STOCK BASED COMPENSATION PLANS

12 Months Ended

Dec. 31, 2012

STOCK BASED COMPENSATION PLANS

STOCK BASED COMPENSATION PLANS

NOTE 9 STOCK BASED COMPENSATION PLANS

Incentive Stock Plans

        In January 2012, we adopted the Rouse Properties, Inc. 2012 Equity Incentive Plan (the "Equity Plan"). The number of shares of common stock reserved for issuance under the Equity Plan is 4,887,997. 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, other employees and consultants of Rouse and its subsidiaries and affiliates are eligible for Awards. No participant may be granted more than 2,500,000 shares. The Equity Plan is not subject to the Employee Retirement Income Security Act of 1974, as amended.

Stock Options

        Pursuant to the Equity Plan, we granted stock options to certain employees of the Company. The vesting terms of these grants are specific to the individual grant. In general, participating employees are required to remain employed for vesting to occur (subject to certain limited exceptions). In the event that a participating employee ceases to be employed by the Company, any options that have not vested will generally be forfeited. Stock options generally vest annually over a five year period.

        The following tables summarize stock option activity for the Equity Plan for the year ended December 31, 2012.

	2012
	Shares			Weighted Average Exercise Price
Stock options outstanding at January 1		—		$	—
Granted		1,986,143			14.65
Exercised		—			—
Forfeited		(40,500	)		14.72
Vested		—			—
Expired		—			—
Stock options outstanding at December 31		1,945,643			14.64

	Stock Options Outstanding
Issuance	Shares		Weighted Average Remaining Contractual Term (in years)		Weighted Average Exercise Price
March 2012		1,575,486		9.25	$	14.72
May 2012		36,500		9.42		13.71
August 2012		36,400		9.67		13.75
October 2012		297,257		9.75		14.47
Total		1,945,643		9.34		14.64

        We recognized $1.0 million in compensation expense related to the stock options for the year ended December 31, 2012, of which $0.3 million was capitalized on our consolidated and combined balance sheets as of December 31, 2012. There was no stock compensation expense for the year ended December 31, 2011 or the periods November 10, 2010 through December 31, 2010 and January 1, 2010 through November 9, 2010.

Restricted Stock

        Pursuant to the Equity Plan, we granted restricted stock to certain employees and non-employee directors. The vesting terms of these grants are specific to the individual grant, and are generally three to four year periods. In general, participating employees are required to remain employed for vesting to occur (subject to certain limited exceptions). In the event that a participating employee ceases to be employed by the Company, any shares that have not vested will generally be forfeited. Dividends are paid on restricted stock and are not returnable, even if the underlying stock does not ultimately vest.

        The following table summarizes restricted stock activity for the year ended December 31, 2012:

	2012
	Shares			Weighted Average Grant Date Fair Value
Nonvested restricted stock grants outstanding as of beginning of period		—		$	—
Granted		365,705			14.68
Cancelled		—			—
Vested		(102,036	)		14.72
Nonvested restricted stock grants outstanding as of end of period		263,669			14.69

        The weighted average remaining contractual term (in years) of nonvested awards as of December 31, 2012 was 2.0 years.

        The total fair value of restricted stock grants which vested was $1.5 million during the year ended December 31, 2012. We recognized $1.54 million in compensation expense related to the restricted stock for the year ended December 31, 2012, of which $0.4 million was capitalized on our consolidated balance sheet as of December 31, 2012. There was no stock compensation expense for the year ended December 31, 2011 or the periods November 10, 2010 through December 31, 2010 and January 1, 2010 through November 9, 2010.

Other Disclosures

        The estimated values of options granted in the table above are based on the Black-Scholes pricing model using the assumptions in the table below. The estimate of the risk-free interest rate is based on the average of a 5- and 10-year U.S. Treasury note on the date the options were granted. The estimate of the dividend yield and expected volatility is based on a review of publicly-traded peer companies. The expected life is computed using the simplified method as the Company does not have historical share option data. The fair value of each option grant is estimated on the date of grant using the Black Scholes pricing model with the following 2012 weighted-average assumptions:

Risk-free interest rate	1.37	%
Dividend yield	4.25	%
Expected volatility	30.00	%
Expected life (in years)	6.50

        As of December 31, 2012, total compensation expense which had not yet been recognized related to nonvested options and restricted stock grants was $8.6 million. Of this total, $2.5 million is expected to be recognized in 2013, $2.7 million in 2014, $2.0 million in 2015, $1.2 million in 2016, and $0.2 million in 2017. These amounts may be impacted by future grants, changes in forfeiture estimates or vesting terms, and actual forfeiture rates differing from estimated forfeitures.