’s remaining outstanding Warrants (Note 9), which are exercisable into approximately 53 million common shares of the Company at a weighted-average exercise price of $9.17 per share, assuming net share settlement. The Warrants will continue to adjust for dividends paid by the Company.
 
As of February 18, 2014, Brookfield’s potential ownership of the Company (assuming full share settlement of the Warrants) is 40.9%, which is stated in their Form 13D filed on the same date.  If Brookfield held or managed this same ownership through the maturity date of the Warrants, assuming:  (a) GGP’s common stock price increased $10 per share and (b) the Warrants were adjusted for the impact of regular dividends, we estimate that their ownership would be 39.8% of the Company under net share settlement, and 41.3% of the company under full share settlement.

Redevelopments
 
We are currently redeveloping several consolidated and unconsolidated properties primarily to convert large-scale anchor boxes into smaller leasable areas and to create new in-line retail space and new restaurant venues.  The execution of these redevelopment projects within our portfolio was identified as providing compelling risk-adjusted returns on investment.
 
We have identified approximately $2.3 billion of income producing redevelopment projects within our portfolio, over 80% of which is being invested into Class A malls.  We plan to fund these redevelopments with available cash flow, construction financing, and proceeds from debt refinancings.  We continue to evaluate a number of other redevelopment projects to further enhance the quality of our assets.  We currently expect to achieve returns that average 9-11% for all projects (cash on cost, first year stabilized).  Expected returns are based on the completion of current and future redevelopment projects, and the success of the leasing and asset management plans in place for each project. Expected returns are subject to a number of variables, risks, and uncertainties including those disclosed within Item 1A of our Annual Report. We also refer the reader to our disclosure related to forward-looking statements, below. The following table illustrates our planned redevelopments:


40

Property
Description
 
Ownership %
 
GGP’s Total
Projected Share
of Cost
 
GGP’s
Investment to
Date (1)
 
Expected 
Return
on Investment (2)
 
Expected
Project
Opening
Major Development Summary (in millions, at share unless otherwise noted)
 
 
 
 

 
 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Open
 
 
 
 
 

 
 

 
 
 
 
Northridge
Northridge, CA
The Sports Authority, Yardhouse and Plaza
 
100%
 
$
12.2

 
$
11.3

 
14%
 
Open
 
 
 
 
 
 
 
 
 
 
 
 
Fashion Show
Las Vegas, NV
Addition of Macy's Men's and inline
 
100%
 
34.8

 
33.0

 
23%
 
Open
 
 
 
 
 
 
 
 
 
 
 
 
Oakwood Center
Gretna, LA
West wing redevelopment and Dick's Sporting Goods
 
100%
 
19.0

 
16.6

 
9%
 
Open
 
 
 
 
 
 
 
 
 
 
 
 
Glendale Galleria 3
Glendale, CA
Addition of Bloomingdale's, remerchandising, business development and renovation
 
50%
 
51.7

 
51.0

 
12%
 
Open
 
 
 
 
 
 
 
 
 
 
 
 
The Mall in Columbia
Columbia, MD
Lifestyle expansion
 
100%
 
23.6

 
20.3

 
12%
 
Open
 
 
 
 
 
 
 
 
 
 
 
 
Oakbrook Center
Oakbrook, IL
Conversion of former anchor space into Container Store, Pirch and inline
 
48%
 
15.0

 
13.0

 
10%
 
Open
 
 
 
 
 
 
 
 
 
 
 
 
The Woodlands 3 Woodlands, TX
Addition of Nordstrom in former Sears box
 
100%
 
44.7

 
39.7

 
9%
 
Open
 
 
 
 
 
 
 
 
 
 
 
 
Other Projects
Various Malls
Redevelopment projects at various malls
 
N/A
 
193.0

 
169.6

 
11%
 
Open
 
 
 
 
 
 
 
 
 
 
 
 
 
Total Open Projects
 
 
 
$
394.0

 
$
354.5

 
12%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Under Construction
 
 
 
 
 

 
 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Mayfair Mall 3
Wauwatosa, WI
Nordstrom
 
100%
 
72.3

 
25.2

 
6-8%
 
Q3 2015
 
 
 
 
 
 
 
 
 
 
 
 
Ridgedale Center 3
Minnetonka, MN
Nordstrom, Macy's Expansion, New Inline GLA and renovation
 
100%
 
106.2

 
42.2

 
8-9%
 
Q3 2015
 
 
 
 
 
 
 
 
 
 
 
 
Southwest Plaza
Littleton, CO
Redevelopment
 
100%
 
72.6

 
11.3

 
9-10%
 
Q4 2015
 
 
 
 
 
 
 
 
 
 
 
 
Ala Moana Center 3
Honolulu, HI
Demolish existing Sears store and expand mall, adding anchor, box and inline tenants, reconfigure center court
 
100%
 
573.2

 
342.6

 
9-10%
 
Q4 2015
 
 
 
 
 
 
 
 
 
 
 
 
Baybrook Mall
Friendswood, TX
Expansion
 
53%
 
76.3

 
20.1

 
9-10%
 
Q4 2015
 
 
 
 
 
 
 
 
 
 
 
 
Other Projects
Various Malls
Redevelopment projects at various malls
 
N/A
 
241.4

 
67.6

 
8-9%
 
Various
 
 
 
 
 
 
 
 
 
 
 
 
 
Total Projects Under Construction
 
 
 
$
1,142.0

 
$
509.0

 
8-10%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Projects in Pipeline
 
 
 
 
 

 
 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Staten Island Mall
Staten Island, NY
Expansion
 
100%
 
156.1

 
3.3

 
10-11%
 
TBD
 
 
 
 
 
 
 
 
 
 
 
 
New Mall Development
Norwalk, CT
Ground up mall development
 
100%
 
285.0

 
37.4

 
8-10%
 
TBD
 
 
 
 
 
 
 
 
 
 
 
 
Ala Moana Center Honolulu, HI
Nordstrom box repositioning
 
100%
 
85.0

 
—

 
9-10%
 
TBD
 
 
 
 
 
 
 
 
 
 
 
 
Other Projects
Various Malls
Redevelopment projects at various malls
 
N/A
 
287.5

 
5.6

 
8-9%
 
TBD
 
 
 
 
 
 
 
 
 
 
 
 
 
Total Projects in Pipeline
 
 
 
$
813.6

 
$
46.3

 
8-10%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total Development Summary
 
 
 
$
2,349.6

 
$
909.8

 
9-11%
 
 
 
(1) Projected costs and investments to date exclude capitalized interest and internal overhead.
(2) Return on investment represents first year stabilized cash on cost return, based upon budgeted assumptions.  Actual costs may vary.
(3) Project ROI includes income related to uplift on existing space.

41


Our investment in these projects for the three months ended September 30, 2014 has increased from December 31, 2013, in conjunction with the applicable development plan and as projects near completion. The completion of the project at Glendale Galleria and the continued progression of the redevelopment projects at Ala Moana Center and Ridgedale Center resulted in increases to GGP’s investment to date.

Capital Expenditures, Capitalized Interest and Overhead (at share)
 
The following table illustrates our capital expenditures, capitalized interest, and internal costs associated with leasing and development overhead, which primarily relate to ordinary capital projects at our operating properties.  In addition, we incurred tenant allowances and capitalized leasing costs for our operating properties as outlined below.  Capitalized interest and internal costs associated with development and leasing overhead are based on qualified expenditures and interest rates and are amortized over lives which are consistent with the related asset.
 
 
Nine Months Ended September 30,
 
 
2014
 
2013
 
 
(Dollars in thousands)
Capital expenditures (1)
 
$
126,812

 
$
100,357

Tenant allowances (2)
 
93,641

 
99,667

Capitalized interest and capitalized overhead
 
46,455

 
42,409

Total
 
$
266,908

 
$
242,433

 
 
(1) Reflects only non-tenant operating capital expenditures.
(2) Tenant allowances paid on 3.2 million square feet.
 
The increase in Capital expenditures is primarily driven by refurbishment projects that improve the quality of our properties.
 
Common Stock Dividends
 
Our Board of Directors declared common stock dividends during 2014 and 2013 as follows:
Declaration Date
Record Date
Payment Date
Dividend Per Share
2014
 
 
 
August 12
October 15
October 31, 2014
$
0.16

May 15
July 15
July 31, 2014
0.15

February 26
April 15
April 30, 2014
0.15

2013
 
 
 
October 28
December 13
January 2, 2014
$
0.14

July 29
October 15
October 29, 2013
0.13

May 10
July 16
July 30, 2013
0.12

February 4
April 16
April 30, 2013
0.12


Preferred Stock Dividends
 
On February 13, 2013, we issued, under a public offering, 10,000,000 shares of 6.375% Series A Cumulative Stock at a price of $25.00 per share.  Our Board of Directors declared preferred stock dividends during 2014 and 2013 as follows:

42

Declaration Date
Record Date
Payment Date
Dividend Per Share
2014
 
 
 
August 12
September 15
October 1, 2014
$
0.3984

May 15
June 16
July 1, 2014
0.3984

February 26
March 17
April 1, 2014
0.3984

2013
 
 
 
October 28
December 13
January 2, 2014
$
0.3984

July 29
September 13
October 1, 2013
0.3984

May 10
June 14
July 1, 2013
0.3984

March 4
March 15
April 1, 2013
0.2125


Summary of Cash Flows
 
Cash Flows from Operating Activities
 
Net cash provided by operating activities was $806.4 million for the nine months ended September 30, 2014 and $606.2 million for the nine months ended September 30, 2013.  Significant changes in the components of net cash provided by operating activities include:

•
in 2014, a decrease in interest costs primarily as a result of the of the redemption of unsecured corporate bonds; and
•
in 2013, a decrease in Accounts payable and accrued expenses primarily attributable to a settlement with the 2006 Lenders.
 
Cash Flows from Investing Activities
 
Net cash (used in) provided by investing activities was $(417.8) million for the nine months ended September 30, 2014 and $424.0 million for the nine months ended September 30, 2013.  Significant components of net cash used in investing activities include:
 
•
in 2014, development of real estate and property improvements, $(453.7) million;
•
in 2014, distributions received from our Unconsolidated Real Estate Affiliates in excess of income, $365.0 million;
•
in 2013, development of real estate and property improvements, $(316.7) million; and
•
in 2013, distributions received from our Unconsolidated Real Estate Affiliates in excess of income, $172.5 million.
 
Cash Flows from Financing Activities
 
Net cash (used in) provided by financing activities was $(686.2) million for the nine months ended September 30, 2014 and $(1,051.5) million for the nine months ended September 30, 2013.  Significant components of net cash used in financing activities include:
 
•
in 2014, proceeds from the refinancing or issuance of mortgages, notes, and loans payable, of $1,887 million net of principal payments of $(1,595) million;
•
in 2014, the acquisition of 27.6 million shares of our common stock $(555.8) million;
•
in 2014, cash distributions paid to common stockholders of $(392.7) million;
•
in 2013, proceeds from the refinancing or issuance of mortgages, notes, and loans payable of $5,068 million, net of principal payments of $(4,839) million;
•
in 2013, proceeds from the issuance of preferred stock, $242.0 million;
•
in 2013, purchase of the Fairholme and Blackstone Warrants $(633.2) million (Note 9); and
•
in 2013, cash distributions paid to common stockholders of $(328.7) million.

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

43

Critical Accounting Policies
 
Our discussion and analysis of financial condition and results of operations is based on our consolidated interim financial statements, which have been prepared in accordance with GAAP. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities and contingencies as of the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. We evaluate our assumptions and estimates on an ongoing basis. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.
 
A disclosure of our critical accounting policies which affect our more significant judgments and estimates used in the preparation of our condensed consolidated financial statements is included in our Annual Report on Form 10-K for the year ended December 31, 2013 in Management’s Discussion and Analysis of Financial Condition and Results of Operations.

REIT Requirements
 
In order to remain qualified as a REIT for federal income tax purposes, we must distribute or pay tax on 100% of our capital gains and distribute at least 90% of our ordinary taxable income to stockholders.  See Note 8 to the consolidated financial statements for more detail on our ability to remain qualified as a REIT.
 
Refer also to the accounting policies discussed in Note 2.
 
Recently Issued Accounting Pronouncements
 
Refer to Note 2 for a discussion of the revised definition of discontinued operations and a recently-issued revenue recognition pronouncement. We have elected to adopt the revised definition of discontinued operations prospectively on January 1, 2015, pursuant to the pronouncement’s terms. The recently-issued revenue recognition pronouncement is effective January 1, 2017, and we are evaluating its impact on our consolidated financial statements.
 
Non-GAAP Supplemental Financial Measures and Definitions
 
Net Operating Income (“NOI”) and Company NOI
 
The Company defines NOI as income from property operations after operating expenses have been deducted, but prior to deducting financing, administrative and income tax expenses.  NOI has been reflected on a proportionate basis (at the Company’s ownership share).  Other REITs may use different methodologies for calculating NOI, and accordingly, the Company’s NOI may not be comparable to other REITs.  The Company considers NOI a helpful supplemental measure of its operating performance because it is a direct measure of the actual results of our properties.  Because NOI excludes general and administrative expenses, interest expense, retail investment property impairment or non-recoverable development costs, depreciation and amortization, gains and losses from property dispositions, allocations to noncontrolling interests, provision for income taxes, discontinued operations, preferred stock dividends, and extraordinary items, it provides a performance measure that, when compared year over year, reflects the revenues and expenses directly associated with owning and operating commercial real estate properties and the impact on operations from trends in occupancy rates, rental rates and operating costs.
 
The Company also considers Company NOI to be a helpful supplemental measure of its operating performance because it excludes from NOI certain non-cash and non-comparable items such as straight-line rent and intangible asset and liability amortization, which are a result of our emergence, acquisition accounting and other capital contribution or restructuring events. However, due to the exclusions noted, Company NOI should only be used as an alternative measure of the Company’s financial performance.  We present Company NOI and Company FFO (as defined below), as we believe certain investors and other users of our financial information use these measures of the Company’s historical operating performance.

Funds From Operations (“FFO”) and Company FFO
 
The Company determines FFO based upon the definition set forth by National Association of Real Estate Investment Trusts (“NAREIT”).  The Company determines FFO to be our share of consolidated net income (loss) computed in accordance with GAAP, excluding real estate related depreciation and amortization, excluding gains and losses from extraordinary items, excluding cumulative effects of accounting changes, excluding gains and losses from the sales of, or any impairment charges related to, previously depreciated operating properties, plus the allocable portion of FFO of unconsolidated joint ventures based

44

upon our economic ownership interest, and all determined on a consistent basis in accordance with GAAP.  As with our presentation of NOI, FFO has been reflected on a proportionate basis.
 
We consider FFO a helpful supplemental measure of the operating performance for equity REITs and a complement to GAAP measures because it is a recognized measure of performance by the real estate industry.  FFO facilitates an understanding of the operating performance of our properties between periods because it does not give effect to real estate depreciation and amortization since these amounts are computed to allocate the cost of a property over its useful life.  Since values for well-maintained real estate assets have historically increased or decreased based upon prevailing market conditions, the Company believes that FFO provides investors with a clearer view of the Company’s operating performance.
 
As with our presentation of Company NOI, the Company also considers Company FFO to be a helpful supplemental measure of the operating performance for equity REITs because it excludes from FFO certain items that are non-cash and certain non-comparable items such as our Company NOI adjustments, and FFO items such as mark-to-market adjustments on debt and gains on the extinguishment of debt, Warrant liability adjustment, and interest expense on debt repaid or settled all which are a result of our emergence, acquisition accounting and other capital contribution or restructuring events.

Reconciliation of Non-GAAP Financial Measures to GAAP Financial Measures
 
The Company presents NOI and FFO as they are financial measures widely used in the REIT industry.  In order to provide a better understanding of the relationship between our non-GAAP financial measures of NOI, Company NOI, FFO and Company FFO, reconciliations have been provided as follows: a reconciliation of GAAP operating income to NOI and Company NOI and a reconciliation of net income (loss) attributable to General Growth Properties, Inc. to FFO and Company FFO.  None of our non-GAAP financial measures represents cash flow from operating activities in accordance with GAAP, none should be considered as an alternative to GAAP net income (loss) attributable to General Growth Properties, Inc. and none are necessarily indicative of cash available to fund cash needs.  In addition, the Company has presented such financial measures on a consolidated and unconsolidated basis (at the Company’s ownership share) as the Company believes that given the significance of the Company’s operations that are owned through investments accounted for on the equity method of accounting, the detail of the operations of the Company’s unconsolidated properties provides important insights into the income and FFO produced by such investments for the Company as a whole.
 
The following tables reconcile operating income to NOI and Company NOI (dollars in thousands) for the three and nine months ended September 30, 2014 and 2013:

45

 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
 
2014
 
2013
 
2014
 
2013
 
 
 
 
 
 
 
 
 
Operating income
 
$
238,740

 
$
193,933

 
$
669,241

 
$
588,447

 
 
 
 
 
 
 
 
 
Management fees and other corporate revenues
 
(17,355
)
 
(17,336
)
 
(51,759
)
 
(50,575
)
Property management and other costs
 
34,516

 
41,446

 
119,572

 
123,344

General and administrative
 
12,778

 
10,522

 
52,609

 
34,578

Depreciation and amortization
 
184,033

 
188,079

 
534,096

 
566,470

Loss on sales of investment properties
 
—

 
—

 
44

 
—

Noncontrolling interest in NOI of Consolidated Properties and other
 
(4,646
)
 
(3,866
)
 
(13,623
)
 
(11,085
)
NOI of unconsolidated properties
 
104,979

 
100,408

 
309,680

 
287,618

Total NOI adjustments
 
314,305


319,253


950,619


950,350

Proportionate NOI
 
553,045


513,186


1,619,860


1,538,797

Company NOI adjustments:
 
 
 
 
 
 
 
 
Straight-line rent
 
(13,252
)
 
(14,399
)
 
(43,827
)
 
(46,192
)
Above and below-market leases amortization, net
 
15,987

 
23,203

 
65,881

 
68,079

Real estate tax stabilization agreement
 
1,490

 
1,578

 
4,469

 
4,734

Amortization of below-market ground leases
 
1,300

 
6,001

 
3,895

 
8,765

Total Company NOI adjustments
 
5,525


16,383


30,418


35,386

Company NOI
 
$
558,570


$
529,569


$
1,650,278


$
1,574,183


46


The following tables reconcile Net income attributable to common stockholders to FFO and Company FFO for the three and nine months ended September 30, 2014 and 2013:
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2014
 
2013
 
2014
 
2013
 
 
 
 
 
 
 
 
Net income attributable to General Growth Properties, Inc.
$
74,608

 
$
27,483

 
$
376,372

 
$
225,337

 
 
 
 
 
 
 
 
Depreciation and amortization of capitalized real estate costs
231,901

 
230,441

 
668,833

 
688,713

(Gains) losses on sales of investment properties
(7,603
)
 
2,872

 
(131,319
)
 
189

Gains from changes in control of investment properties
—

 
—

 
—

 
(219,784
)
Noncontrolling interests in depreciation of Consolidated Properties
(2,554
)
 
(1,806
)
 
(6,484
)
 
(5,363
)
Provision for impairment excluded from FFO of discontinued operations
—

 
—

 
—

 
4,975

Redeemable noncontrolling interests
412

 
160

 
2,049

 
1,563

Depreciation and amortization of discontinued operations
451

 
8,193

 
2,841

 
19,375

Preferred Stock dividends
(3,984
)
 
(3,984
)
 
(11,952
)
 
(10,094
)
Total FFO adjustments
218,623


235,876


523,968


479,574

Proportionate FFO
293,231


263,359


900,340


704,911

Company FFO Adjustments:
 
 
 
 
 
 
 
Straight-line rent
(13,252
)
 
(14,399
)
 
(43,827
)
 
(46,192
)
Above and below-market leases amortization, net
15,987

 
23,203

 
65,881

 
68,079

Real estate tax stabilization agreement
1,490

 
1,578

 
4,469

 
4,734

Amortization of below-market ground leases
1,300

 
6,001

 
3,895

 
8,765

General and Administrative
—

 
—

 
17,854

 
—

Interest Income
(205
)
 
—

 
(279
)
 
—

Interest expense (1)
105

 
1,526

 
11,606

 
3,355

Loss on foreign currency
15,972

 
—

 
7,017

 
—

Warrant liability adjustment
—

 
—

 
—

 
40,546

Loss on extinguishment of debt
—

 
—

 
—

 
36,478

Benefit from income taxes
(6,317
)
 
—

 
(2,775
)
 
—

FFO from discontinued operations
(61
)
 
2,561

 
(65,953
)
 
(18,108
)
Company FFO
$
308,250


$
283,829


$
898,228


$
802,568

 
(1) Interest expense adjustments include default interest, mark-to-market adjustments on debt, write-off of mark-to-market adjustments on extinguished debt, debt extinguishment expenses and losses on extinguished debt.

Forward-Looking Statements
 
Certain statements made in this section or elsewhere in this report may be deemed “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Although the Company believes the expectations reflected in any forward-looking statement are based on reasonable assumption, it can give no assurance that its expectations will be attained, and it is possible that actual results may differ materially from those indicated by these forward-looking statements due to a variety of risks, uncertainties and other factors. Such factors include, but are not limited to, the Company’s ability to refinance, extend, restructure or repay near and intermediate term debt, its indebtedness, its ability to raise capital through equity issuances, asset sales or the incurrence of new debt, retail and credit market conditions, impairments, its liquidity demands, and economic conditions. The Company discusses these and other risks and uncertainties in its annual and quarterly periodic reports filed with the Securities and Exchange Commission. The Company may update that discussion in its periodic reports, but otherwise takes no duty or obligation to update or revise these forward-looking statements, whether as a result of new information, future developments, or otherwise.


47

 ITEM 3                           QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 
There have been no significant changes in the market risks described in our Annual Report on Form 10-K for the year ended December 31, 2013.
 
ITEM 4                           MINE SAFETY DISCLOSURES
 
Not applicable.
 
ITEM 5                           CONTROLS AND PROCEDURES
 
Disclosure Controls and Procedures
 
As of the end of the period covered by this report, we carried out an evaluation, under the supervision and with the participation of our management, including the Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15(d)-15(e) under the Securities Exchange Act of 1934, as amended, (the “Exchange Act”)).

Based on that evaluation, the CEO and the CFO have concluded that our disclosure controls and procedures are effective.
 
Internal Control over Financial Reporting
 
There have been no changes in our internal control over financial reporting during our most recently completed fiscal quarter that have materially affected or are reasonably likely to materially affect our internal control over financial reporting.

PART II                  OTHER INFORMATION

ITEM 1                      LEGAL PROCEEDINGS
 
In the normal course of business, from time to time, we are involved in legal proceedings relating to the ownership and operations of our properties. In management’s opinion, the liabilities, if any, that may ultimately result from such legal actions are not expected to have a material effect on our consolidated financial position, results of operations or liquidity.
 
Urban Litigation
 
In October 2004, certain limited partners (the "Urban Plaintiffs") of Urban Shopping Centers, L.P. ("Urban") filed a lawsuit against Urban's general partner, Head Acquisition, L.P. ("Head"), as well as The Rouse Company, LP ("TRCLP"), Simon Property Group, Inc., Westfield America, Inc., and various of their affiliates, including Head's general partners (collectively, the "Urban Defendants"), in Circuit Court in Cook County, Illinois. GGP, GGPOP and other affiliates were later included as Urban Defendants. The lawsuit alleged, among other things, that the Urban Defendants breached the Urban partnership agreement, unjustly enriched themselves through misappropriation of partnership opportunities, failed to grow the partnership, breached their fiduciary duties, and tortiously interfered with several contractual relationships. The plaintiffs sought relief in the form of unspecified monetary damages and equitable relief requiring, among other things, the Urban Defendants, including GGP, Inc. and its affiliates, to engage in certain future transactions through the Urban Partnership.  On May 19, 2014 the Company settled
the litigation and recorded a loss of $17.9 million, which is included in General and administrative expense in our Consolidated Statements of Comprehensive Income. The Company invested $60.0 million in Urban and contributed, at fair value, a 5.6% interest in three assets in exchange for preferred equity interests. The Company has no obligation to engage in future activity through Urban other than transactions associated with partnership assets.
 
Tax Indemnification Liability
 
Pursuant to the Investment Agreements, the Company has indemnified HHC from and against 93.75% of any and all losses, claims, damages, liabilities and reasonable expenses to which HHC and its subsidiaries become subject, in each case solely to the extent directly attributable to MPC Taxes (as defined in the Investment Agreements) in an amount up to $303.8 million.  Under certain circumstances, the Company agreed to be responsible for interest or penalties attributable to such MPC Taxes in excess of the $303.8 million.  The IRS disagrees with the method used to report gains for income tax purposes that are the subject of the MPC taxes.  As a result of this disagreement, The Howard Hughes Company, LLC and Howard Hughes Properties, Inc. filed petitions in the United States Tax Court, contesting this liability for the 2007 and 2008 years and a trial was held in 2012.  The United States Tax Court rendered its opinion on June 2, 2014, in favor of the IRS. On September 15,

48

2014, the United States Tax Court formally entered its decision awarding the IRS $144.1 million in taxes for 2007 and 2008. Interest of approximately $60 million has accrued as of September 30, 2014 and will continue to accrue until paid. The parties have until December 15, 2014 to file a notice of appeal. The Internal Revenue Service has opened an audit for these two taxpayers for 2009 through 2011 with respect to MPC Taxes; however, the Company does not expect any material taxes or interest or penalties to be due for these years based on a change to the method outlined by the United States Tax Court.

The Company has accrued approximately $322 million related to the tax indemnification liability on our Consolidated Balance Sheets as of September 30, 2014, and December 31, 2013.  As a result of the Company's consideration of the risks associated with this matter, including the timing of recognition of indemnified and non-indemnified income by HHC, the use of specific deductions, and the ultimate amount of indemnified income recognized, as well as discussions with counsel, the Company believes that the aggregate liability recorded of approximately $322 million represents management’s best estimate of our liability as of September 30, 2014, and that the probability that the Company will incur a loss in excess of this amount is remote. 


ITEM 1A   RISK FACTORS
 
There are no material changes to the risk factors previously disclosed in our Annual Report.
 
ITEM 2   UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
 
None

ITEM 3                 DEFAULTS UPON SENIOR SECURITIES
 
None
 
ITEM 5                 OTHER INFORMATION
 
None



49

ITEM 6                 EXHIBITS
 
10.1

 
Stock Purchase Agreement dated February 10, 2014 by and among General Growth Properties, Inc., GGP Limited Partnership, Pershing Square, L.P., Pershing Square II, L.P., PSRH, Inc. and Pershing Square Holdings, Ltd. (previously filed as Exhibit 10.1 to New GGP’s Current Report on Form 8-K dated February 10, 2014, which was filed with the SEC on February 10, 2014).
 
 
 
10.2

 
Fourth Amended and Restated Agreement of Limited Partnership of GGP Operating Partnership, LP (f/k/a GGP Limited Partnership) dated May 1, 2014
 
 
 
10.3

 
Second Amended and Restated Employee Stock Purchase Plan dated May 15, 2014
 
 
 
10.4

 
Amendment dated April 30, 2014 to the Third Amended and Restated Credit Agreement, dated October 23, 2013
 
 
 
10.5

 
Second Amendment dated August 1, 2014 to the Loan Agreement dated April 26, 2013
 
 
 
31.1

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

 
Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
 
 
 
32.1

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

 
Certification of Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 
 
 
101

 
The following financial information from General Growth Properties, Inc.’s. Quarterly Report on Form 10-Q for the quarter ended September 30, 2014, has been filed with the SEC on November 5, 2014, formatted in XBRL (Extensible Business Reporting Language): (1) Consolidated Balance Sheets, (2) Consolidated Statements of Comprehensive Income, (3) Consolidated Statements of Equity, (4) Consolidated Statements of Cash Flows and (5) Notes to Consolidated Financial Statements.
 
Pursuant to Item 601(b)(4)(iii) of Regulation S-K, the registrant has not filed debt instruments relating to long-term debt that is not registered and for which the total amount of securities authorized thereunder does not exceed 10% of total assets of the registrant and its subsidiaries on a consolidated basis as of September 30, 2014. The registrant agrees to furnish a copy of such agreements to the SEC upon request.


50

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

 
GENERAL GROWTH PROPERTIES, INC.
 
(Registrant)
 
 
 
 
Date: November 5, 2014
By:
/s/ Michael Berman
 
 
Michael Berman
 
 
Chief Financial Officer
 
 
(on behalf of the Registrant)


51

EXHIBIT INDEX
 
10.1
 
Stock Purchase Agreement, dated February 10, 2014, by and among General Growth Properties, Inc., GGP Limited Partnership, Pershing Square, L.P., Pershing Square II, L.P., PSRH, Inc. and Pershing Square Holdings, Ltd. (previously filed as Exhibit 10.1 to New GGP’s Current Report on Form 8-K dated February 10, 2014, which was filed with the SEC on February 10, 2014).
 
 
 
10.2
 
Fourth Amended and Restated Agreement of Limited Partnership of GGP Operating Partnership, LP (f/k/a GGP Limited Partnership) dated May 1, 2014
 
 
 
10.3
 
Second Amended and Restated Employee Stock Purchase Plan dated May 15, 2014
 
 
 
10.4
 
Amendment dated April 30, 2014 to the Third Amended and Restated Credit Agreement, dated October 23, 2013
 
 
 
10.5
 
Second Amendment dated August 1, 2014 to the Loan Agreement dated April 26, 2013
 
 
 
31.1
 
Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
 
 
 
31.2
 
Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
 
 
 
32.1
 
Certification of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of   2002.
 
 
 
32.2
 
Certification of Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 
 
 
101
 
The following financial information from General Growth Properties, Inc.’s. Quarterly Report on Form 10-Q for the quarter ended September 30, 2014, has been filed with the SEC on November 5, 2014, formatted in XBRL (Extensible Business Reporting Language): (1) Consolidated Balance Sheets, (2) Consolidated Statement of Comprehensive Income, (3) Consolidated Statements of Equity, (4) Consolidated Statements of Cash Flows and (5) Notes to Consolidated Financial Statements.




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