WARRANT LIABILITY

6 Months Ended

Jun. 30, 2012

WARRANT LIABILITY

WARRANT LIABILITY

NOTE 8WARRANT LIABILITY

Pursuant to the terms of the Investment Agreements, the Plan Sponsors and Blackstone were issued 120,000,000 warrants (the “Warrants”) to purchase common stock of GGP.  Each GGP Warrant has a term of seven years and expires on November 9, 2017 and no warrants have been exercised to date.  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 issuance) only upon 90 days prior notice.  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

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. In accordance with the agreement, these calculations adjust both the exercise price and the number of shares issuable for the 120,000,000 Warrants.  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 - B		Fairholme, Pershing Square and Blackstone - A
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
April 16, 2012	132,372,000	9.75		9.52

In addition to the adjustment for the common stock dividends, as a result of the RPI Spin-off, the exercise price of the Warrants was adjusted by $0.3943 for the Brookfield Investor and Blackstone-B Warrants and by $0.3852 for the Fairholme, Pershing Square and Blackstone-A Warrants, on the record date of December 30, 2011. As a result, the total number of issuable shares was 131,748,000.

The estimated fair value of the Warrants was $1.28 billion as of June 30, 2012 and $986.0 million as of December 31, 2011 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.  Changes in the fair value of the Warrants are recognized in earnings.  The fair value of the Warrants was estimated using the Black Scholes option pricing model using our stock price, the Warrant term, and Level 3 inputs (Note 2).  An increase in the expected volatility of the Warrants would increase the fair value; whereas, an increase in the lack of marketability would decrease the fair value.  The discount for lack of marketability represents the costs associated with selling the warrants to another party.  The following table summarizes the estimated fair value of the Warrants and significant observable and unobservable inputs used in the valuation as of June 30, 2012 and December 31, 2011:

	June 30, 2012			December 31, 2011
Warrant liability	$	1,275,662		$	985,962
Observable Inputs
GGP stock price per share	$	18.09		$	15.02
Warrant term	5.36			5.86
Unobservable Inputs
Expected volatility	34		%	37		%
Range of values considered	(20% - 65%)			(20% - 65%)
Discount for lack of marketability	3		%	3		%
Range of values considered	(3% - 7%)			(3% - 7%)

The following table summarizes the change in fair value of the Warrant liability which is measured on a recurring basis using Level 3 inputs:

	2012		2011
Balance as of January 1,	$	985,962	$	1,041,004
Warrant liability adjustment	289,700		18,321
Balance as of June 30,	$	1,275,662	$	1,059,325