EX-99.1 5 a12-15380_1ex99d1.htm EX-99.1

Exhibit 99.1

 

PART I

 

ITEM 1.   BUSINESS

 

The following discussion should be read in conjunction with the Consolidated Financial Statements of General Growth Properties, Inc. (“GGP” or the “Company”) and related notes, as included in this Annual Report on Form 10-K (this “Annual Report”).  The terms “we,” “us” and “our” may also be used to refer to GGP and its subsidiaries (or, in certain contexts, the Predecessor (as defined below) and its subsidiaries). GGP, 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”.  GGP is the successor registrant, by merger, on November 9, 2010 (the “Effective Date”) to GGP, Inc. (the “Predecessor”).  The Predecessor had filed for bankruptcy protection under Chapter 11 of Title 11 of the United States Code (“Chapter 11”) and emerged from bankruptcy, pursuant to a plan of reorganization (the “Plan”) on the Effective Date as described below.

 

On January 12, 2012, we completed the spin-off (the “RPI Spin-Off”) of Rouse Properties, Inc. (“RPI”), which now owns a 30-mall portfolio of “Class B properties”, totaling approximately 21 million square feet.  The RPI Spin-Off was accomplished through a special dividend of the common stock of RPI to holders of GGP common stock as of December 30, 2011.  Subsequent to the spin-off, we retained an approximately 1% interest in RPI.  The consolidated financial information presented herein includes RPI in discontinued operations for all periods presented and unless otherwise indicated, the description of our regional malls and related metrics herein exclude RPI for all periods presented.

 

Our Company and Strategy

 

We are a leading real estate owner and operator of high quality regional malls with an ownership interest in 136 regional malls in 41 states as of December 31, 2011, comprising 58 million square feet of gross leasable area, or GLA, excluding anchor tenants. Based on the number of regional malls in our portfolio and GLA, we are the second largest owner of regional malls in the United States.

 

Of our 136 regional malls, 78 are considered Class A regional malls and have average tenant sales exceeding $575 per square foot, representing 75% of our NOI (as defined in Item 6).  These high quality malls include:

 

·                  Ala Moana in Honolulu, Hawaii

·                  Fashion Show in Las Vegas, Nevada

·                  Natick Mall in Natick (Boston), Massachusetts

·                  Tyson’s Galleria in Tysons, Virginia.

·                  Park Meadows in Lone Tree (Denver), Colorado

·                  Water Tower Place in Chicago, Illinois

 

More broadly, we have an interest in 125 of the 600 regional malls in the country with the highest sales per square foot.  These malls are located in core markets defined by population density, household growth, and a high-income demographic. Together, these regional malls had 2011 average tenant sales per square foot of $505.

 

In 2011, we saw a strengthening of lease spreads across our portfolio, with comparable mall average tenant sales per square foot increasing 8% in 2011 over 2010.  We see increasing productivity and revenues through leasing activity within our regional malls as a significant opportunity for growth.  In addition, we believe that the limited supply of new mall space in the last five years and lack of new development pipeline will further increase our productivity and help us to increase our occupancy levels.

 

Our long-term business strategy is to own and operate high quality regional malls in the United States. The regional malls we own and

operate generally exhibit the following attributes:

 

·                  located in markets or communities that have experienced, and expect to continue to experience, positive demographic trends, such as above-average levels of employment and disposable income;

·                  high and relatively stable occupancy levels comprised of a balanced mix of anchor and in-line retailers subject to long-term leases, restaurants and other amenities; and

 

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·                  professionally managed by an on-site team dedicated to maintaining and improving the mall’s operations and competitive advantages.

 

We believe our long term strategy will provide our shareholders with a compelling risk-adjusted total return comprised of dividends and share price appreciation.

 

Transactions

 

During 2011, we successfully completed transactions promoting our long-term strategy as summarized below (figures shown represent our share):

 

·                  decreased our borrowing costs and lengthened our overall remaining term-to-maturity by refinancing $2.6 billion of mortgage notes;

·                  approved the spin-off to our shareholders of 30 Class B regional malls in the form of a special taxable dividend of shares of RPI.  The transaction was consummated on January 12, 2012 and decreased our outstanding mortgage notes by $1.1 billion;

·                  sold, or transferred to the mortgage holder, whole or partial interests in approximately 11.5 million square feet of gross leasable area comprised of regional malls for $879.7 million including property level debt of $752.1 million;

·                  acquired whole or partial interests in approximately 2.45 million square feet of gross leasable area comprised of regional malls, anchor pads and big box stores, for approximately $168.4 million, including the assumption of $34.7 million of property-level debt;

·                  formed a joint venture partnership with Kimco Realty to redevelop Owings Mills Mall in Owings Mills, Maryland, a one-million square foot regional mall;

·                  opened 28 new anchor/big boxes totaling approximately 920,000 square feet and three department stores totaling 402,000 square feet; and

·                  formed a joint venture partnership with the Canada Pension Plan Investment Board (CPP) to purchase Plaza Frontenac in Frontenac (St. Louis), Missouri.  We contributed St. Louis Galleria to the joint venture and CPP contributed $83.0 million in cash.

 

We will continue to execute transactions to achieve our long-term strategy of enhancing the quality of our portfolio and maximizing total returns for our shareholders. Our key objectives include the following:

 

·                  increase the permanent occupancy of the regional mall portfolio, including converting temporary leases to permanent leases, which have longer contractual terms and significantly higher minimum rents and tenant recovery rates;

·                  lease vacant space;

·                  opportunistically acquire whole or partial interests in high-quality regional malls and anchor pads that improve the overall quality of our portfolio;

·                  commence several redevelopment projects within our portfolio;

·                  form joint ventures with institutional investors to acquire partial interests in regional malls, either currently owned by us or through a new acquisition;

·                  dispose of properties in our portfolio that do not fit within our long-term strategy, including certain of our office properties, retail strip centers and regional malls; and

·                  continue to refinance our maturing debt, and certain debt prepayable without penalty, with the goal of lowering our overall borrowing costs and managing future maturities.

 

On February 23, 2012, we signed a definitive agreement for the acquisition of 11 Sears anchor pads within our portfolio for $270 million.  This portfolio represents a significant opportunity to recapture valuable real estate within our portfolio and enhances several expansion and redevelopment opportunities, including re-tenanting the anchor space and adding new in0line GLA.  The acquisition is expected to close in the second quarter of 2012 subject to customary closing conditions.

 

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NARRATIVE DESCRIPTION OF OUR BUSINESS

 

Our Business

 

GGP, through its subsidiaries and affiliates, operates, manages, develops and acquires retail and other rental properties, primarily regional malls, which are predominantly located throughout the United States. GGP also holds assets in Brazil through an investment in an Unconsolidated Real Estate Affiliate (as defined below). Substantially all of our business is conducted through GGP Limited Partnership (the “Operating Partnership” or “GGPLP”).  As of December 31, 2011, GGP holds approximately a 99% common equity ownership (without giving effect to the potential conversion of the Preferred Units as defined below) of the Operating Partnership, while the remaining 1% is held by limited partners that indirectly include family members of the original stockholders of the Predecessor and certain previous contributors of properties to the Operating Partnership.  The Operating Partnership also has preferred units of limited partnership interest (the “Preferred Units”) outstanding.

 

In this Annual Report, 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 hold some properties through joint venture entities in which we own a non-controlling interest (“Unconsolidated Real Estate Affiliates”) and we refer to those properties as the “Unconsolidated Properties”.

 

Retail and Other

 

We operate in a single reportable segment, which we term Retail and Other, which consists of regional malls, retail centers, office and industrial buildings and mixed-use and other properties.  Our portfolio of regional malls and other rental properties represents a collection of retail offerings that are targeted to a range of market sizes and consumer tastes.  Our Consolidated Financial Statements, beginning on page F-1 of this Annual Report, includes financial information for our business.

 

A detailed listing of the principal properties in our retail portfolio is included in Item 2 of this Annual Report.

 

For the year ended December 31, 2011, our largest tenant (based on common parent ownership) accounted for approximately 3% of consolidated rents. Of the approximately 58 million square feet of GLA, which excludes anchor tenants (see Item 2 for anchor tenants GLA), four tenants (The GAP, Limited Brands, Abercrombie & Fitch Stores, and Foot Locker) occupied, in the aggregate, approximately 10% of our GLA in 2011.

 

In addition to regional malls, as of December 31, 2011, we own 13 community shopping centers totaling 1.6 million square feet, primarily in the Western region of the United States, as well as 26 stand-alone office buildings totaling 2.2 million square feet, concentrated in Columbia, Maryland and Las Vegas, Nevada.

 

We also currently hold non-controlling ownership interests in a public Brazilian real estate operating company, Aliansce Shopping Centers (ticker ALSC3), and a large regional mall (Shopping Leblon) in Rio de Janeiro.

 

Competition

 

The nature and extent of the competition we face varies from property to property.  Our direct competitors include other publicly-traded retail mall development and operating companies, retail real estate companies, commercial property developers and other owners of retail real estate that engage in similar businesses.

 

Within our portfolio of retail properties, we compete for retail tenants. We believe the principal factors that retailers consider in making their leasing decision include:

 

·                  location of properties, including consumer demographics;

·                  total number and geographic distribution of properties;

·                  strength and diversity of retailers and anchor tenants at the shopping centers;

·                  management and operational expertise;

·                  aesthetic environment of the shopping center; and

·                  rental rates.

 

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As discussed above, we own and interest in 125 of the 600 regional malls in the country with the highest sales per square foot.  These malls are located in core markets defined by population density, household growth, and a high-income demographic.  Approximately one of every three U.S. households with an income of greater than $100,000 a year is located within 10 miles of one of these malls.  We frequently are able to offer “first-to-market” stores (the first location of a store in a particular region or city) in these core markets that enhance the reputation of our regional malls as premier shopping destinations.  For example, in 2011, the first Crate and Barrel and H&M stores in Utah opened in our Fashion Place Mall.

 

Based on these criteria, we believe that the size and scope of our property portfolio, as well as the overall quality and attractiveness of our individual properties, enable us to compete effectively for retail tenants in our local markets.  Retailers are looking to expand in the highest traffic centers, and we believe regional malls with the optimal mix of retailers, dining and entertainment options typically have high traffic. Further, over the last several years we have not seen any new major mall development and do not expect to see any new mall development in the near term based on the current pipeline.

 

With respect to our office and other properties, we experience competition in the development and management of our properties similar to that of our retail properties. Prospective tenants generally consider quality and appearance, amenities, location relative to other commercial activity and price in determining the attractiveness of our properties. Based on the quality and location of our properties, we believe that our properties are viewed favorably among prospective tenants.

 

Environmental Matters

 

Under various Federal, state and local laws and regulations, an owner of real estate may be liable for the costs of remediation of certain hazardous or toxic substances on such real estate.  These laws may impose liability without regard to whether the owner knew of the presence of such hazardous or toxic substances.  The costs of remediation may be substantial and may adversely affect the owner’s ability to sell or borrow against such real estate as collateral.  In connection with the ownership and operation of our properties, we, or the relevant joint venture through which the property is owned, may be potentially liable for such costs.

 

Substantially all of our properties have been subject to a Phase I environmental site assessment, which is intended to evaluate the environmental condition of the subject property and its surroundings.  Phase I environmental assessments typically include a historical review, a public records review, a site visit and interviews, but do not include sampling or subsurface investigations.

 

To date, the Phase I environmental site assessments have not revealed any recognized environmental conditions that would have a material adverse effect on our overall business, financial condition or results of operations.  However, it is possible that these assessments do not reveal all potential environmental liabilities or that conditions have changed since the assessment was prepared (typically, at the time the property was purchased or developed).

 

See Risk Factors regarding additional discussion of environmental matters.

 

Other Policies

 

The following is a discussion of our investment policies, financing policies, conflict of interest policies and policies with respect to certain other activities. One or more of these policies may be amended or rescinded from time to time without a stockholder vote.

 

Investment Policies

 

Our business is to own and invest in real estate assets. The Company elected to be treated as a REIT in connection with the filing of its tax return for 2011, subject to GGP’s ability to meet the requirements of a REIT at the time of election. REIT limitations restrict us from making an investment that would cause our real estate assets to be less than 75% of our total assets. In addition, at least 75% of our gross income must be derived directly or indirectly from investments relating to real property or mortgages on real property, including “rents from real property,” dividends from other REITs and, in certain circumstances, interest from certain types of temporary investments. At

 

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least 95% of our income must be derived from such real property investments, and from dividends, interest and gains from the sale or dispositions of stock or securities or from other combinations of the foregoing.

 

Subject to REIT limitations, we may invest in the securities of other issuers in connection with acquisitions of indirect interests in real estate. Such an investment would normally be in the form of general or limited partnership or membership interests in special purpose partnerships and limited liability companies that own one or more properties. We may, in the future, acquire all or substantially all of the securities or assets of other REITs, management companies or similar entities where such investments would be consistent with our investment policies.

 

Financing Policies

 

We do not have a policy limiting the number or amount of mortgages that may be placed on any particular property. Mortgage financing instruments, however, usually limit additional indebtedness on those properties. Typically, we invest in or form separate legal entities to assist us in obtaining permanent financing at attractive terms. Long term financing may be structured as a mortgage loan on a single property, or on a group of properties, and generally requires us to provide a mortgage interest on the property in favor of an institutional third party or as a securitized financing. For securitized financings, we create separate legal entities to own the properties. These legal entities are structured so that they would not necessarily be consolidated with us in the event we would ever become subject to a bankruptcy proceeding or liquidation. We decide upon the structure of the financing based upon the best terms then available to us and whether the proposed financing is consistent with our other business objectives. For accounting purposes, we include the outstanding securitized debt of legal entities owning consolidated properties as part of our consolidated indebtedness.

 

We must comply with the covenants contained in our financing agreements. We are party to a revolving credit facility and publically traded bonds that requires us to satisfy certain affirmative and negative covenants and to meet financial ratios and tests, which may include ratios and tests based on leverage, interest coverage and net worth.

 

If our Board of Directors determines to seek additional capital, we may raise that capital through additional public equity offerings, public debt offerings, debt financing, creating joint ventures with existing ownership interests in properties, retention of cash flows or a combination of these methods. Our ability to retain cash flows is limited by the requirement for REITs to pay tax on or distribute 100% of their capital gains income and distribute at least 90% of their taxable income. Our desire is to avoid entity level U.S. federal income tax by distributing 100% of our capital gains and ordinary taxable income.

 

In 2011, we implemented our dividend reinvestment plan in which all stockholders are entitled to participate. However, we may determine to pay dividends in a combination of cash and shares of common stock. We must also take into account taxes that would be imposed on undistributed taxable income.

 

If our Board of Directors determines to raise additional equity capital, it may, without stockholder approval, issue additional shares of common stock or other capital stock. Our Board of Directors may issue a number of shares up to the amount of our authorized capital in any manner and on such terms and for such consideration as it deems appropriate. Such securities may be senior to the outstanding classes of common stock. Such securities also may include additional classes of preferred stock, which may be convertible into common stock. The Plan Sponsors have preemptive rights to purchase our common stock as necessary to allow them to maintain their respective proportional ownership interest in GGP on a fully diluted basis. Any such offering could dilute a stockholder’s investment in us and may make it more difficult to raise equity capital.

 

Conflict of Interest Policies

 

We maintain policies and have entered into agreements designed to reduce or eliminate potential conflicts of interest. We have adopted governance principles governing our affairs and the Board of Directors, as well as written charters for each of the standing committees of the Board of Directors. In addition, we have a Code of Business Conduct and Ethics, which applies to all of our officers, directors, and employees. At least a majority of the members of our Board of Directors must qualify as independent under the listing standards for NYSE companies. Any transaction between us and any director, officer or 5% stockholder must be approved pursuant to our Related Party Transaction Policy.  As a result of the Plan, Brookfield is our largest stockholder.

 

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Policies With Respect To Certain Other Activities

 

We intend to make investments which are consistent with our qualification as a REIT, unless the Board of Directors determines that it is no longer in our best interests to so qualify as a REIT. We have authority to offer shares of our capital stock or other securities in exchange for property. We also have authority to repurchase or otherwise reacquire our shares or any other securities. We may issue shares of our common stock, or cash at our option, to holders of units of limited partnership interest in the Operating Partnership in future periods upon exercise of such holders’ rights under the Operating Partnership agreement. Our policy prohibits us from making any loans to our directors or executive officers for any purpose. We may make loans to the joint ventures in which we participate.

 

We intend to borrow money as part of our business, and we also may issue senior securities, purchase and sell investments, offer securities in exchange for property and repurchase or reacquire shares or other securities in the future. To the extent we engage in these activities, we will comply with applicable law.

 

GGP makes reports to its security holders in accordance with the NYSE rules which include financial statements certified by independent registered public accounting firms, as required by the NYSE.

 

We do not have policies in place with respect to making loans to other persons (other than our conflict of interest policies described above), investing in the securities of other issuers for the purpose of exercising control and underwriting the securities of other issuers, and we do not currently, and do not intend to, engage in these activities.

 

Bankruptcy and Reorganization

 

In April 2009, the Predecessor and certain of its domestic subsidiaries (the “Debtors”) filed voluntary petitions for relief under Chapter 11 of Title 11 of the United States Code in the bankruptcy court of the Southern District of New York (the “Bankruptcy Court”). During the remainder of 2009 and to the Effective Date, the Debtors operated as “debtors in possession” under the jurisdiction of the Bankruptcy Court and the applicable provisions of Chapter 11. In general, as debtors in possession, we were authorized under Chapter

11 to continue to operate as an ongoing business.

 

On October 21, 2010, the Bankruptcy Court entered an order confirming the Plan.  Pursuant to the Plan, on the Effective Date, the Predecessor merged with a wholly-owned subsidiary of New GGP, Inc. and New GGP, Inc. was re-named General Growth Properties, Inc.  Also pursuant to the Plan, prepetition creditor claims were satisfied in full and equity holders received newly issued common stock in New GGP, Inc. and in Howard Hughes Corporation (“HHC”).  After that distribution, HHC became a publicly-held company, majority-owned by the Predecessor’s previous stockholders.  GGP has no remaining interest in HHC as of the Effective Date.

 

On the Effective Date, the Plan Sponsors, Blackstone and Texas Teachers owned a majority of the outstanding common stock of GGP. The Predecessor common stockholders held approximately 317 million shares of GGP common stock at the Effective Date; whereas, the Plan Sponsors, Blackstone, Texas Teachers held approximately 644 million shares of GGP common stock on such date.  Notwithstanding such majority ownership, the Plan Sponsors entered into certain agreements that limited their discretion with respect to affiliate, change of control and other stockholder transactions or votes.  In addition, 120 million warrants (the “Warrants”) to purchase our common stock were issued to the Plan Sponsors and Blackstone at exercise prices of $10.50 and $10.75 per share.  The estimated $835.8 million fair value of the Warrants was recognized as a liability on the Effective Date.  Subsequent to the Effective Date, changes in the fair value of the Warrants have been recognized in earnings and pursuant to the terms of the agreement, adjustments to the exercise price and conversion ratio of the Warrants have been made as of a result of stock dividends and the RPI Spin-Off.

 

Employees

 

As of January 25, 2012, we had approximately 1,750 employees.

 

Insurance

 

We have comprehensive liability, fire, flood, extended coverage and rental loss with respect to our portfolio of retail properties.  Our management believes that such insurance provides adequate coverage.

 

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Qualification as a Real Estate Investment Trust and Taxability of Distributions

 

The Predecessor qualified as a real estate investment trust pursuant to the requirements contained in Sections 856-860 of the Internal Revenue Code of 1986, as amended (the “Code”).  The Predecessor for 2009, and the Company for 2010 and 2011, met their distribution requirements to its common stockholders as provided for in Section 857 of the Code wherein a dividend declared in October, November or December but paid in January of the following year will be considered a prior year dividend for all purposes of the Code (Note 8).   The Company elected to be taxed as a REIT commencing with the taxable year beginning July 1, 2010, its date of incorporation and the Company intends to maintain REIT status, and therefore our operations will not be subject to Federal tax on its real estate investment trust taxable income.  A schedule detailing the taxability of dividends for 2011, 2010 and 2009 has been presented in Note 8 to the Consolidated Financial Statements.

 

GGP believes that it is a domestically controlled qualified investment entity as defined by the Code.  However, because its shares are publicly traded, no assurance can be given that the Company is or will continue to be a domestically controlled qualified investment entity.

 

Securities and Exchange Commission Investigation

 

By letter dated January 9, 2012, the Securities and Exchange Commission (“SEC”) notified the Company that it had completed its investigation into possible violations of proscriptions on insider trading under the federal securities laws by certain former officers and directors and that the SEC does not intend to recommend any enforcement action.

 

Available Information

 

Our Internet website address is www.ggp.com.  Our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Interactive Data Files, Current Reports on Form 8-K and amendments to those reports are available and may be accessed free of charge through the Investment section of our Internet website under the Shareholder Info subsection, as soon as reasonably practicable after those documents are filed with, or furnished to, the SEC.  Our Internet website and included or linked information on the website are not intended to be incorporated into this Annual Report.  Additionally, the public may read and copy any materials we file with the SEC at the SEC’s Public Reference Room at 100 F Street, N.E., Washington, DC 20549, and may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC maintains an Internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC, which can be accessed at http://www.sec.gov.

 

ITEM 1A.  RISK FACTORS

 

Business Risks

 

Regional and local economic conditions may adversely affect our business

 

Our real property investments are influenced by the regional and local economy, which may be negatively impacted by increased unemployment, industry slowdowns, lack of availability of consumer credit, increased levels of consumer debt, poor housing market conditions, adverse weather conditions, natural disasters, plant closings, and other factors. Similarly, local real estate conditions, such as an oversupply of, or a reduction in demand for, retail space or retail goods, and the supply and creditworthiness of current and prospective tenants may affect the ability of our properties to generate significant revenue.

 

Economic conditions, especially in the retail sector, may have an adverse effect on our revenues and available cash

 

Unemployment, weak income growth, tight credit and the need to pay down existing obligations may negatively impact consumer spending.  Given these economic conditions, we believe there is a risk that the sales at stores operating in our malls may be adversely affected.  This may hinder our ability to implement our strategies and may have an unfavorable effect on our operations and our ability to attract new tenants.

 

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We may be unable to lease or re-lease space in our properties on favorable terms or at all

 

Our results of operations depend on our ability to continue to strategically lease space in our properties, including re-leasing space in properties where leases are expiring, optimizing our tenant mix or leasing properties on more economically favorable terms. Because approximately eight to nine percent of our total leases expire annually, we are continually focused on our ability to lease properties and collect rents from tenants. Similarly, we are pursuing a strategy of replacing expiring short-term leases with long-term leases. If the sales at certain stores operating in our regional malls do not improve sufficiently, tenants might be unable to pay their existing minimum rents or expense recovery charges, since these rents and charges would represent a higher percentage of their sales. If our tenants’ sales do not improve, new tenants would be less likely to be willing to pay minimum rents as high as they would otherwise pay. In addition, some of our leases are fixed-rate leases, and we may not be able to collect rent sufficient to meet our costs. Because substantially all of our income is derived from rentals of real property, our income and available cash would be adversely affected if a significant number of tenants are unable to meet their obligations.

 

The bankruptcy or store closures of national tenants, which are tenants with chains of stores in many of our properties, may adversely affect our revenues

 

Our leases generally do not contain provisions designed to ensure the creditworthiness of the tenant, and in recent years a number of companies in the retail industry, including some of our tenants, have declared bankruptcy or voluntarily closed certain of their stores. We may be unable to re-lease such space or to re-lease it on comparable or more favorable terms. As a result, the bankruptcy or closure of a national tenant may adversely affect our revenues.

 

Certain co-tenancy provisions in our lease agreements may result in reduced rent payments, which may adversely affect our operations and occupancy

 

Certain of our lease agreements include a co-tenancy provision which allows the tenant to pay a reduced rent amount and, in certain instances, terminate the lease, if we fail to maintain certain occupancy levels. Therefore, if occupancy or tenancy falls below certain thresholds, rents we are entitled to receive from our retail tenants could be reduced and may limit our ability to attract new tenants.

 

It may be difficult to sell real estate quickly, and transfer restrictions apply to some of our properties

 

Equity real estate investments are relatively illiquid, which may limit our ability to strategically change our portfolio promptly in response to changes in economic or other conditions. In addition, significant expenditures associated with each equity investment, such as mortgage payments, real estate taxes and maintenance costs, are generally not reduced when circumstances cause a reduction in income from the investment. If income from a property declines while the related expenses do not decline, our income and cash available to us would be adversely affected. If it becomes necessary or desirable for us to dispose of one or more of our mortgaged properties, we might not be able to obtain a release of the lien on the mortgaged property without payment of the associated debt. The foreclosure of a mortgage on a property or inability to sell a property could adversely affect the level of cash available to us.

 

Our business is dependent on perceptions by retailers and shoppers of the convenience and attractiveness of our retail properties, and our inability to maintain a positive perception may adversely affect our revenues

 

We are dependent on perceptions by retailers or shoppers of the safety, convenience and attractiveness of our retail properties. If retailers and shoppers perceive competing retail properties and other retailing options such as the internet to be more convenient or of a higher quality, our revenues may be adversely affected.

 

We redevelop and expand properties, and this activity is subject to risks due to various economic factors that are beyond our control

 

Capital investment to expand or redevelop our properties will be an ongoing part of our strategy going forward.  In connection with such projects, we will be subject to various risks, including the following:

 

·                  we may not have sufficient capital to proceed with planned redevelopment or expansion activities;

·                  we may abandon redevelopment or expansion activities already under way, which may result in additional cost recognition;

 

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·                  construction costs of a project may exceed original estimates or available financing, possibly making the project unfeasible or unprofitable;

·                  we may not be able to obtain zoning, occupancy or other required governmental permits and authorizations;

·                  occupancy rates and rents at a completed project may not meet projections and, therefore, the project may not be profitable; and

·                  we may not be able to obtain anchor store, mortgage lender and property partner approvals, if applicable, for expansion or redevelopment activities.

 

If redevelopment, expansion or reinvestment projects are unsuccessful, our investments in those projects may not be fully recoverable from future operations or sales.

 

We are in a competitive business

 

There are numerous shopping facilities that compete with our properties in attracting retailers to lease space. In addition, retailers at our properties face continued competition from retailers at other regional malls, outlet malls and other discount shopping centers, discount shopping clubs, catalog companies, and through internet sales and telemarketing. Competition of these types could adversely affect our revenues and cash flows.

 

We compete with other major real estate investors with significant capital for attractive investment opportunities. These competitors include REITs, investment banking firms and private institutional investors.

 

Our ability to realize our strategies and capitalize on our competitive strengths are dependent on our ability to effectively operate a large portfolio of high quality malls, maintain good relationships with our tenants and consumers, and remain well-capitalized, and our failure to do any of the foregoing could affect our ability to compete effectively in the markets in which we operate.

 

Some of our properties are subject to potential natural or other disasters

 

A number of our properties are located in areas which are subject to natural or other disasters, including hurricanes and earthquakes. Furthermore, many of our properties are located in coastal regions, and would therefore be affected by any future increases in sea levels. For example, certain of our properties are located in California or in other areas with higher risk of earthquakes.

 

Possible terrorist activity or other acts of violence could adversely affect our financial condition and results of operations

 

Future terrorist attacks in the United States or other acts of violence may result in declining economic activity, which could harm the demand for goods and services offered by our tenants and the value of our properties and might adversely affect the value of an investment in our securities. Such a resulting decrease in retail demand could make it difficult for us to renew or re-lease our properties at lease rates equal to or above historical rates. Terrorist activities or violence also could directly affect the value of our properties through damage, destruction or loss, and the availability of insurance for such acts, or of insurance generally, might be lower or cost more, which could increase our operating expenses and adversely affect our financial condition and results of operations. To the extent that our tenants are affected by future attacks, their businesses similarly could be adversely affected, including their ability to continue to meet obligations under their existing leases. These acts might erode business and consumer confidence and spending and might result in increased volatility in national and international financial markets and economies. Any one of these events might decrease demand for real estate, decrease or delay the occupancy of our new or redeveloped properties, and limit our access to capital or increase our cost of raising capital.

 

We may incur costs to comply with environmental laws

 

Under various federal, state or local laws, ordinances and regulations, a current or previous owner or operator of real estate may be required to investigate and clean up hazardous or toxic substances released at a property, and may be held liable to third parties for bodily injury or property damage (investigation and/or clean-up costs) incurred by the parties in connection with the contamination. These laws often impose liability without regard to whether the owner or operator knew of the release of the hazardous or toxic substances. The presence of contamination or the failure to remediate contamination may adversely affect the owner’s ability to sell, lease or borrow with respect to the real

 

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estate. Other federal, state and local laws, ordinances and regulations require abatement or removal of asbestos-containing materials in the event of demolition or certain renovations or remodeling, the cost of which may be substantial for certain redevelopments, and also govern emissions of and exposure to asbestos fibers in the air. Federal and state laws also regulate the operation and removal of underground storage tanks. In connection with the ownership, operation and management of certain properties, we could be held liable for the costs of remedial action with respect to these regulated substances or tanks or related claims.

 

Our properties have been subjected to varying degrees of environmental assessment at various times. However, the identification of new areas of contamination, a change in the extent or known scope of contamination or changes in cleanup requirements could result in significant costs to us.

 

Some potential losses are not insured

 

We carry comprehensive liability, fire, flood, earthquake, terrorism, extended coverage and rental loss and environmental insurance on all of our properties. We believe the policy specifications and insured limits of these policies are adequate and appropriate. There are, however, some types of losses, including lease and other contract claims, and certain environmental conditions not discovered within the applicable policy period, which generally are not insured. If an uninsured loss or a loss in excess of insured limits occurs, we could lose all or a portion of the capital we have invested in a property, as well as the anticipated future revenue from the property. If this happens, we might nevertheless remain obligated for any mortgage debt or other financial obligations related to the property.

 

Inflation may adversely affect our financial condition and results of operations

 

Should inflation increase in the future, this may have an impact on our consumers’ disposable income.  This may place temporary pressure on retailer sales and margins as their costs rise and we may be unable to pass the costs along to the consumer, which in turn may affect our ability to collect rents or renew spaces at higher overall rents.  In addition, inflation may also impact our overall costs of operation.  Many but not all of our leases have fixed amounts for recoveries and if our costs rise we may not be able to pass these costs on to our tenants.  However, over the long term, substantially all of our tenant leases contain provisions designed to partially mitigate the negative impact of inflation as discussed in Item 7 below, which discussion is incorporated by reference here.

 

Inflation also poses a risk to us due to the possibility of future increases in interest rates.  Such increases would adversely impact us due to our outstanding variable-rate debt as well as result in higher interest rates on new fixed-rate debt.  In certain cases, we have previously limited our exposure to interest rate fluctuations related to a portion of our variable-rate debt by the use of interest rate cap and swap agreements.  Such agreements, subject to current market conditions, allow us to replace variable-rate debt with fixed-rate debt in order to achieve our desired ratio of variable-rate to fixed rate date.  However, in an increasing interest rate environment the fixed rates we can obtain with such replacement fixed-rate cap and swap agreements or the fixed-rate on new debt will also continue to increase.

 

Organizational Risks

 

We are a holding company with no operations of our own and will depend on our subsidiaries for cash

 

Our operations are conducted almost entirely through our subsidiaries. Our ability to make dividends or distributions in connection with being a REIT is highly dependent on the earnings of and the receipt of funds from our subsidiaries through dividends or distributions, and our ability to generate cash to meet our debt service obligations is further limited by our subsidiaries’ ability to make such dividends, distributions or intercompany loans. Our subsidiaries’ ability to pay any dividends or distributions to us are limited by their obligations to satisfy their own obligations to their creditors and preferred stockholders before making any dividends or distributions to us. In addition, Delaware law imposes requirements that may restrict our ability to pay dividends to holders of our common stock.

 

We share control of some of our properties with other investors and may have conflicts of interest with those investors

 

For the Unconsolidated Properties, we are required to make decisions with the other investors who have interests in the relevant property or properties. For example, the approval of certain of the other investors is required with

 

10


 

respect to operating budgets and refinancing, encumbering, expanding or selling any of these properties, to make distributions, as well as to bankruptcy decisions related to the Unconsolidated Properties and related joint ventures. Also, the assets of Unconsolidated Properties may be used as collateral to secure loans of our joint venture partners, and the indemnity we may be entitled to from our joint venture partners could be worth less than the value of those assets. We might not have the same interests as the other investors in relation to these transactions. Accordingly, we might not be able to favorably resolve any of these issues, or we might have to provide financial or other inducements to the other investors to obtain a favorable resolution.

 

In addition, various restrictive provisions and rights apply to sales or transfers of interests in our jointly owned properties. As such, we might be required to make decisions about buying or selling interests in a property or properties at a time that is not desirable.

 

Bankruptcy of our joint venture partners could impose delays and costs on us with respect to the jointly owned retail properties

 

The bankruptcy of one of the other investors in any of our jointly owned shopping malls could materially and adversely affect the relevant property or properties. Pursuant to the Bankruptcy Code, we would be precluded from taking some actions affecting the estate of the other investor without prior court approval which would, in most cases, entail prior notice to other parties and a hearing. At a minimum, the requirement to obtain court approval may delay the actions we would or might want to take. If the relevant joint venture through which we have invested in a property has incurred recourse obligations, the discharge in bankruptcy of one of the other investors might result in our ultimate liability for a greater portion of those obligations than would otherwise be required.

 

We are impacted by tax-related obligations to some of our partners

 

We own certain properties through partnerships which have arrangements in place that protect the deferred tax situation of our existing third party limited partners. Violation of these arrangements could impose costs on us. As a result, we may be restricted with respect to decisions such as financing, encumbering, expanding or selling these properties.

 

Several of our joint venture partners are tax-exempt. As such, they are taxable to the extent of their share of unrelated business taxable income generated from these jointly owned properties. As the manager of these joint ventures, we have obligations to avoid the creation of unrelated business taxable income at these properties. As a result, we may be restricted with respect to decisions related to the financing of and revenue generation from these properties.

 

We may not be able to maintain our status as a REIT

 

We have elected to be treated as a REIT in connection with the filing of our tax return for 2010, retroactive to July 1, 2010.  It is possible that we may not meet the conditions for continued qualification as a REIT. In addition, once an entity is qualified as a REIT, the Internal Revenue Code (the “Code”) generally requires that such entity distribute at least 90% of its ordinary taxable income to shareholders and pay tax on or distribute 100% of its capital gains. To avoid current entity level U.S. federal income taxes, we expect to distribute 100% of our capital gains and ordinary income to shareholders annually.   For 2010 we made 90% of this distribution in common stock and 10% in cash.  For 2011, we made this distribution in the form of quarterly $.10 per share cash payments and the special dividend of the common stock of RPI.  There can be no assurances as to the allocation between cash and common stock of our future dividends.

 

If, with respect to any taxable year, we fail to maintain our qualification as a REIT, we would not be allowed to deduct distributions to shareholders in computing our taxable income and federal income tax. If any of our REIT subsidiaries fail to qualify as a REIT, such failure could result in our loss of REIT status. If we lose our REIT status, corporate level income tax, including any applicable alternative minimum tax, would apply to our taxable income at regular corporate rates. As a result, the amount available for distribution to holders of equity securities that would otherwise receive dividends would be reduced for the year or years involved, and we would no longer be required to make distributions. In addition, unless we were entitled to relief under the relevant statutory provisions, we would be disqualified from treatment as a REIT for four subsequent taxable years.

 

11


 

An ownership limit, certain anti-takeover defenses and applicable law may hinder any attempt to acquire us

 

Our amended and restated certificate of incorporation and amended and restated bylaws contain the following limitations.

 

The ownership limit.  Generally, for us to qualify as a REIT under the Code for a taxable year, not more than 50% in value of the outstanding shares of our capital stock may be owned, directly or indirectly, by five or fewer “individuals” at any time during the last half of such taxable year. Our charter provides that no one individual may own more than 9.9% of the outstanding shares of capital stock unless our board of directors provides a waiver from the ownership restrictions, which the Investment Agreements contemplate subject to the applicable Plan Sponsor making certain representations and covenants. The Code defines “individuals” for purposes of the requirement described above to include some types of entities. However, our certificate of incorporation also permits us to exempt a person from the ownership limit described therein upon the satisfaction of certain conditions which are described in our certificate of incorporation.

 

Selected provisions of our charter documents.  Our charter authorizes the board of directors:

·                  to cause us to issue additional authorized but unissued shares of common stock or preferred stock;

·                  to classify or reclassify, in one or more series, any unissued preferred stock; and

·                  to set the preferences, rights and other terms of any classified or reclassified stock that we issue.

 

Selected provisions of our bylaws.  Our amended and restated bylaws contain the following limitations:

·                  the inability of stockholders to act by written consent;

·                  restrictions on the ability of stockholders to call a special meeting without 15% or more of the voting power of the issued and outstanding shares entitled to vote generally in the election of directors; and

·                  rules regarding how stockholders may present proposals or nominate directors for election at stockholder meetings.

 

Selected provisions of Delaware law.  We are a Delaware corporation, and Section 203 of the Delaware General Corporation Law applies to us. In general, Section 203 prevents an “interested stockholder” (as defined below), from engaging in a “business combination” (as defined in the statute) with us for three years following the date that person becomes an interested stockholder unless one or more of the following occurs:

 

·                  before that person became an interested stockholder, our board of directors approved the transaction in which the interested stockholder became an interested stockholder or approved the business combination;

·                  upon completion of the transaction that resulted in the interested stockholder becoming an interested stockholder, the interested stockholder owned at least 85% of our voting stock outstanding at the time the transaction commenced, excluding for purposes of determining the voting stock outstanding (but not the outstanding voting stock owned by the interested stockholder) stock held by directors who are also officers of our company and by employee stock plans that do not provide employees with the right to determine confidentially whether shares held under the plan will be tendered in a tender or exchange offer; and

·                  following the transaction in which that person became an interested stockholder, the business combination is approved by our board of directors and authorized at a meeting of stockholders by the affirmative vote of the holders of at least two-thirds of our outstanding voting stock not owned by the interested stockholder.

 

The statute defines “interested stockholder” as any person that is the owner of 15% or more of our outstanding voting stock or is an affiliate or associate of us and was the owner of 15% or more of our outstanding voting stock at any time within the three-year period immediately before the date of determination.

 

Each item discussed above may delay, deter or prevent a change in control of our company, even if a proposed transaction is at a premium over the then current market price for our common stock. Further, these provisions may apply in instances where some stockholders consider a transaction beneficial to them. As a result, our stock price may be negatively affected by these provisions.

 

12


 

Our ownership may change as a result of the exercise of the outstanding warrants by the Plan Sponsors:

 

As of December 31, 2011, the effect of the exercise all of the outstanding warrants would increase the number of shares outstanding by 46,837,067 shares from 935,307,487 to 982,144,554.  Further, the exercise of the warrants would result in an increase in the number of shares outstanding of the ownership of the Plan sponsors and Blackstone from approximately 51% to 53%.

 

Bankruptcy Risks

 

Our actual financial results may vary significantly from the projections filed with the Bankruptcy Court

 

Statements required to be made in the disclosure statement filed with the Bankruptcy Court in connection with the Plan, contained projected financial information and estimates of value that demonstrated the feasibility of the Plan and our Debtors’ ability to continue operations upon their emergence from proceedings under the Bankruptcy Code. The information in the disclosure statement was prepared for the limited purpose of furnishing recipients with adequate information to make an informed judgment regarding acceptance of the Plan and was not prepared for the purpose of providing the basis for an investment decision relating to any of our securities. The projections and estimates of value, are expressly excluded from this Annual Report and should not be relied upon in any way or manner and should not be regarded for the purpose of this report as representations or warranties by us or any other person, as to the accuracy of such information or that any such projections or valuations will be realized. Those projections and estimates of value have not been, and will not be, updated on an ongoing basis, and they were not audited or reviewed by independent accountants. They reflected numerous assumptions concerning our anticipated future performance and with respect to prevailing and anticipated market and economic conditions that were, and remain, beyond our control. Projections and estimates of value are inherently subject to substantial and numerous uncertainties and to a wide variety of significant business, economic and competitive risks, and the assumptions underlying the projections and/or valuation estimates may be wrong in any material respect. Actual results may vary and may continue to vary significantly from those contemplated by the projections and/or valuation estimates. As a result, you should not rely on those projections and/or valuation estimates.

 

We cannot be certain that the Chapter 11 Cases will not adversely affect our operations going forward. Our bankruptcy may have affected our relationship with key employees, tenants, consumers, suppliers and communities, and our future success depends on our ability to maintain these relationships

 

Although we emerged from bankruptcy upon consummation of the Plan, we cannot assure you that our having been subject to bankruptcy protection will not adversely affect our operations going forward, including our ability to negotiate favorable terms from and maintain relationships with tenants, consumers, suppliers and communities. The failure to obtain such favorable terms and maintain such relationships could adversely affect our financial performance and our ability to realize our strategy.

 

There is a risk of investor influence over our company that may be adverse to our best interests and those of our other shareholders

 

The Plan Sponsors (excluding Fairholme), Blackstone and Texas Teachers still own, in the aggregate, a majority of the shares of our common stock (excluding shares issuable upon the exercise of Warrants) as of December 31, 2011. The effect of the exercise of the Warrants, representing 131,748,000 shares, or the election to receive future dividends in the form of common stock, would further increase their ownership.

 

Although the Plan Sponsors have entered into standstill agreements to limit their influence, the concentration of ownership of our outstanding equity in the Plan Sponsors may make some transactions more difficult or impossible without the support of the Plan Sponsors, or more likely with the support of the Plan Sponsors. The interests of any of the Plan Sponsors, any other substantial stockholder or any of their respective affiliates could conflict with or differ from our interests or the interests of the holders of our common stock. For example, the concentration of ownership held by the Plan Sponsors could delay, defer or prevent a change of control of our company or impede a merger, takeover or other business combination that may otherwise be favorable for us and the other stockholders. A Plan Sponsor, substantial stockholder or affiliate thereof may also pursue acquisition opportunities that may be complementary to our business, and as a result, those acquisition opportunities may not be available to us. We cannot assure you that the standstill agreements can fully protect against these risks.

 

13


 

As long as the Plan Sponsors and any other substantial stockholder own, directly or indirectly, a substantial portion of our outstanding shares, subject to the terms of the standstill agreements and were they to act in a coordinated manner, they would be able to exert significant influence over us, including:

 

·                  the composition of our board of directors, including the right of Brookfield Investor and Pershing Square to designate directors under the Investment Agreements, and, through it, any determination with respect to our business;

·                  direction and policies, including the appointment and removal of officers;

·                  the determination of incentive compensation, which may affect our ability to retain key employees;

·                  any determinations with respect to mergers or other business combinations;

·                  our acquisition or disposition of assets;

·                  our financing decisions and our capital raising activities;

·                  the payment of dividends;

·                  conduct in regulatory and legal proceedings; and

·                  amendments to our certificate of incorporation.

 

Some of our directors are involved in other businesses including, without limitation, real estate activities and public and/or private investments and, therefore, may have competing or conflicting interests with us and our board of directors has adopted resolutions renouncing any interest or expectation in any such business opportunities. In addition, our relationship agreement with Brookfield Asset Management Inc. contains significant exclusions from Brookfield’s obligation to present opportunities to us

 

Certain of our directors have and may in the future have interests in other real estate business activities, and may have control or influence over these activities or may serve as investment advisors, directors or officers. These interests and activities, and any duties to third parties arising from such interests and activities, could divert the attention of such directors from our operations. Additionally, certain of our directors are engaged in investment and other activities in which they may learn of real estate and other related opportunities in their non-director capacities. Our board of directors has adopted resolutions applicable to our directors that expressly provide, as permitted by Section 122(17) of the DGCL, that our non-employee directors are not obligated to limit their interests or activities in their non-director capacities or to notify us of any opportunities that may arise in connection therewith, even if the opportunities are complementary to or in competition with our businesses. Accordingly, we have, and investors in our common stock should have, no expectation that we will be able to learn of or participate in such opportunities.  Additionally, the relationship agreement with Brookfield Asset Management, Inc. contains significant exclusions from Brookfield Asset Management Inc.’s obligations to present opportunities to us.

 

Liquidity Risks

 

Our indebtedness could adversely affect our financial health and operating flexibility

 

As of December 31, 2011, we have approximately $20.04 billion aggregate principal amount of indebtedness outstanding at our pro rata share, net of noncontrolling interest, which includes approximately $2.78 billion of our share of unconsolidated debt. Our indebtedness may have important consequences to us and the value of our common stock, including:

 

·            limiting our ability to borrow significant additional amounts for working capital, capital expenditures, debt service requirements, execution of our business strategy or other purposes;

·            limiting our ability to use operating cash flow in other areas of our business or to pay dividends because we must dedicate a portion of these funds to service debt;

·            increasing our vulnerability to general adverse economic and industry conditions, including increases in interest rates, particularly given the portion of our indebtedness which bears interest at variable rates;

·            limiting our ability to capitalize on business opportunities and to react to competitive pressures and adverse changes in government regulation; and

·            giving secured lenders the ability to foreclose on our assets.

 

14


 

Our debt contains restrictions and covenants which may limit our ability to enter into or obtain funding for certain transactions or operate our business

 

The terms of certain of our debt will require us to satisfy certain customary affirmative and negative covenants and to meet financial ratios and tests, including ratios and tests based on leverage, interest coverage and net worth, or to satisfy similar tests as a precondition to incurring additional debt. We entered into a $750 million revolving credit facility in April 2011 containing such covenants and restrictions. In addition, certain of our indebtedness that was reinstated in connection with the Plan contains restrictions. The covenants and other restrictions under our debt agreements affect, among other things, our ability to:

 

·            incur indebtedness;

·            create liens on assets;

·            sell assets;

·            manage our cash flows;

·            transfer assets to other subsidiaries;

·            make capital expenditures;

·            engage in mergers and acquisitions; and

·            make distributions to equity holders, including holders of our common stock.

 

Further, our ability to incur debt under the indentures governing the Rouse notes which are expected to remain outstanding through November 2015 (with maturities from September 2012), is determined by the calculation of several covenant tests, including ratios of secured debt to gross assets and total debt to gross assets. We expect that Rouse and its subsidiaries may need to refinance project-level debt prior to 2015, and our ability to refinance such debt may be limited by these ratios and any potential non-compliance with the covenants may result in Rouse seeking other sources of capital, including investments from us, or may result in a default on the reinstated Rouse notes.  Our current plan with respect to the 2012 maturities in to pay down the amount with available capital.

 

In addition, our refinanced debt contains certain terms which include restrictive operational and financial covenants, restrictions on the distribution of cash flows from properties serving as collateral for the debt and, in certain instances, higher interest rates. These fees and cash flow restrictions may affect our ability to fund our on-going operations from our operating cash flows and we may be limited in our operating and financial flexibility and, thus, may be limited in our ability to respond to changes in our business or competitive activities.

 

We may not be able to raise capital through the sale of properties, including the strategic sale of non-core assets at prices we believe are appropriate

 

We desire to opportunistically sell non-core assets, such as stand-alone office buildings, community shopping centers and certain regional malls. Our ability to sell our properties to raise capital may be limited. The retail economic climate negatively affects the value of our properties and therefore reduces our ability to sell these properties on acceptable terms. Our ability to sell our properties could be affected by the availability of credit, which could increase the cost and difficulty for potential purchasers to acquire financing, as well as by the illiquid nature of real estate. For example, as part of our strategy to further delever our balance sheet in order to build liquidity and optimize our portfolio, we plan to reposition certain of our underperforming properties. If we cannot reposition these properties on terms that are acceptable to us, we may not be able to delever and realize our strategy of building liquidity and optimizing our portfolio. See “Business Risks” for a further discussion of the effects of the retail economic climate on our properties, as well as the illiquid nature of our investments in our properties.

 

We may not be able to refinance, extend or repay our Consolidated debt or our portion of indebtedness of our Unconsolidated Real Estate Affiliates

 

As of December 31, 2011, our proportionate share of total debt aggregated $20.04 billion consisting of our consolidated debt, net of noncontrolling interest, of $17.26 billion combined with our share of the debt of our Unconsolidated Real Estate Affiliates of $2.78 billion.  Of the amounts maturing in 2012, $1.68 billion is secured and $558.7 million is unsecured.  Of our proportionate share of total debt, $2.49 billion is recourse to the Company due to guarantees or other security provisions for the benefit of the note holder.  There can be no assurance that we,

 

15


 

or the joint venture, will be able to refinance or restructure this debt on acceptable terms or otherwise, or that operations of the properties or contributions by us and/or our partners will be sufficient to repay such loans.  If we or the joint venture cannot service this debt, we or the joint venture may have to deed property back to the applicable lenders.

 

Risks Related to the Distribution of HHC

 

We have indemnified HHC for certain tax liabilities

 

Pursuant to the Investment Agreements, we have 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 certain taxes related to sales in the Predecessor’s Master Planned Communities segment prior to March 31, 2010, in an amount up to $303.8 million as reflected in our consolidated financial statements as of December 31, 2011 and 2010. Under certain circumstances, the Company has also agreed to be responsible for interest or penalties attributable to such taxes in excess of $303.8 million.

 

FORWARD-LOOKING INFORMATION

 

We may make forward-looking statements in this Annual Report and in other reports which we file with the SEC.  In addition, our senior management might make forward-looking statements orally to analysts, investors, the media and others.

 

Forward-looking statements include:

 

·            Descriptions of plans or objectives of our management for, debt repayment or restructuring, modification, extension; strategic alternatives, including capital raises and asset sales; and future operations

·            Projections of our revenues, income, earnings per share, Funds From Operations (“FFO”), NOI, capital expenditures, income tax and other contingent liabilities, dividends, leverage, capital structure or other financial items

·            Forecasts of our future economic performance

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

 

In this Annual Report, for example, we make forward-looking statements discussing our expectations about:

 

·            Our ability to achieve cost savings, and renew and enter into leases on favorable terms

·            Our ability to reduce our debt or other liquidity goals within our expected time frame or at all

·            Recovery of the global economy, and our expectation that improvements in economic factors will drive improvements in our business

·            Our properties being located in favorable market areas with potential for future growth

·    Our ability to attract quality tenants and improve our occupancy cost, recovery revenue and occupancy rate

·            The redevelopment of our properties and expectations about current projects underway at our properties

 

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

 

Factors that could cause actual results to differ materially from those expressed or implied by the forward-looking statements include but are not limited to:

·            economic conditions, especially in the retail sector, which may have an adverse affect on our revenues and available cash, including our ability to lease and collect rent, bankruptcy or store closures of tenants, department store productivity, co-tenancy provisions and ability to attract new tenants;

·            our inability to buy and sell real estate quickly;

·            the fact that we invest primarily in regional malls and other properties, which are subject to a number of significant risks which are beyond our control;

 

16


 

·            risks associated with the redevelopment and expansion of properties;

·            the Company’s lack of an operating history of its own and dependence on its subsidiaries for cash;

·            the Company’s inability to qualify as a REIT or maintain its status of a REIT;

·            an attempt to acquire us may be hindered by an ownership limit, certain anti-takeover defenses and applicable law;

·            the possibility of significant variations from the projections filed in Bankruptcy Court and our actual financial results;

·            the possibility of the Plan Sponsors and other significant stockholders having substantial control of our company, whose interests may be adverse to ours or yours;

·            our indebtedness; and

·            the other risks described in “Item 1A Risk Factors” and other risks described from time to time in periodic and current reports that we file with the SEC.

 

 

ITEM 2.   PROPERTIES

 

Our investments in real estate as of December 31, 2011 consisted of our interests in the properties in our Retail and Other segment.  We generally own the land underlying the properties; however, at certain of our properties, all or part of the underlying land is owned by a third party that leases the land to us pursuant to a long-term ground lease.  The leases generally contain various purchase options and typically provide us with a right of first refusal in the event of a proposed sale of the property by the landlord.  Information regarding encumbrances on our properties is included in Schedule III of this Annual Report.

 

The following sets forth certain information regarding our retail properties including regional malls and strip centers as of December 31, 2011:

 

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CONSOLIDATED RETAIL PROPERTIES

 

Property
Count

 

Property Name

 

Location (1)

 

GGP
Ownership

 

Total GLA

 

Mall and
Freestanding
GLA

 

Retail
Percentage
Leased

 

Anchors

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1

 

Ala Moana Center (2)

 

Honolulu, HI

 

100

%

2,372,434

 

964,285

 

98.5

%

Macy’s, Neiman Marcus, Sears, Nordstrom

 

2

 

Apache Mall (2)

 

Rochester, MN

 

100

%

752,923

 

269,931

 

99.8

%

Herberger’s, JCPenney, Macy’s, Sears

 

3

 

Augusta Mall (2)

 

Augusta, GA

 

100

%

1,088,151

 

490,928

 

98.9

%

Dillard’s, JCPenney, Macy’s, Sears

 

4

 

Austin Bluffs Plaza

 

Colorado Springs, CO

 

100

%

109,402

 

109,402

 

48.4

%

—

 

5

 

Baskin Robbins

 

Idaho Falls, ID

 

100

%

1,814

 

1,814

 

100.0

%

—

 

6

 

Baybrook Mall

 

Friendswood (Houston), TX

 

100

%

1,243,183

 

424,346

 

100.0

%

Dillard’s, JCPenney, Macy’s, Sears

 

7

 

Bayside Marketplace (2)

 

Miami, FL

 

100

%

218,258

 

218,258

 

94.5

%

—

 

8

 

Beachwood Place

 

Beachwood, OH

 

100

%

913,729

 

334,149

 

96.8

%

Dillard’s, Nordstrom, Saks Fifth Avenue

 

9

 

Bellis Fair

 

Bellingham (Seattle), WA

 

100

%

776,788

 

338,464

 

98.2

%

JCPenney, Kohl’s, Macy’s, Macy’s Home Store, Sears, Target

 

10

 

Boise Plaza

 

Boise, ID

 

75

%

114,404

 

114,404

 

100.0

%

—

 

11

 

Boise Towne Square

 

Boise, ID

 

100

%

1,213,366

 

423,418

 

89.6

%

Dillard’s, JCPenney, Macy’s, Sears, Kohl’s

 

12

 

Brass Mill Center

 

Waterbury, CT

 

100

%

1,179,961

 

396,066

 

93.6

%

Burlington Coat Factory, JCPenney, Macy’s, Sears

 

13

 

Burlington Town Center (2)

 

Burlington, VT

 

100

%

354,394

 

153,024

 

89.6

%

Macy’s

 

14

 

Capital Mall

 

Jefferson City, MO

 

100

%

550,343

 

317,266

 

79.1

%

Dillard’s, JCPenney, Sears

 

15

 

Coastland Center (2)

 

Naples, FL

 

100

%

923,486

 

333,096

 

90.1

%

Dillard’s, JCPenney, Macy’s, Sears

 

16

 

Columbia Bank Drive Thru

 

Towson (Baltimore), MD

 

100

%

17,000

 

17,000

 

100.0

%

—

 

17

 

Columbia Mall

 

Columbia, MO

 

100

%

736,807

 

315,747

 

95.5

%

Dillard’s, JCPenney, Sears, Target

 

18

 

Columbiana Centre

 

Columbia, SC

 

100

%

825,984

 

267,007

 

98.1

%

Belk, Dillard’s, JCPenney, Sears

 

19

 

Coral Ridge Mall

 

Coralville (Iowa City), IA

 

100

%

1,076,055

 

524,890

 

96.0

%

Dillard’s, JCPenney, Sears, Target, Younkers

 

20

 

Coronado Center (2)

 

Albuquerque, NM

 

100

%

1,149,271

 

403,246

 

97.7

%

JCPenney, Kohl’s, Macy’s, Sears, Target

 

21

 

Crossroads Center

 

St. Cloud, MN

 

100

%

890,802

 

367,360

 

99.0

%

JCPenney, Macy’s, Sears, Target

 

22

 

Cumberland Mall

 

Atlanta, GA

 

100

%

1,032,110

 

384,126

 

94.3

%

Costco, Macy’s, Sears

 

23

 

Deerbrook Mall

 

Humble (Houston), TX

 

100

%

1,207,794

 

554,254

 

98.1

%

Dillard’s, JCPenney, Macy’s, Sears

 

24

 

Eastridge Mall WY

 

Casper, WY

 

100

%

567,494

 

277,698

 

76.5

%

JCPenney, Macy’s, Sears, Target

 

25

 

Eastridge Mall CA

 

San Jose, CA

 

100

%

1,300,572

 

628,311

 

98.2

%

JCPenney, Macy’s, Sears

 

26

 

Eden Prairie Center

 

Eden Prairie (Minneapolis), MN

 

100

%

1,135,549

 

404,046

 

98.5

%

Kohl’s, Sears, Target, Von Maur, JCPenney

 

27

 

Fallbrook Center (2)

 

West Hills (Los Angeles), CA

 

100

%

856,387

 

856,387

 

88.2

%

—

 

28

 

Fashion Place (2)

 

Murray, UT

 

100

%

1,083,735

 

435,201

 

97.7

%

Dillard’s, Nordstrom, Sears

 

29

 

Fashion Show

 

Las Vegas, NV

 

100

%

1,891,725

 

665,110

 

99.5

%

Bloomingdale’s Home, Dillard’s, Macy’s, Neiman Marcus, Nordstrom, Saks Fifth Avenue

 

 

18


 

Property
Count

 

Property Name

 

Location (1)

 

GGP
Ownership

 

Total GLA

 

Mall and
Freestanding
GLA

 

Retail
Percentage
Leased

 

Anchors

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

30

 

Foothills Mall

 

Fort Collins, CO

 

100

%

747,679

 

287,753

 

65.9

%

Macy’s, Sears

 

31

 

Fort Union (2)

 

Midvale (Salt Lake City), UT

 

100

%

32,968

 

32,968

 

56.2

%

—

 

32

 

Four Seasons Town Centre

 

Greensboro, NC

 

100

%

1,087,379

 

445,363

 

91.4

%

Belk, Dillard’s, JCPenney

 

33

 

Fox River Mall

 

Appleton, WI

 

100

%

1,213,642

 

618,728

 

92.7

%

JCPenney, Macy’s, Sears, Target, Younkers

 

34

 

Fremont Plaza (2)

 

Las Vegas, NV

 

100

%

54,076

 

54,076

 

73.7

%

—

 

35

 

Glenbrook Square

 

Fort Wayne, IN

 

100

%

1,226,628

 

449,758

 

95.9

%

JCPenney, Macy’s, Sears

 

36

 

Governor’s Square (2)

 

Tallahassee, FL

 

100

%

1,021,845

 

330,240

 

96.2

%

Dillard’s, JCPenney, Macy’s, Sears

 

37

 

Grand Teton Mall

 

Idaho Falls, ID

 

100

%

627,146

 

209,947

 

99.8

%

Dillard’s, JCPenney, Macy’s, Sears

 

38

 

Greenwood Mall

 

Bowling Green, KY

 

100

%

844,996

 

415,943

 

92.1

%

Dillard’s, JCPenney, Macy’s, Sears

 

39

 

Harborplace (2)

 

Baltimore, MD

 

100

%

149,066

 

149,066

 

90.9

%

—

 

40

 

Hulen Mall

 

Ft. Worth, TX

 

100

%

964,158

 

367,588

 

99.6

%

Dillard’s, Macy’s, Sears

 

41

 

Jordan Creek Town Center

 

West Des Moines, IA

 

100

%

1,307,241

 

724,314

 

99.4

%

Dillard’s, Younkers

 

42

 

Lakeside Mall

 

Sterling Heights, MI

 

100

%

1,507,867

 

487,149

 

81.1

%

JCPenney, Lord & Taylor, Macy’s, Macy’s Mens & Home, Sears

 

43

 

Lincolnshire Commons

 

Lincolnshire (Chicago), IL

 

100

%

118,562

 

118,562

 

100.0

%

—

 

44

 

Lockport Mall

 

Lockport, NY

 

100

%

90,734

 

90,734

 

100.0

%

—

 

45

 

Lynnhaven Mall

 

Virginia Beach, VA

 

100

%

1,291,445

 

640,053

 

98.9

%

Dillard’s, JCPenney, Macy’s

 

46

 

Mall Of Louisiana

 

Baton Rouge, LA

 

100

%

1,564,881

 

615,632

 

99.2

%

Dillard’s, JCPenney, Macy’s, Sears

 

47

 

Mall Of The Bluffs

 

Council Bluffs (Omaha, NE), IA

 

100

%

701,355

 

375,133

 

72.6

%

Dillard’s, Sears

 

48

 

Mall St. Matthews (2)

 

Louisville, KY

 

100

%

1,017,018

 

501,313

 

98.1

%

Dillard’s, Dillard’s Men’s & Home, JCPenney

 

49

 

Market Place Shopping Center

 

Champaign, IL

 

100

%

952,049

 

416,303

 

96.7

%

Bergner’s, JCPenney, Macy’s, Sears

 

50

 

Mayfair

 

Wauwatosa (Milwaukee), WI

 

100

%

1,517,129

 

615,230

 

99.1

%

Boston Store, Macy’s

 

51

 

Meadows Mall

 

Las Vegas, NV

 

100

%

945,518

 

308,665

 

98.5

%

Dillard’s, JCPenney, Macy’s, Sears

 

52

 

Mondawmin Mall

 

Baltimore, MD

 

100

%

436,442

 

371,125

 

92.1

%

—

 

53

 

Newgate Mall (2)

 

Ogden (Salt Lake City), UT

 

100

%

723,675

 

377,795

 

84.4

%

Dillard’s, Sears

 

54

 

North Point Mall

 

Alpharetta (Atlanta), GA

 

100

%

1,375,757

 

385,349

 

97.6

%

Dillard’s, JCPenney, Macy’s, Sears, Von Maur

 

55

 

North Star Mall

 

San Antonio, TX

 

100

%

1,245,713

 

516,391

 

99.5

%

Dillard’s, Macy’s, Saks Fifth Avenue, JCPenney

 

56

 

Northridge Fashion Center

 

Northridge (Los Angeles), CA

 

100

%

1,510,884

 

641,072

 

96.3

%

JCPenney, Macy’s, Sears

 

57

 

Northtown Mall

 

Spokane, WA

 

100

%

1,044,187

 

490,936

 

84.3

%

JCPenney, Kohl’s, Macy’s, Red Fox, Sears

 

58

 

Oak View Mall

 

Omaha, NE

 

100

%

862,348

 

258,088

 

93.8

%

Dillard’s, JCPenney, Sears, Younkers

 

59

 

Oakwood Center

 

Gretna, LA

 

100

%

791,436

 

277,408

 

98.0

%

Dillard’s, JCPenney, Sears

 

60

 

Oakwood Mall

 

Eau Claire, WI

 

100

%

812,588

 

397,744

 

93.2

%

JCPenney, Macy’s, Sears, Younkers

 

61

 

Oglethorpe Mall

 

Savannah, GA

 

100

%

943,564

 

406,980

 

95.6

%

Belk, JCPenney, Macy’s, Sears

 

62

 

Orem Plaza Center Street

 

Orem, UT

 

100

%

90,218

 

90,218

 

100.0

%

—

 

 

19


 

Property
Count

 

Property Name

 

Location (1)

 

GGP
Ownership

 

Total GLA

 

Mall and
Freestanding
GLA

 

Retail
Percentage
Leased

 

Anchors

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

63

 

Orem Plaza State Street

 

Orem, UT

 

100

%

27,240

 

27,240

 

52.5

%

—

 

64

 

Oxmoor Center (2)

 

Louisville, KY

 

100

%

924,802

 

357,592

 

95.8

%

Macy’s, Sears, Von Maur

 

65

 

Paramus Park

 

Paramus, NJ

 

100

%

755,035

 

295,978

 

94.7

%

Macy’s, Sears

 

66

 

Park City Center

 

Lancaster (Philadelphia), PA

 

100

%

1,441,169

 

541,272

 

93.0

%

Bon Ton, Boscov’s, JCPenney, Kohl’s, Sears

 

67

 

Park Place

 

Tucson, AZ

 

100

%

1,058,540

 

477,083

 

94.1

%

Dillard’s, Macy’s, Sears

 

68

 

Peachtree Mall

 

Columbus, GA

 

100

%

817,992

 

309,377

 

93.9

%

Dillard’s, JCPenney, Macy’s

 

69

 

Pecanland Mall

 

Monroe, LA

 

100

%

944,320

 

328,884

 

98.0

%

Belk, Dillard’s, JCPenney, Sears, Burlington Coat Factory

 

70

 

Pembroke Lakes Mall

 

Pembroke Pines (Fort Lauderdale), FL

 

100

%

1,132,073

 

350,798

 

93.4

%

Dillard’s, Dillard’s Men’s & Home, JCPenney, Macy’s, Macy’s Home Store, Sears

 

71

 

Pine Ridge Mall (2)

 

Pocatello, ID

 

100

%

636,213

 

198,226

 

74.8

%

JCPenney, Sears, Shopko

 

72

 

Pioneer Place (2)

 

Portland, OR

 

100

%

652,400

 

315,495

 

91.3

%

—

 

73

 

Plaza 800 (2)

 

Sparks (Reno), NV

 

100

%

72,431

 

72,431

 

83.9

%

—

 

74

 

Prince Kuhio Plaza (2)

 

Hilo, HI

 

100

%

503,836

 

317,416

 

96.9

%

Macy’s, Sears

 

75

 

Providence Place (2)

 

Providence, RI

 

100

%

1,263,412

 

749,721

 

96.3

%

JCPenney, Macy’s, Nordstrom

 

76

 

Provo Towne Centre (2)(3)

 

Provo, UT

 

75

%

792,056

 

300,337

 

88.4

%

Dillard’s, JCPenney, Sears

 

77

 

Red Cliffs Mall

 

St. George, UT

 

100

%

440,376

 

148,041

 

92.9

%

Dillard’s, JCPenney, Sears

 

78

 

Regency Square Mall

 

Jacksonville, FL

 

100

%

1,435,444

 

556,443

 

74.1

%

Belk, Dillard’s, JCPenney, Sears

 

79

 

Ridgedale Center

 

Minnetonka, MN

 

100

%

1,028,121

 

325,741

 

91.7

%

JCPenney, Macy’s, Sears

 

80

 

River Hills Mall

 

Mankato, MN

 

100

%

716,950

 

353,008

 

95.5

%

Herberger’s, JCPenney, Sears, Target

 

81

 

River Pointe Plaza

 

West Jordan (Salt Lake City), UT

 

100

%

224,250

 

224,250

 

96.6

%

—

 

82

 

Rivertown Crossings

 

Grandville (Grand Rapids), MI

 

100

%

1,179,948

 

544,323

 

92.5

%

JCPenney, Kohl’s, Macy’s, Sears, Younkers

 

83

 

Rogue Valley Mall

 

Medford (Portland), OR

 

100

%

638,396

 

281,412

 

90.8

%

JCPenney, Kohl’s, Macy’s, Macy’s Home Store

 

84

 

Salem Center (2)

 

Salem, OR

 

100

%

631,824

 

193,824

 

83.5

%

JCPenney, Kohl’s, Macy’s, Nordstrom

 

85

 

Sooner Mall

 

Norman, OK

 

100

%

472,721

 

205,816

 

100.0

%

Dillard’s, JCPenney, Sears

 

86

 

Southlake Mall

 

Morrow (Atlanta), GA

 

100

%

1,012,506

 

272,254

 

91.6

%

Macy’s, Sears

 

87

 

Southshore Mall (2)

 

Aberdeen, WA

 

100

%

273,289

 

139,514

 

62.6

%

JCPenney, Sears

 

88

 

Southwest Plaza

 

Littleton (Denver), CO

 

100

%

1,362,497

 

636,949

 

90.1

%

Dillard’s, JCPenney, Macy’s, Sears

 

89

 

Spokane Valley Mall (3)

 

Spokane, WA

 

75

%

857,890

 

346,758

 

93.5

%

JCPenney, Macy’s, Sears

 

90

 

Staten Island Mall

 

Staten Island, NY

 

100

%

1,277,367

 

523,186

 

96.6

%

Macy’s, Sears, JCPenney

 

91

 

Stonestown Galleria

 

San Francisco, CA

 

100

%

908,378

 

425,771

 

99.1

%

Macy’s, Nordstrom

 

92

 

The Crossroads

 

Portage (Kalamazoo), MI

 

100

%

770,563

 

267,603

 

96.2

%

Burlington Coat Factory, JCPenney, Macy’s, Sears

 

 

20


 

Property
Count

 

Property Name

 

Location (1)

 

GGP
Ownership

 

Total GLA

 

Mall and
Freestanding
GLA

 

Retail
Percentage
Leased

 

Anchors

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

93

 

The Gallery At Harborplace

 

Baltimore, MD

 

100

%

398,019

 

131,904

 

95.2

%

—

 

94

 

The Grand Canal Shoppes

 

Las Vegas, NV

 

100

%

498,258

 

463,844

 

98.2

%

—

 

95

 

The Maine Mall (2)

 

South Portland, ME

 

100

%

1,005,783

 

507,277

 

96.0

%

JCPenney, Macy’s, Sears

 

96

 

The Mall In Columbia

 

Columbia, MD

 

100

%

1,400,909

 

600,741

 

98.3

%

JCPenney, Lord & Taylor, Macy’s, Nordstrom, Sears

 

97

 

The Parks At Arlington

 

Arlington (Dallas), TX

 

100

%

1,510,366

 

697,564

 

100.0

%

Dillard’s, Jcpenney, Macy’s, Sears

 

98

 

The Shoppes At Buckland Hills

 

Manchester, CT

 

100

%

1,038,151

 

525,540

 

92.0

%

JCPenney, Macy’s, Macy’s Mens & Home, Sears

 

99

 

The Shoppes At The Palazzo

 

Las Vegas, NV

 

100

%

269,818

 

185,075

 

97.9

%

Barneys New York

 

100

 

The Shops At Fallen Timbers

 

Maumee, OH

 

100

%

590,280

 

328,778

 

96.3

%

Dillard’s, JCPenney

 

101

 

The Shops at La Cantera (3)

 

San Antonio, TX

 

75

%

1,279,056

 

582,386

 

98.1

%

Dillard’s, Macy’s, Neiman Marcus, Nordstrom

 

102

 

The Streets At Southpoint (3)

 

Durham, NC

 

94

%

1,332,425

 

606,078

 

99.2

%

Hudson Belk, JCPenney, Macy’s, Nordstrom, Sears

 

103

 

The Village of Cross Keys

 

Baltimore, MD

 

100

%

290,141

 

74,172

 

93.2

%

—

 

104

 

The Woodlands Mall

 

Woodlands (Houston), TX

 

100

%

1,355,051

 

572,662

 

99.6

%

Dillard’s, JCPenney, Macy’s, Sears

 

105

 

Town East Mall

 

Mesquite (Dallas), TX

 

100

%

1,225,608

 

416,222

 

99.2

%

Dillard’s, JCPenney, Macy’s, Sears

 

106

 

Tucson Mall (2)

 

Tucson, AZ

 

100

%

1,258,472

 

605,014

 

94.9

%

Dillard’s, JCPenney, Macy’s, Sears

 

107

 

Tysons Galleria

 

McLean (Washington, D.C.), VA

 

100

%

812,615

 

300,682

 

91.5

%

Macy’s, Neiman Marcus, Saks Fifth Avenue

 

108

 

University Crossing

 

Orem, UT

 

100

%

209,329

 

209,329

 

100.0

%

—

 

109

 

Valley Plaza Mall

 

Bakersfield, CA

 

100

%

1,175,121

 

518,153

 

98.8

%

JCPenney, Macy’s, Sears, Target

 

110

 

Visalia Mall

 

Visalia, CA

 

100

%

437,840

 

180,840

 

89.1

%

JCPenney, Macy’s

 

111

 

West Oaks Mall

 

Ocoee (Orlando), FL

 

100

%

1,066,134

 

411,345

 

73.6

%

Dillard’s, JCPenney, Sears

 

112

 

Westlake Center

 

Seattle, WA

 

100

%

102,859

 

102,859

 

90.4

%

—

 

113

 

White Marsh Mall

 

Baltimore, MD

 

100

%

965,750

 

439,740

 

95.3

%

JCPenney, Macy’s, Macy’s Home Store, Sears

 

114

 

Willowbrook

 

Wayne, NJ

 

100

%

1,523,081

 

493,021

 

98.7

%

Bloomingdale’s, Lord & Taylor, Macy’s, Sears

 

115

 

Woodbridge Center

 

Woodbridge, NJ

 

100

%

1,654,921

 

669,886

 

95.7

%

JCPenney, Lord & Taylor, Macy’s, Sears

 

116

 

Woodlands Village

 

Flagstaff, AZ

 

100

%

91,810

 

91,810

 

87.4

%

 

 

 

 

 

 

 

 

 

 

100,147,951

 

43,258,523

 

 

 

 

 

 

(1)  In certain cases, where a center is located in part of a larger regional metropolitain area, the metropolitain area is identified in parenthesis. 

(2)  A portion of the property is subject to a ground lease.

(3)  Owned in a joint venture with independent, noncontrolling interest.

 

21


 

PROPERTIES HELD FOR SALE (1)

 

Property
Count

 

Property Name

 

Location (2)

1

 

Grand Traverse

 

Traverse City, MI

 

ROUSE PROPERTIES, INC. (1)

 

Property
Count

 

Property Name

 

Location (2)

1

 

Animas Valley Mall

 

Farmington, NM

2

 

Bayshore Mall

 

Eureka, CA

3

 

Birchwood Mall

 

Port Huron (Detroit), MI

4

 

Cache Valley Mall

 

Logan, UT

5

 

Chula Vista Center

 

Chula Vista (San Diego), CA

6

 

Collin Creek

 

Plano, TX

7

 

Colony Square Mall

 

Zanesville, OH

8

 

Gateway Mall

 

Springfield, OR

9

 

Knollwood Mall

 

St. Louis Park (Minneapolis), MN

10

 

Lakeland Square

 

Lakeland (Orlando), FL

11

 

Lansing Mall

 

Lansing, MI

12

 

Mall St. Vincent

 

Shreveport-Bossier City, LA

13

 

Newpark Mall

 

Newark (San Francisco), CA

14

 

North Plains Mall

 

Clovis, NM

15

 

Pierre Bossier Mall

 

Bossier City (Shreveport), LA

16

 

Sikes Senter

 

Wichita Falls, TX

17

 

Silver Lake Mall

 

Coeur d’ Alene, ID

18

 

Southland Center

 

Taylor, MI

19

 

Southland Mall

 

Hayward, CA

20

 

Spring Hill Mall

 

West Dundee (Chicago), IL

21

 

Steeplegate Mall

 

Concord, NH

22

 

The Boulevard Mall

 

Las Vegas, NV

23

 

The Mall at Sierra Vista

 

Sierra Vista, AZ

24

 

Three Rivers Mall

 

Kelso, WA

25

 

Valley Hills Mall NC

 

Hickory, NC

26

 

Vista Ridge

 

Lewisville (Dallas), TX

27

 

Washington Park Mall

 

Bartlesville, OK

28

 

West Valley

 

Tracy (San Francisco), CA

29

 

Westwood Mall

 

Jackson, MI

30

 

White Mountain Mall

 

Rock Springs, WY

 

(1) Not included within the preceding table of Consolidated Retail Properties.

(2) In certain cases, where a center is located in part of a larger regional metropolitain area, the metropolitain area is identified in parenthesis.

 

22


 

UNCONSOLIDATED RETAIL PROPERTIES — DOMESTIC

 

Property
Count

 

Property Name

 

Location (1)

 

GGP
Ownership

 

Total GLA

 

Mall and
Freestanding
GLA

 

Retail
Percentage
Leased

 

Anchors

 

1

 

Alderwood

 

Lynnwood (Seattle), WA

 

50

%

1,283,496

 

577,598

 

98.1

%

JCPenney, Macy’s, Nordstrom, Sears

 

2

 

Altamonte Mall

 

Altamonte Springs (Orlando), FL

 

50

%

1,152,556

 

474,008

 

94.9

%

Dillard’s, JCPenney, Macy’s, Sears

 

3

 

Bridgewater Commons

 

Bridgewater, NJ

 

35

%

992,710

 

396,038

 

98.0

%

Bloomingdale’s, Lord & Taylor, Macy’s

 

4

 

Carolina Place

 

Pineville (Charlotte), NC

 

50

%

1,156,021

 

382,519

 

98.4

%

Belk, Dillard’s, JCPenney, Macy’s, Sears

 

5

 

Center Point Plaza (3)

 

Las Vegas, NV

 

50

%

144,635

 

70,299

 

98.2

%

—

 

6

 

Christiana Mall

 

Newark, DE

 

50

%

1,108,330

 

467,018

 

99.5

%

JCPenney, Macy’s, Nordstrom, Target

 

7

 

Clackamas Town Center

 

Happy Valley, OR

 

50

%

1,367,055

 

592,213

 

97.9

%

JCPenney, Macy’s, Macy’s Home Store, Nordstrom, Sears

 

8

 

First Colony Mall

 

Sugar Land, TX

 

50

%

1,121,123

 

502,075

 

98.1

%

Dillard’s, Dillard’s Men’s & Home, JCPenney, Macy’s

 

9

 

Florence Mall

 

Florence (Cincinnati, OH), KY

 

50

%

957,443

 

405,036

 

93.8

%

JCPenney, Macy’s, Macy’s Home Store, Sears

 

10

 

Galleria At Tyler (2)

 

Riverside, CA

 

50

%

1,025,419

 

557,211

 

96.7

%

JCPenney, Macy’s, Nordstrom

 

11

 

Glendale Galleria (2)

 

Glendale, CA

 

50

%

1,463,221

 

515,430

 

95.3

%

JCPenney, Macy’s, Nordstrom, Target

 

12

 

Kenwood Towne Centre (2)

 

Cincinnati, OH

 

50

%

1,157,137

 

515,816

 

97.2

%

Dillard’s, Macy’s, Nordstrom

 

13

 

Lake Mead & Buffalo (3)

 

Las Vegas, NV

 

50

%

150,948

 

64,991

 

96.6

%

—

 

14

 

Mizner Park (2)

 

Boca Raton, FL

 

50

%

519,293

 

177,330

 

85.1

%

—

 

15

 

Natick Mall

 

Natick (Boston), MA

 

50

%

1,188,247

 

477,027

 

95.7

%

JCPenney, Lord & Taylor, Macy’s, Sears

 

16

 

Natick West

 

Natick (Boston), MA

 

50

%

501,947

 

265,517

 

96.5

%

Neiman Marcus, Nordstrom

 

17

 

Neshaminy Mall

 

Bensalem, PA

 

50

%

1,019,284

 

412,295

 

94.3

%

Boscov’s, Macy’s, Sears

 

18

 

Northbrook Court

 

Northbrook (Chicago), IL

 

50

%

1,012,594

 

476,317

 

98.1

%

Lord & Taylor, Macy’s, Neiman Marcus

 

19

 

Oakbrook Center

 

Oak Brook (Chicago), IL

 

48

%

2,215,826

 

790,956

 

97.2

%

Bloomingdale’s Home, Lord & Taylor, Macy’s, Neiman Marcus, Nordstrom, Sears

 

20

 

Otay Ranch Town Center

 

Chula Vista (San Diego), CA

 

50

%

652,164

 

512,164

 

97.9

%

Macy’s

 

21

 

Owings Mills Mall

 

Owings Mills, MD

 

50

%

1,411,117

 

438,017

 

52.8

%

JCPenney, Macy’s

 

22

 

Park Meadows

 

Lone Tree, CO

 

35

%

1,576,098

 

753,098

 

99.0

%

Dillard’s, JCPenney, Macy’s, Nordstrom

 

23

 

Perimeter Mall

 

Atlanta, GA

 

50

%

1,568,651

 

515,377

 

91.8

%

Bloomingdale’s, Dillard’s, Macy’s, Nordstrom

 

24

 

Pinnacle Hills Promenade

 

Rogers, AR

 

50

%

979,219

 

360,344

 

98.0

%

Dillard’s, JCPenney, Target

 

25

 

Plaza Frontenac

 

St. Louis, MO

 

55

%

482,843

 

222,130

 

97.5

%

Neiman Marcus, Saks Fifth Avenue,

 

26

 

Quail Springs Mall

 

Oklahoma City, OK

 

50

%

1,138,802

 

450,949

 

99.3

%

Dillard’s, JCPenney, Macy’s, Sears

 

27

 

Riverchase Galleria

 

Hoover (Birmingham), AL

 

50

%

1,583,238

 

509,318

 

92.8

%

Belk, Belk Home Store, JCPenney, Macy’s, Sears

 

28

 

Saint Louis Galleria

 

St. Louis, MO

 

74

%

1,178,700

 

464,648

 

96.1

%

Dillard’s, Macy’s, Nordstrom

 

29

 

Stonebriar Centre

 

Frisco (Dallas), TX

 

50

%

1,651,695

 

786,503

 

99.3

%

Dillard’s, JCPenney, Macy’s, Nordstrom, Sears

 

30

 

The Oaks Mall

 

Gainesville, FL

 

51

%

897,759

 

339,892

 

97.2

%

Belk, Dillard’s, JCPenney, Macy’s, Sears

 

31

 

The Shoppes At River Crossing

 

Macon, GA

 

50

%

694,595

 

361,376

 

99.4

%

Belk, Dillard’s

 

32

 

Towson Town Center

 

Towson, MD

 

35

%

999,086

 

579,957

 

95.9

%

Macy’s, Nordstrom

 

33

 

The Trails Village Center (3)

 

Las Vegas, NV

 

50

%

174,644

 

—

 

95.4

%

—

 

34

 

Village Of Merrick Park (2)

 

Coral Gables, FL

 

40

%

838,019

 

406,756

 

87.3

%

Neiman Marcus, Nordstrom

 

35

 

Water Tower Place

 

Chicago, IL

 

52

%

774,812

 

389,875

 

97.3

%

Macy’s

 

36

 

Westroads Mall

 

Omaha, NE

 

51

%

1,070,253

 

540,851

 

97.0

%

JCPenney, Von Maur, Younkers

 

37

 

Whaler’s Village

 

Lahaina, HI

 

50

%

105,627

 

105,627

 

97.1

%

—

 

38

 

Willowbrook Mall

 

Houston, TX

 

50

%

1,399,439

 

415,067

 

97.2

%

Dillard’s, JCPenney, Macy’s, Macy’s Mens, Sears

 

 

 

 

 

 

 

 

 

38,714,046

 

16,271,643

 

 

 

 

 

 

(1)  In certain cases, where a center is located in part of a larger regional metropolitain area, the metropolitain area is identified in parenthesis.

(2)  A portion of the property is subject to a ground lease.

(3)  Third party managed strip center.

 

23


 

UNCONSOLIDATED RETAIL PROPERTIES — INTERNATIONAL

 

We also currently hold a non-controlling ownership interest in a public Brazilian real estate operating company, Aliansce Shopping centers, and a large regional mall (Shopping Leblon) in Rio de Janeiro.  On January 29, 2010, our Brazilian joint venture, Aliansce Shopping Centers S.A. (“Aliansce”), commenced trading on the Brazilian Stock Exchange, or BM&FBovespa, as a result of an initial public offering of Aliansce’s common shares in Brazil (the “Aliansce IPO”).  Our ownership interest in Aliansce was diluted from 49% to approximately 31% as a result of the stock sold in the Aliansce IPO.

 

Aliansce
Count

 

Property Name (1)

 

Location

 

GGP
Ownership (2)

 

Total GLA

 

Mall and
Freestanding
GLA

 

Retail
Percentage
Leased

 

1

 

Bangu Shopping

 

Rio de Janeiro, Rio de Janeiro

 

31

%

562,263

 

562,263

 

99.9

%

2

 

Boulevard Brasilia

 

Brasilia, Brazil

 

16

%

182,007

 

182,007

 

94.4

%

3

 

Boulevard Shopping Belem

 

Belem, Brazil

 

24

%

370,084

 

370,084

 

98.8

%

4

 

Boulevard Shopping Belo Horizonte

 

Belo Horizonte, Minas Gerais

 

22

%

463,020

 

463,020

 

91.6

%

5

 

Boulevard Shopping Campina Grande

 

Campina Grande, Paraiba

 

24

%

186,216

 

186,216

 

100.0

%

6

 

Boulevard Shopping Campos

 

Campose dos Goytacazes

 

31

%

204,514

 

204,514

 

95.4

%

7

 

Carioca Shopping

 

Rio de Janeiro, Rio de Janeiro

 

31

%

252,952

 

252,952

 

100.0

%

8

 

Caxias Shopping

 

Rio de Janeiro, Rio de Janeiro

 

28

%

275,556

 

275,556

 

98.6

%

9

 

Santana Parque Shopping

 

Sao Paulo, Sao Paulo

 

16

%

285,233

 

285,233

 

97.6

%

10

 

Shopping Grande Rio

 

Rio de Janeiro, Rio de Janeiro

 

8

%

395,789

 

395,789

 

98.7

%

11

 

Shopping Iguatemi Salvador

 

Salvador, Bahia

 

17

%

670,592

 

670,592

 

99.6

%

12

 

Shopping Santa Ursula

 

Ribeirao Preto, Brazil

 

12

%

249,712

 

249,712

 

93.6

%

13

 

Shopping Taboao

 

Taboao da Serra, Sao Paulo

 

25

%

383,195

 

383,195

 

99.9

%

14

 

SuperShopping Osasco

 

Sao Paulo, Sao Paulo

 

12

%

188,659

 

188,659

 

96.2

%

15

 

Via Parque Shopping

 

Rio de Janeiro, Rio de Janeiro

 

22

%

611,412

 

611,412

 

99.4

%

 

Other 

 

Property Name (1)

 

Location

 

GGP
Ownership (2)

 

Total GLA

 

Mall and
Freestanding
GLA

 

Retail
Percentage
Leased

 

16

 

Shopping Leblon

 

Rio de Janeiro, Rio de Janeiro

 

35

%

249,227

 

249,227

 

98.8

%

 

 

 

 

 

 

 

 

5,530,431

 

5,530,431

 

 

 

 

(1) GGP’s investment in Brazil is through an ownership interest in Aliansce and Luanda.  For these properties, only Mall and Freestanding GLA is presented.

(2) Reflects GGP’s effective economic ownership in the property.

 

24


 

MORTGAGE AND OTHER DEBT

 

The following table sets forth certain information regarding the mortgages and other indebtedness encumbering our properties and also our unsecured corporate debt.  Substantially all of the mortgage and property related debt is nonrecourse to us. The following table includes mortgage debt related to properties that were part of the RPI Spin-Off as such mortgage debt is included in our Consolidated Financial Statements.

 

Property (2)

 

Ownership

 

Proportionate
Balance (1)

 

Maturity
Year

 

Balloon Pmt
at Maturity

 

Coupon Rate

 

 

 

 

 

(Dollars in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fixed Rate

 

 

 

 

 

 

 

 

 

 

 

Consolidated Property Level

 

 

 

 

 

 

 

 

 

 

 

Provo Towne Center

 

75

%

$

39,282

 

2012

 

$

39,130

 

5.75

%

Spokane Valley Mall

 

75

%

39,282

 

2012

 

39,130

 

5.75

%

The Mall In Columbia

 

100

%

400,000

 

2012

 

400,000

 

5.83

%

The Shoppes at Buckland Hills

 

100

%

156,643

 

2012

 

154,958

 

4.92

%

The Streets at Southpoint

 

94

%

216,179

 

2012

 

215,066

 

5.36

%

Lakeland Square

 

100

%

51,877

 

2013

 

49,647

 

5.12

%

Meadows Mall

 

100

%

97,282

 

2013

 

93,631

 

5.45

%

Pembroke Lakes Mall

 

100

%

122,418

 

2013

 

118,449

 

4.94

%

Senate Plaza

 

100

%

11,345

 

2013

 

10,956

 

5.71

%

West Oaks

 

100

%

66,043

 

2013

 

63,539

 

5.25

%

Austin Bluffs Plaza

 

100

%

2,006

 

2014

 

1,812

 

4.40

%

Bayside Marketplace

 

100

%

76,714

 

2014

 

74,832

 

7.50

%

Bayside Marketplace (Bond)

 

100

%

3,575

 

2014

 

1,255

 

5.75

%

Crossroads Center (MN)

 

100

%

79,621

 

2014

 

74,943

 

4.73

%

Cumberland Mall

 

100

%

101,714

 

2014

 

99,219

 

7.50

%

Eden Prairie Mall

 

100

%

75,251

 

2014

 

69,893

 

4.67

%

Fashion Place

 

100

%

137,736

 

2014

 

130,124

 

5.30

%

Fort Union

 

100

%

2,446

 

2014

 

2,180

 

4.40

%

Governor’s Square

 

100

%

72,830

 

2014

 

71,043

 

7.50

%

Jordan Creek Town Center

 

100

%

175,309

 

2014

 

164,537

 

4.57

%

Lansing Mall

 

100

%

20,796

 

2014

 

16,593

 

9.35

%

Mall St. Matthews

 

100

%

136,845

 

2014

 

129,452

 

4.81

%

Newgate Mall

 

100

%

38,621

 

2014

 

36,028

 

4.84

%

Newpark Mall

 

100

%

64,943

 

2014

 

60,487

 

7.45

%

North Point Mall

 

100

%

206,221

 

2014

 

195,971

 

5.48

%

Oak View Mall

 

100

%

81,569

 

2014

 

79,569

 

7.50

%

Oakwood Center

 

100

%

46,777

 

2014

 

45,057

 

4.38

%

Orem Plaza Center Street

 

100

%

2,157

 

2014

 

1,948

 

4.40

%

Orem Plaza State Street

 

100

%

1,335

 

2014

 

1,206

 

4.40

%

Pecanland Mall

 

100

%

52,779

 

2014

 

48,586

 

4.28

%

Prince Kuhio Plaza

 

100

%

35,162

 

2014

 

32,793

 

3.45

%

River Pointe Plaza

 

100

%

3,341

 

2014

 

3,018

 

4.40

%

Rogue Valley Mall

 

100

%

25,171

 

2014

 

23,607

 

7.85

%

Southland Mall

 

100

%

75,706

 

2014

 

70,709

 

3.62

%

Steeplegate Mall

 

100

%

73,699

 

2014

 

68,272

 

4.94

%

The Gallery at Harborplace

 

100

%

61,712

 

2014

 

58,024

 

7.89

%

The Grand Canal Shoppes

 

100

%

371,808

 

2014

 

346,723

 

4.78

%

Town East Mall

 

100

%

97,981

 

2014

 

91,387

 

3.46

%

Tucson Mall

 

100

%

113,630

 

2014

 

106,556

 

4.26

%

University Crossing

 

100

%

4,877

 

2014

 

4,202

 

4.70

%

Visalia Mall

 

100

%

37,566

 

2014

 

34,264

 

3.78

%

West Valley Mall

 

100

%

50,770

 

2014

 

46,164

 

3.43

%

Woodbridge Center

 

100

%

195,752

 

2014

 

181,464

 

4.24

%

Woodlands Village

 

100

%

6,190

 

2014

 

5,518

 

4.40

%

10000 West Charleston

 

100

%

20,667

 

2015

 

19,016

 

7.88

%

Boise Towne Plaza

 

100

%

10,266

 

2015

 

9,082

 

4.70

%

Burlington Town Center

 

100

%

25,255

 

2015

 

23,360

 

5.03

%

Coastland Center

 

100

%

114,586

 

2015

 

110,204

 

7.50

%

Coral Ridge Mall

 

100

%

86,425

 

2015

 

83,120

 

7.50

%

Hulen Mall

 

100

%

107,168

 

2015

 

96,621

 

5.03

%

Lynnhaven Mall

 

100

%

225,246

 

2015

 

203,367

 

5.05

%

North Star Mall

 

100

%

219,329

 

2015

 

199,315

 

4.43

%

Paramus Park

 

100

%

98,860

 

2015

 

90,242

 

4.86

%

Peachtree Mall

 

100

%

85,146

 

2015

 

77,085

 

5.08

%

Regency Square Mall

 

100

%

87,195

 

2015

 

75,797

 

3.59

%

The Shops at La Cantera

 

75

%

123,760

 

2015

 

117,345

 

5.95

%

Baybrook Mall

 

100

%

165,081

 

2016

 

156,329

 

7.50

%

Bayshore Mall

 

100

%

29,355

 

2016

 

24,704

 

7.13

%

 

25


 

Property (2)

 

Ownership

 

Proportionate
Balance (1)

 

Maturity
Year

 

Balloon Pmt
at Maturity

 

Coupon Rate

 

 

 

 

 

(Dollars in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fixed Rate

 

 

 

 

 

 

 

 

 

 

 

Brass Mill Center

 

100

%

113,171

 

2016

 

93,347

 

4.55

%

Collin Creek

 

100

%

63,586

 

2016

 

54,423

 

6.78

%

Coronado Center

 

100

%

160,419

 

2016

 

135,704

 

5.08

%

Eastridge (WY)

 

100

%

37,150

 

2016

 

31,252

 

5.08

%

Glenbrook Square

 

100

%

168,254

 

2016

 

141,325

 

4.91

%

Harborplace

 

100

%

48,769

 

2016

 

44,547

 

5.79

%

Lakeside Mall

 

100

%

169,797

 

2016

 

144,451

 

4.28

%

Lincolnshire Commons

 

100

%

27,363

 

2016

 

24,629

 

5.98

%

Pine Ridge Mall

 

100

%

25,048

 

2016

 

21,071

 

5.08

%

Red Cliffs Mall

 

100

%

23,806

 

2016

 

20,026

 

5.08

%

Ridgedale Center

 

100

%

168,929

 

2016

 

149,112

 

4.86

%

The Maine Mall

 

100

%

205,128

 

2016

 

172,630

 

4.84

%

The Parks At Arlington

 

100

%

170,908

 

2016

 

161,847

 

7.50

%

Three Rivers Mall

 

100

%

20,393

 

2016

 

17,155

 

5.08

%

Valley Hills Mall

 

100

%

53,603

 

2016

 

46,302

 

4.73

%

Valley Plaza Mall

 

100

%

88,849

 

2016

 

75,790

 

3.90

%

Vista Ridge Mall

 

100

%

75,768

 

2016

 

64,660

 

6.87

%

Washington Park Mall

 

100

%

11,476

 

2016

 

9,988

 

5.35

%

White Marsh Mall

 

100

%

182,595

 

2016

 

163,196

 

5.62

%

Willowbrook Mall (NJ)

 

100

%

150,575

 

2016

 

129,003

 

6.82

%

Augusta Mall

 

100

%

170,419

 

2017

 

145,438

 

5.49

%

Beachwood Place

 

100

%

229,909

 

2017

 

190,177

 

5.60

%

Columbia Mall

 

100

%

87,982

 

2017

 

77,540

 

6.05

%

Eastridge (CA)

 

100

%

165,806

 

2017

 

143,626

 

5.79

%

Four Seasons Town Centre

 

100

%

92,882

 

2017

 

72,532

 

5.60

%

Knollwood Plaza

 

100

%

38,093

 

2017

 

31,113

 

5.35

%

Mall of Louisiana

 

100

%

225,321

 

2017

 

191,409

 

5.81

%

Market Place Shopping Center

 

100

%

103,623

 

2017

 

91,325

 

6.05

%

Oglethorpe Mall

 

100

%

134,184

 

2017

 

115,990

 

4.89

%

Sikes Senter

 

100

%

58,397

 

2017

 

48,194

 

5.20

%

Stonestown Galleria

 

100

%

211,249

 

2017

 

183,227

 

5.79

%

Tysons Galleria

 

100

%

248,636

 

2017

 

214,755

 

5.72

%

Ala Moana Center

 

100

%

1,300,157

 

2018

 

1,091,485

 

5.59

%

Fallbrook Center

 

100

%

83,129

 

2018

 

71,473

 

6.14

%

River Hills Mall

 

100

%

78,239

 

2018

 

67,269

 

6.14

%

Sooner Mall

 

100

%

58,679

 

2018

 

50,452

 

6.14

%

The Boulevard Mall

 

100

%

100,754

 

2018

 

72,881

 

4.27

%

The Gallery at Harborplace - Other

 

100

%

12,288

 

2018

 

190

 

6.05

%

10450 West Charleston Blvd

 

100

%

3,603

 

2019

 

53

 

6.84

%

Bellis Fair

 

100

%

93,882

 

2019

 

82,395

 

5.23

%

Park City Center

 

100

%

195,740

 

2019

 

172,224

 

5.34

%

Southlake Mall

 

100

%

97,935

 

2019

 

77,877

 

6.44

%

Deerbrook Mall

 

100

%

152,656

 

2021

 

127,934

 

5.25

%

Fashion Show - Other

 

100

%

5,537

 

2021

 

1,577

 

6.06

%

Fox River Mall

 

100

%

185,835

 

2021

 

156,373

 

5.46

%

Northridge Fashion Center

 

100

%

248,738

 

2021

 

207,503

 

5.10

%

Oxmoor Center

 

100

%

94,396

 

2021

 

79,217

 

5.37

%

Park Place

 

100

%

198,468

 

2021

 

165,815

 

5.18

%

Providence Place

 

100

%

378,364

 

2021

 

320,526

 

5.65

%

Rivertown Crossings

 

100

%

167,829

 

2021

 

141,356

 

5.52

%

Westlake Center - Land

 

99

%

2,413

 

2021

 

2,413

 

12.06

%

Boise Towne Square

 

100

%

139,650

 

2023

 

106,372

 

4.79

%

Staten Island Mall

 

100

%

271,541

 

2023

 

206,942

 

4.77

%

The Woodlands

 

100

%

268,047

 

2023

 

207,057

 

5.04

%

 

26


 

Property (2)

 

Ownership

 

Proportionate
Balance (1)

 

Maturity
Year

 

Balloon Pmt
at Maturity

 

Coupon Rate

 

 

 

 

 

(Dollars in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fixed Rate

 

 

 

 

 

 

 

 

 

 

 

Providence Place - Other

 

100

%

43,007

 

2028

 

2,381

 

7.75

%

Provo Town Center Land

 

75

%

2,250

 

2095

 

37

 

10.00

%

Total

 

 

 

$

13,046,525

 

 

 

$

11,465,115

 

5.44

%

 

 

 

 

 

 

 

 

 

 

 

 

Unconsolidated Property Level

 

 

 

 

 

 

 

 

 

 

 

Clackamas Town Center

 

50

%

$

100,000

 

2012

 

$

100,000

 

6.05

%

Florence Mall

 

71

%

64,700

 

2012

 

63,783

 

4.95

%

Glendale Galleria

 

50

%

179,986

 

2012

 

177,133

 

4.93

%

Oakbrook Center

 

47

%

95,376

 

2012

 

93,427

 

5.12

%

Pinnacle Hills Promenade

 

50

%

70,000

 

2012

 

70,000

 

5.57

%

Riverchase Galleria

 

50

%

152,500

 

2012

 

152,500

 

5.65

%

Stonebriar Mall

 

50

%

78,595

 

2012

 

76,785

 

5.23

%

The Oaks Mall

 

51

%

52,020

 

2012

 

52,020

 

5.74

%

Westroads Mall

 

51

%

45,518

 

2012

 

45,518

 

5.74

%

Altamonte Mall

 

50

%

75,000

 

2013

 

75,000

 

5.05

%

Bridgewater Commons

 

35

%

44,323

 

2013

 

43,143

 

5.27

%

Plaza Frontenac

 

55

%

28,967

 

2013

 

28,283

 

7.00

%

Towson Town Center

 

35

%

62,289

 

2013

 

61,393

 

3.86

%

Carolina Place

 

50

%

73,126

 

2014

 

68,211

 

4.60

%

Alderwood

 

50

%

127,700

 

2015

 

120,409

 

6.65

%

Quail Springs Mall

 

50

%

35,806

 

2015

 

33,432

 

6.74

%

Center Pointe Plaza

 

50

%

6,428

 

2017

 

5,570

 

6.31

%

Saint Louis Galleria

 

74

%

165,814

 

2017

 

139,096

 

4.86

%

First Colony Mall

 

50

%

92,500

 

2019

 

84,473

 

4.50

%

Natick Mall

 

50

%

225,000

 

2019

 

209,699

 

4.60

%

Christiana Mall

 

50

%

117,495

 

2020

 

108,697

 

5.10

%

Kenwood Towne Center

 

75

%

162,331

 

2020

 

137,191

 

5.37

%

Water Tower Place

 

52

%

101,466

 

2020

 

83,850

 

4.85

%

Northbrook Court

 

50

%

65,500

 

2021

 

56,811

 

4.25

%

Village of Merrick Park

 

40

%

73,417

 

2021

 

62,398

 

5.73

%

Whaler’s Village

 

50

%

40,000

 

2021

 

40,000

 

5.42

%

Willowbrook Mall (TX)

 

50

%

106,538

 

2021

 

88,965

 

5.13

%

Galleria at Tyler

 

50

%

99,881

 

2023

 

76,716

 

5.05

%

Lake Mead and Buffalo

 

50

%

2,539

 

2023

 

27

 

7.20

%

Park Meadows

 

35

%

126,000

 

2023

 

112,734

 

4.60

%

Trails Village Center

 

50

%

7,033

 

2023

 

78

 

8.21

%

Total

 

 

 

$

2,677,848

 

 

 

$

2,467,342

 

5.19

%

 

 

 

 

 

 

 

 

 

 

 

 

Total Fixed - Property Level

 

 

 

$

15,724,373

 

 

 

$

13,932,457

 

5.39

%

 

 

 

 

 

 

 

 

 

 

 

 

Consolidated Corporate

 

 

 

 

 

 

 

 

 

 

 

Rouse Bonds - 1995 Indenture (Sept 2012)

 

100

%

$

349,472

 

2012

 

$

349,472

 

7.20

%

Rouse Bonds - 1995 Indenture (Nov 2013)

 

100

%

91,786

 

2013

 

91,786

 

5.38

%

Rouse Bonds - 2006 Indenture (May 2013)

 

100

%

600,054

 

2013

 

600,054

 

6.75

%

Arizona Two (HHC)

 

100

%

25,248

 

2015

 

573

 

4.41

%

Rouse Bonds - 2010 Indenture (Nov 2015)

 

100

%

608,688

 

2015

 

608,688

 

6.75

%

Total

 

 

 

$

1,675,248

 

 

 

$

1,650,573

 

6.73

%

 

 

 

 

 

 

 

 

 

 

 

 

Total Fixed Rate Debt

 

 

 

$

17,399,621

 

 

 

$

15,583,030

 

5.52

%

 

 

 

 

 

 

 

 

 

 

 

 

Variable Rate

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Consolidated Property Level

 

 

 

 

 

 

 

 

 

 

 

Oakwood Center

 

100

%

$

46,777

 

2014

 

$

45,057

 

2.52

%

Animas Valley Mall

 

100

%

43,451

 

2016

 

38,604

 

3.52

%

Birchwood Mall

 

100

%

46,924

 

2016

 

41,689

 

3.52

%

Cache Valley Mall

 

100

%

28,623

 

2016

 

25,430

 

3.52

%

Colony Square Mall

 

100

%

28,212

 

2016

 

25,065

 

3.52

%

Columbiana Centre

 

100

%

103,800

 

2016

 

92,220

 

3.52

%

Foothills Mill

 

100

%

38,682

 

2016

 

34,367

 

3.52

%

Grand Teton Mall

 

100

%

50,733

 

2016

 

45,074

 

3.52

%

Mall At Sierra Vista

 

100

%

23,335

 

2016

 

20,732

 

3.52

%

Mall Of The Bluffs

 

100

%

25,909

 

2016

 

23,018

 

3.52

%

Mayfair

 

100

%

297,065

 

2016

 

263,926

 

3.52

%

Mondawmin Mall

 

100

%

72,556

 

2016

 

64,462

 

3.52

%

North Plains Mall

 

100

%

13,160

 

2016

 

11,692

 

3.52

%

North Town Mall

 

100

%

89,565

 

2016

 

79,573

 

3.52

%

Oakwood

 

100

%

81,591

 

2016

 

72,490

 

3.52

%

Pierre Bossier

 

100

%

41,439

 

2016

 

36,817

 

3.52

%

Pioneer Place

 

100

%

157,792

 

2016

 

140,189

 

3.52

%

Salem Center

 

100

%

37,416

 

2016

 

33,242

 

3.52

%

 

27


 

Property (2)

 

Ownership

 

Proportionate
Balance (1)

 

Maturity
Year

 

Balloon Pmt
at Maturity

 

Coupon Rate

 

 

 

 

 

(Dollars in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Variable Rate

 

 

 

 

 

 

 

 

 

 

 

Silver Lake Mall

 

100

%

13,078

 

2016

 

11,619

 

3.52

%

Southwest Plaza

 

100

%

106,375

 

2016

 

94,508

 

3.52

%

Spring Hill Mall

 

100

%

52,611

 

2016

 

46,742

 

3.52

%

The Shops at Fallen Timbers

 

100

%

46,992

 

2016

 

41,749

 

3.52

%

Westwood Mall

 

100

%

27,019

 

2016

 

24,005

 

3.52

%

White Mountain Mall

 

100

%

10,596

 

2016

 

9,414

 

3.52

%

Fashion Show

 

100

%

624,453

 

2017

 

538,366

 

3.27

%

The Shoppes At The Palazzo

 

100

%

241,327

 

2017

 

208,058

 

3.27

%

Total

 

 

 

$

2,349,481

 

 

 

$

2,068,108

 

3.41

%

 

 

 

 

 

 

 

 

 

 

 

 

Consolidated Corporate

 

 

 

 

 

 

 

 

 

 

 

Junior Subordinated Notes Due 2041

 

100

%

$

206,200

 

2041

 

$

206,200

 

Libor + 145 bps

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Variable Rate Debt

 

 

 

$

2,555,681

 

 

 

$

2,274,308

 

3.27

%

 

 

 

 

 

 

 

 

 

 

 

 

Total Fixed and Variable Rate Debt (3)

 

 

 

$

19,955,302

 

 

 

$

17,857,338

 

5.23

%

 

(1)

Proportionate share for Consolidated Properties presented exclusive of noncontrolling interests.

(2)

Excludes properties included in Discontinued Operations.

(3)

Excludes the $750M corporate revolver. As of December 31,2011, the corporate revolver was undrawn.

 

Anchors

 

Anchors have traditionally been a major component of a regional shopping center.  Anchors are frequently department stores whose merchandise appeals to a broad range of shoppers.  Anchors generally either own their stores, the land under them and adjacent parking areas, or enter into long-term leases at rates that are generally lower than the rents charged to mall store tenants.  We also typically enter into long-term reciprocal agreements with anchors that provide for, among other things, mall and anchor operating covenants and anchor expense participation.  The centers in the Retail Portfolio receive a smaller percentage of their operating income from anchors than from stores (other than anchors) that are typically specialty retailers who lease space in the structure including, or attached to, the primary complex of buildings that comprise a shopping center.  While the market share of many traditional department store anchors has been declining, strong anchors continue to play an important role in maintaining customer traffic and making the centers in the Retail Portfolio desirable locations for mall store tenants.

 

Regional Mall Lease Expiration Schedule

The following table indicates various lease expiration information related to the consolidated regional malls, community centers and office buildings owned and excludes properties transferred to RPI, properties classified as discontinued operations and properties held for disposition.  The table also excludes expirations and rental revenue from temporary tenants and tenants that pay percent in lieu rent.  See “Note 3 - Summary of Significant Accounting Policies” to the consolidated financial statements for our accounting policies for revenue recognition from our tenant leases and “Note 10 - Rentals Under Operating Leases” to the consolidated financial statements for the future minimum rentals of our operating leases for the consolidated properties.

 

 

 

 

 

 

 

% of Total

 

 

 

Total Area

 

 

 

Total Minimum

 

Total Minimum

 

Minimum Rent

 

Number of

 

Square Feet

 

Year

 

Rent

 

Rent Expiring

 

Expiring

 

Leases Expiring

 

Expiring

 

 

 

(in thousands)

 

(in thousands)

 

 

 

 

 

(in thousands)

 

2012

 

$

1,332,446

 

$

47,496

 

3.6

%

2,411

 

5,915

 

2013

 

1,263,874

 

43,496

 

3.4

%

1,693

 

5,690

 

2014

 

1,140,787

 

50,434

 

4.4

%

1,465

 

6,365

 

2015

 

1,001,340

 

54,780

 

5.5

%

1,330

 

6,138

 

2016

 

859,188

 

68,674

 

8.0

%

1,243

 

7,109

 

2017

 

710,134

 

55,657

 

7.8

%

1,027

 

6,095

 

2018

 

557,268

 

50,258

 

9.0

%

878

 

4,979

 

2019

 

428,102

 

37,808

 

8.8

%

589

 

4,323

 

2020

 

329,472

 

37,578

 

11.4

%

524

 

4,045

 

2021

 

221,938

 

44,703

 

20.1

%

570

 

3,113

 

Subsequent

 

425,348

 

321,704

 

75.6

%

559

 

11,475

 

 

28


 

Non-Retail Properties

 

See Item 1 “Narrative Description of Business” for information regarding our other properties (office, industrial and mixed-use buildings).

 

PART II

 

 

ITEM 6.  SELECTED FINANCIAL DATA

 

The following table sets forth selected financial data which is derived from, and should be read in conjunction with, the Consolidated Financial Statements and the related Notes and Management’s Discussion and Analysis of Financial Condition and Results of Operations contained in this Annual Report.  As the Investment Agreements and consummation of the Plan on November 9, 2010 (Note 2 and 4) triggered the application of acquisition accounting on the Effective Date, the results presented in the following table for the year ended December 31, 2010 have been presented separately for the Predecessor and Successor companies.  In addition, the distribution of the HHC Businesses on the Effective Date results in such businesses being classified as discontinued operations in the Predecessor financial information and being excluded in the Successor financial information.

 

29


 

 

 

Successor

 

Predecessor

 

 

 

 

 

Period from November

 

Period from January 1,

 

 

 

 

 

 

 

 

 

Year Ended

 

10, 2010 through

 

2010 through

 

Year Ended

 

Year Ended

 

Year Ended

 

 

 

December 31, 2011

 

December 31, 2010

 

November 9, 2010

 

December 31, 2009

 

December 31, 2008

 

December 31, 2007

 

 

 

(In thousands, except per share amounts)

 

OPERATING DATA

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenues

 

$

2,505,597

 

$

373,250

 

$

2,141,443

 

$

2,551,172

 

$

2,693,014

 

$

2,494,259

 

Depreciation and amortization

 

(899,584

)

(125,150

)

(507,886

)

(621,097

)

(634,166

)

(528,236

)

Provisions for impairment

 

(64,337

)

—

 

(4,516

)

(315,968

)

(58,207

)

(2,654

)

Other operating expenses

 

(981,011

)

(172,296

)

(808,740

)

(1,032,261

)

(953,456

)

(1,023,739

)

Interest expense, net

 

(889,670

)

(128,119

)

(1,181,533

)

(1,209,366

)

(1,230,210

)

(1,108,548

)

Warrant liability adjustment

 

55,042

 

(205,252

)

—

 

—

 

—

 

—

 

Reorganization items

 

—

 

—

 

(356,928

)

76,929

 

—

 

—

 

(Provision for) benefit from income taxes

 

(8,723

)

8,992

 

60,962

 

(5,693

)

(7,353

)

304,546

 

Equity in income (loss) of unconsolidated affiliates

 

2,898

 

(504

)

21,857

 

32,843

 

57,088

 

89,949

 

(Loss) income from continuing operations

 

(279,788

)

(249,079

)

(635,341

)

(523,441

)

(133,290

)

225,577

 

(Loss) income from discontinued operations

 

(27,093

)

(7,005

)

(577,067

)

(781,275

)

151,764

 

121,821

 

Allocation to noncontrolling interests

 

(6,291

)

1,868

 

26,650

 

20,027

 

(13,755

)

(73,756

)

Net (loss) income available to common stockholders

 

$

(313,172

)

$

(254,216

)

$

(1,185,758

)

$

(1,284,689

)

$

4,719

 

$

273,642

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic (loss) earnings per share:

 

 

 

 

 

 

 

 

 

 

 

 

 

Continuing operations

 

$

(0.30

)

$

(0.26

)

$

(1.96

)

$

(1.61

)

$

(0.52

)

$

0.79

 

Discontinued operations

 

(0.03

)

(0.01

)

(1.78

)

(2.50

)

0.54

 

0.63

 

Total basic (loss) earnings per share

 

$

(0.33

)

$

(0.27

)

$

(3.74

)

$

(4.11

)

$

0.02

 

$

1.42

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Diluted (loss) earnings per share:

 

 

 

 

 

 

 

 

 

 

 

 

 

Continuing operations

 

$

(0.34

)

$

(0.26

)

$

(1.96

)

$

(1.61

)

$

(0.52

)

$

0.79

 

Discontinued operations

 

(0.03

)

(0.01

)

(1.78

)

(2.50

)

0.54

 

0.63

 

Total diluted (loss) earnings per share

 

$

(0.37

)

$

(0.27

)

$

(3.74

)

$

(4.11

)

$

0.02

 

$

1.42

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Dividends declared per share (1), (2), (3)

 

$

0.83

 

$

0.38

 

$

—

 

$

0.19

 

$

1.50

 

$

1.85

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

REAL ESTATE PROPERTY NET OPERATING INCOME (4)

 

$

2,036,208

 

$

296,855

 

$

1,742,420

 

$

2,064,310

 

$

2,188,194

 

$

1,999,334

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

FUNDS FROM OPERATIONS (5)

 

$

908,153

 

$

(81,750

)

$

694,427

 

$

610,426

 

$

885,202

 

$

1,083,439

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

CASH FLOW DATA (6)

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating activities

 

$

502,802

 

$

(358,607

)

$

41,018

 

$

871,266

 

$

556,441

 

$

707,416

 

Investing activities

 

485,423

 

63,370

 

(89,160

)

(334,554

)

(1,208,990

)

(1,780,932

)

Financing activities

 

(1,436,664

)

(221,051

)

931,345

 

(51,309

)

722,008

 

1,075,911

 

 

 

 

As of December 31,

 

 

 

2011

 

2010

 

2009

 

2008

 

2007

 

 

 

(In thousands)

 

BALANCE SHEET DATA

 

 

 

 

 

 

 

 

 

 

 

Investment in real estate assets - cost

 

$

27,650,474

 

$

28,293,864

 

$

30,329,415

 

$

31,733,578

 

$

30,449,086

 

Total assets

 

29,518,151

 

32,367,379

 

28,149,774

 

29,557,330

 

28,814,319

 

Total debt

 

17,349,214

 

18,047,957

 

24,456,017

 

24,756,577

 

24,282,139

 

 

 

 

 

 

 

 

 

 

 

 

 

Redeemable preferred noncontrolling interests

 

120,756

 

120,756

 

120,756

 

120,756

 

223,677

 

Redeemable common noncontrolling interests

 

103,039

 

111,608

 

86,077

 

379,169

 

2,135,224

 

Stockholders’ equity

 

8,483,329

 

10,079,102

 

822,963

 

1,836,141

 

(314,305

)

 

(1)   The 2011 dividend includes the impact for the non-cash dividend distribution of RPI.

(2)   The 2010 dividend was paid 90% in Common Stock and 10% in cash in January 2011.

(3)   The 2009 dividend was paid 90% in Common Stock and 10% in cash in January 2010.

(4)  Real estate property net operating income (“NOI” as defined below) is presented at our prorata share and does not represent income from operations as defined by GAAP.

(5)   Funds From Operations (“FFO” as defined below) does not represent cash flows from operations as defined by GAAP.

(6)  Cash flow data only represents GGP’s consolidated cash flows as defined by GAAP and as such, operating cash flow does not include the cash received from our Unconsolidated Real Estate Affiliates, except to the extent of our cumulative share of GAAP earnings from such affiliates.

 

Basis of Presentation

 

The Company emerged from Chapter 11 on November 9, 2010, which we refer to as the Effective Date.  The structure of the Plan Sponsors’ investments triggered the application of the acquisition method of accounting.  The acquisition method of accounting was applied at the Effective Date and, therefore, the Consolidated Balance Sheets as of December 31, 2011 and December 31, 2010, the Consolidated Statement of Operations and Comprehensive Income (Loss) for the year ended December 31, 2011 and for the period from November 10, 2010 to December 31, 2010, and the Consolidated Statement of Cash Flows and the Consolidated Statement of Equity for the year ended December 31, 2011 and for the period from November 10, 2010 to December 31, 2010 reflect the revaluation of the Predecessor’s assets and liabilities to fair value as of the Effective Date.  Certain elements of our financial statements were significantly changed by these adjustments, such as depreciation which is calculated on revalued property and equipment and amortization of above and below market leases and other intangibles which is also calculated on revalued assets and liabilities.  The results for the Successor and Predecessor are based on different bases of accounting.  Due to the increased depreciation in operating expenses and the net decrease of revenues due to the amortization of above and below market leases and straight-line rent, certain line items of the Predecessor’s and Successor’s statements of operations are not directly comparable.

 

30


 

Non-GAAP Financial Measures

 

Real Estate Property Net Operating Income

 

We present NOI, as defined below, in this Annual Report as supplemental measures of our performance that are not required by, or presented in accordance with GAAP.  We believe that NOI is a useful supplemental measures of our operating performance.  NOI is defined as operating revenues (rental income, tenant recoveries and other income) less property and related expenses (real estate taxes, property maintenance costs, marketing, other property expenses and provision for doubtful accounts). Other real estate companies may use different methodologies for calculating NOI, and accordingly, our NOI may not be comparable to other real estate companies.

 

Because NOI excludes general and administrative expenses, interest expense, impairment or other non-recoverable development costs, depreciation and amortization, gains and losses from property dispositions, allocations to noncontrolling interests, reorganization items, strategic initiatives, provision for income taxes and discontinued operations, we believe that NOI provides performance measures that, when compared year over year, reflect the revenues and expenses directly associated with owning and operating regional shopping malls and the impact on operations from trends in occupancy rates, rental rates and operating costs.  These measures thereby provide an operating perspective not immediately apparent from GAAP operating income (loss) or net income (loss) attributable to common stockholders.  We use NOI to evaluate our operating performance on a property-by-property basis because NOI allows us to evaluate the impact that factors such as lease structure, lease rates and tenant base, which vary by property, have on our operating results, gross margins and investment returns.

 

In addition, management believes that NOI provides useful information to the investment community about our operating performance.  However, due to the exclusions noted above, NOI should only be used as supplemental measures of our financial performance and not as an alternative to GAAP operating income (loss) or net income (loss) attributable to common stockholders.

 

 

 

Successor

 

Predecessor

 

 

 

Year Ended

 

Period from November
10, 2010 through

 

Period from January 1,
2010 through

 

Year Ended

 

Year Ended

 

Year Ended

 

 

 

December 31, 2011

 

December 31, 2010

 

November 9, 2010

 

December 31, 2009

 

December 31, 2008

 

December 31, 2007

 

 

 

(In thousands)

 

Real Estate Property Net Operating Income:

 

$

2,036,208

 

$

296,855

 

$

1,742,420

 

$

2,064,310

 

$

2,188,194

 

$

1,999,334

 

Unconsolidated properties

 

(368,849

)

(53,958

)

(313,129

)

(366,644

)

(374,354

)

(337,933

)

Management fees and other corporate revenues

 

61,173

 

8,883

 

54,351

 

75,304

 

96,069

 

117,835

 

Property management and other costs

 

(188,022

)

(29,801

)

(137,108

)

(170,093

)

(180,627

)

(191,449

)

General and administrative

 

(30,866

)

(22,247

)

(24,392

)

(47,611

)

(54,441

)

(39,862

)

Strategic initiatives

 

—

 

—

 

—

 

(46,882

)

(2,951

)

—

 

Litigation benefit (provision)

 

—

 

—

 

—

 

—

 

57,131

 

(89,225

)

Provisions for impairment

 

(64,337

)

—

 

(4,516

)

(315,968

)

(58,207

)

(2,654

)

Depreciation and amortization

 

(899,584

)

(125,150

)

(507,886

)

(621,097

)

(634,166

)

(528,236

)

Noncontrolling interest in NOI of consolidated properties and other

 

14,942

 

1,222

 

10,561

 

10,527

 

10,537

 

11,820

 

Operating income

 

$

560,665

 

$

75,804

 

$

820,301

 

$

581,846

 

$

1,047,185

 

$

939,630

 

 

Funds From Operations

 

Consistent with real estate industry and investment community practices, we use FFO as a supplemental measure of our operating performance.  The National Association of Real Estate Investment Trusts (“NAREIT”) defines FFO as net income (loss) attributable to common stockholders computed in accordance with GAAP, excluding impairment write-downs on depreciable real estate, gains or losses from cumulative effects of accounting changes, extraordinary items and sales of properties, plus real estate related depreciation and amortization and after adjustments for the preceding items in our unconsolidated partnerships and joint ventures. We believe our definition of FFO is consistent with the definition of FFO as established by NAREIT.

 

We consider FFO a useful supplemental measure and a complement to GAAP measures because it facilitates an understanding of the operating performance of our properties.  FFO does not include real estate depreciation and amortization required by GAAP 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, we believe that FFO provides investors with a clearer view of our operating performance.  FFO is not a measurement of our financial performance under GAAP and should not be considered as an alternative to revenues, operating income (loss), net income (loss) attributable to common stockholders or any other performance measures derived in accordance with GAAP or as an alternative to cash flow from operating activities as a measure of our liquidity.

 

31


 

In order to provide a better understanding of the relationship between FFO and net income (loss) attributable to common stockholders, a reconciliation of FFO to net income (loss) attributable to common stockholders has been provided.

 

 

 

Successor

 

Predecessor

 

 

 

Year Ended

 

Period from November
10, 2010 through

 

Period from January 1,
2010 through

 

Year Ended

 

Year Ended

 

Year Ended

 

 

 

December 31, 2011

 

December 31, 2010

 

November 9, 2010

 

December 31, 2009

 

December 31, 2008

 

December 31, 2007

 

 

 

(In thousands)

 

FFO (1)

 

$

908,153

 

$

(81,750

)

$

694,427

 

$

610,426

 

$

885,202

 

$

1,083,439

 

Depreciation and amortization of capitalized real estate costs

 

(1,088,055

)

(152,285

)

(620,726

)

(753,041

)

(761,237

)

(662,088

)

Loss on dispositions

 

16,559

 

(4,976

)

(1,129,711

)

957

 

55,044

 

42,745

 

Noncontrolling interest in depreciation of consolidated joint ventures and other

 

9,339

 

382

 

4,129

 

3,684

 

3,330

 

3,199

 

Provision for impairment excluded from FFO

 

(63,421

)

—

 

(4,516

)

(155,000

)

(3,951

)

—

 

Provision for impairment excluded from FFO of discontinued operations

 

(4,096

)

—

 

(62,640

)

(876,810

)

(48,165

)

—

 

Redeemable noncontrolling interests

 

2,212

 

4,044

 

36,352

 

31,370

 

(927

)

(58,552

)

Depreciation and amortization of discontinued operations

 

(93,863

)

(19,631

)

(103,073

)

(146,275

)

(124,577

)

(135,101

)

Net (loss) income attributable to common stockholders

 

$

(313,172

)

$

(254,216

)

$

(1,185,758

)

$

(1,284,689

)

$

4,719

 

$

273,642

 

 

(1)  In 2011 NAREIT amended its definition of FFO to allow the exclusion of impairment write-downs on depreciable real estate.  As such, our FFO numbers have been conformed for all years presented.

 

ITEM 7.  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 Annual 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 – Introduction

 

Our primary business is to own, manage, lease and develop regional malls.  The substantial majority of our properties are located in the United States; however, we also own interests in regional malls and property management activities (through unconsolidated joint ventures) in Brazil.  As of December 31, 2011, we are the owner, either entirely or with joint venture partners, of 136 regional malls in 41 states (excluding properties held for sale and properties included in the RPI Spin-Off).  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.

 

On December 20, 2011, the Board of Directors approved RPI Spin-Off, which included a 30-mall wholly owned portfolio, in the form of a special dividend.  On January 12, 2012, we distributed our shares in RPI to the GGP shareholders of record as of the close of business on December 30, 2011.  GGP shareholders were entitled to receive approximately 0.0375 shares of RPI common stock held as of December 30, 2011.  Subsequent to the spin-off we retained an approximately 1% interest in RPI.  These properties have been reclassified to discontinued operations.

 

Overview

 

In 2011, we embarked on a strategy to execute transactions to achieve our long-term strategy of enhancing the quality of our portfolio and maximizing total returns for our shareholders.  We improved the overall quality of our portfolio by selling non-core assets and executing the completion of the RPI Spin-Off on January 12, 2012.  In addition, in certain circumstances, we sold or transferred properties to the mortgage holder of non-recourse debt through deed in lieu transactions which we believe were in the best interests of our shareholders.  During 2011, we successfully completed transactions promoting our long-term strategy as summarized below:

 

·                  decreased our borrowing costs and lengthened our overall remaining term-to-maturity by refinancing $2.6 billion of mortgage notes;

·                  approved the spin-off to our shareholders of 30 Class B regional malls in the form of a special taxable dividend of shares of RPI.  The transaction was consummated on January 12, 2012 and decreased our outstanding mortgage notes by $1.1 billion;

 

32


 

·                  sold, or transferred to the mortgage holder, whole or partial interests in approximately 11.5 million square feet of gross leasable area comprised of regional malls for $879.7 million including property level debt of $752.1 million;

·                  acquired whole or partial interests in approximately 2.45 million square feet of gross leasable area comprised of regional malls, anchor pads and big box stores, for approximately $168.4 million, including the assumption of $34.7 million of property-level debt;

·                  formed a joint venture partnership with Kimco Realty to redevelop Owings Mills Mall in Owings Mills, Maryland, a one-million square foot regional mall;

·                  opened 28 new anchor/big boxes totaling approximately 920,000 square feet and three department stores totaling 402,000 square feet; and

·                  formed a joint venture partnership with the Canada Pension Plan Investment Board (CPP) to purchase Plaza Frontenac in Frontenac (St. Louis), Missouri.  We contributed St. Louis Galleria to the joint venture and CPP contributed $83.0 million in cash.

 

As a result of our efforts in 2011, our portfolio now has sales in excess of $500 per square foot.  We will continue to evaluate other opportunities to improve our portfolio. Our total portfolio pro rata Core NOI increased 2.1% from $2.04 billion in 2010 to $2.08 billion in 2011 as a result of increased rents and recoveries as well as an increase in overage rents while expenses remained relatively flat.  Our Core FFO increased 9.3% from $777.1 million in 2010 to $849.0 million in 2011 (see below in “Core NOI and Core FFO Reconciliation” for definition of Core NOI and Core FFO). Core FFO increases are a result of the increases in Core NOI as well as a decrease in pro rata interest expense as a result of amortization of debt and improved terms of refinancing transactions completed in 2011.

 

Our key operational objectives include the following:

 

·                  increase the permanent occupancy of the regional mall portfolio, including converting temporary leases to permanent leases, which have longer contractual terms and significantly higher minimum rents and tenant recovery rates;

·                  lease vacant space;

·                  opportunistically acquire whole or partial interests in high-quality regional malls and anchor pads that improve the overall quality of our portfolio;

·                  commence several redevelopment projects within our portfolio;

·                  form joint ventures with institutional investors to acquire partial interests in regional malls, either currently owned by us or through a new acquisition;

·                  dispose of properties in our portfolio that do not fit within our long-term strategy, including certain of our office properties, retail strip centers and certain regional malls; and

·                  continue to refinance our maturing debt, and certain debt prepayable without penalty, with the goal of lowering our overall borrowing costs and managing future maturities.

 

On February 23, 2012 we signed a definitive agreement for the acquisition of 11 Sears anchor pads within our portfolio for $270 million.  This portfolio represents a significant opportunity to recapture valuable real estate within our portfolio and enhances several expansion and redevelopment opportunities, including re-tenanting the anchor space and adding new in-line GLA.  The acquisition is expected to close in the second quarter of 2012 subject to customary closing conditions.

 

We seek to increase long-term NOI growth through proactive management and leasing of our regional malls.  Our leasing strategy is to identify and provide the right stores and the appropriate merchandise for each of our regional malls. We believe that the most significant operating factor affecting incremental cash flow and NOI is increased rents earned from tenants at our properties.  These rental revenue increases are primarily achieved by:

 

·                  renewing expiring leases and re-leasing existing space at rates higher than expiring or existing rates;

·                  increasing occupancy at the properties so that more space is generating rent; and

·                  increased tenant sales in which we participate through overage rent.

 

33


 

Operating Metrics

 

Regional Mall Metrics

 

The following table summarizes selected operating statistics for our portfolio of regional malls:

 

 

 

Rents per square foot (2)

 

Percentage Leased (3)

 

Tenant Sales (4)

 

December 31, 2011 (1)

 

 

 

 

 

 

 

Consolidated Properties

 

$

65.12

 

94.30

%

$

492

 

Unconsolidated Properties

 

$

70.14

 

95.40

%

$

537

 

Total Domestic Portfolio

 

$

66.58

 

94.60

%

$

505

 

 

 

 

 

 

 

 

 

December 31, 2010 (1)

 

 

 

 

 

 

 

Consolidated Properties

 

$

63.63

 

93.10

%

$

458

 

Unconsolidated Properties

 

$

69.31

 

94.70

%

$

493

 

Total Domestic Portfolio

 

$

65.25

 

93.50

%

$

468

 

 

 

 

 

 

 

 

 

% Change

 

 

 

 

 

 

 

Consolidated Properties

 

2.34

%

129

bps

7.42

%

Unconsolidated Properties

 

1.20

%

74

bps

8.92

%

Total Domestic Portfolio

 

2.04

%

118

bps

7.91

%

 

(1) Data excludes RPI, a 30-mall wholly owned subsidiary of GGP which was spun-off on January 12, 2012, properties classified as discontinued operations, and International.

(2) Weighted average rent of mall stores less than 10,000 feet as of December 31, 2011 and 2010, which represents approximately 90% of our total square footage.  Rent is presented on a cash basis and consists of minimum rent, common area costs and real estate taxes.

(3) Represents contractual obligations for space in regional malls or predominantly retail centers and excludes traditional anchor stores.

(4) Comparative rolling twelve month tenant sales for mall stores less than 10,000 square feet, which represents approximately 90% of our total square footage.

 

Lease Spread Metrics

 

The following table summarizes signed leases that are scheduled to commence in 2012 compared to expiring leases for the prior tenant in the same suite:

 

 

 

Number
of Leases

 

Square
Feet

 

Term

 

Initial Rent Per
Square Foot(1)

 

Expiring Rent Per
Square Foot(2)

 

Average Rent
Spread(4)

 

New Leases(3)

 

523

 

1,758,290

 

8.3

 

$

65.15

 

$

60.09

 

$

5.06

 

Renewal Leases

 

1,154

 

3,847,028

 

5.2

 

$

54.77

 

$

55.18

 

$

(0.41

)

New/Renewal Leases

 

1,677

 

5,605,318

 

6.2

 

$

58.02

 

$

56.68

 

$

1.34

 

 

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

(2) Represents expiring rent at end of lease consisting of base minimum rent, common area costs and real estate taxes.

(3) Represents new leases where downtime between the new and old tenant in the suite was less than nine months.

(4) Dollar spread between initial rent at the time of rent commencement consisting of base minimum rent, common area costs, and real estate taxes and expiring rent.

 

34


 

Results of Operations

 

To provide a more meaningful comparison between annual periods, we have aggregated the Predecessor operations results for 2010 with the Successor 2010 results.

 

Year Ended December 31, 2011 and 2010

 

The following table is a breakout of the components of minimum rents:

 

 

 

Successor

 

Predecessor

 

 

 

 

 

 

 

 

 

Year Ended
December 31, 2011

 

Period from
November 10
through
December 31, 2010

 

Period from
January 1 through
November 9, 2010

 

Year Ended
December 31, 2010

 

$ Change

 

% Change

 

 

 

(In thousands)

 

Components of Minimum rents

 

 

 

 

 

 

 

 

 

 

 

 

 

Base minimum rents

 

$

1,594,677

 

$

239,845

 

$

1,322,008

 

$

1,561,853

 

$

32,824

 

2.1

%

Lease termination income

 

16,535

 

2,227

 

18,434

 

20,661

 

(4,126

)

(20.0

)

Straight-line rent

 

80,111

 

2,803

 

28,394

 

31,197

 

48,914

 

156.8

 

Above- and below-market tenant leases, net

 

(107,714

)

(12,283

)

5,109

 

(7,174

)

(100,540

)

1,401.4

 

Total Minimum rents

 

$

1,583,609

 

$

232,592

 

$

1,373,945

 

$

1,606,537

 

$

 (22,928

)

(1.4

)%

 

The base minimum rents remained relatively flat for the year ended December 31, 2011.  The changes in straight-line rent and above-and below-market leases, net reflect the impact of the application of acquisition accounting in the fourth quarter of 2010.  Lease termination income decreased due to fewer lease terminations.

 

Tenant recoveries decreased $1.3 million for the year ended December 31, 2011 primarily due to a decrease of $2.7 million in marketing and promotional revenue and a $0.7 million decrease in HVAC revenue as well as the impact of gross deals signed in prior years.

 

Overage rents increased $12.1 million for the year ended December 31, 2011 primarily due to increased tenant sales in 2011.

 

Management fees and other corporate revenues decreased $2.1 million for the year ended December 31, 2011 primarily due to a $1.4 million decrease in management fees resulting from the sale of our third-party management business in July 2010.  In addition, development fees and specialty lease fees decreased approximately $1.5 million for the year ended December 31, 2011 due to lower fees earned as a result of delays in projects at three properties owned by our Unconsolidated Real Estate Affiliates.

 

Other revenue increased $5.1 million primarily due to advertising and promotion revenue.

 

Real estate taxes increased $1.4 million for the year ended December 31, 2011 primarily due to the amortization of an intangible asset related to real estate taxes at one property, which was partially offset by a favorable real estate tax settlement that resulted in lower expense in 2010.

 

Marketing increased $1.6 million for the year ended December 31, 2011 primarily due to increased marketing efforts related to internal and external advertising, which was partially offset by a decrease in national advertising.

 

The provision for doubtful accounts decreased $7.7 million for the year ended December 31, 2011 primarily due to improved collections of outstanding accounts receivable during 2011.  In addition, the provision was higher in 2010 as the result of tenant bankruptcies and weaker economic conditions.

 

Property management and other costs increased $21.1 million for the year ended December 31, 2011 primarily due to a $12.4 million increase in severance as part of the realignment of the Company and a $9.2 million increase in incentive compensation.

 

General and administrative expenses decreased by $15.8 million for the year ended December 31, 2011 primarily due to the reversal of previously accrued bankruptcy costs and gains on bankruptcy settlements of $23.1 million, which were offset by a $13.0 million increase in stock based compensation due to an increase in executive stock grants issued in 2011.

 

35


 

Provision for impairment included charges of $64.3 million related to two operating properties and one non-income producing asset for the year ended December 31, 2011.  Based on the results of the Predecessor’s evaluations for impairment, we recognized impairment charges related to operating properties and properties under development of $4.5 million for the period from January 1, 2010 through November 9, 2010.

 

Depreciation and amortization increased $266.5 million for the year ended December 31, 2011 primarily due to the impact of the application of the acquisition accounting in the fourth quarter of 2010.

 

Interest expense decreased $419.7 million for the year ended December 31, 2011 primarily as we refinanced 20 properties, resulting in a lower debt balance and lower weighted average interest expense in 2011.

 

The Warrant liability adjustment was $55.0 million for the year ended December 31, 2011 due to the non-cash income recognized as a result of the change in the fair value of the Warrant liability (Note 9).  The decrease in the fair value was primarily due to the decrease our stock price and the change in implied volatility.

 

The provision for income taxes was $8.7 million for the year ended December 31, 2011 and the benefit for income taxes was $70.0 million for the year ended December 31, 2010.  The change was primarily due to changes in liabilities pursuant to uncertain tax positions.

 

The decrease in equity in income of Unconsolidated Real Estate Affiliates for the year ended December 31, 2011 was primarily due to a $47.3 million increase in amortization of intangible assets and liabilities, including above and below market lease amortization.  This is offset by $21.1 million related to the impairment of our investment in Turkey during the twelve months ended December 31, 2010.

 

Year Ended December 31, 2010 and 2009

 

The following table is a breakout of the components of minimum rents:

 

 

 

Successor

 

Predecessor

 

 

 

Predecessor

 

 

 

 

 

 

 

Period from
November 10
through
December 31, 2010

 

Period from
January 1
through
November 9, 2010

 

Year Ended
December 31, 2010

 

Year Ended
December 31, 2009

 

$ Change

 

% Change

 

 

 

(In thousands)

 

Components of Minimum rents

 

 

 

 

 

 

 

 

 

 

 

 

 

Base minimum rents

 

$

239,845

 

$

1,322,008

 

$

1,561,853

 

$

1,563,745

 

$

(1,892

)

(0.1

)%

Lease termination income

 

2,227

 

18,434

 

20,661

 

20,952

 

(291

)

(1.4

)

Straight-line rent

 

2,803

 

28,394

 

31,197

 

25,249

 

5,948

 

23.6

 

Above- and below-market tenant leases, net

 

(12,283

)

5,109

 

(7,174

)

9,128

 

(16,302

)

(178.6

)

Total Minimum rents

 

$

232,592

 

$

1,373,945

 

$

1,606,537

 

$

1,619,074

 

$

(12,537

)

(0.8

)%

 

The base minimum rents remained flat for the year ended December 31, 2010. The changes in straight-line rent and above- and below-market tenant leases reflect the impact of the application of the acquisition method of accounting in the fourth quarter of 2010.

 

Tenant recoveries decreased $18.2 million primarily as the result of the conversion of tenants to gross leases and lower recoveries related to common area maintenance, real estate taxes and electric utility expense as a result of tenant settlements for prior years that were delayed due to the Predecessor’s bankruptcy and $4.3 million resulting from lower marketing and promotional revenue.

 

Overage rents increased $6.1 million for the year ended December 31, 2010 primarily due to increased tenant sales in 2010.

 

Management fees and other corporate revenues decreased $12.1 million for the year ended December 31, 2010 primarily due to a $2.3 million decrease in lease fees, a $3.4 million decrease in development fees and a $3.0 million decrease in management fees.  Of the total decrease, $5.7 million resulted from the sale of our third-party management business in July 2010.

 

Property maintenance costs increased $7.7 million for the year ended December 31, 2010 primarily due to increased spending on mall upkeep, including labor costs and equipment and supplies.

 

36


 

Marketing increased $3.9 million for the year ended December 31, 2010 primarily due to increased spending on national projects such as our Shop ‘til You Rock, E-marketing and Shopper Rewards programs.

 

Other property operating costs decreased by $5.0 million for the year ended December 31, 2010 primarily due to reduced utility costs which were partially offset by increased labor costs.

 

The provision for doubtful accounts decreased $9.6 million for the year ended December 31, 2010 primarily due to higher allowances in 2009 related to tenant bankruptcies and weak economic conditions.

 

Property management and other costs decreased $3.2 million for the year ended December 31, 2010 primarily due to a $17.5 million decrease in compensation expense primarily resulting from a reduction in force in 2009 and the sale of our third party management business in July 2010.  The decrease was partially offset by an $11.7 million increase in professional services primarily due to an increase in expenses for leasing, brokerage fees and information technology.

 

General and administrative expenses decreased $47.9 million for the year ended December 31, 2010 due to a $2.9 million decrease in legal fees in 2010 and a $62.5 million decrease in professional fees related to the restructuring efforts incurred in 2009 prior to filing for Chapter 11 protection.  Similar fees incurred after filing for Chapter 11 protection are recorded as reorganization items for the period January 1, 2010 through November 9, 2010.  The decrease was partially offset by $11.0 million increase in executive compensation (primarily related to terminated employees) and a $1.1 million increase in fees paid to the board of directors.  In addition, we have incurred $5.6 million of professional and other costs related to our emergence from bankruptcy and implementation of the Plan since the Effective Date which could not be accrued as of the Effective Date or classified as reorganization items.

 

Based on the results of the Predecessor’s evaluations for impairment, we recognized impairment charges of $4.5 million for the year ended December 31, 2010 and $316.0 million for the year ended December 31, 2009 related to properties not classified as held for disposition.  Impairments on properties held for disposition are classified within discontinued operations.

 

Interest expense increased $100.9 million for the year ended December 31, 2010 primarily due to default interest that was incurred prior to the Effective Date, partially offset by reductions in 2010 interest expense on existing consolidated debt.

 

The Warrant liability adjustment was $205.3 million in the period November 10, 2010 through December 31, 2010 due to the non-cash expense recognized in the period from November 10, 2010 through December 31, 2010 due to the mark-to-market of the Warrant liability as of December 31, 2010, primarily due to the increase in price of GGP’s common stock since the Effective Date.

 

Income taxes resulted in a benefit from of $70.0 million for the year ended December 31, 2010 and a provision for of $5.7 million for the year ended December 31, 2009.  The change was primarily due to changes in liabilities pursuant to uncertain tax positions.

 

The decrease in equity in (loss) income of Unconsolidated Real Estate Affiliates for the year ended December 31, 2010 was primarily due to the following:

 

·                  ($21.1) million related to the impairments of our investment in Turkey;

·                  ($2.4) million of lower interest income on GGP/Homart II joint venture as the member loans were distributed to the members in December 2009;

·                  $9.7 million gain the Aliansce IPO; and

·                  $1.6 million reflects the disposition of our interest in Highland Mall.

 

Reorganization items under the bankruptcy filings are expense or income items that were incurred or realized by the Debtors as a result of the Chapter 11 Cases. These items include professional fees and similar types of expenses incurred directly related to the bankruptcy filings, gains or losses resulting from activities of the reorganization process, including gains related to recording the mortgage debt at fair value upon emergence from bankruptcy and interest earned on cash accumulated by the Debtors.  Such expenses increased in 2010 as the Plan was developed and finalized (Note 3).

 

37


 

Liquidity and Capital Resources

 

Our capital plan is to refinance our existing debt, lower our borrowing costs, manage our future maturities and provide the necessary capital to fund growth.  We believe that we currently have sufficient liquidity to satisfy all of our commitments in the form of $572.9 million of unrestricted cash and $750.0 million of available credit under our credit facility, as well as anticipated cash provided by operations. Our primary sources of cash to pay operating expenses, service debt, reinvest in properties, develop and redevelop properties and pay dividends include operating cash flows and borrowings under our revolving credit facility.

 

We have executed a refinancing strategy of extending the average debt maturity profile while reducing interest rates.  We will continue to modify our capital structure to provide the necessary financial flexibility to the Company.

 

During 2011, we executed the following refinancing and capital transactions (at our prorata share):

·                  refinanced $2.6 billion of mortgage notes and decreased our borrowing costs and lengthened our overall remaining term-to-maturity;

·                  sold, or transferred to the mortgage holder, whole or partial interests in approximately 11.5 million square feet of gross leasable area comprised of regional malls for $879.7 million including property level debt of $752.1 million; and

·                  improved the overall quality of our portfolio of assets through the approval of the RPI Spin-Off, making them more attractive to finance.

 

As of December 31, 2011 we have $9.4 billion of debt pre-payable at par.  We may pursue opportunities to refinance this debt at better terms.  Our long term goal is to improve our overall debt to EBIDTA and leverage ratios by improving operations, amortization of debt and refinancing debt at improved terms.

 

Our key financing and capital raising objectives include the following:

 

·              continue to refinance our maturing debt, and certain debt prepayable without penalty, with the goal of lowering our overall borrowing costs and managing future maturities’

 

·              raise capital by forming joint ventures with institutional investors to acquire partial interests in regional malls, either currently owned by us or through a new acquisition; and

 

·              dispose of properties in our portfolio that do not fit within our long-term strategy, including certain of our office properties, retail strips and regional malls.

 

We may also raise capital through public or private issuances of debt securities, preferred stock, common stock, common units of the Operating Partnership or other capital raising activities.

 

As of December 31, 2011, our proportionate share of total debt aggregated $20.04 billion consisting of our consolidated debt, net of noncontrolling interest, of $17.26 billion combined with our share of the debt of our Unconsolidated Real Estate Affiliates of approximately $2.78 billion.

 

The following table illustrates the scheduled loan maturities of our mortgages, notes and loans payable for our consolidated debt (net of noncontrolling interest) and unconsolidated debt at our proportionate share as of December 31, 2011. The table excludes debt included in liabilities on assets held for disposition.  Also, $206.2 million of callable subordinated notes are included in the $1.40 billion of consolidated debt that is due in 2012.  Although we do not expect the notes to be redeemed prior to maturity in 2041, the trust that owns the notes may exercise its right to redeem the notes prior to 2041. Of the $5.51 billion of consolidated debt that matures in the subsequent period, $2.17 billion matures in 2017 and $1.28 billion matures in 2018.

 

38


 

 

 

Consolidated (1)

 

Unconsolidated

 

 

 

(In thousands)

 

2012

 

$

1,403,956

 

$

831,166

 

2013

 

978,415

 

207,819

 

2014

 

2,160,268

 

68,211

 

2015

 

1,713,815

 

153,841

 

2016

 

2,649,077

 

—

 

Subsquent

 

5,511,364

 

1,206,305

 

 

(1) Excludes RPI, a 30 mall wholly owned subsidiary of GGP, which was spun-off on January 12, 2012.

 

Although, our primary uses of cash include payment of operating expenses, working capital, debt repayment, including principal and interest, reinvestment in properties, redevelopment of properties, tenant allowances, dividends and restructuring costs.  Our primary sources of cash include operating cash flow, including our share of cash flow produced by our Unconsolidated Real Estate Affiliates, and borrowings under our revolving credit facility.

 

We generally believe that we will be able to extend the maturity date or refinance the consolidated debt that is scheduled to mature in 2012.  We also believe that the joint ventures will be able to refinance the debt of our Unconsolidated Real Estate Affiliates that mature in 2012; 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.

 

We repaid $338.8 million of corporate recourse debt during the year ended December 31, 2011.  Following the repayment of these obligations, our only outstanding corporate debt is $206.2 million of Junior Subordinated Notes which are due in 2041 and $1.65 billion of bonds with maturity dates from 2012 through November 2015.

 

The following table is a summary of refinancings from January 1, 2011 through December 31, 2011:

 

2011 Refinancings (1)

 

Newly Issued
Mortgage Debt

 

Extinguished and/or
Refinanced Debt

 

Consolidated at share (in thousands)

 

$

3,241

 

$

2,622

 

Weighted average interest rate

 

5.06

%

5.83

%

 

(1)  Data excludes RPI, a 30-mall wholly owned subsidiary of GGP, which was spun-off on January 12, 2012.

 

Redevelopment and Acquisitions

 

We are currently redeveloping several consolidated and unconsolidated properties, with our joint venture partners, including Glendale Galleria and North Point.  These projects are expected to be completed at the end of 2012 and we expect to incur costs of approximately $68 million at our pro rata share.  We continue to evaluate a number of other redevelopment prospects and further enhance the quality of our assets in future periods.  As part of our overall strategy we may:

 

·              opportunistically acquire whole or partial interests in high-quality regional malls and anchor pads that improve the overall quality of our portfolio;

 

·              commence several redevelopment projects within our portfolio identified as providing compelling risk-adjusted returns on investment;

 

We may also purchase joint venture interests from our partners.

 

On February 23, 2012 we signed a definitive agreement for the acquisition of 11 Sears anchor pads within our portfolio for $270 million.  This portfolio represents a significant opportunity to recapture valuable real estate within our portfolio and enhances several expansion and redevelopment opportunities, including re-tenanting the anchor

 

39


 

space and adding new in-line GLA.  The acquisition is expected to close in the second quarter of 2012 subject to customary closing conditions.

 

Dividend

 

On November 7, 2011, the Board of Directors of the Company declared a quarterly common share dividend of $0.10 per share to shareholders of record at the close of business on December 30, 2011, payable on January 13, 2012.  In addition to the November 7, 2011 cash dividend declared, the Board of Directors approved the distribution of RPI on December 20, 2011 in the form of a special dividend for which GGP shareholders were entitled to receive approximately 0.0375 shares of RPI common stock held as of December 30, 2011.  RPI’s net equity was recorded as of December 31, 2011 as a dividend payable as substantive conditions for the spin-off were met as of December 31, 2011 and it was probable that the spin-off would occur. Accordingly, as of December 31, 2011, we have recorded a distribution payable of $526.3 million and a related decrease in retained earnings (accumulated deficit), of which $426.7 million relates to the special dividend, on our Consolidated Balance Sheet.  On January 12, 2012, we distributed our shares in RPI to the shareholders of record as of the close of business on December 30, 2011. This special dividend satisfied part of our 2011 and the 2012 REIT distribution requirements.

 

Share Repurchase

 

On May 4, 2011, our Board of Directors approved and we executed privately negotiated transactions with two financial institutions in which we agreed to purchase 30,585,957 shares of our common stock for $15.95 per share, which represents a 1% discount to the last reported price for our common stock on the New York Stock Exchange on the previous trading day.  On May 9, 2011, we paid a total purchase price of $487.8 million for the common stock.

 

On August 8, 2011, our Board of Directors authorized the Company to repurchase up to $250 million of its common stock.  During the year ended December 31, 2011, we have purchased 5,247,580 shares at a weighted average price of $12.53 per share for a total of $65.7 million.

 

There were no share repurchases during 2009 and 2010.

 

Summary of Cash Flows

 

Cash Flows from Operating Activities

 

Net cash provided by (used in) operating activities was $502.8 million for the year ended December 31, 2011, (358.6) million for the period from November 10, 2010 through December 31, 2010, $41.0 million for the period from January 1, 2010 through November 9, 2010, and $871.3 million for the year ended December 31, 2009.  Significant components of net cash provided by (used in) operating activities include:

 

·                  In 2011, the decrease in accounts payable and accrued expenses of $(135.4) million is primarily attributable to the $115.0 million payment of the KEIP (Note 3) during the first quarter of 2010, as well as payment of accrued bankruptcy-related claims, restructuring costs and real estate taxes;

·                  in 2010, a $(220.0) million payment by the Successor related to the Contingent Stock Agreement with HHC;

·                  a 2010 decrease in accounts payable and accrued expenses for the Successor of $(203.1) million primarily attributable to payment of accrued interest and liabilities previously stayed by the Successor’s Chapter 11 filing; and

·                  a 2009 increase in Accounts payable and accrued expenses of $355.0 million primarily attributable to the interest and liabilities stayed by the Predecessor’s Chapter 11 filing.

 

Cash Flows from Investing Activities

 

Net cash provided by (used in) investing activities was $485.4 million for the year ended December 31, 2011, $63.4 million for the period from November 10, 2010 through December 31, 2010, $(89.2) million for the period from January 1, 2010 through November 9, 2010 and ($334.6) million for the year ended December 31, 2009.  Significant components of net cash provided by (used in) investing activities include:

 

40


 

·                  In 2011, proceeds primarily from the sale of 15 investment properties of $627.9 million;

·                  2011 anchor acquisitions and additions and improvements to investment properties of $(253.3) million;

·                  2010 acquisitions of $(223.4) million by the Predecessor; and

·                  $(252.8) million in 2009 primarily related to additions and improvements to existing investment properties.

 

Cash Flows from Financing Activities

 

Net cash (used in) provided by financing activities was $(1.44) billion for the year ended December 31, 2011, $(221.1) million for the period from November 10, 2010 through December 31, 2010, $931.3 million for the period from January 1, 2010 through November 9, 2010 and $(51.3) million for the year ended December 31, 2009.  Significant components of net cash (used in) provided by financing activities include:

 

·                  In 2011,we made principal payments of ($2.80) billion and received proceeds of $2.15 billion related to our mortgages, notes and loans payable;

·                  The 2011 purchase and cancellation of common shares of ($553.5) million;

·                  in 2010, the Successor received proceeds from the issuance of common stock and warrants pursuant to the Plan of $2.15 billion;

·                  the Successor paid ($1.80) billion as the result of the clawback of common stock pursuant to the Plan in 2010;

·                  in 2010, the Predecessor made principal payments of ($2.26) billion on mortgages, notes and loans payable pursuant to the Plan; and

·                  in 2010, the Predecessor received $3.37 billion proceeds from the issuance of common stock and warrants pursuant to the Plan.

 

Contractual Cash Obligations and Commitments

 

The following table aggregates our subsequent contractual cash obligations and commitments as of December 31, 2011:

 

 

 

2012

 

2013

 

2014

 

2015

 

2016

 

Subsequent /
Other (7)

 

Total

 

 

 

(In thousands)

 

Long-term debt-principal (1)

 

$

1,557,948

 

$

1,379,261

 

$

2,723,520

 

$

2,028,552

 

$

3,411,017

 

$

6,071,419

 

$

17,171,717

 

Held for sale debt principal (2)

 

81,398

 

—

 

—

 

—

 

—

 

—

 

81,398

 

Interest payments (3)

 

886,884

 

791,658

 

655,970

 

578,761

 

436,053

 

851,263

 

4,200,589

 

Held for sale interest payments

 

468

 

—

 

—

 

—

 

—

 

—

 

468

 

Retained debt-principal

 

37,745

 

1,277

 

1,363

 

1,440

 

1,521

 

87,272

 

130,618

 

Ground lease payments

 

6,520

 

6,629

 

6,663

 

6,674

 

6,558

 

223,767

 

256,811

 

Purchase obligations (4)

 

108,645

 

—

 

—

 

—

 

—

 

—

 

108,645

 

Junior Subordinated Notes(5)

 

206,200

 

—

 

—

 

—

 

—

 

—

 

206,200

 

Tax indemnification liability

 

—

 

—

 

—

 

—

 

—

 

303,750

 

303,750

 

Uncertainty in income taxes, including interest (6)

 

—

 

—

 

—

 

—

 

—

 

6,847

 

6,847

 

Other long-term liabilities (7)

 

—

 

—

 

—

 

—

 

—

 

—

 

—

 

Total

 

$

2,885,808

 

$

2,178,825

 

$

3,387,516

 

$

2,615,427

 

$

3,855,149

 

$

7,544,318

 

$

22,467,043

 

 

(1)          Excludes $28.9 million of non-cash debt market rate adjustments.

 

(2)          Held for sale debt principal is included in liabilities held for disposition on our Consolidated Balance Sheets.  Excludes $8.9 million of non-cash debt market rate adjustments.

 

(3)          Based on rates as of December 31, 2011. Variable rates are based on a LIBOR rate of 0.28%. Excludes interest payments related to market rate adjustments.

 

(4)          Reflects accrued and incurred construction costs payable.  Routine trade payables have been excluded.

 

(5)          Although we do not expect the notes to be redeemed prior to maturity in 2041, the trust that owns the notes may exercise its right to redeem the notes prior to maturity.  As a result, the notes are included as amounts due in 2012.

 

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(6)          The remaining uncertainty in income tax liability for which reasonable estimates about the timing of payments cannot be made is disclosed within the Subsequent/Other column.

 

(7)          Other long-term liabilities related to ongoing real estate taxes have not been included in the table as such amounts depend upon future applicable real estate tax rates.  Real estate tax expense was $230.9 million in 2011, $229.5 million in 2010 and $228.8 million in 2009.

 

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 (reference is made to Item 3 above, which description is incorporated into this response).

 

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 for the years ended December 31, 2011 and 2010:

 

 

 

Successor

 

Predecessor

 

 

 

Year Ended
December 31,

 

Period from
November 10,
2010 through
December 31,

 

Period from
January 1,
2010 through
November 9,

 

Year Ended
December 31,

 

 

 

2011

 

2010

 

2010

 

2009

 

 

 

(In thousands)

 

Contractual rent expense, including participation rent

 

$

14,270

 

$

1,990

 

$

9,351

 

$

11,683

 

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

 

8,411

 

1,179

 

4,725

 

6,236

 

 

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 disclosures regarding our ability to remain qualified as a REIT.

 

Seasonality

 

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

 

Use of Estimates

 

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

 

Critical Accounting Policies

 

Critical accounting policies are those that are both significant to the overall presentation of our financial condition and results of operations and require management to make difficult, complex or subjective judgments.  Our critical accounting policies are those applicable to the following:

 

Acquisition Adjustments

 

The acquisition method of accounting has been applied to the assets and liabilities of the Successor to reflect the Plan after giving effect to the HHC distribution. The acquisition method of accounting adjustments recorded on the Effective Date reflects the allocation of the estimated purchase price as presented in Note 4. Such adjustments

 

42


 

reflect the amounts required to adjust the carrying values of our assets and liabilities, after giving effect to the transactions pursuant to the Plan after giving effect to the HHC distribution, to the fair values of such remaining assets and liabilities and redeemable non-controlling interests, with the offset to common equity, as provided by the acquisition method of accounting.

 

Impairment - Operating properties

 

We review our consolidated real estate assets, including operating properties and developments in progress, for potential impairment indicators whenever events or changes in circumstances indicate that the carrying amount may not be recoverable.

 

Impairment indicators for our retail and other segment are assessed separately for each property and include, but are not limited to, significant decreases in real estate property net operating income, significant occupancy percentage changes, debt maturities and management’s intent with respect to the assets.

 

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

 

If an indicator of potential impairment exists, the asset is tested for recoverability by comparing its carrying amount to the estimated future undiscounted cash flows.  The cash flow estimates used both for determining recoverability and estimating fair value are inherently judgmental and reflect current and projected trends in rental, occupancy and capitalization rates, and estimated holding periods for the applicable assets.  Although the carrying amount may exceed the estimated fair value of certain assets, 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 asset 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 asset, is depreciated over the remaining useful life of the asset.

 

Impairment - Investment in Unconsolidated Real Estate Affiliates

 

According to the guidance related to the equity method of accounting for investments, a series of operating losses of an investee or other factors may indicate that an other-than-temporary decrease in value of our investment in the Unconsolidated Real Estate Affiliates has occurred. The investment in each of the Unconsolidated Real Estate Affiliates is evaluated periodically and as deemed necessary 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 impairments with respect to the carrying values of our unconsolidated real estate affiliates.

 

Recoverable amounts of receivables

 

We make periodic assessments of the collectibility of receivables (including those resulting from the difference between rental revenue recognized and rents currently due from tenants).  The receivable analysis places particular emphasis on past-due accounts and considers the nature and age of the receivables, the payment history and financial condition of the payee, the basis for any disputes or negotiations with the payee and other information which may impact collectibility.  For straight-line rents receivable, the analysis considers the probability of collection of the unbilled deferred rent receivable given our experience regarding such amounts.

 

Capitalization of development and leasing costs

 

We capitalize the costs of development and leasing activities of our properties.  These costs are incurred both at the property location and at the regional and corporate office levels.  The amount of capitalization depends, in part, on the identification and justifiable allocation of certain activities to specific projects and leases.  Differences in methodologies of cost identification and documentation, as well as differing assumptions as to the time incurred on projects, can yield significant differences in the amounts capitalized and, as a result, the amount of depreciation recognized.

 

43


 

Revenue recognition and related matters

 

Minimum rent revenues are recognized on a straight-line basis over the terms of the related leases.  Minimum rent revenues also include amounts collected from tenants to allow the termination of their leases prior to their scheduled termination dates and accretion related to above and below-market tenant leases on acquired properties.  Straight-line rents receivable represents the current net cumulative rents recognized prior to when billed and collectible as provided by the terms of the leases.  Overage rent is recognized on an accrual basis once tenant sales exceed contractual tenant lease thresholds.  Recoveries from tenants are established in the leases or computed based upon a formula related to real estate taxes, insurance and other shopping center operating expenses and are generally recognized as revenues in the period the related costs are incurred.

 

Inflation

 

Substantially all of our tenant leases contain provisions designed to partially mitigate the negative impact of inflation.  Such provisions include clauses enabling us to receive Overage Rent based on tenants’ gross sales, which generally increase as prices rise, and/or escalation clauses, which generally increase rental rates during the terms of the leases.  In addition, many of the leases expire each year which may enable us to replace or renew such expiring leases with new leases at higher rents. Finally, many of the existing leases require the tenants to pay amounts related to all, or substantially all, of their share of certain operating expenses, including common area maintenance, real estate taxes and insurance, thereby partially reducing our exposure to increases in costs and operating expenses resulting from inflation.  In general, these amounts either vary annually based on actual expenditures or are set on an initial share of costs with provisions for annual increases. Only if inflation exceeds the rate set in the leases for annual increases would increases in expenses due to inflation be a risk.

 

Non-GAAP Supplemental Financial Measures and Definitions

 

Real Estate Property Net Operating Income (“NOI”) and Core NOI

 

The Company believes NOI is a useful supplemental measure of the Company’s operating performance. The Company defines NOI as operating revenues (rental income, tenant recoveries and other income) less property and related expenses (real estate taxes, property maintenance costs, marketing, other property expenses and provision for doubtful accounts).  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.  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, strategic initiatives, provision for income taxes, discontinued operations 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.  This measure provides an operating perspective not immediately apparent from GAAP operating or net income (loss) attributable to common stockholders.  The Company uses NOI to evaluate its operating performance on a property-by-property basis because NOI allows the Company to evaluate the impact that factors such as lease structure, lease rates and tenant base, which vary by property, have on the Company’s operating results, gross margins and investment returns.

 

In addition, management believes NOI provides useful information to the investment community about the Company’s operating performance. However, due to the exclusions noted above, NOI should only be used as an alternative measure of the Company’s financial performance.

 

Core NOI excludes the NOI impacts of non-cash and certain non-comparable items such as straight-line rent and intangible asset and liability amortization from acquisition accounting as a result of our emergence from bankruptcy.  We present Core NOI and Core FFO (as defined below), as we believe certain investors and other users of our financial information use them as measures of the Company’s historical operating performance.

 

Funds From Operations (“FFO”) and Core 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 upon our economic ownership interest, and all

 

44


 

determined on a consistent basis in accordance with GAAP.  As with our presentation of NOI, FFO has been reflected on a proportionate basis.

 

The Company considers FFO a supplemental measure for equity REITs and a complement to GAAP measures because it facilitates an understanding of the operating performance of the Company’s properties.  FFO 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 Core NOI, Core FFO excludes from FFO certain items that are non-cash and certain non-comparable items such as our Core NOI adjustments, and FFO items such as FFO from discontinued operations, warrant liability adjustment, and interest expense on debt repaid or settled, all as 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 Supplemental Financial measures of NOI, Core NOI, FFO and Core FFO, reconciliations have been provided as follows: a reconciliation of Core NOI and NOI to GAAP operating income (loss) GAAP net income (loss) and a reconciliation of Core FFO and FFO to GAAP net income (loss) attributable to common stockholders has been provided.  None of our non-GAAP Supplemental 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 common stockholders 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.

 

45


 

The following table reconciles Core FFO to Net (loss) income attributable to common stockholders (dollars in thousands):

 

 

 

For the Year Ended

 

 

 

2011

 

2010

 

Core FFO

 

$

848,962

 

$

777,052

 

Core adjustments:

 

 

 

 

 

Core NOI adjustments

 

(43,127

)

19,068

 

Management fees and other corporate revenues

 

421

 

13,083

 

Property management and other costs

 

(20,518

)

(16,814

)

General and administrative

 

18,313

 

(2,428

)

Preferred unit distributions

 

—

 

—

 

Provision for impairment

 

(916

)

—

 

Reorganization items

 

—

 

(356,911

)

Interest expense

 

(4,202

)

(402,529

)

Warrant liability adjustment

 

55,042

 

(205,252

)

Provision for income taxes

 

(9,097

)

69,922

 

FFO from discontinued operations

 

63,275

 

717,486

 

Total core adjustments

 

$

59,191

 

$

(164,375

)

Pro rata FFO

 

908,153

 

612,677

 

Depreciation and amortization of capitalized real estate costs

 

(1,088,055

)

(773,011

)

Gains (losses) on sales of investment properties

 

16,559

 

(1,134,687

)

Noncontrolling interests in depreciation of Consolidated Properties

 

9,339

 

4,511

 

Provision for impairment excluded from FFO

 

(63,421

)

(4,516

)

Provision for impairment excluded from FFO of discontinued operations

 

(4,096

)

(62,640

)

Redeemable noncontrolling interests

 

2,212

 

40,396

 

Depreciation and amortization of discontinued operations

 

(93,863

)

(122,704

)

Net (loss) income attributable to common stockholders

 

$

(313,172

)

$

(1,439,974

)

 

The following table reconciles Core NOI to operating income (dollars in thousands):

 

 

 

For the Year Ended

 

 

 

2011

 

2010

 

Core NOI

 

$

2,079,335

 

$

2,036,986

 

Core adjustments:

 

 

 

 

 

Straight-line rent

 

97,703

 

31,992

 

Above- and below-market leases amortization, net

 

(128,021

)

(26,540

)

Real estate tax stabilization agreement

 

(6,312

)

(1,578

)

Amortization of below-market ground leases

 

(6,497

)

(1,585

)

Total core adjustments

 

$

(43,127

)

$

2,289

 

Real estate property NOI

 

2,036,208

 

2,039,275

 

Less: NOI of Unconsolidated Properties

 

(368,848

)

(367,087

)

Management fees and other corporate revenues

 

61,173

 

63,234

 

Property management and other costs

 

(188,022

)

(166,909

)

General and administrative

 

(30,867

)

(46,639

)

Provisions for impairment

 

(64,337

)

(4,516

)

Depreciation and amortization

 

(899,584

)

(633,036

)

Noncontrolling interest in NOI of Consolidated Properties

 

14,942

 

11,783

 

Operating income

 

$

560,665

 

$

896,105

 

 

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 we believe the expectations reflected in any forward-looking statements are based on reasonable assumptions, we can give no assurance that our expectations will be attained, and it is possible that our 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 impact of a prolonged recession, our ability to meet debt service requirements, the availability and terms of financing, changes in our credit rating, changes in market rates of interest and foreign exchange rates for foreign currencies, the ability to hedge interest rate risk, risks associated with the acquisition, development and expansion of properties, general risks related to retail real estate, the liquidity of real estate investments, environmental liabilities, changes in market rental rates, trends in the retail industry, relationships with anchor

 

46


 

tenants, the inability to collect rent due to the bankruptcy or insolvency of tenants or otherwise, risks relating to joint venture properties, competitive market forces, risks related to international activities, insurance costs and coverage, terrorist activities, and maintenance of our status as a real estate investment trust. We discuss these and other risks and uncertainties under the heading ‘‘Risk Factors’’ in our most recent Annual Report on Form 10-K. We may update that discussion in subsequent Quarterly Reports on Form 10-Q, but otherwise we undertake no duty or obligation to update or revise these forward-looking statements, whether as a result of new information, future developments, or otherwise.

 

ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

We are subject to market risk associated with changes in interest rates both in terms of variable-rate debt and the price of new fixed-rate debt upon maturity of existing debt and for acquisitions.  As of December 31, 2011, we had consolidated debt of $17.35 billion, including $2.55 billion of variable-rate debt.  A 25 basis point movement in the interest rate on the $2.55 billion of variable-rate debt would result in a $6.4 million annualized increase or decrease in consolidated interest expense and operating cash flows.

 

In addition, we are subject to interest rate exposure as a result of variable-rate debt collateralized by the Unconsolidated Properties.  Our share (based on our respective equity ownership interests in the Unconsolidated Real Estate Affiliates) of such variable-rate debt was $112.8 million at December 31, 2011.  A similar 25 basis point annualized movement in the interest rate on the variable-rate debt of the Unconsolidated Real Estate Affiliates would result in a nominal annualized increase or decrease in our equity in the income and operating cash flows from Unconsolidated Real Estate Affiliates.

 

We are further subject to interest rate risk with respect to our fixed-rate financing in that changes in interest rates will impact the fair value of our fixed-rate financing.  For additional information concerning our debt, and management’s estimation process to arrive at a fair value of our debt as required by GAAP, reference is made to Item 7, Liquidity and Capital Resources and Notes 3 and 7. At December 31, 2011, the fair value of our consolidated debt has been estimated for this purpose to be $161.4 million lower than the carrying amount of $17.35 billion.

 

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

 

Reference is made to the Consolidated Financial Statements and Consolidated Financial Statement Schedule beginning on page F-3 for the required information.

 

PART IV

 

ITEM 15.  EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

 

(a)                  Consolidated Financial Statements and Consolidated Financial Statement Schedule.

 

The consolidated financial statements and consolidated financial statement schedule listed in the accompanying Index to Consolidated Financial Statements and Consolidated Financial Statement Schedule are filed as part of this Annual Report.

 

(b)                 Exhibits.

 

See Exhibit Index on page S-1.

 

(c)                  Separate financial statements.

 

Not applicable.

 

47

 


 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

To the Board of Directors and Stockholders of

General Growth Properties, Inc.

Chicago, Illinois

 

We have audited the accompanying consolidated balance sheets of General Growth Properties, Inc. and subsidiaries (the “Company”) as of December 31, 2011 and 2010, and the related consolidated statements of operations and comprehensive income (loss), equity, and cash flows for the year ended December 31, 2011 and for the period from November 10, 2010 through December 31, 2010 (Successor Company operations), and for the period from January 1, 2010 through November 9, 2010 and for the year ended December 31, 2009 (Predecessor Company operations). These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We did not audit the financial statements of GGP/Homart II L.L.C. and GGP-TRS L.L.C., the Company’s investments in which are accounted for by use of the equity method. The Company’s equity of $800,784,000 and $846,369,000 in GGP/Homart II L.L.C.’s net assets as of December 31, 2011 and 2010, respectively, and of $(4,740,000), $(1,109,000), and $(307,000) in GGP/Homart II L.L.C.’s net income (loss) for each of the three years in the respective period ended December 31, 2011 are included in the accompanying financial statements.  The Company’s equity of $229,519,000 and $190,375,000 in GGP-TRS L.L.C.’s net assets as of December 31, 2011 and 2010, respectively, and of $(4,620,000), $(16,403,000) and $(8,624,000) in GGP-TRS L.L.C.’s net income (loss) for each of the three years in the respective period ended December 31, 2011 are included in the accompanying financial statements.  The financial statements of GGP/Homart II L.L.C. and GGP-TRS L.L.C. related to the periods listed above were audited by other auditors whose reports have been furnished to us, and our opinion, insofar as it relates to the amounts included for such companies, is based on the reports of the other auditors and the procedures that we considered necessary in the circumstances with respect to the inclusion of the Company’s equity investments and equity method income in the accompanying consolidated financial statements taking into consideration (1) the basis adjustments of the equity method investments as a result of the revaluation of the investments to fair value discussed in Note 4 and (2) the allocation of the equity method investment income from the operations of these investees between the two periods within the calendar year 2010 for the Predecessor Company and Successor Company.

 

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).  Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements.  An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits and the reports of the other auditors provide a reasonable basis for our opinion.

 

In our opinion, based on our audits and the reports of the other auditors, the Successor Company consolidated financial statements present fairly, in all material respects, the financial position of General Growth Properties, Inc. and subsidiaries as of December 31, 2011 and 2010, and the results of their operations and their cash flows for the year ended December 31, 2011 and the period from November 10,

 

F-1


 

2010 through December 31, 2010 in conformity with accounting principles generally accepted in the United States of America.  Further, in our opinion, based on our audits and the reports of the other auditors, the Predecessor Company consolidated financial statements referred to above present fairly, in all material respects, the results of their operations and their cash flows for the period from January 1, 2010 through November 9, 2010 and the year ended December 31, 2009, in conformity with accounting principles generally accepted in the United States of America.

 

As discussed in Note 2 to the consolidated financial statements, on October 21, 2010, the Bankruptcy Court entered an order confirming the plan of reorganization which became effective on November 9, 2010.  Accordingly, the accompanying financial statements have been prepared in conformity with ASC 852-10, Reorganizations, and ASC 805-10, Business Combinations, for the Successor Company as a new entity including assets, liabilities, and a capital structure with carrying values not comparable with prior periods as described in Note 4 to the consolidated financial statements.

 

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Company’s internal control over financial reporting as of December 31, 2011, based on the criteria established in Internal Control- Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report (not presented herein) dated February 29, 2012 expressed an unqualified opinion on the Company’s internal control over financial reporting.

 

/s/ Deloitte & Touche LLP

 

Chicago, Illinois

February 29, 2012 (June 27, 2012 as to the effects of the 2012 discontinued operations described in Note 5)

 

F-2


 

GENERAL GROWTH PROPERTIES, INC.

 

CONSOLIDATED BALANCE SHEETS

 

 

 

December 31,

 

December 31,

 

 

 

2011

 

2010

 

 

 

(Dollars in thousands, except share amounts)

 

Assets:

 

 

 

 

 

Investment in real estate:

 

 

 

 

 

Land

 

$

4,623,944

 

$

4,722,674

 

Buildings and equipment

 

19,837,750

 

20,300,355

 

Less accumulated depreciation

 

(974,185

)

(129,794

)

Construction in progress

 

135,807

 

117,137

 

Net property and equipment

 

23,623,316

 

25,010,372

 

Investment in and loans to/from Unconsolidated Real Estate Affiliates

 

3,052,973

 

3,153,698

 

Net investment in real estate

 

26,676,289

 

28,164,070

 

Cash and cash equivalents

 

572,872

 

1,021,311

 

Accounts and notes receivable, net

 

218,749

 

114,099

 

Deferred expenses, net

 

170,012

 

175,669

 

Prepaid expenses and other assets

 

1,805,535

 

2,300,452

 

Assets held for disposition

 

74,694

 

591,778

 

Total assets

 

$

29,518,151

 

$

32,367,379

 

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

Mortgages, notes and loans payable

 

$

17,143,014

 

$

17,841,757

 

Accounts payable and accrued expenses

 

1,445,738

 

1,893,571

 

Dividend payable

 

526,332

 

38,399

 

Deferred tax liabilities

 

29,220

 

36,463

 

Tax indemnification liability

 

303,750

 

303,750

 

Junior Subordinated Notes

 

206,200

 

206,200

 

Warrant liability

 

985,962

 

1,041,004

 

Liabilities held for disposition

 

74,795

 

592,122

 

Total liabilities

 

20,715,011

 

21,953,266

 

 

 

 

 

 

 

Redeemable noncontrolling interests:

 

 

 

 

 

Preferred

 

120,756

 

120,756

 

Common

 

103,039

 

111,608

 

Total redeemable noncontrolling interests

 

223,795

 

232,364

 

 

 

 

 

 

 

Commitments and Contingencies

 

—

 

—

 

 

 

 

 

 

 

Redeemable Preferred Stock: as of December 31, 2011 and December 31, 2010, $0.01 par value, 500,000 shares authorized, none issued and outstanding

 

—

 

—

 

 

 

 

 

 

 

Equity:

 

 

 

 

 

Common stock: as of December 31, 2011, $0.01 par value, 11,000,000,000 shares authorized and 935,307,487 shares issued and outstanding; as of December 31, 2010, $0.01 par value, 11,000,000,000 shares authorized and 941,880,014 shares issued and outstanding

 

9,353

 

9,419

 

Additional paid-in capital

 

10,405,318

 

10,681,586

 

Retained earnings (accumulated deficit)

 

(1,883,569

)

(612,075

)

Accumulated other comprehensive (loss) income

 

(47,773

)

172

 

Total stockholders’ equity

 

8,483,329

 

10,079,102

 

Noncontrolling interests in consolidated real estate affiliates

 

96,016

 

102,647

 

Total equity

 

8,579,345

 

10,181,749

 

Total liabilities and equity

 

$

29,518,151

 

$

32,367,379

 

 

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

 

F-3


 

GENERAL GROWTH PROPERTIES, INC.

 

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)

 

 

 

Successor

 

 

Predecessor

 

 

 

Year Ended

 

Period from 
November 10, 2010

 

 

Period from 
January 1, 2010

 

Year Ended

 

 

 

December 31,

 

through

 

 

through

 

December 31,

 

 

 

2011

 

December 31, 2010

 

 

November 9, 2010

 

2009

 

 

 

(Dollars in thousands, except for per share amounts)

 

 

 

 

 

Revenues:

 

 

 

 

 

 

 

 

 

 

Minimum rents

 

$

1,583,609

 

$

232,592

 

 

$

1,373,945

 

$

1,619,074

 

Tenant recoveries

 

723,257

 

99,376

 

 

625,197

 

742,791

 

Overage rents

 

61,803

 

17,903

 

 

31,757

 

43,580

 

Management fees and other corporate revenues

 

61,173

 

8,883

 

 

54,351

 

75,304

 

Other

 

75,755

 

14,496

 

 

56,193

 

70,423

 

Total revenues

 

2,505,597

 

373,250

 

 

2,141,443

 

2,551,172

 

 

 

 

 

 

 

 

 

 

 

 

Expenses:

 

 

 

 

 

 

 

 

 

 

Real estate taxes

 

230,876

 

32,694

 

 

196,779

 

226,753

 

Property maintenance costs

 

95,835

 

17,869

 

 

78,391

 

88,520

 

Marketing

 

34,021

 

10,814

 

 

21,651

 

28,550

 

Other property operating costs

 

395,770

 

58,821

 

 

337,125

 

400,951

 

Provision for doubtful accounts

 

5,621

 

50

 

 

13,294

 

22,901

 

Property management and other costs

 

188,022

 

29,801

 

 

137,108

 

170,093

 

General and administrative

 

30,866

 

22,247

 

 

24,392

 

94,493

 

Provisions for impairment

 

64,337

 

—

 

 

4,516

 

315,968

 

Depreciation and amortization

 

899,584

 

125,150

 

 

507,886

 

621,097

 

Total expenses

 

1,944,932

 

297,446

 

 

1,321,142

 

1,969,326

 

Operating income

 

560,665

 

75,804

 

 

820,301

 

581,846

 

 

 

 

 

 

 

 

 

 

 

 

Interest income

 

2,429

 

722

 

 

1,466

 

1,571

 

Interest expense

 

(892,099

)

(128,841

)

 

(1,182,999

)

(1,210,937

)

Warrant liability adjustment

 

55,042

 

(205,252

)

 

—

 

—

 

Loss before income taxes, equity in income (loss) of Unconsolidated Real Estate Affiliates, reorganization items, discontinued operations and noncontrolling interests

 

(273,963

)

(257,567

)

 

(361,232

)

(627,520

)

(Provision for) benefit from income taxes

 

(8,723

)

8,992

 

 

60,962

 

(5,693

)

Equity in income (loss) of Unconsolidated Real Estate Affiliates

 

2,898

 

(504

)

 

21,857

 

32,843

 

Reorganization items

 

—

 

—

 

 

(356,928

)

76,929

 

Loss from continuing operations

 

(279,788

)

(249,079

)

 

(635,341

)

(523,441

)

Discontinued operations

 

(27,093

)

(7,005

)

 

(577,067

)

(781,275

)

Net loss

 

(306,881

)

(256,084

)

 

(1,212,408

)

(1,304,716

)

Allocation to noncontrolling interests

 

(6,291

)

1,868

 

 

26,650

 

20,027

 

Net loss attributable to common stockholders

 

$

(313,172

)

$

(254,216

)

 

$

(1,185,758

)

$

(1,284,689

)

 

 

 

 

 

 

 

 

 

 

 

Basic Loss Per Share:

 

 

 

 

 

 

 

 

 

 

Continuing operations

 

$

(0.30

)

$

(0.26

)

 

$

(1.96

)

$

(1.61

)

Discontinued operations

 

(0.03

)

(0.01

)

 

(1.78

)

(2.50

)

Total basic loss per share

 

$

(0.33

)

$

(0.27

)

 

$

(3.74

)

$

(4.11

)

 

 

 

 

 

 

 

 

 

 

 

Diluted Loss Per Share:

 

 

 

 

 

 

 

 

 

 

Continuing operations

 

$

(0.34

)

$

(0.26

)

 

$

(1.96

)

$

(1.61

)

Discontinued operations

 

(0.03

)

(0.01

)

 

(1.78

)

(2.50

)

Total diluted loss per share

 

$

(0.37

)

$

(0.27

)

 

$

(3.74

)

$

(4.11

)

Dividends declared per share

 

$

0.83

 

$

0.38

 

 

$

—

 

$

0.19

 

 

 

 

 

 

 

 

 

 

 

 

Comprehensive Loss, Net:

 

 

 

 

 

 

 

 

 

 

Net loss

 

$

(306,881

)

$

(256,084

)

 

$

(1,212,408

)

$

(1,304,716

)

Other comprehensive (loss) income:

 

 

 

 

 

 

 

 

 

 

Net unrealized gains on financial instruments

 

—

 

129

 

 

15,024

 

18,148

 

Accrued pension adjustment

 

—

 

—

 

 

1,745

 

763

 

Foreign currency translation

 

(48,545

)

75

 

 

(16,552

)

47,008

 

Unrealized gains (losses) on available-for-sale securities

 

263

 

(32

)

 

38

 

533

 

Other comprehensive (loss) income

 

(48,282

)

172

 

 

255

 

66,452

 

Comprehensive loss

 

(355,163

)

(255,912

)

 

(1,212,153

)

(1,238,264

)

Comprehensive loss allocated to noncontrolling interests

 

(5,954

)

1,869

 

 

26,604

 

(10,573

)

Comprehensive loss, net, attributable to common stockholders

 

$

(361,117

)

$

(254,043

)

 

$

(1,185,549

)

$

(1,248,837

)

 

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

 

F-4

 


 

GENERAL GROWTH PROPERTIES, INC.

 

CONSOLIDATED STATEMENTS OF EQUITY

 

 

 

 

 

 

 

Retained

 

 

 

 

 

Noncontrolling

 

 

 

 

 

 

 

Additional

 

Earnings

 

Accumulated Other

 

 

 

Interests in

 

 

 

 

 

Common

 

Paid-In

 

(Accumulated

 

Comprehensive

 

Treasury

 

Consolidated Real

 

Total

 

 

 

Stock

 

Capital

 

Deficit)

 

Income (Loss)

 

Stock

 

Estate Affiliates

 

Equity

 

 

 

(Dollars in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at January 1, 2009 (Predecessor)

 

$

2,704

 

$

3,454,903

 

$

(1,488,586

)

$

(56,128

)

$

(76,752

)

$

24,266

 

$

1,860,407

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net (loss) income

 

 

 

 

 

(1,284,689

)

 

 

 

 

1,822

 

(1,282,867

)

Distributions declared ($0.19 per share)

 

 

 

 

 

(59,352

)

 

 

 

 

 

 

(59,352

)

Distributions to noncontrolling interests in consolidated Real Estate Affiliates

 

 

 

 

 

 

 

 

 

 

 

(1,712

)

(1,712

)

Conversion of operating partnership units to common stock (43,408,053 common shares)

 

434

 

324,055

 

 

 

 

 

 

 

 

 

324,489

 

Issuance of common stock (69,309 common shares)

 

1

 

42

 

 

 

 

 

 

 

 

 

43

 

Restricted stock grant, net of forfeitures and compensation expense (372 common shares)

 

(1

)

2,669

 

 

 

 

 

 

 

 

 

2,668

 

Other comprehensive income

 

 

 

 

 

 

 

55,879

 

 

 

 

 

55,879

 

Adjustment for noncontrolling interest in operating partnership

 

 

 

13,200

 

 

 

 

 

 

 

 

 

13,200

 

Adjust noncontrolling interest in operating partnership units

 

 

 

(65,416

)

 

 

 

 

 

 

 

 

(65,416

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at December 31, 2009 (Predecessor)

 

$

3,138

 

$

3,729,453

 

$

(2,832,627

)

$

(249

)

$

(76,752

)

$

24,376

 

$

847,339

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net (loss) income

 

 

 

 

 

(1,173,028)

 

 

 

 

 

1,545

 

(1,171,483

)

Distributions to noncontrolling interests in consolidated Real Estate Affiliates

 

 

 

 

 

 

 

 

 

 

 

(1,927

)

(1,927

)

Restricted stock grants, net of forfeitures and compensation expense (87,059 common shares)

 

1

 

8,309

 

 

 

 

 

 

 

 

 

8,310

 

Issuance of common stock - payment of dividend (4,923,287 common shares)

 

49

 

53,346

 

 

 

 

 

 

 

 

 

53,395

 

Other comprehensive income

 

 

 

 

 

 

 

47,684

 

 

 

 

 

47,684

 

Adjust noncontrolling interest in operating partnership units

 

 

 

(38,854

)

 

 

 

 

 

 

 

 

(38,854

)

Distribution of HHC

 

 

 

 

 

(1,487,929

)

1,268

 

 

 

(808

)

(1,487,469

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at November 9, 2010 (Predecessor)

 

$

3,188

 

$

3,752,254

 

$

(5,493,584

)

$

48,703

 

$

(76,752

)

$

23,186

 

$

(1,743,005)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Effects of acquisition accounting:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Elimination of Predecessor common stock

 

(3,188

)

(3,752,254

)

 

 

 

 

76,752

 

(23,186

)

(3,701,876

)

Elimination of Predecessor accumulated deficit and accumulated other comprehensive income

 

 

 

 

 

5,506,314

 

(48,703

)

 

 

 

 

5,457,611

 

Issuance of common stock pursuant to the Plan (643,780,488 common shares, net of 120,000,000 stock warrants issued and stock issuance costs)

 

6,438

 

5,569,060

 

 

 

 

 

 

 

 

 

5,575,498

 

Issuance of common stock to existing common shareholders pursuant to the Plan

 

3,176

 

4,443,515

 

 

 

 

 

 

 

 

 

4,446,691

 

Restricted stock grants, net of forfeitures and compensation expense (1,725,000 common shares)

 

17

 

(17

)

 

 

 

 

 

 

 

 

—

 

Change in basis for noncontrolling interests in consolidated real estate affiliates

 

 

 

 

 

 

 

 

 

 

 

102,169

 

102,169

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at November 10, 2010 (Successor)

 

$

9,631

 

$

10,012,558

 

$

12,730

 

$

—

 

$

—

 

$

102,169

 

$

10,137,088

 

 

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

 

F-5

 


 

GENERAL GROWTH PROPERTIES, INC.

 

CONSOLIDATED STATEMENTS OF EQUITY (Continued)

 

 

 

 

 

 

 

Retained

 

 

 

 

 

Noncontrolling

 

 

 

 

 

 

 

Additional

 

Earnings

 

Accumulated Other

 

 

 

Interests in

 

 

 

 

 

Common

 

Paid-In

 

(Accumulated

 

Comprehensive

 

Treasury

 

Consolidated Real

 

Total

 

 

 

Stock

 

Capital

 

Deficit)

 

Income (Loss)

 

Stock

 

Estate Affiliates

 

Equity

 

 

 

(Dollars in thousands)

 

Net (loss) income

 

 

 

 

 

(254,216

)

 

 

 

 

534

 

(253,682

)

Issuance of common stock (154,886,000 common shares, net of stock issuance costs)

 

1,549

 

2,145,488

 

 

 

 

 

 

 

 

 

2,147,037

 

Clawback of common stock pursuant to the Plan (179,276,244 common shares)

 

(1,792

)

(1,797,065

)

 

 

 

 

 

 

 

 

(1,798,857

)

Restricted stock grants, net of forfeitures and compensation expense (1,315,593 common shares)

 

13

 

5,026

 

 

 

 

 

 

 

 

 

5,039

 

Stock options exercised (1,828,369 common shares)

 

18

 

4,978

 

 

 

 

 

 

 

 

 

4,996

 

Distributions to noncontrolling interests in consolidated Real Estate Affiliates

 

 

 

 

 

 

 

 

 

 

 

(416

)

(416

)

Other comprehensive income

 

 

 

 

 

 

 

172

 

 

 

 

 

172

 

Adjustment for noncontrolling interest in operating partnership

 

 

 

(11,522

)

 

 

 

 

 

 

 

 

(11,522

)

Issuance of subsidiary preferred shares (360 preferred shares)

 

 

 

 

 

 

 

 

 

 

 

360

 

360

 

Cash distributions declared ($0.038 per share)

 

 

 

 

 

(35,736

)

 

 

 

 

 

 

(35,736

)

Stock distributions declared ($0.342 per share)

 

 

 

322,123

 

(322,123

)

 

 

 

 

 

 

—

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at December 31, 2010 (Successor)

 

$

9,419

 

$

10,681,586

 

$

(612,075

)

$

172

 

$

—

 

$

102,647

 

$

10,181,749

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

 

 

 

 

(313,172

)

 

 

 

 

(1,075

)

(314,247

)

Distributions to noncontrolling interests in consolidated Real Estate Affiliates

 

 

 

 

 

 

 

 

 

 

 

(5,556

)

(5,556

)

Issuance of common stock - payment of dividend (22,256,121 common shares)

 

223

 

(244

)

21

 

 

 

 

 

 

 

—

 

Restricted stock grant, net of forfeitures and compensation expense (341,895 common shares)

 

(3

)

11,578

 

(307

)

 

 

 

 

 

 

11,268

 

Stock options exercised (121,439 common shares)

 

1

 

834

 

 

 

 

 

 

 

 

 

835

 

Purchase and cancellation of common shares (35,833,537 common shares)

 

(358

)

(398,590

)

(154,562

)

 

 

 

 

 

 

(553,510

)

Cash dividends reinvested (DRIP) in stock (7,225,345 common shares)

 

71

 

115,292

 

 

 

 

 

 

 

 

 

115,363

 

Other comprehensive loss

 

 

 

 

 

 

 

(47,945

)

 

 

 

 

(47,945

)

Cash distributions declared ($0.40 per share)

 

 

 

(16

)

(376,824

)

 

 

 

 

 

 

(376,840

)

Cash redemptions for common units in excess of carrying value

 

 

 

(648

)

 

 

 

 

 

 

 

 

(648

)

Adjustment for noncontrolling interest in operating partnership

 

 

 

(4,474

)

 

 

 

 

 

 

 

 

(4,474

)

Dividend for RPI Spin-off (Note 11)

 

 

 

 

 

(426,650

)

 

 

 

 

 

 

(426,650

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at December 31, 2011 (Successor)

 

$

9,353

 

$

10,405,318

 

$

(1,883,569

)

$

(47,773

)

$

—

 

$

96,016

 

$

8,579,345

 

 

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

 

F-6


 

GENERAL GROWTH PROPERTIES, INC.

 

CONSOLIDATED STATEMENTS OF CASH FLOWS

 

 

 

Successor

 

Predecessor

 

 

 

Year Ended
December 31, 2011

 

Period from
November 10,
2010 through
December 31, 2010

 

Period from
January 1, 2010
through
November 9,
2010

 

Year Ended
December 31, 2009

 

 

 

(In thousands)

 

Cash Flows from Operating Activities:

 

 

 

 

 

 

 

 

 

Net loss

 

$

(306,881

)

$

(256,084

)

$

(1,212,408

)

$

(1,304,716

)

Adjustments to reconcile net loss to net cash provided by (used in) operating activities:

 

 

 

 

 

 

 

 

 

Equity in (income) loss of Unconsolidated Real Estate Affiliates

 

(2,898

)

504

 

(28,064

)

(49,350

)

Provision for impairment from Equity in income of Unconsolidated Real Estate Affiliates

 

—

 

—

 

20,200

 

44,511

 

Provision for doubtful accounts

 

7,944

 

480

 

19,472

 

30,331

 

Distributions received from Unconsolidated Real Estate Affiliates

 

18,226

 

4,745

 

52,150

 

37,403

 

Depreciation

 

942,400

 

137,820

 

565,330

 

707,183

 

Amortization

 

43,286

 

4,454

 

38,323

 

47,978

 

Amortization/write-off of deferred finance costs

 

2,705

 

—

 

27,885

 

34,621

 

(Accretion) amortization/write-off of debt market rate adjustments

 

(60,093

)

(2,898

)

80,733

 

—

 

Amortization of intangibles other than in-place leases

 

144,239

 

15,977

 

3,977

 

833

 

Straight-line rent amortization

 

(89,728

)

(3,204

)

(31,101

)

(26,582

)

Deferred income taxes including tax restructuring benefit

 

(3,148

)

(6,357

)

(497,890

)

833

 

Non-cash interest expense on Exchangeable Senior Notes

 

—

 

—

 

21,618

 

27,388

 

Non-cash interest expense resulting from termination of interest rate swaps

 

—

 

—

 

9,635

 

(9,635

)

Non-cash interest income related to properties held for sale

 

—

 

—

 

(33,417

)

—

 

(Gain) loss on dispositions

 

(4,332

)

4,976

 

(6,684

)

966

 

Provisions for impairment

 

68,382

 

—

 

35,893

 

1,223,810

 

Loss on HHC distribution

 

—

 

—

 

1,117,961

 

—

 

Payments pursuant to Contingent Stock Agreement

 

—

 

(220,000

)

(10,000

)

(4,947

)

Land/residential development and acquisitions expenditures

 

—

 

—

 

(66,873

)

(78,240

)

Cost of land and condominium sales

 

—

 

—

 

74,302

 

22,019

 

Revenue recognition of deferred land and condominium sales

 

—

 

—

 

(36,443

)

—

 

Warrant liability adjustment

 

(55,042

)

205,252

 

—

 

—

 

Reorganization items - finance costs related to emerged entities/DIP Facility

 

—

 

—

 

180,790

 

69,802

 

Non-cash reorganization items

 

—

 

—

 

12,503

 

(266,916

)

Glendale Matter deposit

 

—

 

—

 

—

 

67,054

 

Net changes:

 

 

 

 

 

 

 

 

 

Accounts and notes receivable

 

(30,239

)

14,751

 

79,636

 

(22,601

)

Prepaid expenses and other assets

 

13,741

 

26,963

 

(113,734

)

(11,123

)

Deferred expenses

 

(67,719

)

(6,282

)

(16,517

)

(34,064

)

Decrease (increase) in restricted cash

 

17,407

 

(78,489

)

(76,513

)

—

 

Accounts payable and accrued expenses

 

(135,448

)

(203,084

)

(137,618

)

355,025

 

Other, net

 

—

 

1,869

 

(32,128

)

9,683

 

Net cash provided by (used in) operating activities

 

502,802

 

(358,607

)

41,018

 

871,266

 

 

 

 

 

 

 

 

 

 

 

Cash Flows from Investing Activities:

 

 

 

 

 

 

 

 

 

Acquisition/development of real estate and property additions/improvements

 

(253,276

)

(54,083

)

(223,373

)

(252,844

)

Proceeds from sales of investment properties

 

627,872

 

108,914

 

39,450

 

6,416

 

Proceeds from sales of investment in Unconsolidated Real Estate Affiliates

 

74,906

 

—

 

94

 

—

 

Contributions to Unconsolidated Real Estate Affiliates

 

(92,101

)

(6,496

)

(51,448

)

(154,327

)

Distributions received from Unconsolidated Real Estate Affiliates in excess of income

 

131,290

 

19,978

 

160,624

 

74,330

 

Loans to Unconsolidated Real Estate Affiliates, net

 

—

 

—

 

—

 

(9,666

)

(Increase) decrease in restricted cash

 

(2,975

)

(4,943

)

(10,363

)

6,260

 

Distributions of HHC

 

—

 

—

 

(3,565

)

—

 

Other, net

 

(293

)

—

 

(579

)

(4,723

)

Net cash provided by (used in) investing activities

 

485,423

 

63,370

 

(89,160

)

(334,554

)

 

 

 

 

 

 

 

 

 

 

Cash Flows from Financing Activities:

 

 

 

 

 

 

 

 

 

Proceeds from refinance/issuance of the DIP facility

 

—

 

—

 

—

 

400,000

 

Proceeds from (repayment of) Pershing Note (Note 2)

 

—

 

(350,000

)

350,000

 

—

 

Clawback of common stock pursuant to the Plan (Note 2)

 

—

 

(1,798,857

)

—

 

—

 

Principal payments on mortgages, notes and loans payable pursuant to the Plan

 

—

 

—

 

(2,258,984

)

—

 

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

 

2,145,848

 

—

 

431,386

 

—

 

Principal payments on mortgages, notes and loans payable

 

(2,797,540

)

(226,319

)

(758,182

)

(379,559

)

Deferred finance costs

 

(19,541

)

—

 

—

 

(2,614

)

Finance costs related to the Plan

 

—

 

—

 

(180,790

)

(69,802

)

Cash distributions paid to common stockholders

 

(319,799

)

—

 

(5,957

)

—

 

Cash dividends reinvested (DRIP) in common stock

 

115,363

 

—

 

—

 

—

 

Cash distributions paid to holders of common units

 

(6,802

)

—

 

—

 

(1,327

)

Cash dividends paid to holders of perpetual and convertible preferred units

 

—

 

—

 

(16,199

)

—

 

Purchase and cancellation of common shares

 

(553,510

)

—

 

—

 

—

 

Proceeds from issuance of common stock and warrants, including from common stock plans

 

—

 

2,147,037

 

3,371,769

 

43

 

Other, net

 

(683

)

7,088

 

(1,698

)

1,950

 

Net cash (used in) provided by financing activities

 

(1,436,664

)

(221,051

)

931,345

 

(51,309

)

 

 

 

 

 

 

 

 

 

 

Net change in cash and cash equivalents

 

(448,439

)

(516,288

)

883,203

 

485,403

 

Cash and cash equivalents at beginning of period

 

1,021,311

 

1,537,599

 

654,396

 

168,993

 

Cash and cash equivalents at end of period

 

$

572,872

 

$

1,021,311

 

$

1,537,599

 

$

654,396

 

 

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

 

F-7


 

GENERAL GROWTH PROPERTIES, INC.

 

CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)

 

 

 

Successor

 

Predecessor

 

 

 

Year Ended
December 31, 2011

 

Period from
November 10,
2010 through
December 31, 2010

 

Period from
January 1, 2010
through
November 9,
2010

 

Year Ended
December 31, 2009

 

 

 

(In thousands)

 

Supplemental Disclosure of Cash Flow Information:

 

 

 

 

 

 

 

 

 

Interest paid

 

$

903,758

 

$

93,987

 

$

1,409,681

 

$

1,061,512

 

Interest capitalized

 

1,914

 

208

 

2,627

 

53,641

 

Income taxes paid

 

9,422

 

179

 

5,247

 

19,826

 

Reorganization items paid

 

128,070

 

154,668

 

317,774

 

120,726

 

Third party property and cash exchange

 

44,672

 

—

 

—

 

—

 

 

 

 

 

 

 

 

 

 

 

Non-Cash Transactions:

 

 

 

 

 

 

 

 

 

Change in accrued capital expenditures included in accounts payable and accrued expenses

 

$

(13,810

)

$

5,928

 

$

(73,618

)

$

(86,367

)

Common stock issued in exchange for Operating Partnership Units

 

—

 

—

 

3,224

 

324,489

 

Change in deferred contingent property acquisition liabilities

 

—

 

—

 

161,622

 

(174,229

)

Deferred finance costs payable in conjunction with the DIP facility

 

—

 

—

 

—

 

19,000

 

Mortgage debt market rate adjustments related to Emerged Debtors prior to the Effective Date

 

—

 

—

 

323,318

 

342,165

 

Recognition of note payable in conjunction with land held for development and sale

 

—

 

—

 

—

 

6,520

 

Gain on Aliansce IPO

 

—

 

—

 

9,652

 

—

 

Debt payoffs via deeds in-lieu

 

161,524

 

—

 

97,539

 

—

 

Non-Cash Stock Transactions related to the Plan

 

 

 

 

 

 

 

 

 

Stock issued for paydown of the DIP facility

 

—

 

—

 

400,000

 

—

 

Stock issued for debt paydown pursuant to the Plan

 

—

 

—

 

2,638,521

 

—

 

Stock issued for reorganization costs pursuant to the Plan

 

—

 

—

 

960

 

—

 

Rouse Properties, Inc. Dividend:

 

 

 

 

 

 

 

 

 

Non-cash dividend for RPI Spin-Off

 

426,650

 

—

 

—

 

—

 

Non-Cash Distribution of HHC Spin-Off:

 

 

 

 

 

 

 

 

 

Assets

 

—

 

—

 

3,618,819

 

—

 

Liabilities and equity

 

—

 

—

 

(3,622,384

)

—

 

Decrease in assets and liabilities resulting from the contribution of two wholly-owned malls into two newly-formed unconsolidated joint ventures

 

 

 

 

 

 

 

 

 

Assets

 

$

(349,942

)

$

—

 

$

—

 

$

—

 

Liabilities

 

(234,962

)

—

 

—

 

—

 

 

 

 

 

 

 

 

 

 

 

Supplemental Disclosure of Cash Flow Information Related to Acquisition Accounting:

 

 

 

 

 

 

 

 

 

Non-cash changes related to acquisition accounting:

 

 

 

 

 

 

 

 

 

Land

 

$

—

 

$

—

 

$

1,726,166

 

$

—

 

Buildings and equipment

 

—

 

—

 

(1,605,345

)

—

 

Less accumulated depreciation

 

—

 

—

 

4,839,700

 

—

 

Investment in and loans to/from Unconsolidated Real Estate Affiliates

 

—

 

—

 

1,577,408

 

—

 

Deferred expenses, net

 

—

 

—

 

(258,301

)

—

 

Mortgages, notes and loans payable

 

—

 

—

 

(421,762

)

—

 

Equity

 

—

 

—

 

(6,421,548

)

—

 

 

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

 

F-8

 


 

GENERAL GROWTH PROPERTIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 1    ORGANIZATION

 

General

 

General Growth Properties, Inc. (“GGP”, the “Successor” or the “Company”), a Delaware corporation, formerly known as New GGP, Inc., was organized in July 2010 and is a self-administered and self-managed real estate investment trust, referred to as a “REIT”.  GGP is the successor registrant, by merger, on November 9, 2010 (the “Effective Date”) to GGP, Inc. (the “Predecessor”).  The Predecessor had filed for bankruptcy protection under Chapter 11 of Title 11 of the United States Code (“Chapter 11”) in the Southern District of New York (the “Bankruptcy Court”) on April 16, 2009 (the “Petition Date”) and emerged from bankruptcy, pursuant to a plan of reorganization (the “Plan”) on the Effective Date as described below.  In these notes, the terms “we,” “us” and “our” refer to GGP and its subsidiaries or, in certain contexts, the Predecessor and its subsidiaries.

 

GGP, through its subsidiaries and affiliates, operates, manages, develops and acquires retail and other rental properties, primarily regional malls, which are predominantly located throughout the United States. GGP also holds assets in Brazil through investments in Unconsolidated Real Estate Affiliates (as defined below).  Prior to the Effective Date, the Predecessor had also developed and sold land for residential, commercial and other uses primarily in large-scale, long-term master planned community projects in and around Columbia, Maryland; Summerlin, Nevada; and Houston, Texas, as well as one residential condominium project located in Natick (Boston), Massachusetts.

 

Substantially all of our business is conducted through GGP Limited Partnership (the “Operating Partnership” or “GGPLP”).   As of December 31, 2011, GGP holds approximately a 99% common equity ownership (without giving effect to the potential conversion of the Preferred Units as defined below) of the Operating Partnership, while the remaining 1% is held by limited partners that indirectly include family members of the original stockholders of the Predecessor and certain previous contributors of properties to the Operating Partnership.

 

The Operating Partnership also has preferred units of limited partnership interest (the “Preferred Units”) outstanding.  The terms of the Preferred Units provide that the Preferred Units are convertible into Common Units which then are redeemable for cash or, at our option, shares of GGP common stock (Note 11).

 

In addition to holding ownership interests in various joint ventures, the Operating Partnership generally conducts its operations through the following subsidiaries:

 

·                  The Rouse Company, LLC (“TRCLLC”), which has ownership interests in certain Consolidated Properties and Unconsolidated Properties (each as defined below) and is the borrower of certain unsecured bonds (Note 7).

 

·                  General Growth Management, Inc. (“GGMI”),  a taxable REIT subsidiary (a “TRS”), which manages, leases, and performs various services for some of our Unconsolidated Real Estate Affiliates (defined below) and, through July 2010, had performed such services for 19 properties owned by unaffiliated third parties, all located in the United States.  GGMI also performs marketing and strategic partnership services at all of our Consolidated Properties.

 

In this Annual Report, we refer to our ownership interests in properties in which we own a majority or controlling interest and, as a result, are consolidated under generally accepted accounting principles in the United States of America (“GAAP”) as the “Consolidated Properties.”  We also hold some properties through joint venture entities in which we own a non-controlling interest (“Unconsolidated Real Estate Affiliates”) and we refer to those properties as the “Unconsolidated Properties”.

 

NOTE 2                            CHAPTER 11 AND THE PLAN

 

In April 2009, the Predecessor and certain of its domestic subsidiaries (the “Debtors”) filed voluntary petitions for relief under Chapter 11 of Title 11 of the United States Code (“Chapter 11”) in the bankruptcy court of the Southern District of New York (the “Bankruptcy Court”).

 

On October 21, 2010, the Bankruptcy Court entered an order confirming the Debtors’ plan of reorganization (the “Plan”).  Pursuant to the Plan, on the Effective Date,  the Predecessor merged with a wholly-owned subsidiary of New GGP, Inc. and New GGP, Inc. was re-named General Growth Properties, Inc.  Also pursuant to the Plan,

 

F-9


 

GENERAL GROWTH PROPERTIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

prepetition creditor claims were satisfied in full and equity holders received newly issued common stock in New GGP, Inc. and in Howard Hughes Corporation (“HHC”), a newly formed company.  After that distribution, HHC became a publicly-held company, majority-owned by the Predecessor’s previous stockholders. GGP does not own any interest in HHC as of the Effective Date.

 

The Plan was based on the agreements (collectively, as amended and restated, the “Investment Agreements”) with REP Investments LLC, an affiliate of Brookfield Asset Management Inc. (the “Brookfield Investor”), an affiliate of Fairholme Funds, Inc. (“Fairholme”) and an affiliate of Pershing Square Capital Management, L.P. (“Pershing Square” and together with the Brookfield Investor and Fairholme, the “Plan Sponsors”), pursuant to which the Predecessor would be divided into two companies, New GGP, Inc. and HHC, and the Plan Sponsors would invest in the Company’s standalone emergence plan.  In addition, the Predecessor entered into an investment agreement with Teachers Retirement System of Texas (“Texas Teachers”) to purchase shares of GGP common stock at $10.25 per share.  The Plan Sponsors also entered into an agreement with affiliates of the Blackstone Group (“Blackstone”) whereby Blackstone subscribed for equity in New GGP, Inc. and agreed to purchase shares of GGP common stock at $10.00 per share and also invest in HHC.

 

Pursuant to the Investment Agreements, the Plan Sponsors and Blackstone purchased on the Effective Date $6.3 billion of New GGP, Inc. common stock at $10.00 per share and $250.0 million of HHC common stock at $47.61904 per share.  Also, pursuant to the Investment Agreement with Pershing Square, 35 million shares (representing $350 million of Pershing Square’s equity capital commitment) were designated as “put shares”.  The payment for these 35 million shares was fulfilled on the Effective Date by the payment of cash at closing in exchange for unsecured notes to Pershing Square which were scheduled to be payable six months from the Effective Date (the “Pershing Square Bridge Notes).  The Pershing Square Bridge Notes were pre-payable at any time without premium or penalty.  In addition, we had the right (the “put right”) to sell up to 35 million shares of common stock, subject to reduction as provided in the Investment Agreement, to Pershing Square at $10.00 per share (adjusted for dividends) within six months following the Effective Date to fund the repayment of the Pershing Square Bridge Notes to the extent that they had not already been repaid.  In connection with our reserving shares for repurchase after the Effective Date, we paid to Fairholme and/or Pershing Square, as applicable, in cash on the Effective Date, an amount equal to approximately $38.75 million.  No fee was required to be paid to Texas Teachers.  In addition, pursuant to agreement, the Texas Teachers purchased on the Effective Date $500 million of New GGP, Inc. common stock at $10.25 per share.

 

Pursuant to the terms of the Investment Agreements, the Plan Sponsors and Blackstone were issued warrants (the “Warrants”), which included eight million warrants to purchase common stock of HHC at an exercise price of $50.00 per share and 120 million warrants to purchase common stock of GGP (Note 9).

 

Pursuant to the Plan, each holder of a share of Predecessor common stock received on the Effective Date a distribution of 0.098344 of a share of common stock of HHC.  Following the distribution of the shares of HHC common stock, each existing share of common stock converted into and represented the right to receive one share of GGP common stock.  No fractional shares of HHC or GGP, Inc. were issued (i.e., the number of shares issued to each record holder was “rounded down”).  Following these transactions, the Predecessor common stock ceased to exist.

 

After the transactions on the Effective Date, the Plan Sponsors, Blackstone (as it exercised its subscription rights described above) and Texas Teachers owned a majority of the outstanding common stock of GGP. The Predecessor common stockholders held approximately 317 million shares of GGP common stock at the Effective Date; whereas, the Plan Sponsors, Blackstone and Texas Teachers held approximately 644 million shares of GGP common stock on such date.

 

The Investment Agreements with Fairholme and Pershing Square permitted us to repurchase (within 45 days of the Effective Date) up to 155 million shares in the aggregate issued to those investors at a price of $10.00 per share.  We had a similar right for up to 24.4 million shares issued to Texas Teachers at a price of $10.25 per share (the “Clawback”).  In November 2010, we sold an aggregate of approximately 154.9 million common shares to the public at $14.75 per share and repurchased an equal number of shares from Fairholme and Pershing as permitted under the Clawback and repaid the Pershing Square Bridge Notes in full, including accrued interest.  We also used a portion of the offering proceeds after such repurchase to repurchase approximately 24.4 million shares from Texas Teachers, also as permitted under the Clawback.

 

F-10


 

GENERAL GROWTH PROPERTIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 3                            SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Principles of Consolidation and Basis of Presentation

 

The accompanying consolidated financial statements include the accounts of GGP, our subsidiaries and joint ventures in which we have a controlling interest. For consolidated joint ventures, the noncontrolling partner’s share of the assets, liabilities and operations of the joint ventures (generally computed as the joint venture partner’s ownership percentage) is included in noncontrolling interests in Consolidated Real Estate Affiliates as permanent equity of the Company. All significant intercompany balances and transactions have been eliminated.

 

We operate in a single reportable segment referred to as our retail and other segment, which includes the operation, development and management of retail and other rental properties, primarily regional malls.  Our portfolio of regional malls represents a collection of retail properties that are 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.  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.

 

Through the Effective Date in 2010, we had two reportable segments (Retail and Other and Master Planned Communities) which offered different products and services. Our segments were managed separately because each required different operating strategies or management expertise.  On the Effective Date, the assets included in the Master Planned Communities segment were distributed to HHC pursuant to the Plan (Note 2) and are therefore no longer reported as a reportable segment.

 

Reclassifications

 

Certain prior period amounts in the consolidated financial statements have been reclassified to conform to the current period presentation as a result of discontinued operations.  Amounts included on the statements of operations for properties sold or to be disposed of have been reclassified to discontinued operations for all periods presented.  In addition, four properties previously classified as held for sale were reclassified as held for use in the first quarter of 2012 and two properties previously classified as held for sale were reclassified as held for use in the first quarter of 2011.  These properties have been included in continuing operations for all periods presented in the accompanying consolidated financial statements (Note 5).  Lastly, certain prior period statement of operations disclosures in the accompanying footnotes have been restated to exclude amounts which have been reclassified to discontinued operations.

 

Properties

 

Real estate assets are stated at cost less any provisions for impairments.  As discussed in Note 4, the real estate assets were recorded at fair value pursuant to the application of acquisition accounting on the Effective Date.  Construction and improvement costs incurred in connection with the development of new properties or the redevelopment of existing properties are capitalized to the extent the total carrying amount of the property does not exceed the estimated fair value of the completed property.  Real estate taxes and interest costs incurred during construction periods are capitalized.  Capitalized interest costs are based on qualified expenditures and interest rates in place during the construction period.  Capitalized real estate taxes and interest costs are amortized over lives which are consistent with the constructed 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, the costs previously capitalized are expensed (see also our impairment policies in this Note 3 below).

 

Tenant improvements, either paid directly or in the form of construction allowances paid to tenants, are capitalized and depreciated over the shorter of the useful life or the applicable lease term.  Expenditures for significant betterments and improvements are capitalized.  Maintenance and repairs are charged to expense when incurred.

 

We periodically review the estimated useful lives of our properties.  Depreciation or amortization expense is computed using the straight-line method based upon the following estimated useful lives:

 

F-11


 

GENERAL GROWTH PROPERTIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

 

 

Years

 

Buildings and improvements

 

45

 

Equipment and fixtures

 

5-10

 

Tenant improvements

 

Shorter of useful life or applicable lease term

 

 

Accumulated depreciation was reset to zero on the Effective Date as described in Note 4 in conjunction with the application of the acquisition method of accounting due to the Plan and the Investment Agreements.

 

Impairment

 

General

 

Carrying values of our properties were reset to fair value on the Effective Date as provided by the acquisition method of accounting.  Impairment charges could be taken in the future if economic conditions change or if the plans regarding such assets change.  Therefore, we can provide no assurance that material impairment charges with respect to our assets, including operating properties, investments in Unconsolidated Real Estate Affiliates and developments in progress, will not occur in future periods.  Accordingly, we will continue to monitor circumstances and events in future periods to determine whether impairments are warranted.

 

Operating properties

 

Accounting for the impairment of long-lived assets requires that if impairment indicators exist and the undiscounted cash flows expected to be generated by an asset are less than its carrying amount, an impairment provision should be recorded to write down the carrying amount of such asset to its fair value.  We review our consolidated assets for potential impairment indicators whenever events or changes in circumstances indicate that the carrying amount may not be recoverable.

 

Impairment indicators are assessed separately for each property and include, but are not limited to, significant decreases in real estate property net operating income, significant occupancy percentage changes, debt maturities, management’s intent with respect to the assets and prevailing market conditions.

 

Impairment indicators for pre-development costs, which are typically costs incurred during the beginning stages of a potential development and developments in progress are assessed by project and include, but are not limited to, significant changes 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.

 

If an indicator of potential impairment exists, the asset is tested for recoverability by comparing its carrying amount to the estimated future undiscounted cash flows.  The cash flow estimates used both for determining recoverability and estimating fair value are inherently judgmental and reflect current and projected trends in rental, occupancy and capitalization rates, and estimated holding periods for the applicable assets.  Although the carrying amount may exceed the estimated fair value of certain assets, 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 asset 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 asset, is depreciated over the remaining useful life of the asset.

 

During the respective periods, we determined there were events and circumstances indicating that certain properties were not recoverable and therefore required impairments.  As such, we recorded impairment charges related to three operating properties and one non-income producing asset of $68.3 million for the year ended December 31, 2011.  In 2011, these provisions reduced the carrying value of certain assets to approximately $37.5 million below the approximately $83.9 million of nonrecourse notes payable related to those assets.  The Predecessor recorded impairment charges related to operating properties and properties under development of $35.3 million for the period from January 1, 2010 through November 9, 2010 and $1.08 billion for the year ended December 31, 2009.  These impairment charges are included in provisions for impairment in our Consolidated Statements of Operations and Comprehensive Income (Loss), except for $4.0 million for the year ended December 31, 2011, $30.8 million for the

 

F-12


 

GENERAL GROWTH PROPERTIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

period from January 1, 2010 through November 9, 2010 and $908.2 million for the year ended December 31, 2009, which are included in discontinued operations in our Consolidated Statements of Operations and Comprehensive Income (Loss).

 

Investment in Unconsolidated Real Estate Affiliates

 

According to the guidance related to the equity method of accounting for investments, a series of operating losses of an investee or other factors may indicate that an other-than-temporary decrease in value of our investment in the Unconsolidated Real Estate Affiliates has occurred. The investment in each of the Unconsolidated Real Estate Affiliates is evaluated periodically and as deemed necessary 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 impairments with respect to the carrying values of our unconsolidated real estate affiliates.

 

In the period January 1, 2010 through November 9, 2010, the Predecessor recorded an impairment provision of approximately $21.1 million related to the sale of its interest in Turkey, recorded in equity in income (loss) of Unconsolidated Real Estate Affiliates.  We did not record any provisions for impairment related to our investments in Unconsolidated Real Estate Affiliates for the year ended December 31, 2011, for the period November 10, 2010 through December 31, 2010 and for the year ended December 31, 2009.

 

Goodwill

 

The application of acquisition accounting on the Effective Date did not yield any goodwill for the Successor and all prior goodwill amounts of the Predecessor were eliminated (Note 4).  With respect to the Predecessor, the excess of the cost of an acquired entity over the net of the amounts assigned to assets acquired (including identified intangible assets) and liabilities assumed was recorded as goodwill.  Recorded goodwill was tested for impairment annually or more frequently if events or changes in circumstances indicated that the asset might be impaired.   The Predecessor assessed fair value based on estimated future cash flow projections that utilized discount and capitalization rates which are generally unobservable in the market place (Level 3 inputs) under these principles, but approximate the inputs we believe would be utilized by market participants in assessing fair value.  Estimates of future cash flows were based on a number of factors including the historical operating results, known trends, and market/economic conditions.  If the carrying amount of a property, including its goodwill, exceeded its estimated fair value, the second step of the goodwill impairment test was performed to measure the amount of impairment loss, if any. In this second step, if the implied fair value of goodwill was less than the carrying amount of goodwill, an impairment charge was recorded.

 

As a result of the procedures performed, the Predecessor recorded provisions for impairment of goodwill of $140.6 million for the year ended December 31, 2009.  During 2010, until the Effective Date, there were no events or circumstances that indicated that the then current carrying amount of goodwill might be impaired.

 

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 were 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, debt liabilities assumed and identifiable intangible assets and liabilities such as amounts related to in-place at-market tenant leases, acquired above and below-market tenant and ground leases and tenant relationships. No significant value had been ascribed to the tenant relationships at the acquired properties in previous years by the Predecessor or by the Successor in 2010 (Note 4).

 

Investments in Unconsolidated Real Estate Affiliates

 

We account for investments in joint ventures where we own a non-controlling joint interest using the equity method.  Under the equity method, the cost of our investment is adjusted for our share of the equity in earnings of such Unconsolidated Real Estate Affiliates from the date of acquisition and reduced by distributions received.  Generally, the operating agreements with respect to our Unconsolidated Real Estate Affiliates provide that assets, liabilities and funding obligations are shared in accordance with our ownership percentages.  Therefore, we generally also share in the profit and losses, cash flows and other matters relating to our Unconsolidated Real Estate Affiliates in accordance with our respective ownership percentages.  Except for Retained Debt (as described in Note 6), differences between the carrying amount of our investment in the Unconsolidated Real Estate Affiliates and our share of the underlying equity of such Unconsolidated Real Estate Affiliates (for example, arising from the application of the acquisition method of accounting as described in Note 4) are amortized over lives ranging from five to 45 years.  When

 

F-13


 

GENERAL GROWTH PROPERTIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

cumulative distributions exceed our investment in the joint venture, the investment is reported as a liability in our consolidated financial statements.  The liability is limited to our maximum potential obligation to fund contractual obligations, including recourse related to certain debt obligations.

 

Cash and Cash Equivalents

 

Highly-liquid investments with maturities at dates of purchase of three months or less are classified as cash equivalents.

 

Leases

 

We account for the majority of our leases as operating leases.  Leases which transfer substantially all the risks and benefits of ownership to tenants are considered finance leases and the present values of the minimum lease payments and the estimated residual values of the leased properties, if any, are accounted for as receivables.  Leases which transfer substantially all the risks and benefits of ownership to us are considered capital leases and the present values of the minimum lease payments are accounted for as assets and liabilities.

 

Deferred Expenses

 

Deferred expenses primarily consist of leasing commissions and related costs and are amortized using the straight-line method over the life of the leases.  Deferred expenses also include financing fees we incurred in order to obtain long-term financing and are amortized as interest expense over the terms of the respective financing agreements using the straight-line method, which approximates the effective interest method.  The acquisition method of accounting eliminated such balances of deferred financing fees and the Successor only has recorded amounts incurred subsequent to the Effective Date.

 

Revenue Recognition and Related Matters

 

Minimum rent revenues are recognized on a straight-line basis over the terms of the related operating leases.  Minimum rent revenues also include amounts collected from tenants to allow the termination of their leases prior to their scheduled termination dates and accretion related to above and below-market tenant leases on properties that were fair valued at emergence and acquired properties.  The following is a summary of amortization of straight-line rent, net amortization /accretion related to above and below-market tenant leases and termination income:

 

 

 

Successor

 

Predecessor

 

 

 

Year Ended
December 31,
2011

 

Period from
November 10,
2010 through
December 31, 2010

 

Period from
January 1, 2010
through
November 9, 2010

 

Year Ended
December 31,
2009

 

 

 

 

 

 

 

 

 

 

 

Amortization of straight-line rent

 

$

80,111

 

$

2,804

 

$

28,397

 

$

25,249

 

Net amortization/accretion of above and below-market tenant leases

 

(107,714

)

(12,283

)

5,109

 

9,128

 

Lease termination income

 

16,535

 

2,227

 

18,434

 

20,952

 

 

The following is a summary of straight-line rent receivables, which are included in Accounts and notes receivable, net in our Consolidated Balance Sheets and are reduced for allowances and amounts doubtful of collection:

 

 

 

December 31, 2011

 

December 31, 2010

 

 

 

(In thousands)

 

 

 

 

 

 

 

Straight-line rent receivables, net

 

$

97,565

 

$

14,125

 

 

We provide an allowance for doubtful accounts against the portion of accounts receivable, including straight-line rents, which is estimated to be uncollectible.  Such allowances are reviewed periodically based upon our recovery experience.   The following table summarizes the changes in allowance for doubtful accounts:

 

F-14


 

GENERAL GROWTH PROPERTIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

 

 

Successor

 

Predecessor

 

 

 

2011

 

2010

 

2010

 

2009

 

 

 

(In thousands)

 

Balance as of January 1, (November 9, 2010 for Successor)

 

$

40,746

 

$

53,670

 

$

69,235

 

$

59,784

 

Provisions for doubtful accounts

 

5,621

 

50

 

13,294

 

22,901

 

Provisions for doubtful accounts in discontinued operations

 

683

 

430

 

2,576

 

7,430

 

Write-offs

 

(14,191

)

(13,404

)

(31,435

)

(20,880

)

Balance as of December 31, (November 9, 2010 for Predecessor)

 

$

32,859

 

$

40,746

 

$

53,670

 

$

69,235

 

 

Overage rent is paid by a tenant when its sales exceed an agreed upon minimum amount,  is recognized on an accrual basis once tenant sales exceed contractual tenant lease thresholds and is calculated by multiplying the sales in excess of the minimum amount by a percentage defined in the lease.  Recoveries from tenants are established in the leases or computed based upon a formula related to real estate taxes, insurance and other property operating expenses and are generally recognized as revenues in the period the related costs are incurred.

 

In leasing tenant space, we may provide funding to the lessee through a tenant allowance.  In accounting for a tenant allowance, we determine whether the allowance represents funding for the construction of leasehold improvements and evaluate the ownership, for accounting purposes, of such improvements.  If we are considered the owner of the leasehold improvements for accounting purposes, we capitalize the amount of the tenant allowance and depreciate it over the shorter of the useful life of the leasehold improvements or the related lease term.  If the tenant allowance represents a payment for a purpose other than funding leasehold improvements, or in the event we are not considered the owner of the improvements for accounting purposes, the allowance is considered to be a lease incentive and is recognized over the lease term as a reduction of rental revenue on a straight-line basis.

 

Income Taxes (Note 8)

 

To avoid current entity level U.S. federal income taxes, we expect to distribute 100% of our capital gains and ordinary income to shareholders annually.  If, with respect to any taxable year, we fail to maintain our qualification as a REIT, we would not be allowed to deduct distributions to shareholders in computing our taxable income and federal income tax. If any of our REIT subsidiaries fail to qualify as a REIT, such failure could result in our loss of REIT status. If we lose our REIT status, corporate level income tax, including any applicable alternative minimum tax, would apply to our taxable income at regular corporate rates. As a result, the amount available for distribution to holders of equity securities that would otherwise receive dividends would be reduced for the year or years involved, and we would no longer be required to make distributions. In addition, unless we were entitled to relief under the relevant statutory provisions, we would be disqualified from treatment as a REIT for four subsequent taxable years.

 

Deferred income taxes are accounted for using the asset and liability method.  Deferred tax assets and liabilities are recognized for the expected future tax consequences of events that have been included in the financial statements or tax returns and are recorded primarily by certain of our taxable REIT subsidiaries.  Under this method, deferred tax assets and liabilities are determined based on the differences between the financial reporting and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse.  Deferred income taxes also reflect the impact of operating loss and tax credit carryforwards.  A valuation allowance is provided if we believe it is more likely than not that all or some portion of the deferred tax asset will not be realized.  An increase or decrease in the valuation allowance that results from a change in circumstances, and which causes a change in our judgment about the realizability of the related deferred tax asset, is included in the current tax provision.  The Successor experienced a change in control, as a result of the transactions undertaken to emerge from bankruptcy, pursuant to Section 382 of the Internal Revenue Code that could limit the benefit of deferred tax assets.  In addition, we recognize and report interest and penalties, if necessary, related to uncertain tax positions within our provision for income tax expense.

 

Transactions with Affiliates

 

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 and for properties owned by third parties up to the sale of our management services business in June 2010. The following are fees earned from the Unconsolidated Real Estate Affiliates and third party managed properties which are included in management fees and other corporate revenues on our Consolidated Statements of Operations and Comprehensive Income (Loss):

 

F-15


 

GENERAL GROWTH PROPERTIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

 

 

Successor

 

Predecessor

 

 

 

Year Ended
December 31,
2011

 

Period from
November 10,
2010 through
December 31,
2010

 

Period from
January 1, 2010
through
November 9,
2010

 

Year Ended
December 31,
2009

 

 

 

(In thousands)

 

Management fees from affiliates

 

$

60,752

 

$

8,673

 

$

51,257

 

$

66,567

 

 

In connection with the RPI Spin-Off (Note 19), we have entered into a Transition Services Agreement (“TSA”) with RPI.  Per the terms of the TSA, we have agreed to provide certain leasing, asset management, legal and other services to RPI for established fees, which are not expected to be material.

 

Fair Value Measurements

 

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 following table summarizes our assets and liabilities that are measured at fair value on a nonrecurring basis during the year ended December 31, 2011 and for the period January 1, 2010 through November 9, 2010.  No assets or liabilities were measured at fair value during the period November 10, 2010 through December 31, 2010.

 

 

 

 

 

Quoted Prices in

 

 

 

 

 

 

 

 

 

Active Markets

 

Significant Other

 

Significant

 

 

 

Total Fair Value

 

for Identical Assets

 

Observable Inputs

 

Unobservable Inputs

 

 

 

Measurement

 

(Level 1)

 

(Level 2)

 

(Level 3)

 

 

 

(In thousands)

 

Year Ended December 31, 2011 (Successor)

 

 

 

 

 

 

 

 

 

Investments in real estate (1)

 

$

46,478

 

$

—

 

$

—

 

$

46,478

 

 

 

 

 

 

 

 

 

 

 

For the Period January 1, 2010 through November 9, 2010 (Predecessor)

 

 

 

 

 

 

 

 

 

Investments in real estate (1)

 

$

1,104,934

 

$

—

 

$

141,579

 

$

963,355

 

Liabilities (2)

 

15,794,687

 

—

 

—

 

15,794,687

 

 

(1) Refer to Note 3 for more information regarding impairment.

(2) The fair value of debt relates to the properties that emerged from bankruptcy during the period January 1, 2010 through November 9, 2010.

 

We estimated fair value relating to these impairment assessments based upon discounted cash flow and direct capitalization models that included 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 unobservable inputs which include 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 were based upon observable rates that we believed to be within 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 estimated sales prices, we determined that our valuation was classified within Level 2 of the fair value hierarchy.

 

In addition, the fair value of liabilities related to debt on the properties that filed for bankruptcy and emerged during the period from April 9, 2009 through November 9, 2010 was $15.79 billion as of November 9, 2010 and were fair

 

F-16


 

GENERAL GROWTH PROPERTIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

valued using Level 3 inputs.  Fair value was determined based on the net present value of debt using current market rates.

 

The following table summarizes gains and losses recorded within earnings as a result of changes in fair value:

 

 

 

Total Loss

 

 

 

Successor

 

Predecessor

 

 

 

Year Ended
December 31, 2011

 

Period from
November 10, 2010
through
December 31, 2010

 

Period from
January 1, 2010
through
November 9, 2010

 

Year Ended
December 31, 2009

 

 

 

(In thousands)

 

Investments in real estate (1)

 

$

(68,382

)

$

—

 

$

(35,290

)

$

(1,031,810

)

Liabilities (2)

 

—

 

—

 

(200,921

)

(287,991

)

 

(1) Refer to Note 3 for more information regarding impairment.

(2) The fair value of liabilities relates to debt on the properties that filed for bankruptcy and emerged during the period from April 9, 2009 through November 9, 2010.

 

Prior to emergence, we elected the fair value option for debt related to certain properties that were held for sale.  The unpaid debt balance, fair value estimates, fair value measurements, gain (in reorganization items) and interest expense as of November 9, 2010 and for the period from January 1, 2010 through November 9, 2010 and the year ended December 31, 2009, with respect to these properties are as follows:

 

 

 

November 9, 2010

 

 

 

 

 

Interest Expense

 

 

 

 

 

Unpaid Debt
Balance of
Properties Held for
Sale

 

Fair Value Estimate
of Properties Held
for Sale

 

Significant
Unobservable
Inputs (Level 3)

 

Total Gain Period
from January 1,
2010 through
November 9, 2010

 

Total Gain for the
Year Ended
December 31, 2009

 

for the Period from
January 1, 2010
through
November 9, 2010

 

Interest Expense
for the Year Ended
December 31, 2009

 

 

 

(In thousands)

 

Mortgages, notes and loans payable

 

$

644,277

 

$

556,415

 

$

556,415

 

$

36,243

 

$

54,224

 

$

29,694

 

$

36,737

 

 

An entity may choose to de-elect the fair value option when a defined qualifying event occurs. As the emergence from bankruptcy and subsequent acquisition method accounting met the definition of a qualifying event to de-elect, the Successor chose as of November 9, 2010 to de-elect from the fair value option for all previously elected mortgages.

 

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 December 31, 2011 and December 31, 2010.

 

 

 

2011

 

2010

 

 

 

Carrying Amount

 

Estimated Fair
Value

 

Carrying Amount

 

Estimated Fair
Value

 

 

 

(In thousands)

 

Fixed-rate debt

 

$

14,795,370

 

$

14,978,908

 

$

15,416,077

 

$

15,217,325

 

Variable-rate debt

 

2,347,644

 

2,326,533

 

2,425,680

 

2,427,845

 

 

 

 $17,143,014

 

$

17,305,441

 

$

17,841,757

 

$

17,645,170

 

 

The fair value of our Junior Subordinated Notes approximates their carrying amount as of December 31, 2011 and December 31, 2010.  We estimated the fair value of this debt 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 credit quality would be if credit markets were operating efficiently and assume that the debt is outstanding through maturity. We have utilized market information as available or present value techniques to estimate the amounts required to be disclosed, or, in the case of the Successor, recorded due to the acquisition method of accounting (Note 4).  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 of such debt could be realized by immediate settlement of the obligation.

 

F-17


 

GENERAL GROWTH PROPERTIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

Foreign Currency Translation

 

The functional currencies for our international joint ventures are their local currencies.  Assets and liabilities of these investments are translated at the rate of exchange in effect on the balance sheet date and operations are translated at the weighted average exchange rate for the period.  Translation adjustments resulting from the translation of assets and liabilities are accumulated in stockholders’ equity as a component of accumulated other comprehensive income (loss).  Translation of operations is reflected in equity in other comprehensive income.

 

Reorganization Items

 

Reorganization items are expense or income items that were incurred or realized by the Debtors as a result of the Chapter 11 Cases and are presented separately in the Consolidated Statements of Operations and Comprehensive Income (Loss) of the Predecessor.  Reorganization items include legal fees, professional fees and similar types of expenses resulting from activities of the reorganization process, gains on liabilities subject to compromise directly related to the Chapter 11 Cases, and interest earned on cash accumulated by the Debtors as a result of the Chapter 11 Cases.  We recognized a net expense on reorganization items of $356.9 million for the period January 1, 2010 through November 9, 2010 and a net credit of $76.9 million for the year ended December 31, 2009. These amounts exclude reorganization items that are currently included within discontinued operations.  We did not recognize any reorganization items in 2011 or in the Successor period of 2010.

 

The terms of engagement and the timing of payment for professional services rendered during our Chapter 11 proceedings were subject to approval by the Bankruptcy Court.  In addition, certain of these retained professionals had agreements that provided for success or completion fees that became payable upon the Effective Date.  As of December 31, 2010 we accrued $7.1 million of success or completion fees in accounts payable and accrued expenses on the Consolidated Balance Sheet.  All success fees were fully paid as of December 31, 2011.

 

In addition, we adopted a key employee incentive program (the “KEIP”) which provided for payment to certain key employees upon successful emergence from bankruptcy.  The amount payable under the KEIP was calculated based upon a formula related to the recovery to creditors and equity holders measured on the Effective Date and on February 7, 2011, 90 days after the Effective Date.  Approximately $181.5 million was paid in two installments, November 12, 2010 and February 25, 2011, under the KEIP.  Our liability under the Plan was recognized from the date the KEIP was approved by the Bankruptcy Court to the Effective Date.  We accrued a liability for the KEIP in Accounts payable and accrued expenses on the Consolidated Balance Sheets of approximately $115.5 million and $27.5 million as of December 31, 2010 and 2009, respectively.  The related expense was recognized in Reorganization items.  All KEIP amounts were fully paid as of December 31, 2011.

 

Use of Estimates

 

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America 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 amortization periods of deferred costs and intangibles, particularly with respect to acquisitions, impairment of long-lived assets and goodwill, fair value of debt and cost ratios and completion percentages used for land sales (prior to the spin-off of HHC).  Actual results could differ from these and other estimates.

 

NOTE 4                            ACQUISITIONS, DISPOSITIONS AND INTANGIBLES

 

Acquisitions and Dispositions

 

During 2011, we acquired 11 anchor pads for approximately $78.7 million.  In addition, we sold our interest in 14 consolidated properties for aggregate sales proceeds of $507.3 million, which resulted in a $114.8 million reduction in mortgage payable.

 

On November 10, 2011, GGP and Kimco Realty (“Kimco”) executed a joint venture partnership agreement whereby both companies would own 50% interest of Owings Mills Mall, LLC (“Owings Mills Joint Venture”), a property that was previously included in consolidated properties.  As part of Owings Mills Joint Venture, GGP and Kimco will redevelop the one million square foot regional mall in Owings Mills, Maryland.  Kimco purchased the 50% interest

 

F-18

 


 

GENERAL GROWTH PROPERTIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

for $16.4 million which was paid directly to GGP and not contributed into the Owings Mills Joint Venture.  GGP recognized a $2.1 million gain as a result of the partial sale. GGP will account for Owings Mills using the equity method of accounting as we share control over major decisions and Kimco has substantive participating rights.

 

On September 19, 2011, we contributed St. Louis Galleria, a wholly-owned regional mall located in St. Louis, Missouri, into a newly formed joint venture, GGP-CPP Venture, LP (“GGP-CPP”) which was formed with the Canada Pension Plan Investment Board (“CPP”).  CPPIB contributed approximately $83 million of cash into GGP-CPP.  GGP-CPP used the cash to purchase Plaza Frontenac, a regional mall located in Frontenac, Missouri, a suburb of St. Louis.  In exchange for our contribution of St. Louis Galleria, we received a 55% economic interest in Plaza Frontenac and a 74% economic interest in St. Louis Galleria.  GGP is the general partner in GGP-CPP; however, because we share control over major decisions with CPP and CPP has substantive participating rights, we will account for GGP-CPP under the equity method of accounting.  No gain or loss was recorded upon the contribution of St. Louis Galleria to GGP-CPP as no cash was received in exchange for the contribution.

 

In June 2011, we closed on a transaction with a third party in which we sold our ownership share of Superstition Springs Center and Arrowhead Towne Center, both located in Phoenix, Arizona for $120.0 million, which consisted of a sales price of $168.0 million less $48.0 million of debt assumed by the third party.  In exchange we received six big-box anchor locations in Arizona, California, Illinois and Utah previously owned by the third party and $75.0 million in cash. The transaction was treated as a non-monetary exchange that resulted in a minimal gain.

 

In addition, we transferred eight consolidated properties to the lender in lieu of debt, which resulted in a $406.5 million reduction in mortgage notes payable.

 

Acquisition Method of Accounting Adjustments on the Effective Date

 

The structure of the Plan Sponsors’ investments triggered the acquisition method of accounting, as the Plan and consummation of the Investment Agreements and the Texas Teachers Investment Agreement constituted a business combination. New GGP, Inc. was the acquirer that obtained control as it obtained all of the common stock of the Predecessor (a business for purposes of applying the acquisition method of accounting) in exchange for issuing its stock to the Predecessor common stockholders on a one-for-one basis (excluding fractional shares). The acquisition method of accounting was applied at the Effective Date and, therefore, the Successor’s balance sheet as of December 31, 2010 and statements of operations, cash flows and equity for the period November 10, 2010 through December 31, 2010 reflects the revaluation of the Predecessor’s assets and liabilities to fair value as of the Effective Date.  The acquisition method of accounting has been applied to the assets and liabilities of the Successor to reflect the acquisition of the Predecessor by the Successor as part of the Plan. The acquisition method of accounting adjustments recorded on the Effective Date reflect the allocation of the estimated purchase price as presented in the table below. Such adjustments reflect the amounts required to adjust the carrying values of our assets and liabilities, after giving effect to the transactions pursuant to the Plan and the distribution of HHC, to the fair values of such remaining assets and liabilities and redeemable noncontrolling interests, with the offset to common equity, as provided by the acquisition method of accounting.  Accordingly, the accompanying financial statements have been prepared in conformity with ASC 852-10, Reorganizations, and ASC 805-10, Business Combinations, for the Successor as a new entity including assets, liabilities and a capital structure with carrying values not comparable with prior periods.

 

F-19


 

GENERAL GROWTH PROPERTIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

Purchase Price Allocation

(in thousands)

 

 

 

 

 

November 9, 2010

 

Sources of funds

 

 

 

$

6,761,250

 

Plus: Existing GGP common equity *

 

 

 

4,446,691

 

Plus: Assumed liabilities

 

 

 

 

 

Fair value of mortgages, notes and loans payable

 

 

 

18,834,033

 

Deferred tax liabilities

 

 

 

39,113

 

Accounts payable and accrued expenses:

 

 

 

 

 

Below-market tenant leases

 

988,018

 

 

 

HHC tax indemnity

 

303,750

 

 

 

Accounts payable to affiliates

 

221,986

 

 

 

Accrued payroll and bonus

 

225,811

 

 

 

Accounts payable

 

304,794

 

 

 

Real estate tax payable

 

107,621

 

 

 

Uncertain tax position liability

 

20,247

 

 

 

Above-market ground leases

 

9,839

 

 

 

Other accounts payable and accrued expenses

 

478,293

 

 

 

Total accounts payable and accrued expenses

 

 

 

2,660,359

 

Total assumed liabilities

 

 

 

21,533,505

 

Plus: Total redeemable noncontrolling interests

 

 

 

220,842

 

Plus: Noncontrolling interests in consolidated real estate affiliates

 

 

 

102,171

 

Total purchase price

 

 

 

$

33,064,459

 

 

 

 

 

 

 

Land

 

 

 

$

4,858,396

 

Buildings and equipment:

 

 

 

 

 

Buildings and equipment

 

18,717,983

 

 

 

In-place leases

 

603,697

 

 

 

Lease commissions and costs

 

1,403,924

 

 

 

Total buildings and equipment

 

 

 

20,725,604

 

Developments in progress

 

 

 

137,055

 

Investment in and loans to/from Unconsolidated Real Estate Affiliates

 

 

 

3,184,739

 

Cash and cash equivalents

 

 

 

1,537,599

 

Accounts and notes receivable, net

 

 

 

129,439

 

Deferred expenses:

 

 

 

 

 

Lease commissions

 

154,550

 

 

 

Capitalized legal/marketing costs

 

26,757

 

 

 

Total deferred expenses

 

 

 

181,307

 

Prepaid expenses and other assets:

 

 

 

 

 

Above-market tenant leases

 

1,634,332

 

 

 

Below-market ground leases

 

259,356

 

 

 

Security and escrow deposits

 

153,294

 

 

 

Prepaid expenses

 

49,018

 

 

 

Real estate tax stabilization agreement

 

111,506

 

 

 

Deferred tax assets

 

10,576

 

 

 

Other

 

92,238

 

 

 

Total prepaid expenses and other assets

 

 

 

2,310,320

 

Total fair value of assets

 

 

 

$

33,064,459

 

 

* outstanding Old GGP common stock on the Effective Date at a value of $14 per share.

 

The purchase price for purposes of the application of the acquisition method of accounting was calculated using the equity contributions of the Plan Sponsors, Blackstone and Texas Teachers and a $14.00 per share value of the common stock of New GGP, Inc. issued to the equity holders of the Predecessor plus the assumed liabilities of GGP, Inc. (at fair value).  The $14.00 per share value of the common stock of GGP, Inc. reflects the “when issued” closing price of New GGP, Inc. common stock on the Effective Date. Such calculation yields a purchase price of approximately $33.1 billion. The aggregate fair value of the assets and liabilities of New GGP, Inc., after the distribution of HHC pursuant to the Plan, were computed using estimates of future cash flows and other valuation techniques, including estimated discount and capitalization rates, and such estimates and techniques were also used to allocate the purchase price of acquired property between land, buildings, equipment, tenant improvements and identifiable intangible assets and liabilities such as amounts related to in-place at-market tenant leases, acquired above

 

F-20


 

GENERAL GROWTH PROPERTIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

and below-market tenant and ground leases.   Elements of the Predecessor’s working capital have been reflected at current carrying amounts as such short-term items are assumed to be settled in cash within 12 months at such values.

 

The fair values of tangible assets are determined on an ‘‘if vacant’’ basis. The ‘‘if vacant’’ fair value is allocated to land, where applicable, buildings, equipment and tenant improvements based on comparable sales and other relevant information with respect to the property. Specifically, the ‘‘if vacant’’ value of the buildings and equipment was calculated using a cost approach utilizing published guidelines for current replacement cost or actual construction costs for similar, recently developed properties; and an income approach. Assumptions used in the income approach to the value of buildings include: capitalization and discount rates, lease-up time, market rents, make ready costs, land value, and site improvement value. We believe that the most influential assumption in the estimation of value based on the income approach is the assumed discount rate and an average one half of one percent change in the aggregate discount rates applied to our estimates of future cash flows would result in an approximate 3.5 percent change in the aggregate estimated value of our real estate investments.  With respect to developments in progress, the fair value of such projects approximated the carrying value.

 

The estimated fair value of in-place tenant leases includes lease origination costs (the costs we would have incurred to lease the property to the current occupancy level of the property) and the lost revenues during the period necessary to lease-up from vacant to the current occupancy level. Such estimate includes the fair value of leasing commissions, legal costs and tenant coordination costs that would be incurred to lease the property to this occupancy level. Additionally, we evaluate the time period over which such occupancy level would be achieved and include an estimate of the net operating costs (primarily real estate taxes, insurance and utilities) incurred during the lease-up period, which generally ranges up to one year. The fair value of acquired in-place tenant leases is included in the balance of buildings and equipment and amortized over the remaining lease term for each tenant.

 

Intangible assets and liabilities were calculated for above-market and below-market tenant and ground leases where we are either the lessor or the lessee. Above-market and below-market tenant and ground lease values were valued (using an interest rate which reflects the risks associated with the leases acquired) based on the difference between the contractual amounts to be received or paid pursuant to the leases and our estimate of fair market lease rates for the corresponding leases, measured over a period equal to the remaining non-cancelable term of the leases, including below market renewal options. The variance between contract rent versus prevailing market rent is projected to expiration for each particular tenant and discounted back to the date of acquisition. Significant assumptions used in determining the fair value of leasehold assets and liabilities include: (1) the market rental rate, (2) market reimbursements, (3) the market rent growth rate and (4) discount rates. Above and below-market lease values are amortized over the remaining non-cancelable terms of the respective leases (approximately five years for tenant leases and approximately 50 years for ground leases). The remaining term of leases with lease renewal options with terms significantly below (25% or more discount to the assumed market rate of the tenant’s space at the time the renewal option is to apply) market reflect the assumed exercise of such renewal options and assume the amortization period would coincide with the extended lease term. Due to existing contacts and relationships with tenants at our currently owned properties and that there was no significant perceived difference in the renewal probability of a tenant based on such relationship, no significant value has been ascribed to the tenant relationships at the properties.

 

Less than 1% of our leases contain renewal options exercisable by our tenants. In estimating the fair value of the related below market lease liability, we assumed that tenants with renewal options would exercise this option if the renewal rate was at least 25% below the estimated market rate at the time of renewal. We have utilized this assumption, which we believe to be reasonable, because we believe that such a discount would be compelling and that tenants would elect to renew their leases under such favorable terms. We believe that at a discount of less than 25%, the tenant also considers qualitative factors in deciding whether to renew a below-market lease and, accordingly, renewal can not be assumed. In cases where we have assumed renewal of the below-market lease, we have used the terms of the leases, as renewed, including any below market renewal options, to amortize the calculated below-market lease intangible. If we had used a discount to estimated market rates of 10% rather than 25%, there would not have been a material change in the below-market lease intangible or the amortization of such intangible.

 

With respect to our investments in the Unconsolidated Real Estate Affiliates, our fair value reflects the fair value of the property held by such affiliate, as computed in a similar fashion to our majority owned properties. Such fair values have been adjusted for the consideration of our ownership and distribution preferences and limitations and rights to sell and repurchase our ownership interests. We estimated the fair value of debt based on quoted market prices for publicly-traded debt, recent financing transactions (which may not be comparable), estimates of the fair value of the property that serves as collateral for such debt, historical risk premiums for loans of comparable quality, the current

 

F-21


 

GENERAL GROWTH PROPERTIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

LIBOR and 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 credit quality would be if credit markets were operating efficiently and assume that the debt is outstanding through maturity. We have utilized market information as available or present value techniques to estimate such amounts. 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 of such debt could be realized by immediate settlement of the obligation.

 

Intangible Assets and Liabilities

 

The following table summarizes our intangible assets and liabilities:

 

 

 

Gross Asset
(Liability)

 

Accumulated
(Amortization)/
Accretion

 

Net Carrying
Amount

 

 

 

 

 

(In thousands)

 

 

 

As of December 31, 2011

 

 

 

 

 

 

 

Tenant leases:

 

 

 

 

 

 

 

In-place value

 

$

1,252,484

 

$

(391,605

)

$

860,879

 

Above-market

 

1,478,798

 

(315,044

)

1,163,754

 

Below-market

 

(819,056

)

184,254

 

(634,802

)

Ground leases:

 

 

 

 

 

 

 

Above-market

 

(9,839

)

439

 

(9,400

)

Below-market

 

204,432

 

(6,202

)

198,230

 

Real estate tax stabilization agreement

 

111,506

 

(7,211

)

104,295

 

 

 

 

 

 

 

 

 

As of December 31, 2010

 

 

 

 

 

 

 

Tenant leases:

 

 

 

 

 

 

 

In-place value

 

$

1,342,036

 

$

(56,568

)

$

1,285,468

 

Above-market

 

1,561,925

 

(43,032

)

1,518,893

 

Below-market

 

(959,115

)

26,804

 

(932,311

)

Building leases:

 

 

 

 

 

 

 

Below-market

 

15,268

 

(242

)

15,026

 

Ground leases:

 

 

 

 

 

 

 

Above-market

 

(9,839

)

55

 

(9,784

)

Below-market

 

256,758

 

(904

)

255,854

 

Real estate tax stabilization agreement

 

111,506

 

(899

)

110,607

 

 

The gross asset balances of the in-place value of tenant leases are included in buildings and equipment in our Consolidated Balance Sheets.  The above-market tenant leases and below-market ground leases are included in prepaid expenses and other assets; the below-market tenant leases and above-market ground leases are included in accounts payable and accrued expenses (Note 15) in our Consolidated Balance Sheets.

 

Amortization/accretion of these intangibles had the following effects on our loss from continuing operations:

 

 

 

Successor

 

Predecessor

 

 

 

Year Ended
December 31, 2011

 

Period from
November 10, 2010
through December
31, 2010

 

Period from
January 1, 2010
through November
9, 2010

 

Year Ended
December 31, 2009

 

 

 

(In thousands)

 

Amortization/accretion effect on continuing operations

 

$

(489,873

)

$

(65,579

)

$

(34,678

)

$

(43,525

)

 

Future amortization is estimated to decrease net income by approximately $420.6 million in 2012, $336.8 million in 2013, $285.7 million in 2014, $243.2 million in 2015 and $202.6 million in 2016.

 

F-22


 

GENERAL GROWTH PROPERTIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 5                            DISCONTINUED OPERATIONS AND GAINS (LOSSES) ON DISPOSITIONS OF INTERESTS IN OPERATING PROPERTIES

 

On March 2, 2012, we sold our interest in Village of Cross Keys for $25.0 million.  We received $8.0 million in cash and entered into a secured note receivable with the buyer for $17.0 million.

 

On February 21, 2012, we sold Grand Traverse Mall to RPI.  Prior to the sale, the lender forgave $18.9 million of the secured indebtedness.  This amount is recorded as a gain on extinguishment of debt and included in discontinued operations in our Consolidated Statements of Operations and Comprehensive income (Loss). RPI assumed the remaining $62.0 million of debt on the property as consideration for the sale.

 

On January 12, 2012, we completed the spin-off of RPI, a 30-mall portfolio totaling approximately 21 million square feet.  The RPI Spin-off was accomplished through a special dividend of the common stock of RPI to holders of GGP common stock as of December 30, 2011.  Subsequent to the spin-off, we retained a 1% interest in RPI.

 

All of our 2011, 2010 and 2009 dispositions are included in discontinued operations in our Consolidated Statements of Operations and Comprehensive Income (Loss) and are summarized in the table below.  We have one property classified as held for disposition as of December 31, 2011.  This property has been approved for sale and is expected to be sold or disposed of within 12 months.

 

As noted above, during the three months ended March 31, 2012, we sold two operating properties and completed the spin-off of RPI.  The operating results of these properties, each of which qualifies for discontinued operations, has been reclassified and reported as discontinued operations in the Consolidated Statements of Operations and Comprehensive Income (Loss) for all periods presented.

 

In the first quarter of 2012, we revised our intent with respect to four properties previously classified as held for sale.  As we no longer met the criteria for held for sale treatment, we reclassified these four properties as held for use in our Consolidated Balance Sheet and as continuing operations in our Consolidated Statements of Operations and Comprehensive Income (Loss) for all periods presented.  These properties have been measured at the lower of the carrying amount before the asset was classified as held for sale, adjusted for any depreciation and amortization expense that would have been recognized had the asset been continuously classified as held and used, and fair value at the date of decision not to sell.

 

In March 2011, we revised our intent with respect to two properties previously classified as held for sale (Mall St. Vincent and Southland Center).  As we no longer met the criteria for held for sale treatment, we reclassified these two properties as held for use in our Consolidated Balance Sheet as of March 31, 2011 and as continuing operations in our Consolidated Statements of Operations and Comprehensive Income (Loss) for all periods presented.

 

 

 

Discontinued Operations

 

 

 

 

 

 

 

Successor

 

Successor

 

Predecessor

 

Predecessor

 

 

 

Year Ended
December 31, 2011

 

Period from November 10,
2010 through December
31, 2010

 

Period from January 1,
2010 through November 9,
2010

 

Year Ended
December 31, 2009

 

 

 

(In thousands)

 

Retail and other revenue

 

$

304,225

 

$

56,263

 

$

441,101

 

$

540,129

 

Land and condominium sales

 

—

 

—

 

96,976

 

45,997

 

Total revenues

 

304,225

 

56,263

 

538,077

 

586,126

 

Retail and other operating expenses

 

248,614

 

41,862

 

275,093

 

391,916

 

Land and condominium sales operations

 

—

 

—

 

99,449

 

50,770

 

Impairment loss

 

4,096

 

—

 

30,784

 

906,883

 

Total expenses

 

252,710

 

41,862

 

405,326

 

1,349,569

 

Operating income (loss)

 

51,515

 

14,401

 

132,751

 

(763,443

)

Interest expense, net

 

(82,222

)

(16,322

)

(97,286

)

(106,881

)

Other expenses

 

—

 

(8

)

26,639

 

69,259

 

Net (loss) income from operations

 

(30,707

)

(1,929

)

62,104

 

(801,065

)

(Provision for) benefit from income taxes

 

(632

)

(100

)

472,170

 

20,303

 

Noncontrolling interest

 

(86

)

—

 

(64

)

453

 

Gains (losses) on disposition of properties

 

4,332

 

(4,976

)

(1,111,277

)

(966

)

Net loss from discontinued operations

 

$

(27,093

)

$

(7,005

)

$

(577,067

)

$

(781,275

)

 

Distribution of HHC

 

As described in Note 2, certain net assets of the Predecessor were distributed to its stockholders to form HHC, a newly formed publicly held real estate company. The Predecessor recorded a loss on distribution for the difference

 

F-23


 

GENERAL GROWTH PROPERTIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

between the carrying amount and the fair value of the disposal group when the spin-off transaction was consummated. This loss on distribution of approximately $1.11 billion was recorded by the Predecessor as discontinued operations on the Effective Date based on the fair value of the disposal group calculated based on the difference between the Predecessor’s carrying value of the carve-out group of net assets distributed to HHC and the fair value based on $36.50 per share (the NYSE closing price of HHC common stock which was traded on a “when issued” basis on the Effective Date).

 

NOTE 6                            UNCONSOLIDATED REAL ESTATE AFFILIATES

 

The Unconsolidated Real Estate Affiliates represents our investments in real estate joint ventures. 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.

 

In certain circumstances, we have debt obligations in excess of our pro rata share of the debt 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 of such Unconsolidated Real Estate Affiliates. The proceeds of the Retained Debt which are distributed to us are included as a reduction in our investment in Unconsolidated Real Estate Affiliates.  Such Retained Debt totaled $130.6 million as of December 31, 2011 and $155.6 million as of December 31, 2010, and has been reflected as a reduction in our investment in Unconsolidated Real Estate Affiliates.  We are obligated to contribute funds 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 December 31, 2011, we do not anticipate an inability to perform on our obligations with respect to such Retained Debt.

 

Indebtedness secured by our Unconsolidated Properties was $5.80 billion as of December 31, 2011 and $6.02 billion as of December 31, 2010.  Our proportionate share of such debt was $2.78 billion as of December 31, 2011 and $2.67 billion as of December 31, 2010, including Retained Debt.  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.

 

On January 29, 2010, our Brazilian joint venture, Aliansce Shopping Centers S.A. (“Aliansce”), commenced trading on the Brazilian Stock Exchange, or BM&FBovespa, as a result of an initial public offering of Aliansce’s common shares in Brazil (the “Aliansce IPO”).  Although we did not sell any of our Aliansce shares in the Aliansce IPO, our ownership interest in Aliansce was diluted from 49% to approximately 31% as a result of the stock sold in the Aliansce IPO.  We continue to apply the equity method of accounting to our ownership interest in Aliansce.  As an equity method investor, we accounted for the shares issued by Aliansce as if we had sold a proportionate share of our investment at the issuance price per share of the Aliansce IPO. Accordingly, the Predecessor recognized a gain of $9.7 million for the period from January 1, 2010 through November 9, 2010, which is reflected in equity in income (loss) of Unconsolidated Real Estate Affiliates.

 

Condensed Combined Financial Information of Unconsolidated Real Estate Affiliates

 

Following is summarized financial information for our Unconsolidated Real Estate Affiliates. Certain 2010 and 2009 amounts have been reclassified to conform to the 2011 presentation as a result of discontinued operations.

 

F-24


 

GENERAL GROWTH PROPERTIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

 

 

December 31,

 

December 31,

 

 

 

2011

 

2010

 

 

 

(In thousands)

 

Condensed Combined Balance Sheets - Unconsolidated Real Estate Affiliates Assets:

 

 

 

 

 

Land

 

$

953,603

 

$

893,769

 

Buildings and equipment

 

7,906,346

 

7,810,685

 

Less accumulated depreciation

 

(1,950,860

)

(1,808,819

)

Developments in progress

 

99,352

 

56,714

 

Net property and equipment

 

7,008,441

 

6,952,349

 

Investment in unconsolidated joint ventures

 

758,372

 

630,212

 

Net investment in real estate

 

7,766,813

 

7,582,561

 

Cash and cash equivalents

 

387,549

 

421,206

 

Accounts and notes receivable, net

 

162,822

 

148,059

 

Deferred expenses, net

 

250,865

 

196,809

 

Prepaid expenses and other assets

 

143,021

 

116,926

 

Assets held for disposition

 

—

 

94,336

 

Total assets

 

$

8,711,070

 

$

8,559,897

 

 

 

 

 

 

 

Liabilities and Owners’ Equity:

 

 

 

 

 

Mortgages, notes and loans payable

 

$

5,790,509

 

$

5,891,224

 

Accounts payable, accrued expenses and other liabilities

 

446,462

 

361,721

 

Liabilities on assets held for disposition

 

—

 

143,517

 

Owners’ equity

 

2,474,099

 

2,163,435

 

Total liabilities and owners’ equity

 

$

8,711,070

 

$

8,559,897

 

 

 

 

 

 

 

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

 

 

 

 

 

Owners’ equity

 

$

2,474,099

 

$

2,163,435

 

Less joint venture partners’ equity

 

(1,417,682

)

(2,006,460

)

Capital or basis differences and loans

 

1,996,556

 

2,996,723

 

Investment in and loans to/from

 

 

 

 

 

Unconsolidated Real Estate Affiliates, net

 

$

3,052,973

 

$

3,153,698

 

 

 

 

Successor

 

Predecessor

 

 

 

Year ended
December 31, 2011

 

Period from
November 10, 2010
through
December 31, 2010

 

Period from January 1,
2010 through November
9, 2010

 

Year ended
December 31, 2009

 

 

 

(In thousands)

 

Condensed Combined Statements of Income - Unconsolidated Real Estate Affiliates Revenues:

 

 

 

 

 

 

 

 

 

Minimum rents

 

$

723,121

 

$

101,266

 

$

585,791

 

666,577

 

Tenant recoveries

 

297,530

 

41,610

 

245,102

 

300,844

 

Overage rents

 

26,736

 

6,502

 

9,103

 

13,172

 

Management and other fees

 

16,346

 

1,217

 

15,592

 

9,802

 

Other

 

52,721

 

8,491

 

21,414

 

28,631

 

Total revenues

 

1,116,454

 

159,086

 

877,002

 

1,019,026

 

 

 

 

 

 

 

 

 

 

 

Expenses:

 

 

 

 

 

 

 

 

 

Real estate taxes

 

98,738

 

11,971

 

73,830

 

91,537

 

Property maintenance costs

 

40,293

 

7,309

 

31,882

 

36,364

 

Marketing

 

17,791

 

5,215

 

10,894

 

14,543

 

Other property operating costs

 

162,572

 

23,052

 

130,621

 

160,777

 

Provision for doubtful accounts

 

6,826

 

(471

)

5,287

 

10,781

 

Property management and other costs

 

46,935

 

7,576

 

40,409

 

51,369

 

General and administrative

 

29,062

 

2,491

 

36,034

 

11,637

 

Provisions for impairment

 

—

 

—

 

881

 

18,046

 

Depreciation and amortization

 

267,369

 

36,225

 

211,725

 

240,044

 

Total expenses

 

669,586

 

93,368

 

541,563

 

635,098

 

Operating income

 

446,868

 

65,718

 

335,439

 

383,928

 

 

 

 

 

 

 

 

 

 

 

Interest income

 

18,355

 

2,309

 

17,932

 

5,488

 

Interest expense

 

(350,716

)

(47,725

)

(271,476

)

(293,852

)

(Provision for) benefit from for income taxes

 

(794

)

(179

)

66

 

(1,673

)

Equity in income of unconsolidated joint ventures

 

54,207

 

9,526

 

43,479

 

61,730

 

Income from continuing operations

 

167,920

 

29,649

 

125,440

 

155,621

 

Discontinued operations

 

165,323

 

219

 

50,757

 

(61,503

)

Allocation to noncontrolling interests

 

(3,741

)

111

 

964

 

(3,453

)

Net income attributable to joint venture partners

 

$

329,502

 

$

29,979

 

$

177,161

 

$

90,665

 

 

 

 

 

 

 

 

 

 

 

Equity In (Loss) Income of Unconsolidated Real Estate Affiliates:

 

 

 

 

 

 

 

 

 

Net income attributable to joint venture partners

 

$

329,502

 

$

29,979

 

$

177,161

 

$

90,665

 

Joint venture partners’ share of income

 

(181,213

)

(17,878

)

(67,845

)

(26,320

)

Amortization of capital or basis differences

 

(145,391

)

(12,605

)

(61,302

)

(59,710

)

Gain on Aliansce IPO

 

—

 

—

 

9,718

 

—

 

Loss on Highland Mall conveyance

 

—

 

—

 

(29,668

)

—

 

Discontinued operations

 

—

 

—

 

(6,207

)

28,208

 

Equity in income (loss) of Unconsolidated Real Estate Affiliates

 

$

2,898

 

$

(504

)

$

21,857

 

$

32,843

 

 

F-25


 

GENERAL GROWTH PROPERTIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 7                            MORTGAGES, NOTES AND LOANS PAYABLE

 

Mortgages, notes and loans payable are summarized as follows (see Note 18 for the maturities of our long term commitments, and note that the table below includes mortgage debt related to properties that were part of the RPI Spin-Off as such mortgage debt is included in our Consolidated Financial Statements.):

 

 

 

December 31,

 

December 31,

 

 

 

2011

 

2010

 

 

 

(In thousands)

 

Fixed-rate debt:

 

 

 

 

 

Collateralized mortgages, notes and loans payable

 

$

13,091,080

 

$

13,687,452

 

Corporate and other unsecured term loans

 

1,704,290

 

1,728,625

 

Total fixed-rate debt

 

14,795,370

 

15,416,077

 

Variable-rate debt:

 

 

 

 

 

Collateralized mortgages, notes and loans payable

 

2,347,644

 

2,425,680

 

Total Mortgages, notes and loans payable

 

$

17,143,014

 

$

17,841,757

 

Variable-rate debt:

 

 

 

 

 

Junior Subordinated Notes

 

$

206,200

 

$

206,200

 

 

The weighted-average interest rate excluding the effects of deferred finance costs, on our collateralized mortgages, notes and loans payable was 5.13% at December 31, 2011 and 5.24% at December 31, 2010.  The weighted average interest rate, on the remaining corporate unsecured fixed and variable rate debt and the revolving credit facility was 6.18% at December 31, 2011.

 

We are not aware of any instance of non-compliance with our financial covenants related to our mortgages, notes and loans payable as of December 31, 2011.

 

During the year ended December 31, 2011, we or our Unconsolidated Real Estate Affiliates refinanced the mortgage notes on 20 Consolidated and Unconsolidated regional malls representing $3.24 billion of new mortgage notes at our proportionate share.  These 20 new fixed-rate mortgage notes have a weighted average term of 10.16 years and generated cash proceeds in excess of in-place financing of approximately $619 million to GGP.  We have also been able to lower the weighted average interest rate of these 20 mortgage notes from 5.83% to 5.06%, while lengthening the term by approximately seven years over the remaining term previously in place.

 

Collateralized Mortgages, Notes and Loans Payable

 

As of December 31, 2011, $22.67 billion of land, buildings and equipment and developments in progress (before accumulated depreciation) have been pledged as collateral for our mortgages, notes and loans payable. Certain of these secured loans, representing $2.92 billion of debt, are cross-collateralized with other properties.  Although a majority of the $15.44 billion of fixed and variable rate collateralized mortgages, notes and loans payable are non-recourse, $2.49 billion of such mortgages, notes and loans payable are recourse due to guarantees or other security provisions for the benefit of the note holder.  In addition, certain mortgage loans contain other credit enhancement provisions (primarily master leases for all or a portion of the property) 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.

 

Corporate and Other Unsecured Loans

 

We have certain unsecured debt obligations, the terms of which are described below.  As the result of a consensual agreement reached in the third quarter of 2010 with lenders of certain of our corporate debt, we recognized $83.7 million of additional interest expense for the period January1, 2010 through November 9, 2010.  The results of the Plan treatment for each of these obligations is also described below.

 

GGP Capital Trust I, a Delaware statutory trust (the “Trust”) and a wholly-owned subsidiary of GGPLP, 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 GGPLP.  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 GGPLP due 2041.  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, 2041, but may be redeemed beginning on April 30, 2011 if the Trust exercises its right to redeem a like amount of the Junior Subordinated Notes.  The Junior Subordinated Notes bear interest at LIBOR plus 1.45%. Though the Trust is a wholly-owned subsidiary of GGPLP, we are not the primary

 

F-26


 

GENERAL GROWTH PROPERTIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

beneficiary of the Trust and, accordingly, it is not consolidated for accounting purposes.  As a result, we have recorded the Junior Subordinated Notes as Mortgages, Notes and Loans Payable and our common equity interest in the Trust as Prepaid Expenses and Other Assets in our Consolidated Balance Sheets at December 31, 2011 and 2010.  The Plan provided for reinstatement of the TRUPS.

 

We have publicly-traded unsecured bonds of $1.65 billion outstanding as of December 31, 2011 and December 31, 2010.  Such bonds have maturity dates from September 2012 through November 2015 and interest rates ranging from 5.38% to 7.20%.  The bonds have covenants, including ratios of secured debt to gross assets and total debt to total gross assets. We expect to repay the $349.5 million of bonds that are due in September 2012.

 

In connection with the consummation of the Plan, we entered into a revolving credit facility (the “Facility”) providing for revolving loans of up to $300 million, none of which was used to consummate the Plan.  On February 25, 2011, we amended the Facility to provide for loans up to approximately $720 million and, under certain circumstances, up to $1 billion. On April 11, 2011, we further amended the Facility to provide for loans up to $750 million retaining the right, in certain circumstances, to borrow up to $1 billion.  The Facility is scheduled to mature three years from the Effective Date and the Facility is guaranteed by certain of our subsidiaries and secured by (i) first lien mortgages on certain properties, (ii) first-lien pledges of equity interests in certain of our subsidiaries and (iii) various additional collateral.

 

No amounts have been drawn on the Facility.  Borrowings under the Facility bear interest at a rate equal to LIBOR plus 4.5%.  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 to maintain a maximum net debt to value ratio, a maximum leverage ratio and a minimum net cash interest coverage ratio and we are not aware of any non-compliance with such covenants as of December 31, 2011.

 

Letters of Credit and Surety Bonds

 

We had outstanding letters of credit and surety bonds of $19.1 million as of December 31, 2011 and $41.8 million as of December 31, 2010.  These letters of credit and bonds were issued primarily in connection with insurance requirements, special real estate assessments and construction obligations.

 

NOTE 8                            INCOME TAXES

 

We have elected to be taxed as a REIT under sections 856-860 of 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 ordinary taxable income and to either distribute 100% of 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 ending December 31, 2007 through 2011 and are open to audit by state taxing authorities for years ending December 31, 2006 through 2011.  Two of the Predecessor’s taxable REIT subsidiaries distributed as part of HHC were subject to IRS audit for the years ended December 31, 2007 and 2008.  On February 9, 2011, the two taxable REIT subsidiaries received statutory notices of deficiency (“90-day letters”) seeking $144.1 million in additional tax.  The two taxable REIT subsidiaries filed petitions in the U.S. Tax Court on May 6, 2011 and the government filed answers on July 6, 2011.  It is the Predecessor’s position that the tax law in question has been properly applied and reflected in the 2007 and 2008 returns for these two taxable REIT subsidiaries.  However, as the result of the IRS’ position, the Predecessor previously provided appropriate levels for the additional taxes sought by the IRS, through its uncertain tax position liability or deferred tax liabilities.  Although the Predecessor believes the tax returns are correct, the final determination of tax examinations and any related litigation could be different than what was reported on the returns.

 

F-27


 

GENERAL GROWTH PROPERTIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

In the opinion of management, the Predecessor has made adequate tax provisions for the years subject to examination.

 

Based on our assessment of the expected outcome of examinations that are in process or may commence, or as a result of the expiration of the statute of limitations for specific jurisdictions, we do not expect that the related unrecognized tax benefits, excluding accrued interest, for tax positions taken regarding previously filed tax returns will materially change from those recorded at December 31, 2011 during the next twelve months.

 

As a result of the emergence transactions, the Predecessor and its subsidiaries did experience an ownership change as defined under section 382 of the Internal Revenue Code which will limit its use of certain tax attributes.    As such, there are valuation allowances placed on deferred tax assets where appropriate.   Most of the attributes of the Predecessor were either used in effecting the reorganization or transferred to HHC.  Remaining attributes subject to limitation under Section 382 are not material.

 

The provision for (benefit from) income taxes for the year ended December 31, 2011, the period from November 10 through December 31, 2010, the period from January 1, 2010 through November 9, 2010 and the year ended December 31, 2009 were as follows:

 

 

 

Successor

 

Predecessor

 

 

 

Year Ended
December 31, 2011

 

Period from
November 10 through
December 31, 2010

 

Period from
January 1, 2010
through November
9, 2010

 

Year Ended
December 31, 2009

 

 

 

(In thousands)

 

Current

 

$

11,548

 

$

141

 

$

(6,449

)

$

(7,108

)

Deferred

 

(2,825

)

(9,133

)

(54,513

)

12,801

 

Total from Continuing Operations

 

8,723

 

(8,992

)

(60,692

)

5,693

 

 

 

 

 

 

 

 

 

 

 

Current

 

634

 

(2,676

)

(28,791

)

(8,335

)

Deferred

 

—

 

2,777

 

(443,379

)

(11,968

)

Total from Discontinued Operations

 

634

 

101

 

(472,170

)

(20,303

)

 

 

 

 

 

 

 

 

 

 

Total

 

$

9,357

 

$

(8,891

)

$

(533,132

)

$

(14,610

)

 

The distribution of assets from the Predecessor in the formation of HHC significantly changed the Successor’s exposure to income taxes.  The majority of taxable activities within the Predecessor were distributed in the formation of HHC with relatively insignificant taxable activities remaining with the Successor.  The vast majority of the Successor’s activities are conducted within the REIT structure.  REIT earnings are generally not subject to federal income taxes.  As such, the Successor’s provision for (benefit from) income taxes is not a material item in its financial statements.

 

Total provision for (benefit from) income taxes computed for continuing and discontinued operations by applying the Federal corporate tax rate for the year ended December 31, 2011, the period from November 10 through December 31, 2010, the period from January 1, 2010 through November 9, 2010 and the year ended December 31, 2009 were as follows:

 

 

 

Successor

 

Predecessor

 

 

 

Year Ended
December 31, 2011

 

Period from
November 10 through
December 31, 2010

 

Period from
January 1, 2010
through November
9, 2010

 

Year Ended
December 31, 2009

 

 

 

(In thousands)

 

Tax at statutory rate on earnings from continuing operations before income taxes

 

$

(109,050

)

$

(90,011

)

$

(225,959

)

$

(175,138

)

Increase (decrease) in valuation allowances, net

 

(497

)

1,491

 

(24,608

)

22,479

 

State income taxes, net of Federal income tax benefit

 

5,488

 

576

 

2,956

 

3,045

 

 

 

 

 

 

 

 

 

 

 

Tax at statutory rate on REIT earnings not subject to Federal income taxes

 

111,748

 

90,832

 

228,399

 

155,450

 

Tax expense (benefit) from change in tax rates, prior period adjustments and other permanent differences

 

3,076

 

95

 

1,792

 

954

 

Tax expense (benefit) from discontinued operations

 

101

 

18

 

(472,676

)

(21,180

)

Uncertain tax position expense, excluding interest

 

(1,185

)

(8,856

)

(34,560

)

866

 

 

 

 

 

 

 

 

 

 

 

Uncertain tax position interest, net of federal income tax benefit and other

 

(324

)

(3,036

)

(8,476

)

(1,086

)

 

 

 

 

 

 

 

 

 

 

Provision for (benefit from) income taxes

 

$

9,357

 

(8,891

)

(533,132

)

(14,610

)

 

Realization of a deferred tax benefit is dependent upon generating sufficient taxable income in future periods.  Our TRS net operating loss carryforwards are currently scheduled to expire in subsequent years through 2031.   All of the

 

F-28


 

GENERAL GROWTH PROPERTIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

REIT net operating loss carryforward amounts are subject to annual limitations under Section 382 of the Code, although it is not expected that there will be a significant impact as they are expected to be utilized against pre-tax income.

 

The amounts and expiration dates of operating loss and tax credit carryforwards for tax purposes for our TRS’s are as follows:

 

 

 

Amount

 

Expiration Dates

 

 

 

(In thousands)

 

Net operating loss carryforwards - State

 

$

25,944

 

2012-2031

 

Capital loss carryforwards

 

6,638

 

2015

 

 

Each TRS and certain REIT entities subject to state income taxes is a tax paying component for purposes of classifying deferred tax assets and liabilities.  As of December 31, 2011, we had gross deferred tax assets totaling $21.6 million, of which a valuation allowance of $17.0 million has been established against certain deferred tax assets, and gross deferred tax liabilities of $29.2 million.  Net deferred tax assets (liabilities) are summarized as follows:

 

 

 

2011

 

2010

 

 

 

(In thousands)

 

Total deferred tax assets

 

$

21,574

 

$

27,998

 

Valuation allowance

 

(16,996

)

(17,493

)

Net deferred tax assets

 

4,578

 

10,505

 

Total deferred tax liabilities

 

(29,220

)

(36,463

)

Net deferred tax liabilities

 

$

(24,642

)

$

(25,958

)

 

Due to the uncertainty of the realization of certain tax carryforwards, we have established valuation allowances on those deferred tax assets that we do not reasonably expect to realize. Deferred tax assets that we believe have only a remote possibility of realization have not been recorded.

 

The tax effects of temporary differences and carryforwards included in the net deferred tax liabilities as of December 31, 2011 and December 31, 2010 are summarized as follows:

 

 

 

2011

 

2010

 

 

 

(In thousands)

 

 

 

 

 

 

 

Operating loss and tax credit carryforwards

 

$

5,489

 

$

16,074

 

REIT deferred state tax liability

 

—

 

(9,653

)

Other TRS Property, primarily differences in basis of assets and liabilities

 

(13,135

)

(14,886

)

Valuation allowance

 

(16,996

)

(17,493

)

Net deferred tax liabilities

 

$

(24,642

)

$

(25,958

)

 

We had unrecognized tax benefits recorded pursuant to uncertain tax positions of $6.1 million as of December 31, 2011, excluding interest, all of which would impact our effective tax rate.  Accrued interest related to these unrecognized tax benefits amounted to $0.7 million as of December 31, 2011.   The Successor had unrecognized tax benefits recorded pursuant to uncertain tax positions of $7.2 million as of December 31, 2010, excluding interest, all of which would impact our effective tax rate.  Accrued interest related to these unrecognized tax benefits amounted to $1.1 million as of December 31, 2010.

 

During the period ended November 9, 2010 and the year ended December 31, 2009 the Predecessor recognized previously unrecognized tax benefits, excluding accrued interest, of $72.9 million and $(6.2) million, respectively. The recognition of the previously unrecognized tax benefits resulted in the reduction of interest expense accrued related to these amounts.

 

F-29


 

GENERAL GROWTH PROPERTIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

 

 

Successor

 

Predecessor

 

 

 

Year Ended
December 31, 2011

 

Period from
November 10 through
December 31, 2010

 

Period from
January 1, 2010
through November
9, 2010

 

Year Ended
December 31, 2009

 

 

 

(In thousands)

 

 

 

 

 

 

 

 

 

 

 

Unrecognized tax benefits, opening balance

 

$

7,235

 

$

16,090

 

$

103,975

 

$

112,915

 

Gross increases - tax positions in prior period

 

—

 

—

 

3,671

 

41

 

Gross increases - tax positions in current period

 

1,907

 

—

 

69,216

 

6,969

 

Gross decreases - tax positions in prior period

 

—

 

—

 

—

 

(15,950

)

Lapse of statute of limitations

 

(944

)

(8,855

)

(35,117

)

—

 

Gross decreases - other (1)

 

(2,145

)

—

 

(125,291

)

—

 

Gross decreases - tax positions in current period

 

—

 

—

 

(364

)

—

 

Unrecognized tax benefits, ending balance

 

$

6,053

 

$

7,235

 

$

16,090

 

$

103,975

 

 

(1)  An uncertain tax position related to the difference between the income tax method of accounting that was used and the financial statement method of accounting for prior sales of land related to the Predecessor’s Master Planned Communities business.

 

Based on the Successor’s 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 December 31, 2011, although such change would not be material to the 2012 financial statements.

 

Earnings and profits, which determine the taxability of dividends to stockholders, differ from net income reported for financial reporting purposes due to differences for Federal income tax reporting purposes in, among other things, estimated useful lives, depreciable basis of properties and permanent and temporary differences on the inclusion or deductibility of elements of income and deductibility of expense for such purposes.

 

Distributions paid on our common stock and their tax status, as sent to our shareholders, is presented in the following table.  The tax status of GGP distributions in 2011, 2010 and 2009 may not be indicative of future periods.

 

 

 

Successor

 

Predecessor

 

 

 

Year Ended
December 31,
2011

 

Period from
November 10
through
December 31,
2010

 

Year Ended
December 31,
2009

 

 

 

(In thousands)

 

 

 

 

 

 

 

 

 

Oridinary income

 

$

0.303

 

$

—

 

$

0.103

 

Return of capital

 

—

 

—

 

—

 

Qualified dividends

 

—

 

0.244

 

—

 

Capital gain distributions

 

0.296

 

0.136

 

0.087

 

Distributions per share

 

$

0.599

 

$

0.380

 

$

0.190

 

 

NOTE 9                            WARRANT LIABILITY

 

Pursuant to the terms of the Investment Agreements, the Plan Sponsors and Blackstone were issued, on the Effective Date, 120 million warrants (the “Warrants”) to purchase common stock of GGP.  Below is a summary of the Warrants received by the Plan Sponsors and Blackstone.

 

Warrant Holder

 

Number of Warrants

 

Exercise Price

 

Brookfield Investor

 

57,500,000

 

$

10.75

 

Blackstone -B

 

2,500,000

 

10.75

 

 

 

 

 

 

 

Fairholme

 

41,070,000

 

10.50

 

Pershing Square

 

16,430,000

 

10.50

 

Blackstone -A

 

2,500,000

 

10.50

 

 

 

120,000,000

 

 

 

 

F-30


 

GENERAL GROWTH PROPERTIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

The Warrants were fully vested upon issuance and the exercise prices 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.  As a result of these investment provisions, as of the record date of our common stock dividends, the number of shares issuable upon exercise of the outstanding Warrants was increased as follows:

 

 

 

 

 

Exercise Price

 

Record Date

 

Issuable Shares

 

Brookfield Investor
and Blackstone

 

Fairholme, Pershing
Square and Blackstone

 

December 30, 2010

 

123,144,000

 

$

10.48

 

$

10.23

 

April 15, 2011

 

123,960,000

 

10.41

 

10.16

 

July 15, 2011

 

124,704,000

 

10.34

 

10.10

 

December 30, 2011

 

131,748,000

 

9.79

 

9.56

 

 

As a result of the RPI distribution, the exercise price of the Warrants were adjusted by $0.3943 for the Brookfield Investor and Blackstone and by $0.3852 for the Fairholme, Pershing Square and Blackstone, on the record date of December 30, 2011, and the total number of issuable shares was 131,748,000.

 

Each GGP Warrant has a term of seven years and expires on November 9, 2017.  The Brookfield Investor Warrants and the Blackstone (A and B) Investor Warrants are immediately exercisable, while the Fairholme Warrants and the Pershing Square Warrants will be exercisable (for the initial 6.5 years from the Effective Date) only upon 90 days prior notice. No Warrants were exercised during the year ended December 31, 2011.

 

The estimated fair value of the Warrants was $986.0 million on December 31, 2011 and $1.04 billion on December 31, 2010 and is recorded as a liability as the holders of the Warrants could require GGP to settle such warrants in cash in the circumstance of a subsequent change of control.  Subsequent to the Effective Date, changes in the fair value of the Warrants have been and will continue to be recognized in earnings.  The fair value of the Warrants was estimated using the Black Scholes option pricing model using our stock price and Level 3 inputs (Note 3).  The following table summarizes the estimated fair value of the Warrants and significant assumptions used in the valuation as of December 31, 2011 and December 31, 2010:

 

 

 

December 31, 2011

 

December 31, 2010

 

 

 

(Dollars in thousands, except for share amounts)

 

Warrant liability

 

$

985,962

 

$

1,041,004

 

GGP stock price per share

 

$

15.02

 

$

15.48

 

Implied volatility

 

37

%

38

%

Warrant term

 

5.86

 

6.86

 

 

The following table summarizes the change in fair value of the Warrant liability which is measured on a recurring basis:

 

 

 

(In thousands)

 

Balance at November 10, 2010

 

$

835,752

 

Warrant liability adjustment

 

205,252

 

Balance at December 31, 2010

 

1,041,004

 

Warrant liability adjustment

 

(55,042

)

Balance at December 31, 2011

 

$

985,962

 

 

NOTE 10       RENTALS UNDER OPERATING LEASES

 

We receive rental income from the leasing of retail and other space under operating leases.  The minimum future rentals (excluding operating leases at properties held for disposition as of December 31, 2011 and properties part of the RPI Spin-Off - (Note 19) based on operating leases of our Consolidated Properties as of December 31, 2011 are as follows:

 

F-31


 

GENERAL GROWTH PROPERTIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

Year

 

Amount

 

 

 

(In thousands)

 

2012

 

$

1,337,195

 

2013

 

1,267,646

 

2014

 

1,143,619

 

2015

 

1,003,459

 

2016

 

860,472

 

Subsequent

 

2,675,265

 

 

 

$

8,287,656

 

 

Minimum future rentals exclude amounts which are payable by certain tenants based upon a percentage of their gross sales or as reimbursement of operating expenses and amortization of above and below-market tenant leases.  Such operating leases are with a variety of tenants, the majority of which are national and regional retail chains and local retailers, and consequently, our credit risk is concentrated in the retail industry.

 

NOTE 11       EQUITY AND REDEEMABLE NONCONTROLLING INTERESTS

 

Noncontrolling Interests

 

The minority interests related to our common and preferred Operating Partnership units are presented as redeemable noncontrolling interests in our Consolidated Balance Sheets, presented 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 fair value as of each measurement date.  The redeemable noncontrolling interests have been presented at carrying value plus allocated income (loss) and other comprehensive income as of December 31, 2011 and at fair value as of December 31, 2010.  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 loss attributable to common stockholders.

 

Generally, the holders of the Common Units share in any distributions by the Operating Partnership with our common stockholders. However, the 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.  As a result, the common stock dividends declared for 2011 and 2010 modified the conversion rate to 1.0397624.  The aggregate amount of cash that would have been paid to the holders of the outstanding Common Units as of December 31, 2011 if such holders had requested redemption of the Common Units as of December 31, 2011, and all such Common Units were redeemed or purchased pursuant to the rights associated with such Common Units for cash, would have been $103.0 million.

 

The Plan provided that holders of the Common Units could elect to redeem, reinstate or convert their units. Four holders of the Common Units elected to redeem 226,684 Common Units in the aggregate on the Effective Date. All remaining Common Units were reinstated in the Operating Partnership on the Effective Date.

 

The Operating Partnership issued Convertible Preferred Units, which are convertible, with certain restrictions, at any time by the holder into Common Units of the Operating Partnership at the rates below (subject to adjustment).  The Common Units are convertible into common stock at a one to one ratio at the current stock price.  The convertible preferred units are carried at the greater of contractual redemption value or fair value (based on current stock price).

 

 

 

Number of Common
Units for each
Preferred Unit

 

Number of Contractual
Convertible Preferred
Units Outstanding as of
December 31, 2011

 

Converted Basis to
Common Units
Outstanding as of
December 31, 2011

 

Contractual
Coversion Price

 

Redemption Value

 

Series B

 

3.000

 

1,279,715

 

3,839,146

 

$

16.6667

 

$

63,985,887

 

Series D

 

1.508

 

532,750

 

803,498

 

33.1519

 

26,637,477

 

Series E

 

1.298

 

502,658

 

652,633

 

38.5100

 

25,132,889

 

Series C

 

1.000

 

20,000

 

20,000

 

250.0000

 

5,000,000

 

 

 

 

 

 

 

 

 

 

 

$

120,756,253

 

 

F-32


 

GENERAL GROWTH PROPERTIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

Pursuant to the Plan, holders of the Convertible Preferred Units received their previously accrued and unpaid dividends net of the applicable taxes and reinstatement of their preferred units in the Operating Partnership.  Holders of the preferred units will receive shares of the common stock of RPI as a result of the spin-off that occurred on January 12, 2012.

 

The following table reflects the activity of the redeemable noncontrolling interests for year ended December 31, 2011, the period November 10, 2010 through December 31, 2010, the period January 1, 2010 through November 9, 2010 and for the year ended December 31, 2009.

 

 

 

(In thousands)

 

 

 

 

 

Predecessor

 

 

 

Balance at January 1, 2009 (Predecessor)

 

$

499,926

 

Net loss

 

(21,960

)

Distributions

 

(9,433

)

Conversion of operating partnership units into common shares

 

(324,489

)

Other comprehensive income

 

10,573

 

Adjustment for noncontrolling interests in operating partnership

 

(13,200

)

Adjust redeemable noncontrolling interests

 

65,416

 

Balance at December 31, 2009 (Predecessor)

 

206,833

 

 

 

 

 

Net loss

 

(26,604

)

Distributions

 

(15,608

)

Other comprehensive income

 

683

 

Adjust redeemable noncontrolling interests

 

55,539

 

Balance at November 9, 2010 (Predecessor)

 

220,843

 

 

 

 

 

Successor

 

 

 

Net loss

 

(1,868

)

Other comprehensive income

 

(8

)

Adjust redeemable noncontrolling interests

 

11,522

 

Adjustment for noncontrolling interests in operating partnership

 

1,875

 

Balance at December 31, 2010 (Successor)

 

232,364

 

 

 

 

 

Net loss

 

(2,212

)

Distributions

 

(5,879

)

Cash redemption of operating partnership units

 

(4,615

)

Other comprehensive loss

 

(337

)

Adjustment for noncontrolling interests in operating partnership

 

4,474

 

Balance at December 31, 2011 (Successor)

 

$

223,795

 

 

Common Stock Dividend and Purchase of Common Stock

 

The following table summarizes the cash common stock dividends declared in 2011:

 

Declaration Date

 

Amount per Share

 

Date Paid

 

Record Date

 

March 29, 2011

 

$

0.10

 

April 29, 2011

 

April 15, 2011

 

April 26, 2011

 

0.10

 

July 29, 2011

 

July 15, 2011

 

July 29, 2011

 

0.10

 

October 31, 2011

 

October 14, 2011

 

November 7, 2011

 

0.10

 

January 13, 2012

 

December 30, 2011

 

 

In addition to the November 7, 2011 cash dividend declared, the Board of Directors approved the distribution of RPI on December 20, 2011 in the form of a special dividend for which GGP shareholders were entitled to receive approximately 0.0375 shares of RPI common stock held as of December 30, 2011.  RPI’s net equity was recorded as of December 31, 2011 as a dividend payable as substantive conditions for the spin-off were met as of December 31, 2011 and it was probable that the spin-off would occur. Accordingly, as of December 31, 2011, we have recorded a distribution payable

 

F-33


 

GENERAL GROWTH PROPERTIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

of $526.3 million and a related decrease in retained earnings (accumulated deficit), of which $426.7 million relates to the special dividend, on our Consolidated Balance Sheet.  On January 12, 2012, we distributed our shares in RPI to the shareholders of record as of the close of business on December 30, 2011. This special dividend satisfied part of our 2011 and the 2012 REIT distribution requirements.

 

On December 20, 2010, we declared a dividend of $0.38 per share, paid on January 27, 2011 in the amount of approximately $35.8 million in cash and issued approximately 22.3 million shares of common stock (with a valuation of $14.4725 calculated based on the volume weighted average trading prices of GGP’s common stock on January 19 and January 21, 2011).

 

On March 29, 2011, we announced the implementation of our Dividend Reinvestment Plan (“DRIP”). The 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 for the dividends declared during 2011, 7,225,345 shares were issued during the year ended December 31, 2011.

 

In May 2011, we purchased shares of our common stock on the New York Stock Exchange through a private purchase.  In addition, on August 8, 2011, the Board of Directors authorized the Company to repurchase up to $250 million of our common stock on the open market.  During the year ended December 31, 2011, we have purchased 5,247,580 shares at a weighted average price of $12.53 per share for a total of $65.7 million.  The following table summarizes the stock buy-back activity during the year:

 

Trade Date

 

Shares
Purchased

 

Average Price

 

Total
Consideration
(In thousands)

 

 

 

 

 

 

 

 

 

August 18 - 26, 2011

 

2,046,940

 

$

13.1455

 

$

26,908

 

September 1 - 22, 2011

 

2,273,172

 

12.4592

 

28,322

 

October 3 - 5, 2011

 

927,468

 

11.3308

 

10,509

 

 

There were no stock repurchases during 2009 and 2010.

 

NOTE 12       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.

 

All options were anti-dilutive for all periods presented because of net losses, and, as such, their effect has not been included in the calculation of diluted net loss per share.  In addition, potentially dilutive shares of 40,781,905 related to the Warrants for the year ended December 31, 2010, have been excluded from the denominator in the computation of diluted EPS because they are also anti-dilutive.  Outstanding Common Units have also been excluded from the diluted earnings per share calculation because including such Common Units would also require that the share of GGPLP income attributable to such Common Units be added back to net income therefore resulting in no effect on EPS.

 

F-34


 

GENERAL GROWTH PROPERTIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

Information related to our EPS calculations is summarized as follows:

 

 

 

Successor

 

Predecessor

 

 

 

Year Ended
December 31, 2011

 

Period from
November 10, 2010
through December
31, 2010

 

Period from January
1, 2010 through
November 9, 2010

 

Year Ended
December 31, 2009

 

 

 

Basic and Diluted

 

Basic and Diluted

 

Basic and Diluted

 

Basic and Diluted

 

 

 

(In thousands)

 

Numerators - Basic:

 

 

 

 

 

 

 

 

 

Loss from continuing operations

 

$

(279,788

)

$

(249,079

)

$

(635,341

)

$

(523,441

)

Allocation to noncontrolling interests

 

(6,331

)

1,843

 

13,572

 

19,911

 

Loss from continuing operations - net of noncontrolling interests

 

(286,119

)

(247,236

)

(621,769

)

(503,530

)

 

 

 

 

 

 

 

 

 

 

Discontinued operations

 

(27,093

)

(7,005

)

(577,067

)

(781,275

)

Allocation to noncontrolling interests

 

40

 

25

 

13,078

 

116

 

Discontinued operations - net of noncontrolling interests

 

(27,053

)

(6,980

)

(563,989

)

(781,159

)

 

 

 

 

 

 

 

 

 

 

Net (loss) income

 

(306,881

)

(256,084

)

(1,212,408

)

(1,304,716

)

Allocation to noncontrolling interests

 

(6,291

)

1,868

 

26,650

 

20,027

 

Net loss attributable to common stockholders

 

$

(313,172

)

$

(254,216

)

$

(1,185,758

)

$

(1,284,689

)

 

 

 

 

 

 

 

 

 

 

Numerators - Diluted:

 

 

 

 

 

 

 

 

 

Loss from continuing operations - net of noncontrolling interests

 

$

(286,119

)

$

(247,236

)

$

(621,769

)

$

(503,530

)

Exclusion of warrant adjustment

 

(55,042

)

—

 

—

 

—

 

Diluted loss from continuing operations

 

$

(341,161

)

$

(247,236

)

$

(621,769

)

$

(503,530

)

 

 

 

 

 

 

 

 

 

 

Net loss attributable to common stockholders

 

$

(313,172

)

$

(254,216

)

$

(1,185,758

)

$

(1,284,689

)

Exclusion of warrant adjustment

 

(55,042

)

—

 

—

 

—

 

Diluted net loss attributable to common stockholders

 

$

(368,214

)

$

(254,216

)

$

(1,185,758

)

$

(1,284,689

)

 

 

 

 

 

 

 

 

 

 

Denominators:

 

 

 

 

 

 

 

 

 

Weighted average number of common shares outstanding - basic

 

943,669

 

945,248

 

316,918

 

311,993

 

Effect of dilutive securities

 

37,467

 

—

 

—

 

—

 

Weighted average number of common shares outstanding - diluted

 

981,136

 

945,248

 

316,918

 

311,993

 

 

NOTE 13       STOCK-BASED COMPENSATION PLANS

 

Incentive Stock Plans

 

On October 27, 2010, New GGP, Inc. adopted the General Growth Properties, Inc. 2010 Equity Plan (the ‘‘Equity Plan’’) which remains in effect after the Effective Date. The number of shares of New GGP, Inc. common stock reserved for issuance under the Equity Plan is equal to 4% of New GGP, Inc.’s outstanding shares on a fully diluted basis as of the Effective Date. 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 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 ten years.

 

Pursuant to the Plan, on the Effective Date, unvested options issued by the Predecessor became fully vested.  Each option to acquire a share of the Predecessor common stock was replaced by two options:  an option to acquire one share of New GGP, Inc. common stock and a separate option to acquire 0.098344 of a share of HHC common stock.

 

The exercise price under the Predecessor outstanding options was allocated to the New GGP, Inc. options and the HHC options based on the relative fair values of the two underlying stocks.  For purposes of such allocation, the volume-weighted price of shares of New GGP, Inc. and HHC during the last ten-day trading period (the “Trading Period”) ending on or before the 60th day after the Effective Date was used.  As the date of emergence was November 9, 2010, the Trading Period was December 27, 2010 through January 7, 2011.  The volume-weighted price of one New GGP, Inc. common share was $15.29 and one HHC common share was $54.13, during the Trading Period and, therefore, the exercise prices for the Predecessor options replaced were allocated in a ratio of approximately 74.15%

 

F-35


 

GENERAL GROWTH PROPERTIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

to GGP and 25.85% to HHC.  In addition, we agreed with HHC that all exercises of replacement options, except for those of two former senior executives that they exercised in 2010 immediately upon their termination of employment, would be settled by the employer of the Predecessor employee at the time of exercise.

 

Stock Options

 

The following tables summarize stock option activity for the Equity Plan for the Successor and for the 2003 Incentive Stock Plan for the Predecessor for the periods ended December 31, 2011, November 9 through December 31, 2010, January 1, 2010 through November 9, 2010 and for 2009.

 

 

 

Successor

 

Predecessor

 

 

 

2011

 

2010

 

2010

 

2009

 

 

 

Shares

 

Weighted
Average
Exercise
Price

 

Shares

 

Weighted
Average
Exercise
Price

 

Shares

 

Weighted
Average
Exercise
Price

 

Shares

 

Weighted
Average
Exercise
Price

 

Stock options outstanding at January 1

 

5,427,011

 

$

20.21

 

5,413,917

 

$

16.26

 

4,241,500

 

$

31.63

 

4,730,000

 

$

33.01

 

(November 10 for Successor in 2010), Granted

 

8,662,716

 

15.26

 

1,891,857

 

14.73

 

2,100,000

 

10.56

 

—

 

—

 

Stock dividend adjustment

 

—

 

—

 

—

 

—

 

58,127

 

30.32

 

—

 

—

 

Exercised

 

(51,988

)

11.05

 

(1,828,369

)

2.72

 

—

 

—

 

—

 

—

 

Forfeited

 

(1,606,792

)

14.96

 

(25,000

)

14.73

 

(55,870

)

64.79

 

(290,000

)

54.66

 

Expired

 

(927,078

)

39.31

 

(25,394

)

34.05

 

(929,840

)

44.28

 

(198,500

)

30.78

 

Stock options outstanding at December 31

 

11,503,869

 

$

15.65

 

5,427,011

 

$

20.21

 

5,413,917

 

$

20.61

 

4,241,500

 

$

31.63

 

 

 

 

Stock Options Outstanding

 

Stock Options Exercisable

 

Range of Exercise Prices

 

Shares

 

Weighted Average
Remaining
Contractual Term
(in years)

 

Weighted Average
Exercise Price

 

Shares

 

Weighted Average
Remaining
Contractual Term
(in years)

 

Weighted Average
Exercise Price

 

$9.00 - $13.00

 

2,102,363

 

8.6

 

$

10.34

 

602,363

 

6.0

 

$

10.57

 

$14.00 - $17.00

 

8,902,418

 

9.3

 

15.15

 

667,440

 

8.9

 

14.73

 

$34.00 - $37.00

 

—

 

—

 

—

 

—

 

—

 

—

 

$46.00 - $50.00

 

499,088

 

0.2

 

46.95

 

499,088

 

0.2

 

46.96

 

Total

 

11,503,869

 

8.7

 

$

15.65

 

1,768,891

 

5.2

 

$

22.40

 

Intrinsic value (in thousands)

 

$

9,839

 

 

 

 

 

$

2,874

 

 

 

 

 

 

Stock options under the Equity Plan generally vest in 20% increments annually from one year from the grant date.  Options under the 2003 Plan were replaced under the Plan with options, fully vested, in New GGP Inc. common stock. The intrinsic value of outstanding and exercisable stock options as of December 31, 2011 represents the excess of our closing stock price on that date, $15.02, over the exercise price multiplied by the applicable number of shares that may be acquired upon exercise of stock options, and is not presented in the table above if the result is a negative value.  The intrinsic value of exercised stock options represents the excess of our stock price at the time the option was exercised over the exercise price and was $0.2 million for options exercised during the year ended December 31, 2011 and $23.7 million for options exercised during the period from November 10, 2010 through December 31, 2010, No stock options were exercised during the period of January 1, 2010 through November 9, 2010, or during the year ended December 31, 2009.

 

The weighted-average fair value of stock options as of the grant date was $4.59 for stock options granted during the year ended December 31, 2011, $3.92 for stock options granted during the period from November 10, 2010 through December 31, 2010 and $4.99 for stock options granted during the period from January 1, 2010 through November 9, 2010.  No stock options were granted during the year ended December 31, 2009.

 

Restricted Stock

 

Pursuant to the Equity Plan and the 2003 Stock Incentive Plan, GGP and the Predecessor, respectively, made restricted stock grants to certain employees and non-employee directors.  The vesting terms of these grants are specific to the individual grant. The vesting terms varied in that a portion of the shares vested either immediately or on the first anniversary and the remainder vested in equal annual amounts over the next two to five years.  Participating employees were required to remain employed for vesting to occur (subject to certain exceptions in the case of retirement).  Shares that did not vest were forfeited.  Dividends are paid on restricted stock and are not returnable, even if the underlying stock does not ultimately vest.  All the Predecessor grants of restricted stock

 

F-36


 

GENERAL GROWTH PROPERTIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

became vested at the Effective Date.  Each share of the Predecessor’s previously restricted common stock was replaced on the Effective Date by one share of New GGP, Inc. common stock and 0.098344 of a share of HHC common stock (rounded down to the nearest whole share because no fractional HHC shares were issued in accordance with the Plan).

 

The following table summarizes restricted stock activity for the respective grant year ended December 31, 2011, the periods from November 10, 2010 through December 31, 2010, the period from January 1, 2010 through November 9, 2010 and for the year ended December 31, 2009:

 

 

 

Successor

 

Predecessor

 

 

 

2011

 

2010

 

2010

 

2009

 

 

 

Shares

 

Weighted
Average Grant
Date Fair Value

 

Shares

 

Weighted
Average Grant
Date Fair Value

 

Shares

 

Weighted
Average Grant
Date Fair Value

 

Shares

 

Weighted
Average Grant
Date Fair Value

 

Nonvested restricted stock grants outstanding as of beginning of period

 

2,807,682

 

$

14.24

 

—

 

$

—

 

275,433

 

$

33.04

 

410,767

 

$

41.29

 

Granted

 

84,659

 

14.98

 

3,053,092

 

14.21

 

90,000

 

15.14

 

70,000

 

2.10

 

Canceled

 

(329,292

)

14.73

 

(12,500

)

14.73

 

(8,097

)

35.57

 

(69,628

)

46.04

 

Vested

 

(846,117

)

14.23

 

(232,910

)

13.87

 

(357,336

)

28.48

 

(135,706

)

35.38

 

Nonvested restricted stock grants outstanding as of end of period

 

1,716,932

 

$

14.19

 

2,807,682

 

$

14.24

 

—

 

$

—

 

275,433

 

$

33.04

 

 

The weighted average remaining contractual term (in years) of nonvested awards as of December 31, 2011 was 2.7 years.

 

The total fair value of restricted stock grants which vested was $12.1 million during the year ended December 31, 2011, $3.7 million during the period from November 10, 2010 through December 31, 2010, $5.6 million during the period from January 1, 2010 through November 9, 2010 and $0.1 million during the year ended December 31, 2009.

 

Threshold-Vesting Stock Options

 

Under the 1998 Incentive Stock Plan (the “1998 Incentive Plan”), stock incentive awards to employees in the form of threshold-vesting stock options (“TSOs”) have been granted. The exercise price of the TSO was the current market price (“CMP”) as defined in the 1998 Incentive Plan of the Predecessor common stock on the date the TSO was granted. In order for the TSOs to vest, common stock must achieve and sustain the applicable threshold price for at least 20 consecutive trading days at any time during the five years following the date of grant.  Participating employees must remain employed until vesting occurs in order to exercise the options. The threshold price was determined by multiplying the CMP on the date of grant by an Estimated Annual Growth Rate (7%) and compounding the product over a five-year period. TSOs granted in 2004 and thereafter were required to be exercised within 30 days of the vesting date or be forfeited.  TSOs granted prior to 2004, all of which have vested, have a term of up to 10 years.  Under the 1998 Incentive Plan, 8,163,995 options had been granted and there were no grants in 2008.  The 1998 Incentive Plan terminated December 31, 2008.  All unvested TSOs vested on the Effective Date and were replaced by vested GGP options and HHC options with equivalent terms as the former TSOs.  As most TSOs were granted subsequent to 2004, the majority of the options as replacements for TSOs were forfeited on December 10, 2010. The following is information for the options as replacements for TSOs as of December 31, 2010 and for the year then ended:

 

F-37


 

GENERAL GROWTH PROPERTIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

Predecessor:

 

 

 

TSOs Outstanding, January 1, 2009

 

2,220,932

 

Forfeited/Canceled

 

(252,407

)

Exercised

 

—

 

TSOs Outstanding, December 31, 2009

 

1,968,525

 

Stock Dividend Adjustment

 

30,917

 

Forfeited/Canceled

 

(305,027

)

Exercised

 

(5,156

)

TSOs Outstanding, November 9, 2010

 

1,689,259

 

 

 

 

 

Successor:

 

 

 

Forfeited/Expired (*)

 

(1,578,749

)

Surrendered for cash

 

(1,085

)

Options as replacements for TSOs outstanding, December 31, 2010

 

109,425

 

Stock Dividend Adjustment

 

2,370

 

Forfeited/Expired (*)

 

(8,789

)

Exercised

 

(69,451

)

Options as replacements for TSOs outstanding, December 31, 2011

 

33,555

 

 

 

 

 

Weighted Average Exercise Price Outstanding

 

$

11.27

 

Weighted Average Remaining Term Outstanding

 

0.59

 

Fair Value of Outstanding Options on Effective Date (in thousands)

 

$

465

 

 

(*)   All outstanding TSOs vested pursuant to the Plan on the Effective Date.  The majority of the TSOs outstanding on the Effective Date had terms which stated that, once vested, such options would expire within 30 days if not exercised.

 

Holders of in-the-money options under the 1998 Incentive Stock Plan had the right to elect, within sixty days after the Effective Date, to surrender such options for a cash payment equal to the amount by which the highest reported sales price for a share of the Predecessor common stock during the sixty-day period prior to and including the Effective Date exceeded the exercise price per share under such option, multiplied by the number of shares of common stock subject to such option.

 

Other Required Disclosures

 

Historical data, such as the past performance of our common stock and the length of service by employees, is used to estimate expected life of the stock options, TSOs and our restricted stock and represents the period of time the options or grants are expected to be outstanding.  The weighted average estimated values of options granted were based on the following assumptions:

 

 

 

Successor

 

Predecessor

 

 

 

 

 

November 10, 2010

 

January 1, 2010

 

 

 

 

 

Year Ended

 

through

 

through

 

Year Ended

 

 

 

December 31, 2011

 

December 31, 2010

 

November 9, 2010

 

December 31, 2009

 

Risk-free interest rate (*)

 

1.25

%

1.26

%

1.39

%

No options granted

 

Dividend yield (*)

 

2.50

%

2.72

%

2.86

%

No options granted

 

Expected volatility

 

41.16

%

38.00

%

38.00

%

No options granted

 

Expected life (in years)

 

6.5

 

5.0

 

5.0

 

No options granted

 

 

(*) Weighted average

 

F-38


 

GENERAL GROWTH PROPERTIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

Compensation expense related to stock-based compensation plans is summarized in the following table:

 

 

 

Successor

 

Predecessor

 

 

 

For the year ended
December 31, 2011

 

For the period from
November 10, 2010 through
December 31, 2010

 

For the period from January
1, 2010 through November
9, 2010

 

For the year ended
December 31, 2009

 

 

 

(in thousands)

 

Stock options

 

$

8,245

 

$

953

 

$

3,914

 

$

1,943

 

Restricted stock

 

11,292

 

5,010

 

9,385

 

2,710

 

TSOs

 

—

 

—

 

2,892

 

3,986

 

Total

 

$

19,537

 

$

5,963

 

$

16,191

 

$

8,639

 

 

The Successor consolidated statements of operations do not include any expense related to the conversion of the Predecessor options to acquire the Predecessor common stock into options to acquire New GGP, Inc. and HHC common stock as such options were fully vested at the Effective Date and no service period expense or compensation expense is therefore recognizable.

 

As of December 31, 2011, total compensation expense which had not yet been recognized related to nonvested options and restricted stock grants was $61.6 million. Of this total, $19.5 million is expected to be recognized in 2012, $18.4 million in 2013, $12.0 million in 2014, $8.3 million in 2015 and $3.4 million in 2016.  These amounts may be impacted by future grants, changes in forfeiture estimates or vesting terms, actual forfeiture rates which differ from estimated forfeitures and/or timing of TSO vesting.

 

NOTE 14       OTHER ASSETS

 

The following table summarizes the significant components of prepaid expenses and other assets.

 

 

 

December 31,

 

December 31,

 

 

 

2011

 

2010

 

 

 

(In thousands)

 

Above-market tenant leases, net (Note 4)

 

$

1,163,754

 

$

1,518,893

 

Security and escrow deposits

 

247,718

 

259,440

 

Below-market ground leases, net (Note 4)

 

198,230

 

255,854

 

Real estate tax stabilization agreement, net (Note 4)

 

104,295

 

110,607

 

Prepaid expenses

 

51,928

 

64,230

 

Other non-tenant receivables

 

21,198

 

50,920

 

Deferred tax, net of valuation allowances

 

4,578

 

10,505

 

Prepaid finance costs

 

1,477

 

56

 

Below-market office lessee leases net

 

—

 

15,026

 

Other

 

12,357

 

14,921

 

Total prepaid expenses and other assets

 

$

1,805,535

 

$

2,300,452

 

 

F-39


 

GENERAL GROWTH PROPERTIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 15       OTHER LIABILITIES

 

The following table summarizes the significant components of accounts payable and accrued expenses.

 

 

 

December 31,

 

December 31,

 

 

 

2011

 

2010

 

 

 

(In thousands)

 

Below-market tenant leases, net (Note 4)

 

$

634,802

 

$

932,311

 

Accrued interest

 

196,536

 

143,856

 

Accounts payable and accrued expenses

 

164,139

 

264,578

 

Accrued real estate taxes

 

77,722

 

75,137

 

Accrued payroll and other employee liabilities

 

77,231

 

176,810

 

Construction payable

 

69,291

 

85,724

 

Deferred gains/income

 

65,174

 

60,808

 

Tenant and other deposits

 

19,336

 

19,109

 

Insurance reserve liability

 

17,796

 

17,381

 

Conditional asset retirement obligation liability

 

16,596

 

16,637

 

Above-market office lessee leases, net

 

13,571

 

—

 

Capital lease obligations

 

12,774

 

12,998

 

Uncertain tax position liability

 

6,847

 

8,356

 

Other

 

73,923

 

79,866

 

Total accounts payable and accrued expenses

 

$

1,445,738

 

$

1,893,571

 

 

NOTE 16       ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

 

Components of accumulated other comprehensive income (loss) as of December 31, 2011 and 2010 are as follows:

 

 

 

December 31, 2011

 

December 31, 2010

 

 

 

(in thousands)

 

Net unrealized (losses) gains on financial instruments

 

$

—

 

$

129

 

Foreign currency translation

 

(48,545

)

75

 

Unrealized gains (losses) on available-for-sale securities

 

263

 

(32

)

 

 

$

(48,282

)

$

172

 

 

NOTE 17       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 adverse effect on our consolidated financial position, results of operations or liquidity.

 

Default Interest

 

Pursuant to the Plan, the Company cured and reinstated that certain note (the “Homart Note”) in the original principal amount of $254.0 million between GGP Limited Partnership and The Comptroller of the State of New York as Trustee of the Common Retirement Fund (“CRF”) by payment in cash of accrued interest at the contractual non-default rate.   CRF, however, contended that the Company’s bankruptcy caused the Company to default under the Homart Note and, therefore, post-petition interest accrued under the Homart Note at the contractual default rate was due for the period June 1, 2009 until November 9, 2010.  On June 16, 2011, the United States Bankruptcy Court for the Southern District of New York (the “Bankruptcy Court”) ruled in favor of CRF, and, on June 22, 2011, the Company elected to satisfy the Homart Note in full by paying CRF the outstanding default interest and principal amount on the Homart Note totaling $246.0 million.  As a result of the ruling, the Company incurred and paid $11.7 million of default interest expense during the year ended December 31, 2011. However, the Company has appealed the Bankruptcy Court’s order and has reserved its right to recover the payment of default interest.

 

Pursuant to the Plan, the Company agreed to pay to the holders of claims (the “2006 Lenders”) under a revolving and term loan facility (the “2006 Credit Facility”) the principal amount of their claims outstanding of approximately $2.58

 

F-40


 

GENERAL GROWTH PROPERTIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

billion plus post-petition interest at the contractual non-default rate. However, the 2006 Lenders asserted that they were entitled to receive interest at the contractual default rate.  In July 2011, the Bankruptcy Court ruled in favor of the 2006 Lenders, and in August 2011, the Company appealed the order. As a result of the ruling, the Company recorded additional default interest of $49.5 million in the year ended December 31, 2011 and has accrued $91.5 million as of December 31, 2011.  The Company accrued $42.0 million of default interest as of December 31, 2010 based upon its assessment of default interest amounts that would be paid under the 2006 Credit Facility.  We will continue to evaluate the appropriateness of our accrual during the appeal process.

 

Tax Indemnification Liability

 

Pursuant to the Investment Agreements, the Successor 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, we agreed to be responsible for interest or penalties attributable to such MPC Taxes in excess of the $303.8 million.  As a result of this indemnity, The Howard Hughes Company, LLC and Howard Hughes Properties, Inc. filed petitions in the United States Tax Court on May 6, 2011, contesting this liability.  We have accrued $303.8 million as of December 31, 2011 and 2010 related to the tax indemnification liability.  In addition, we have accrued $21.6 million of interest related to the tax indemnification liability in accounts payable and accrued expenses on our Consolidated Balance Sheet as of December 31, 2011 and $19.7 million as of December 31, 2010.  The aggregate liability of $325.4 million represents management’s best estimate of our liability as of December 31, 2011, which will be periodically evaluated in the aggregate.  We do not expect to make any payments on the tax indemnification liability within the next 12 months.

 

NOTE 18       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 Operations and Comprehensive Income (Loss):

 

 

 

Successor

 

Predecessor

 

 

 

Year Ended
December 31,

 

Period from
November 10,
2010 through
December 31,

 

Period from
January 1,
2010 through
November 9,

 

Year Ended
December 31,

 

 

 

2011

 

2010

 

2010

 

2009

 

 

 

(In thousands)

 

Contractual rent expense, including participation rent

 

$

14,270

 

$

1,990

 

$

9,351

 

$

11,683

 

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

 

8,411

 

1,179

 

4,725

 

6,236

 

 

See Note 8 for our obligations related to uncertain tax positions for disclosure of additional contingencies.

 

The following table summarizes the contractual maturities of our long-term commitments. Long-term debt, held for sale debt and ground leases include the related acquisition accounting fair value adjustments:

 

 

 

2012

 

2013

 

2014

 

2015

 

2016

 

Subsequent /
Other

 

Total

 

 

 

(In thousands)

 

Long-term debt-principal

 

$

1,555,148

 

$

1,388,883

 

$

2,735,139

 

$

2,038,427

 

$

3,424,025

 

$

6,001,392

 

$

17,143,014

 

Held for sale debt principal(1)

 

72,453

 

—

 

—

 

—

 

—

 

—

 

72,453

 

Retained debt-principal

 

37,745

 

1,277

 

1,363

 

1,440

 

1,521

 

87,272

 

130,618

 

Junior Subordinated Notes(2)

 

206,200

 

—

 

—

 

—

 

—

 

—

 

206,200

 

Ground lease payments

 

6,520

 

6,629

 

6,663

 

6,674

 

6,558

 

223,767

 

256,811

 

Tax indemnification liability

 

—

 

—

 

—

 

—

 

—

 

303,750

 

303,750

 

Uncertain tax position liability

 

—

 

—

 

—

 

—

 

—

 

6,847

 

6,847

 

Total

 

$

1,878,066

 

$

1,396,789

 

$

2,743,165

 

$

2,046,541

 

$

3,432,104

 

$

6,623,028

 

$

18,119,693

 

 

(1) Held for sale debt principal is included in liabilities held for disposition on the consolidated balance sheet.

(2) Although we do not expect the notes to be redeemed prior to maturity in 2041, the trust that owns the notes may exercise its right to redeem the notes prior to 2041.  As a result, the notes are included as amounts due in 2012.

 

F-41


 

GENERAL GROWTH PROPERTIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

Contingent Stock Agreement

 

In conjunction with GGP’s acquisition of The Rouse Company (“TRC”) in November 2004, GGP assumed TRC’s obligations under the Contingent Stock Agreement, (“the “CSA”). Under the terms of the CSA, the Predecessor was required through August 2009 to issue shares of its common stock semi-annually (February and August) to the previous owners of certain assets within the Summerlin Master Planned Community (the “CSA Assets”) dependent on the cash flows from the development and/or sale of the CSA Assets and the Predecessor’s stock price. During 2009, the Predecessor was not obligated to deliver any shares of its common stock under the CSA as the net development and sales cash flows of the CSA assets were negative for the applicable periods. The Plan provided that the final payment and settlement of all other claims under the CSA would be a total of $230.0 million, all of which has been paid by GGP as of December 31, 2010. On the Effective Date, the CSA assets were spun-out, with the other Summerlin assets, to HHC.

 

NOTE 19       SUBSEQUENT EVENTS

 

On January 12, 2012, we completed the spin-off of RPI, which now owns a 30-mall portfolio, totaling approximately 21 million square feet.  The RPI Spin-Off was accomplished through a special dividend of the common stock of RPI to holders of GGP common stock as of December 30, 2011.  Subsequent to the spin-off, we retained a 1% interest in RPI.  The consolidated financial information presented herein includes RPI in discontinued operations for all periods presented.

 

On February 21, 2012, we sold Grand Traverse Mall to RPI.  RPI assumed the debt on the property as consideration for the purchase.

 

On February 23, 2012, our board approved the purchase of 11 anchor boxes from an anchor tenant for $270 million.  These anchor boxes will provide us further opportunities to expand, redevelop and enhance certain assets within our portfolio.  The acquisition is expected to close in the second quarter of 2012.

 

On February 27, 2012, our board approved the declaration of a quarterly common stock dividend of $0.10 per share.  The dividend is payable on April 30, 2012, to stockholders of record on April 16, 2012.

 

On March 2, 2012, we sold our interest in Village of Cross Keys for $25.0 million.  We received $8.0 million in cash and entered into a secured note receivable with the buyer for $17.0 million.

 

F-42


 

GENERAL GROWTH PROPERTIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 20       QUARTERLY FINANCIAL INFORMATION (UNAUDITED)

 

 

 

2011

 

 

 

Successor

 

 

 

First Quarter

 

Second
Quarter

 

Third
Quarter

 

Fourth
Quarter

 

 

 

(In thousands, except per share amounts)

 

Total revenues

 

$

620,414

 

$

603,020

 

$

624,179

 

$

657,985

 

Operating income

 

158,314

 

143,821

 

135,698

 

122,832

 

Income (loss) from continuing operations

 

9,846

 

(197,191

)

260,250

 

(352,693

)

Income (loss) from discontinued operations

 

(2,910

)

(4,922

)

(3,689

)

(15,572

)

Net income (loss) attributable to common shareholders

 

5,664

 

(203,047

)

252,049

 

(367,838

)

Basic earnings (loss) per share from:(1)

 

 

 

 

 

 

 

 

 

Continuing operations

 

0.01

 

(0.21

)

0.27

 

(0.37

)

Discontinued operations

 

—

 

(0.01

)

—

 

(0.02

)

Diluted earnings (loss) per share from:(1)

 

 

 

 

 

 

 

 

 

Continuing operations

 

—

 

(0.21

)

(0.08

)

(0.37

)

Discontinued operations

 

—

 

(0.01

)

—

 

(0.02

)

Dividends declared per share(2)

 

0.10

 

0.10

 

0.10

 

0.53

 

Weighted-average shares outstanding:

 

 

 

 

 

 

 

 

 

Basic

 

957,435

 

946,769

 

936,260

 

943,669

 

Diluted

 

996,936

 

946,769

 

970,691

 

943,669

 

 

 

 

2010

 

 

 

Predecessor

 

Successor

 

 

 

First Quarter

 

Second
Quarter

 

Third
Quarter

 

Period from
October 1
through
November 9

 

Period from
November 10
through
December 31

 

 

 

(In thousands, except per share amounts)

 

Total revenues

 

$

625,672

 

$

616,642

 

$

622,830

 

$

276,299

 

$

373,250

 

Operating income

 

242,641

 

236,348

 

233,818

 

107,492

 

75,804

 

Income (loss) from continuing operations

 

(19,560

)

(126,080

)

(226,657

)

(263,044

)

(249,079

)

Income (loss) from discontinued operations

 

75,334

 

8,508

 

(7,122

)

(653,787

)

(7,005

)

Net income (loss) attributable to common shareholders

 

51,656

 

(117,527

)

(231,185

)

(888,702

)

(254,216

)

Basic earnings (loss) per share from:(1)

 

 

 

 

 

 

 

 

 

 

 

Continuing operations

 

(0.08

)

(0.40

)

(0.71

)

(0.78

)

(0.26

)

Discontinued operations

 

0.24

 

0.03

 

(0.02

)

(2.02

)

(0.01

)

Diluted earnings (loss) per share from:(1)

 

 

 

 

 

 

 

 

 

 

 

Continuing operations

 

(0.08

)

(0.40

)

(0.71

)

(0.78

)

(0.26

)

Discontinued operations

 

0.24

 

0.03

 

(0.02

)

(2.02

)

(0.01

)

Dividends declared per share

 

—

 

—

 

—

 

—

 

0.38

 

Weighted-average shares outstanding:

 

 

 

 

 

 

 

 

 

 

 

Basic

 

315,773

 

317,363

 

317,393

 

317,393

 

945,248

 

Diluted

 

317,070

 

317,363

 

317,393

 

317,393

 

945,248

 

 

(1)          Earnings (loss) per share for the quarters do not add up to annual earnings per share due to the issuance of additional common stock during the year.

(2)          Includes $0.43 non-cash distribution of Rouse Properties, Inc. (Note 11).

 

NOTE 21       PRO FORMA FINANCIAL INFORMATION (UNAUDITED)

 

The following pro forma financial information has been presented as a result of the acquisition of the Predecessor pursuant to the Plan during 2010.  The pro forma consolidated statements of operations are based upon the historical financial information of the Predecessor and the Successor as presented in this Annual Report, excluding discontinued operations and the financial information of operations spun off to HHC, as if the transaction had been consummated on the first day of the earliest period presented.

 

The following pro forma financial information may not necessarily be indicative of what our actual results would have been if the Plan had been consummated as of the date assumed, nor does it purport to represent our results of operations for future periods.

 

F-43


 

 

 

For the period from
November 10, 2010
through December 31,
2010

 

For the period from
January 1, 2010 through
November 9, 2010

 

Pro Forma
Year Ended
December 31,
2010

 

 

 

(In thousands)

 

Total revenues

 

$

373,250

 

$

2,141,443

 

$

2,492,167

 

Loss from continuing operations

 

(249,079

)

(635,341

)

(698,515

)

 

 

 

Year Ended
December 31, 2009

 

Pro Forma Year Ended
December 31, 2009

 

Total revenues

 

$

2,551,172

 

$

2,521,574

 

Loss from continuing operations

 

(523,441

)

(815,025

)

 

Included in the above pro forma financial information for the year ended December 31, 2010 and 2009 are the following adjustments:

 

Minimum rent receipts are recognized on a straight-line basis over periods that reflect the related lease terms, and include accretion and amortization related to above and below market portions of tenant leases. Acquisition accounting pro forma adjustments reflect a change in the periods over which such items are recognized. The adjustment related to straight line rent and accretion and amortization related to above and below market portions of tenant leases was a decrease in revenues of $27.4 million for the year ended December 31, 2010 and $36.0 million for the year ended December 31, 2009.

 

Depreciation and amortization have been adjusted to reflect adjustments of estimated useful lives and contractual terms as well as the fair valuation of the underlying assets and liabilities, resulting in changes to the rate and amount of depreciation and amortization.

 

Interest expense has been adjusted to reflect the reduction in interest expense due to the repayment or replacement of certain of Old GGP’s debt as provided by the Plan. In addition, the pro forma information reflects non-cash adjustments to interest expense due to the fair valuing of debt and deferred expenses and other amounts in historical interest expense as a result of the acquisition method of accounting.

 

Reorganization items have been reversed as the Plan is assumed to be effective and all debtors of the Predecessor are deemed to have emerged from bankruptcy as of the first day of the periods presented and, accordingly, such expenses or items would not be incurred.

 

F-44


 

GENERAL GROWTH PROPERTIES, INC.

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

To the Board of Directors and Stockholders of

General Growth Properties, Inc.

Chicago, Illinois

 

We have audited the consolidated financial statements of General Growth Properties, Inc. and subsidiaries (the “Company”) as of December 31, 2011 and 2010, and the related consolidated statements of operations and comprehensive income (loss), equity, and cash flows for the year ended December 31, 2011 and the period from November 10, 2010 to December 31, 2010 (Successor Company operations), and the period from January 1, 2010 to November 9, 2010 and the year ended December 31, 2009 (Predecessor Company operations) and the Company’s internal control over financial reporting as of December 31, 2011 (such report dated February 29, 2012 and not presented herein), and have issued our report thereon dated February 29, 2012 (June 27, 2012 as to the effects of the 2012 discontinued operations described in Note 5 to the consolidated financial statements) (which report on the consolidated financial statements expresses an unqualified opinion and includes an explanatory paragraph regarding the Company’s financial statements including assets, liabilities, and a capital structure with carrying values not comparable with prior periods); such report is included elsewhere in this Form 8-K and is incorporated herein by reference.  Our audits also included the consolidated financial statement schedule of the Company included within this Form 8-K.  This consolidated financial statement schedule is the responsibility of the Company’s management. Our responsibility is to express an opinion based on our audits. In our opinion, such consolidated financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.

 

/s/ Deloitte & Touche LLP

 

Chicago, Illinois

February 29, 2012 (June 27, 2012 as to the effects of the 2012 discontinued operations described in Note g)

 

F-45

 


 

GENERAL GROWTH PROPERTIES, INC.

 

SCHEDULE III — REAL ESTATE AND ACCUMULATED DEPRECIATION

DECEMBER 31, 2011

 

 

 

 

 

 

 

 

 

 

 

Costs Capitalized

 

Gross Amounts at Which

 

 

 

 

 

 

 

 

 

 

 

 

 

Acquisition Accounting Cost (f)

 

Subsequent to Acquisition (c)

 

Carried at Close of Period (d)

 

 

 

 

 

Life Upon Which

 

 

 

 

 

 

 

 

 

Buildings

 

 

 

Buildings

 

 

 

Buildings

 

 

 

 

 

 

 

Latest Statement

 

 

 

 

 

 

 

 

 

and

 

 

 

and

 

 

 

and

 

 

 

Accumulated

 

Date

 

of Operation is

 

Name of Center

 

Location

 

Encumbrances (a)

 

Land

 

Improvements

 

Land

 

Improvements

 

Land

 

Improvements

 

Total

 

Depreciation (e)

 

Acquired

 

Computed

 

 

 

 

 

 

 

 

 

 

 

(In thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ala Moana Center

 

Honolulu, HI

 

$

1,322,146

 

$

571,836

 

1,738,740

 

$

—

 

$

1,892

 

$

571,836

 

$

1,740,632

 

$

2,312,468

 

$

67,252

 

2010

 

(e)

 

Anaheim Crossing

 

Anaheim, CA

 

—

 

—

 

4,464

 

—

 

(4,464

)

—

 

—

 

—

 

—

 

2010

 

(e)

 

Animas Valley Mall

 

Farmington, NM

 

43,451

 

6,509

 

32,270

 

—

 

858

 

6,509

 

33,128

 

39,637

 

2,745

 

2010

 

(e)

 

Apache Mall

 

Rochester, MN

 

—

 

17,738

 

116,663

 

—

 

986

 

17,738

 

117,649

 

135,387

 

5,701

 

2010

 

(e)

 

Arizona Center

 

Phoenix, AZ

 

—

 

4,095

 

168,099

 

(4,095

)

(168,099

)

—

 

—

 

—

 

—

 

2010

 

(e)

 

Augusta Mall

 

Augusta, GA

 

159,401

 

25,450

 

137,376

 

—

 

3,394

 

25,450

 

140,770

 

166,220

 

8,333

 

2010

 

(e)

 

Austin Bluffs Plaza (g)

 

Colorado Springs, CO

 

1,983

 

1,425

 

1,075

 

—

 

—

 

1,425

 

1,075

 

2,500

 

40

 

2010

 

(e)

 

Bailey Hills Village

 

Eugene, OR

 

—

 

422

 

347

 

(422

)

(347

)

—

 

—

 

—

 

—

 

2010

 

(e)

 

Baskin Robbins

 

Idaho Falls, ID

 

—

 

333

 

19

 

—

 

—

 

333

 

19

 

352

 

5

 

2010

 

(e)

 

Baybrook Mall

 

Friendswood, TX

 

179,951

 

76,527

 

288,241

 

—

 

(2,215

)

76,527

 

286,026

 

362,553

 

12,367

 

2010

 

(e)

 

Bayshore Mall

 

Eureka, CA

 

30,436

 

4,770

 

33,305

 

—

 

(327

)

4,770

 

32,978

 

37,748

 

2,005

 

2010

 

(e)

 

Bayside Marketplace

 

Miami, FL

 

83,953

 

—

 

198,396

 

—

 

1,105

 

—

 

199,501

 

199,501

 

13,491

 

2010

 

(e)

 

Beachwood Place

 

Beachwood, OH

 

227,749

 

59,156

 

196,205

 

—

 

1,256

 

59,156

 

197,461

 

256,617

 

7,602

 

2010

 

(e)

 

Bellis Fair

 

Bellingham, WA

 

93,882

 

14,122

 

102,033

 

—

 

704

 

14,122

 

102,737

 

116,859

 

4,956

 

2010

 

(e)

 

Birchwood Mall

 

Port Huron, MI

 

46,924

 

8,316

 

44,884

 

—

 

68

 

8,316

 

44,952

 

53,268

 

2,577

 

2010

 

(e)

 

Boise Plaza

 

Boise, ID

 

—

 

3,996

 

645

 

—

 

(42

)

3,996

 

603

 

4,599

 

73

 

2010

 

(e)

 

Boise Towne Plaza

 

Boise, ID

 

9,694

 

6,457

 

3,195

 

—

 

10

 

6,457

 

3,205

 

9,662

 

446

 

2010

 

(e)

 

Boise Towne Square

 

Boise, ID

 

139,650

 

37,724

 

159,923

 

—

 

213

 

37,724

 

160,136

 

197,860

 

7,055

 

2010

 

(e)

 

Brass Mill Center

 

Waterbury, CT

 

89,053

 

21,959

 

79,574

 

—

 

504

 

21,959

 

80,078

 

102,037

 

4,415

 

2010

 

(e)

 

Brass Mill Commons

 

Waterbury, CT

 

19,046

 

9,538

 

19,533

 

—

 

(133

)

9,538

 

19,400

 

28,938

 

1,100

 

2010

 

(e)

 

Burlington Town Center

 

Burlington, VT

 

24,066

 

3,703

 

22,576

 

—

 

(615

)

3,703

 

21,961

 

25,664

 

2,449

 

2010

 

(e)

 

Cache Valley Mall

 

Logan, UT

 

28,623

 

2,890

 

19,402

 

—

 

(48

)

2,890

 

19,354

 

22,244

 

1,115

 

2010

 

(e)

 

Cache Valley Marketplace

 

Logan, UT

 

—

 

1,072

 

7,440

 

—

 

13

 

1,072

 

7,453

 

8,525

 

503

 

2010

 

(e)

 

Canyon Point Village Center

 

Las Vegas, NV

 

—

 

11,439

 

9,388

 

(11,439

)

(9,388

)

—

 

—

 

—

 

—

 

2010

 

(e)

 

Capital Mall

 

Jefferson City, MO

 

—

 

1,114

 

7,731

 

—

 

(45

)

1,114

 

7,686

 

8,800

 

899

 

2010

 

(e)

 

Chula Vista Center

 

Chula Vista, CA

 

—

 

13,214

 

67,743

 

1,149

 

10,134

 

14,363

 

77,877

 

92,240

 

4,052

 

2010

 

(e)

 

Coastland Center

 

Naples, FL

 

120,694

 

24,470

 

166,038

 

—

 

343

 

24,470

 

166,381

 

190,851

 

7,605

 

2010

 

(e)

 

Collin Creek

 

Plano, TX

 

63,742

 

14,747

 

48,094

 

—

 

426

 

14,747

 

48,520

 

63,267

 

2,997

 

2010

 

(e)

 

Colony Square Mall

 

Zanesville, OH

 

28,212

 

4,253

 

29,573

 

—

 

546

 

4,253

 

30,119

 

34,372

 

2,150

 

2010

 

(e)

 

Columbia Mall

 

Columbia, MO

 

89,355

 

7,943

 

107,969

 

—

 

8

 

7,943

 

107,977

 

115,920

 

6,343

 

2010

 

(e)

 

Columbiana Centre

 

Columbia, SC

 

103,800

 

22,178

 

125,061

 

—

 

17

 

22,178

 

125,078

 

147,256

 

7,791

 

2010

 

(e)

 

Coral Ridge Mall

 

Coralville, IA

 

91,278

 

20,178

 

134,515

 

—

 

171

 

20,178

 

134,686

 

154,864

 

6,657

 

2010

 

(e)

 

Coronado Center

 

Albuquerque, NM

 

153,690

 

28,312

 

153,526

 

—

 

1,163

 

28,312

 

154,689

 

183,001

 

8,322

 

2010

 

(e)

 

Crossroads Center

 

St. Cloud, MN

 

78,493

 

15,499

 

103,077

 

—

 

1,480

 

15,499

 

104,557

 

120,056

 

5,855

 

2010

 

(e)

 

Cumberland Mall

 

Atlanta, GA

 

105,594

 

36,913

 

138,795

 

—

 

1,545

 

36,913

 

140,340

 

177,253

 

7,703

 

2010

 

(e)

 

Deerbrook Mall

 

Humble, TX

 

152,656

 

36,761

 

133,448

 

—

 

(295

)

36,761

 

133,153

 

169,914

 

6,485

 

2010

 

(e)

 

Eastridge Mall

 

Casper, WY

 

34,310

 

5,484

 

36,756

 

—

 

91

 

5,484

 

36,847

 

42,331

 

2,299

 

2010

 

(e)

 

Eastridge Mall

 

San Jose, CA

 

153,167

 

30,368

 

135,317

 

—

 

603

 

30,368

 

135,920

 

166,288

 

6,147

 

2010

 

(e)

 

Eden Prairie Center

 

Eden Prairie, MN

 

73,308

 

24,985

 

74,733

 

—

 

83

 

24,985

 

74,816

 

99,801

 

5,902

 

2010

 

(e)

 

Fallbrook Center

 

West Hills, CA

 

81,771

 

18,479

 

62,432

 

1,543

 

4,364

 

20,022

 

66,796

 

86,818

 

3,622

 

2010

 

(e)

 

Faneuil Hall Marketplace

 

Boston, MD

 

—

 

—

 

91,817

 

—

 

(91,817

)

—

 

—

 

—

 

—

 

2010

 

(e)

 

Fashion Place

 

Murray, UT

 

138,206

 

24,068

 

232,456

 

—

 

22,215

 

24,068

 

254,671

 

278,739

 

10,402

 

2010

 

(e)

 

Fashion Show

 

Las Vegas, NV

 

629,870

 

564,310

 

627,327

 

—

 

29,169

 

564,310

 

656,496

 

1,220,806

 

33,441

 

2010

 

(e)

 

Foothills Mall

 

Fort Collins, CO

 

38,682

 

16,137

 

22,259

 

—

 

1,342

 

16,137

 

23,601

 

39,738

 

2,293

 

2010

 

(e)

 

Fort Union

 

Midvale, UT

 

2,386

 

—

 

2,104

 

—

 

(375

)

—

 

1,729

 

1,729

 

58

 

2010

 

(e)

 

Four Seasons Town Centre

 

Greensboro, NC

 

93,570

 

17,259

 

126,570

 

—

 

736

 

17,259

 

127,306

 

144,565

 

5,908

 

2010

 

(e)

 

Fox River Mall

 

Appleton, WI

 

185,835

 

42,259

 

217,932

 

—

 

1,029

 

42,259

 

218,961

 

261,220

 

8,857

 

2010

 

(e)

 

Fremont Plaza

 

Las Vegas, NV

 

—

 

—

 

1,723

 

—

 

(17

)

—

 

1,706

 

1,706

 

202

 

2010

 

(e)

 

Gateway Crossing Shopping Center

 

Bountiful, UT

 

—

 

9,701

 

13,957

 

(9,701

)

(13,957

)

—

 

—

 

—

 

—

 

2010

 

(e)

 

Gateway Mall

 

Springfield, OR

 

—

 

7,097

 

36,573

 

—

 

2,574

 

7,097

 

39,147

 

46,244

 

2,457

 

2010

 

(e)

 

Glenbrook Square

 

Fort Wayne, IN

 

158,095

 

30,965

 

147,002

 

—

 

(447

)

30,965

 

146,555

 

177,520

 

6,880

 

2010

 

(e)

 

Governor’s Square

 

Tallahassee, FL

 

75,465

 

18,289

 

123,088

 

—

 

733

 

18,289

 

123,821

 

142,110

 

8,209

 

2010

 

(e)

 

 

F-46


 

GENERAL GROWTH PROPERTIES, INC.

 

SCHEDULE III — REAL ESTATE AND ACCUMULATED DEPRECIATION

DECEMBER 31, 2011

 

 

 

 

 

 

 

 

 

 

 

Costs Capitalized

 

Gross Amounts at Which

 

 

 

 

 

 

 

 

 

 

 

 

 

Acquisition Accounting Cost

 

Subsequent to Acquisition (c)

 

Carried at Close of Period (d)

 

 

 

 

 

Life Upon Which

 

 

 

 

 

 

 

 

 

Buildings

 

 

 

Buildings

 

 

 

Buildings

 

 

 

 

 

 

 

Latest Statement

 

 

 

 

 

 

 

 

 

and

 

 

 

and

 

 

 

and

 

 

 

Accumulated

 

Date

 

of Operation is

 

Name of Center

 

Location

 

Encumbrances (a)

 

Land

 

Improvements

 

Land

 

Improvements

 

Land

 

Improvements

 

Total

 

Depreciation (e)

 

Acquired

 

Computed

 

 

 

 

 

 

 

 

 

 

 

(In thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

Grand Teton Mall

 

Idaho Falls, ID

 

50,733

 

7,836

 

52,616

 

—

 

394

 

7,836

 

53,010

 

60,846

 

2,817

 

2010

 

(e)

 

Grand Teton Plaza

 

Idaho Falls, ID

 

—

 

5,230

 

7,042

 

—

 

577

 

5,230

 

7,619

 

12,849

 

441

 

2010

 

(e)

 

Greenwood Mall

 

Bowling Green, KY

 

—

 

12,459

 

85,370

 

—

 

1,912

 

12,459

 

87,282

 

99,741

 

4,494

 

2010

 

(e)

 

Harborplace

 

Baltimore, MD

 

50,198

 

—

 

82,834

 

—

 

835

 

—

 

83,669

 

83,669

 

3,627

 

2010

 

(e)

 

Hulen Mall

 

Fort Worth, TX

 

103,599

 

8,665

 

112,252

 

—

 

9,409

 

8,665

 

121,661

 

130,326

 

5,579

 

2010

 

(e)

 

Jordan Creek Town Center

 

West Des Moines, IA

 

173,545

 

54,663

 

262,608

 

—

 

1,643

 

54,663

 

264,251

 

318,914

 

11,394

 

2010

 

(e)

 

Knollwood Mall

 

St. Louis Park, MN

 

36,132

 

6,127

 

32,905

 

—

 

119

 

6,127

 

33,024

 

39,151

 

1,987

 

2010

 

(e)

 

Lakeland Square

 

Lakeland, FL

 

51,357

 

10,938

 

56,867

 

—

 

614

 

10,938

 

57,481

 

68,419

 

3,226

 

2010

 

(e)

 

Lakeside Mall

 

Sterling Heights, MI

 

155,040

 

36,993

 

130,460

 

—

 

1,275

 

36,993

 

131,735

 

168,728

 

6,039

 

2010

 

(e)

 

Lansing Mall

 

Lansing, MI

 

22,129

 

9,615

 

49,220

 

—

 

279

 

9,615

 

49,499

 

59,114

 

2,980

 

2010

 

(e)

 

Lincolnshire Commons

 

Lincolnshire, IL

 

27,423

 

8,806

 

26,848

 

—

 

(10

)

8,806

 

26,838

 

35,644

 

1,327

 

2010

 

(e)

 

Lynnhaven Mall

 

Virginia Beach, VA

 

218,241

 

54,628

 

219,013

 

—

 

(1,478

)

54,628

 

217,535

 

272,163

 

10,117

 

2010

 

(e)

 

Mall At Sierra Vista

 

Sierra Vista, AZ

 

23,335

 

7,078

 

36,441

 

—

 

2

 

7,078

 

36,443

 

43,521

 

1,764

 

2010

 

(e)

 

Mall of Louisiana

 

Baton Rouge, LA

 

234,883

 

88,742

 

319,097

 

—

 

43

 

88,742

 

319,140

 

407,882

 

11,941

 

2010

 

(e)

 

Mall of The Bluffs

 

Council Bluffs, IA

 

25,909

 

3,839

 

12,007

 

—

 

(205

)

3,839

 

11,802

 

15,641

 

972

 

2010

 

(e)

 

Mall St. Matthews

 

Louisville, KY

 

135,695

 

42,014

 

155,809

 

19

 

1,389

 

42,033

 

157,198

 

199,231

 

6,829

 

2010

 

(e)

 

Mall St. Vincent

 

Shreveport, LA

 

—

 

4,604

 

21,927

 

—

 

(340

)

4,604

 

21,587

 

26,191

 

1,396

 

2010

 

(e)

 

Market Place Shopping Center

 

Champaign, IL

 

105,240

 

21,611

 

111,515

 

—

 

1,378

 

21,611

 

112,893

 

134,504

 

6,137

 

2010

 

(e)

 

Mayfair Mall

 

Wauwatosa, WI

 

297,066

 

84,473

 

352,140

 

(79

)

685

 

84,394

 

352,825

 

437,219

 

17,345

 

2010

 

(e)

 

Meadows Mall

 

Las Vegas, NV

 

97,462

 

30,275

 

136,846

 

—

 

322

 

30,275

 

137,168

 

167,443

 

6,241

 

2010

 

(e)

 

Mondawmin Mall

 

Baltimore, MD

 

72,556

 

19,707

 

63,348

 

—

 

4,405

 

19,707

 

67,753

 

87,460

 

4,102

 

2010

 

(e)

 

Newgate Mall

 

Ogden, UT

 

38,204

 

17,856

 

70,318

 

—

 

2,487

 

17,856

 

72,805

 

90,661

 

4,688

 

2010

 

(e)

 

Newpark Mall

 

Newark, CA

 

67,056

 

17,848

 

57,404

 

—

 

857

 

17,848

 

58,261

 

76,109

 

3,797

 

2010

 

(e)

 

North Plains Mall

 

Clovis, NM

 

13,160

 

2,218

 

11,768

 

—

 

379

 

2,218

 

12,147

 

14,365

 

958

 

2010

 

(e)

 

North Point Mall

 

Alpharetta, GA

 

207,212

 

57,900

 

228,517

 

—

 

1,930

 

57,900

 

230,447

 

288,347

 

14,810

 

2010

 

(e)

 

North Star Mall

 

San Antonio, TX

 

217,665

 

91,135

 

392,422

 

—

 

3,097

 

91,135

 

395,519

 

486,654

 

15,252

 

2010

 

(e)

 

Northridge Fashion Center

 

Northridge, CA

 

248,738

 

66,774

 

238,023

 

—

 

112

 

66,774

 

238,135

 

304,909

 

11,093

 

2010

 

(e)

 

NorthTown Mall

 

Spokane, WA

 

89,565

 

12,310

 

108,857

 

—

 

575

 

12,310

 

109,432

 

121,742

 

6,389

 

2010

 

(e)

 

Oak View Mall

 

Omaha, NE

 

84,601

 

20,390

 

107,216

 

—

 

1,673

 

20,390

 

108,889

 

129,279

 

6,406

 

2010

 

(e)

 

Oakwood Center

 

Gretna, LA

 

90,249

 

21,105

 

74,228

 

—

 

149

 

21,105

 

74,377

 

95,482

 

3,278

 

2010

 

(e)

 

Oakwood Mall

 

Eau Claire, WI

 

81,592

 

13,786

 

92,114

 

—

 

532

 

13,786

 

92,646

 

106,432

 

4,995

 

2010

 

(e)

 

Oglethorpe Mall

 

Savannah, GA

 

130,229

 

27,075

 

157,100

 

—

 

1,700

 

27,075

 

158,800

 

185,875

 

8,370

 

2010

 

(e)

 

Orem Plaza Center Street (g)

 

Orem, UT

 

2,133

 

1,935

 

2,180

 

—

 

6

 

1,935

 

2,186

 

4,121

 

71

 

2010

 

(e)

 

Orem Plaza State Street (g)

 

Orem, UT

 

1,320

 

1,264

 

611

 

—

 

52

 

1,264

 

663

 

1,927

 

29

 

2010

 

(e)

 

Owings Mills Mall

 

Owing Mills, MD

 

—

 

24,921

 

31,746

 

(22,519

)

(6,202

)

2,402

 

25,544

 

27,946

 

1,414

 

2010

 

(e)

 

Oxmoor Center

 

Louisville, KY

 

94,396

 

—

 

117,814

 

—

 

874

 

—

 

118,688

 

118,688

 

5,133

 

2010

 

(e)

 

Paramus Park

 

Paramus, NJ

 

96,729

 

31,320

 

102,054

 

—

 

2,026

 

31,320

 

104,080

 

135,400

 

5,956

 

2010

 

(e)

 

Park City Center

 

Lancaster, PA

 

195,740

 

42,451

 

195,409

 

—

 

660

 

42,451

 

196,069

 

238,520

 

5,094

 

2010

 

(e)

 

Park Place

 

Tucson, AZ

 

198,468

 

61,907

 

236,019

 

—

 

577

 

61,907

 

236,596

 

298,503

 

9,352

 

2010

 

(e)

 

Peachtree Mall

 

Columbus, GA

 

82,983

 

13,855

 

92,143

 

—

 

2,187

 

13,855

 

94,330

 

108,185

 

5,843

 

2010

 

(e)

 

Pecanland Mall

 

Monroe, LA

 

51,551

 

12,943

 

73,231

 

—

 

1,672

 

12,943

 

74,903

 

87,846

 

4,894

 

2010

 

(e)

 

Pembroke Lakes Mall

 

Pembroke Pines, FL

 

122,111

 

64,883

 

254,910

 

—

 

322

 

64,883

 

255,232

 

320,115

 

17,140

 

2010

 

(e)

 

Pierre Bossier Mall

 

Bossier City, LA

 

41,440

 

7,522

 

38,247

 

—

 

(291

)

7,522

 

37,956

 

45,478

 

1,828

 

2010

 

(e)

 

Pine Ridge Mall

 

Pocatello, ID

 

23,133

 

7,534

 

5,013

 

—

 

49

 

7,534

 

5,062

 

12,596

 

726

 

2010

 

(e)

 

Pioneer Place

 

Portland, OR

 

112,329

 

—

 

97,096

 

—

 

962

 

—

 

98,058

 

98,058

 

3,712

 

2010

 

(e)

 

Plaza 800

 

Sparks, NV

 

—

 

—

 

61

 

—

 

336

 

—

 

397

 

397

 

14

 

2010

 

(e)

 

Prince Kuhio Plaza

 

Hilo, HI

 

33,814

 

—

 

52,373

 

—

 

(100

)

—

 

52,273

 

52,273

 

3,078

 

2010

 

(e)

 

Providence Place

 

Providence, RI

 

421,371

 

—

 

400,893

 

—

 

1,345

 

—

 

402,238

 

402,238

 

16,169

 

2010

 

(e)

 

Provo Towne Centre

 

Provo, UT

 

55,422

 

17,027

 

75,871

 

—

 

(12,949

)

17,027

 

62,922

 

79,949

 

3,559

 

2010

 

(e)

 

Red Cliffs Mall

 

St. George, UT

 

21,986

 

4,739

 

33,357

 

—

 

(135

)

4,739

 

33,222

 

37,961

 

1,798

 

2010

 

(e)

 

Red Cliffs Plaza

 

St. George, UT

 

—

 

2,073

 

573

 

—

 

5

 

2,073

 

578

 

2,651

 

104

 

2010

 

(e)

 

Regency Square Mall

 

Jacksonville, FL

 

74,467

 

14,979

 

56,082

 

—

 

(660

)

14,979

 

55,422

 

70,401

 

6,066

 

2010

 

(e)

 

Ridgedale Center

 

Minnetonka, MN

 

161,139

 

39,495

 

151,090

 

—

 

1,460

 

39,495

 

152,550

 

192,045

 

6,863

 

2010

 

(e)

 

River Falls Mall

 

Clarksville, IN

 

—

 

4,464

 

12,824

 

(4,464

)

(12,824

)

—

 

—

 

—

 

—

 

2010

 

(e)

 

River Hills Mall

 

Mankato, MN

 

76,961

 

16,207

 

85,608

 

—

 

1,352

 

16,207

 

86,960

 

103,167

 

4,577

 

2010

 

(e)

 

 

F-47


 

GENERAL GROWTH PROPERTIES, INC.

 

SCHEDULE III — REAL ESTATE AND ACCUMULATED DEPRECIATION

DECEMBER 31, 2011

 

 

 

 

 

 

 

 

 

 

 

Costs Capitalized

 

Gross Amounts at Which

 

 

 

 

 

 

 

 

 

 

 

 

 

Acquisition Accounting Cost

 

Subsequent to Acquisition (c)

 

Carried at Close of Period (d)

 

 

 

 

 

Life Upon Which

 

 

 

 

 

 

 

 

 

Buildings

 

 

 

Buildings

 

 

 

Buildings

 

 

 

 

 

 

 

Latest Statement

 

 

 

 

 

 

 

 

 

and

 

 

 

and

 

 

 

and

 

 

 

Accumulated

 

Date

 

of Operation is

 

Name of Center

 

Location

 

Encumbrances (a)

 

Land

 

Improvements

 

Land

 

Improvements

 

Land

 

Improvements

 

Total

 

Depreciation (e)

 

Acquired

 

Computed

 

 

 

 

 

 

 

 

 

 

 

(In thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

River Pointe Plaza (g)

 

West Jordan, UT

 

3,303

 

3,128

 

3,509

 

—

 

6

 

3,128

 

3,515

 

6,643

 

156

 

2010

 

(e)

 

Riverlands Shopping Center

 

LaPlace, LA

 

—

 

2,017

 

4,676

 

(2,017

)

(4,676

)

—

 

—

 

—

 

—

 

2010

 

(e)

 

Riverside Plaza

 

Provo, UT

 

—

 

8,128

 

9,489

 

(8,128

)

(9,489

)

—

 

—

 

—

 

—

 

2010

 

(e)

 

Rivertown Crossings

 

Grandville, MI

 

167,829

 

47,790

 

181,770

 

—

 

1,507

 

47,790

 

183,277

 

231,067

 

7,992

 

2010

 

(e)

 

Rogue Valley Mall

 

Medford, OR

 

26,575

 

9,042

 

61,558

 

—

 

1,438

 

9,042

 

62,996

 

72,038

 

3,248

 

2010

 

(e)

 

Saint Louis Galleria

 

St. Louis, MO

 

—

 

21,425

 

263,596

 

(21,425

)

(263,596

)

—

 

—

 

—

 

—

 

2010

 

(e)

 

Salem Center

 

Salem, OR

 

37,416

 

5,925

 

33,620

 

—

 

(84

)

5,925

 

33,536

 

39,461

 

1,742

 

2010

 

(e)

 

Sikes Senter

 

Wichita Falls, TX

 

49,891

 

5,915

 

34,075

 

—

 

1,467

 

5,915

 

35,542

 

41,457

 

3,097

 

2010

 

(e)

 

Silver Lake Mall

 

Coeur d’Alene, ID

 

13,078

 

3,237

 

12,914

 

—

 

33

 

3,237

 

12,947

 

16,184

 

730

 

2010

 

(e)

 

Sooner Mall

 

Norman, OK

 

57,721

 

9,902

 

69,570

 

—

 

2,744

 

9,902

 

72,314

 

82,216

 

3,599

 

2010

 

(e)

 

Southlake Mall

 

Morrow, GA

 

91,708

 

19,263

 

68,607

 

—

 

166

 

19,263

 

68,773

 

88,036

 

5,439

 

2010

 

(e)

 

Southland Center

 

Taylor, MI

 

—

 

13,698

 

51,861

 

—

 

(666

)

13,698

 

51,195

 

64,893

 

2,234

 

2010

 

(e)

 

Southland Mall

 

Hayward, CA

 

72,908

 

23,407

 

81,474

 

—

 

6,386

 

23,407

 

87,860

 

111,267

 

4,889

 

2010

 

(e)

 

Southshore Mall

 

Aberdeen, WA

 

—

 

460

 

316

 

—

 

71

 

460

 

387

 

847

 

147

 

2010

 

(e)

 

Southwest Plaza

 

Littleton, CO

 

106,375

 

19,024

 

76,453

 

—

 

95

 

19,024

 

76,548

 

95,572

 

5,188

 

2010

 

(e)

 

Spokane Valley Mall

 

Spokane, WA

 

52,431

 

14,328

 

83,706

 

—

 

(9,930

)

14,328

 

73,776

 

88,104

 

3,514

 

2010

 

(e)

 

Spokane Valley Plaza

 

Spokane, WA

 

—

 

2,488

 

16,503

 

—

 

(2,122

)

2,488

 

14,381

 

16,869

 

697

 

2010

 

(e)

 

Spring Hill Mall

 

West Dundee, IL

 

52,611

 

8,219

 

23,679

 

—

 

(53

)

8,219

 

23,626

 

31,845

 

1,803

 

2010

 

(e)

 

Staten Island Mall

 

Staten Island, NY

 

282,198

 

102,227

 

375,612

 

—

 

2,496

 

102,227

 

378,108

 

480,335

 

20,017

 

2010

 

(e)

 

Steeplegate Mall

 

Concord, NH

 

66,434

 

11,438

 

42,032

 

—

 

264

 

11,438

 

42,296

 

53,734

 

2,481

 

2010

 

(e)

 

Stonestown Galleria

 

San Francisco, CA

 

216,093

 

65,962

 

203,043

 

—

 

(705

)

65,962

 

202,338

 

268,300

 

8,425

 

2010

 

(e)

 

The Boulevard Mall

 

Las Vegas, NV

 

81,895

 

34,523

 

46,428

 

—

 

851

 

34,523

 

47,279

 

81,802

 

4,340

 

2010

 

(e)

 

The Crossroads

 

Portage, MI

 

—

 

20,261

 

95,463

 

—

 

(40

)

20,261

 

95,423

 

115,684

 

7,296

 

2010

 

(e)

 

The Gallery At Harborplace

 

Baltimore, MD

 

77,778

 

15,930

 

112,117

 

—

 

1,076

 

15,930

 

113,193

 

129,123

 

5,328

 

2010

 

(e)

 

The Grand Canal Shoppes

 

Las Vegas, NV

 

370,823

 

49,785

 

716,625

 

—

 

(715

)

49,785

 

715,910

 

765,695

 

25,307

 

2010

 

(e)

 

The Maine Mall

 

South Portland, ME

 

200,706

 

36,205

 

238,067

 

—

 

1,464

 

36,205

 

239,531

 

275,736

 

11,253

 

2010

 

(e)

 

The Mall In Columbia

 

Columbia, MD

 

402,438

 

124,540

 

479,171

 

—

 

839

 

124,540

 

480,010

 

604,550

 

18,353

 

2010

 

(e)

 

The Parks at Arlington

 

Arlington, TX

 

183,116

 

19,807

 

299,708

 

—

 

1,315

 

19,807

 

301,023

 

320,830

 

12,018

 

2010

 

(e)

 

The Pines

 

Pine Bluff, AR

 

—

 

331

 

1,631

 

(331

)

(1,631

)

—

 

—

 

—

 

—

 

2010

 

(e)

 

The Shoppes at Buckland

 

Manchester, CT

 

155,358

 

35,180

 

146,474

 

—

 

(218

)

35,180

 

146,256

 

181,436

 

8,241

 

2010

 

(e)

 

The Shoppes at the Palazzo

 

Las Vegas, NV

 

241,282

 

—

 

290,826

 

—

 

(1,028

)

—

 

289,798

 

289,798

 

9,555

 

2010

 

(e)

 

The Shops At Fallen Timbers

 

Maumee, OH

 

46,969

 

3,785

 

31,771

 

(23

)

1,249

 

3,762

 

33,020

 

36,782

 

1,806

 

2010

 

(e)

 

The Shops At La Cantera

 

San Antonio, TX

 

170,436

 

80,016

 

350,737

 

—

 

16,699

 

80,016

 

367,436

 

447,452

 

13,492

 

2010

 

(e)

 

The Streets At SouthPoint

 

Durham, NC

 

228,970

 

66,045

 

242,189

 

—

 

12,183

 

66,045

 

254,372

 

320,417

 

22,869

 

2010

 

(e)

 

The Village Of Cross Keys

 

Baltimore, MD

 

—

 

8,425

 

26,651

 

—

 

922

 

8,425

 

27,573

 

35,998

 

2,753

 

2010

 

(e)

 

The Woodlands Mall

 

The Woodlands, TX

 

268,047

 

84,889

 

349,315

 

—

 

479

 

84,889

 

349,794

 

434,683

 

13,614

 

2010

 

(e)

 

Three Rivers Mall

 

Kelso, WA

 

18,834

 

2,080

 

11,142

 

—

 

593

 

2,080

 

11,735

 

13,815

 

1,057

 

2010

 

(e)

 

Town East Mall

 

Mesquite, TX

 

94,703

 

9,928

 

168,555

 

—

 

4,309

 

9,928

 

172,864

 

182,792

 

7,257

 

2010

 

(e)

 

Tucson Mall

 

Tucson, AZ

 

112,014

 

2,071

 

193,815

 

—

 

91,381

 

2,071

 

285,196

 

287,267

 

18,054

 

2010

 

(e)

 

Twin Falls Crossing

 

Twin Falls, ID

 

—

 

1,680

 

2,770

 

(1,680

)

(2,770

)

—

 

—

 

—

 

—

 

2010

 

(e)

 

Tysons Galleria

 

McLean, VA

 

260,459

 

90,317

 

351,005

 

—

 

2,208

 

90,317

 

353,213

 

443,530

 

12,502

 

2010

 

(e)

 

University Crossing (g)

 

Orem, UT

 

4,769

 

8,170

 

16,886

 

—

 

(84

)

8,170

 

16,802

 

24,972

 

862

 

2010

 

(e)

 

Valley Hills Mall

 

Hickory, NC

 

52,110

 

10,047

 

61,817

 

—

 

422

 

10,047

 

62,239

 

72,286

 

3,438

 

2010

 

(e)

 

Valley Plaza Mall

 

Bakersfield, CA

 

84,899

 

38,964

 

211,930

 

—

 

(878

)

38,964

 

211,052

 

250,016

 

9,945

 

2010

 

(e)

 

Visalia Mall

 

Visalia, CA

 

36,402

 

11,912

 

80,185

 

—

 

(58

)

11,912

 

80,127

 

92,039

 

3,396

 

2010

 

(e)

 

Vista Commons

 

Las Vegas, NV

 

—

 

6,348

 

13,110

 

(6,348

)

(13,110

)

—

 

—

 

—

 

—

 

2010

 

(e)

 

Vista Ridge Mall

 

Lewisville, TX

 

74,066

 

15,965

 

34,105

 

—

 

12,387

 

15,965

 

46,492

 

62,457

 

3,253

 

2010

 

(e)

 

Washington Park Mall

 

Bartlesville, OK

 

10,451

 

1,388

 

8,213

 

—

 

73

 

1,388

 

8,286

 

9,674

 

730

 

2010

 

(e)

 

West Oaks Mall

 

Ocoee, FL

 

64,757

 

20,278

 

55,607

 

(12,692

)

(36,175

)

7,586

 

19,432

 

27,018

 

1

 

2010

 

(e)

 

West Valley Mall

 

Tracy, CA

 

48,437

 

31,340

 

38,316

 

—

 

3,612

 

31,340

 

41,928

 

73,268

 

3,080

 

2010

 

(e)

 

Westlake Center

 

Seattle, WA

 

4,487

 

19,055

 

129,295

 

(14,819

)

(98,703

)

4,236

 

30,592

 

34,828

 

1,418

 

2010

 

(e)

 

Westwood Mall

 

Jackson, MI

 

27,019

 

5,708

 

28,006

 

—

 

171

 

5,708

 

28,177

 

33,885

 

1,675

 

2010

 

(e)

 

White Marsh Mall

 

Baltimore, MD

 

178,935

 

43,880

 

177,194

 

4,125

 

3,989

 

48,005

 

181,183

 

229,188

 

10,151

 

2010

 

(e)

 

White Mountain Mall

 

Rock Springs, WY

 

10,596

 

3,010

 

11,311

 

—

 

466

 

3,010

 

11,777

 

14,787

 

1,274

 

2010

 

(e)

 

Willowbrook

 

Wayne, NJ

 

162,852

 

110,660

 

419,822

 

—

 

3,175

 

110,660

 

422,997

 

533,657

 

20,093

 

2010

 

(e)

 

 

F-48


 

GENERAL GROWTH PROPERTIES, INC.

 

SCHEDULE III — REAL ESTATE AND ACCUMULATED DEPRECIATION

DECEMBER 31, 2011

 

 

 

 

 

 

 

 

 

 

 

Costs Capitalized

 

Gross Amounts at Which

 

 

 

 

 

 

 

 

 

 

 

 

 

Acquisition Accounting Cost

 

Subsequent to Acquisition (c)

 

Carried at Close of Period (d)

 

 

 

 

 

Life Upon Which

 

 

 

 

 

 

 

 

 

Buildings

 

 

 

Buildings

 

 

 

Buildings

 

 

 

 

 

 

 

Latest Statement

 

 

 

 

 

 

 

 

 

and

 

 

 

and

 

 

 

and

 

 

 

Accumulated

 

Date

 

of Operation is

 

Name of Center

 

Location

 

Encumbrances (a)

 

Land

 

Improvements

 

Land

 

Improvements

 

Land

 

Improvements

 

Total

 

Depreciation (e)

 

Acquired

 

Computed

 

 

 

 

 

 

 

 

 

 

 

(In thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

Woodbridge Center

 

Woodbridge, NJ

 

191,054

 

67,825

 

242,744

 

—

 

8,830

 

67,825

 

251,574

 

319,399

 

10,913

 

2010

 

(e)

 

Woodlands Village

 

Flagstaff, AZ

 

6,040

 

3,624

 

12,960

 

—

 

(55

)

3,624

 

12,905

 

16,529

 

869

 

2010

 

(e)

 

Yellowstone Square

 

Idaho Falls, ID

 

—

 

2,625

 

1,163

 

(2,625

)

(1,163

)

—

 

—

 

—

 

—

 

2010

 

(e)

 

Office, other and development in progress

 

2,013,447

 

165,478

 

542,790

 

(46,364

)

(71,688

)

119,114

 

471,102

 

590,216

 

30,617

 

 

 

 

 

Total

 

 

 

$

17,349,214

 

$

4,809,777

 

$

20,469,723

 

$

(162,335

)

$

(519,664

)

$

4,647,442

 

$

19,950,059

 

$

24,597,501

 

$

974,185

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Properties Held For Disposition:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Grand Traverse Mall

 

Traverse City, MI

 

72,453

 

9,269

 

59,307

 

—

 

—

 

9,269

 

59,307

 

68,576

 

414

 

2010

 

(e)

 

 

 

 

 

$

72,453

 

$

9,269

 

$

59,307

 

$

—

 

$

—

 

$

9,269

 

$

59,307

 

$

68,576

 

$

414

 

 

 

 

 

 

F-49


 

GENERAL GROWTH PROPERTIES, INC.

NOTES TO SCHEDULE III

 

(a)     See description of mortgages, notes and other debt payable in Note 7 of Notes to Consolidated Financial Statements.

 

(b)    Initial cost is the carrying value at the Effective Date due to the application of the acquisition method of accounting (Note 4).

 

(c)     Due to the application of the acquisition method of accounting, all dates are November 9, 2010, the Effective Date.

 

(d)    The aggregate cost of land, buildings and improvements for federal income tax purposes is approximately $18.2 billion.

 

(e)     Depreciation is computed based upon the following estimated useful lives:

 

 

 

Years

 

Buildings and improvements

 

45

 

Equipment and fixtures

 

5-10

 

Tenant improvements

 

Shorter of useful life or applicable lease term

 

 

(f)     During 2011, the initial cost for certain assets was adjusted; the total acquisition accounting cost was not impacted.

 

(g)    Property previously classified as held for sale, and was reclassified as held for use in the first quarter of 2012.

 

Reconciliation of Real Estate

 

 

 

Successor

 

Predeccessor

 

(In thousands)

 

2011

 

2010

 

2009

 

Balance at beginning of period

 

$

25,140,166

 

$

28,350,102

 

$

29,863,649

 

Acquisition accounting adjustments and HHC distribution

 

—

 

(3,104,518

)

—

 

Change in Master Planned Communities land

 

—

 

—

 

(70,156

)

Additions

 

383,001

 

12,518

 

263,418

 

Impairments

 

(63,910

)

—

 

(1,079,473

)

Dispositions and write-offs

 

(861,756

)

(117,936

)

(627,336

)

Balance at end of period

 

$

24,597,501

 

$

25,140,166

 

$

28,350,102

 

 

Reconciliation of Accumulated Depreciation

 

 

 

Successor

 

Predeccessor

 

(In thousands)

 

2011

 

2010

 

2009

 

Balance at beginning of period

 

$

129,794

 

$

4,494,297

 

$

4,240,222

 

Depreciation expense

 

942,661

 

135,003

 

707,183

 

Dispositions and write-offs

 

(98,270

)

(4,499,506

)

(453,108

)

Balance at end of period

 

$

974,185

 

$

129,794

 

$

4,494,297

 

 

F-50


 

EXHIBIT INDEX

 

Exhibit
Number

 

Description of Exhibits

23.1

 

Consent of Deloitte & Touche LLP, Independent Registered Public Accounting Firm, relating to General Growth Properties, Inc. (filed herewith).

23.2

 

Consent of KPMG LLP, Independent Registered Public Accounting Firm, relating to GGP/Homart II L.L.C. (filed herewith).

23.3

 

Consent of KPMG LLP, Independent Registered Public Accounting Firm, relating to GGP-TRS L.L.C. (filed herewith).

 

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 December 31, 2011. The registrant agrees to furnish a copy of such agreements to the Commission upon request.

 

S-1