NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Properties

Acquisition accounting was applied to real estate assets within the Rouse portfolio either when GGP emerged from bankruptcy in November 2010 or upon any subsequent acquisitions. After acquisition accounting is applied, the real estate assets are carried at the cost basis less accumulated depreciation. Real estate taxes and interest costs incurred during development periods are capitalized. Capitalized interest costs are based on qualified expenditures and interest rates in place during the development period. Capitalized real estate taxes and interest costs are amortized over lives which are consistent with the developed assets.

Pre-development costs, which generally include legal and professional fees and other directly-related third part costs, 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.

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 applicable lease term. Maintenance and repair costs are charged to expense when incurred. Expenditures for significant betterments and improvements are capitalized. 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 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 that 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.

Depreciation or amortization expense is computed using the straight-line method based upon the following estimated useful lives:

		Years

Buildings and improvements		40
Equipment and fixtures		5 - 10
Tenant improvements		Shorter of useful life or applicable lease term

Impairment

Operating properties and intangible assets

Accounting for the impairment or disposal of long-lived assets require 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 real estate 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 and occupancy percentages. 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 to the Company's plans with respect to the project, significant changes in projected completion dates, 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, capitalization rates, and estimated holding periods for the applicable assets. Although the estimated fair value of certain assets may be exceeded by the carrying amount, 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. The adjusted carrying amount, which represents the new cost basis of the asset, is depreciated over the remaining useful life of the asset.

Rouse did not record impairment charges related to its operating properties for the years ended December 31, 2012, 2011, the period from November 10, 2010 through December 31, 2010, or the period from January 1, 2010 through November 9, 2010.

Goodwill

With respect to RPI Businesses, 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. Goodwill was recognized and allocated to specific properties since each individual rental property or each operating property is an operating segment and considered a reporting unit. Goodwill is tested for impairment annually or more frequently if events or changes in circumstances indicate that the asset might be impaired. RPI Businesses performed this test by first comparing the estimated fair value of each property to the book value of the property, including, if applicable, its allocated portion of aggregate goodwill. RPI Businesses assessed fair value based on estimated future cash flow projections that utilize 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. The application of acquisition accounting on the Effective Date did not yield any goodwill for the Successor and all prior RPI Businesses goodwill amounts were eliminated.

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.

	Predecessor

	2010
	(In thousands)
Balance as of January 1,
Goodwill before accumulated impairment losses	$	9,819
Accumulated impairment losses		(5,484	)

Goodwill, net		4,335
Goodwill impairment losses during the year		—

Balance as of November 9	$	4,335

Acquisitions of Operating Properties

Acquisitions of properties are accounted for utilizing the acquisition method of accounting. Estimates of future cash flows and other valuation techniques were 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 tenant leases, acquired above and below-market tenant and ground leases and tenant relationships. No significant value had been ascribed to the tenant relationships of the acquired properties in 2012 (note 3).

Cash and Cash Equivalents

The Company considers all demand deposits with a maturity of three months or less, at the date of purchase, to be cash equivalents.

Restricted Cash

Restricted cash consists of security deposits and cash escrowed under loan agreements for debt service, real estate taxes, property insurance, capital renovations and capital improvements.

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 as well as the amortization related to above and below-market tenant leases on acquired properties. Minimum rent revenues also include percentage rents in lieu of minimum rent from those leases where we receive a percentage of tenant revenues. The following is a summary of amortization of straight-line rent, lease termination income, net amortization related to above and below-market tenant leases, and percentage rent in lieu of minimum rent:

				Successor						Predecessor

	December 31, 2012			December 31, 2011			Period from November 10, 2010 through December 31, 2010			Period from January 1, 2010 through November 9, 2010
	(In thousands)
Straight-line rent amortization	$	3,608		$	6,031		$	98		$	(137	)
Lease termination income		433			1,389			15			845
Net amortization of above and below-market tenant leases		(24,028	)		(25,194	)		(3,793	)		688
Percentage rents in lieu of minimum rent		8,856			9,443			2,145			7,430

Straight-line rent receivables represent the current net cumulative rents recognized prior to when billed and collectible as provided by the terms of the leases. The following is a summary of straight-line rent receivables, which are included in accounts receivable, net, in our consolidated and combined balance sheets and are reduced for allowances for doubtful accounts:

	2012		2011

	(In thousands)
Straight-line rent receivables, net	$	9,694	$	6,086

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. We also evaluate the probability of collecting future rent which is recognized currently under a straight-line methodology. This analysis considers the long term nature of our leases, as a certain portion of the straight-line rent currently recognizable will not be billed to the tenant until future periods. Our experience relative to unbilled straight-line rent receivable is that a certain portion of the amounts recorded as straight-line rental revenue are never collected from (or billed to) tenants due to early lease terminations. For that portion of the recognized deferred rent that is not deemed to be probable of collection, an allowance for doubtful accounts has been provided. Accounts receivable are shown net of an allowance for doubtful accounts of $2.5 million and $2.9 million as of December 31, 2012 and 2011, respectively. The following table summarizes the changes in allowance for doubtful accounts for all receivables:

				Successor						Predecessor

	2012			2011			2010			2010
	(In thousands)
Balance at beginning of period	$	2,943		$	4,070		$	5,497		$	4,734
Provision for doubtful accounts		1,919			601			378			2,253
Write-offs		(2,317	)		(1,728	)		(1,805	)		(1,490	)

Balance at end of period	$	2,545		$	2,943		$	4,070		$	5,497

Overage rent is paid by a tenant when its sales exceed an agreed upon minimum amount. Overage rent is calculated by multiplying the sales in excess of the minimum amount by a percentage defined in the lease. 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. The Company makes certain assumptions and judgments in estimating the reimbursements at the end of each reporting period. The Company does not expect the actual results to materially differ from the estimated reimbursement. Other revenues generally consists of amounts earned by the Company for vending, advertising, and marketing revenues earned at our malls and is recognized on an accrual basis over the related service period.

Loss Per Share

Basic net loss per share is computed by dividing the net loss applicable to common stockholders by the weighted-average number of shares of common stock outstanding for the period. Diluted net loss per share reflects potential dilution of securities by adding other potential shares of common stock, including stock options and nonvested restricted stock, to the weighted-average number of shares of common stock outstanding for a period, if dilutive. As of December 31, 2012, there were 1,945,643 stock options outstanding that potentially could be converted into shares of common stock and 263,669 shares of nonvested restricted stock. These stock options and shares of restricted stock have been excluded from this computation, as their effect is anti-dilutive.

In connection with the spin-off, on January 12, 2012, GGP distributed to its stockholders 35,547,049 shares of our common stock and retained 359,056 shares of our Class B common stock. This share amount is being utilized for the calculation of basic and diluted EPS for all periods presented prior to the spin-off as our common stock was not traded prior to January 12, 2012 and there were no dilutive securities in the prior periods. The Company had the following weighted-average shares outstanding:

			Successor				Predecessor

	December 31, 2012		December 31, 2011		Period from November 10, 2010 through December 31, 2010		Period from January 1, 2010 through November 9, 2010
Weighted average shares—basic and dilutive		46,149,893		35,906,105		35,906,105		35,906,105

Fair Value of Financial Instruments

The objective of fair value is to determine the price that would be received upon the sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (the exit price). GAAP establishes a fair value hierarchy that prioritizes observable and unobservable inputs used to measure fair value into three levels: Level 1—quoted prices (unadjusted) in active markets that are accessible at the measurement date for assets or liabilities; Level 2—observable prices that are based on inputs not quoted in active markets, but corroborated by market data; and Level 3—unobservable inputs that are used when little or no market data is available. The fair value hierarchy gives the highest priority to Level 1 inputs and the lowest priority to Level 3 inputs. In determining fair value, we utilize valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible, as well as consider counterparty credit risk in our assessment of fair value. Considerable judgment is necessary to interpret Level 2 and 3 inputs in determining the fair value of our financial and non-financial assets and liabilities. Accordingly, our fair value estimates, which are made at the end of each reporting period, may be different than the amounts that may ultimately be realized upon the sale or disposition of these assets.

Our financial instruments are short term in nature and as such their fair values approximate their carrying amount in our consolidated and combined financial statements except for debt. At December 31, 2012 and 2011, management's required estimates of fair value are presented below. The Company estimated the fair value of the debt using a future discounted cash flow analysis based on the use and weighting of multiple market inputs being considered. Based on the frequency and availability of market data, the inputs used to measure the estimated fair value of debt are Level 3 inputs. The primary sensitivity in these calculations is based on the selection of appropriate discount rates.

	December 31, 2012				December 31, 2011

	Carrying Amount		Estimated Fair Value		Carrying Amount		Estimated Fair Value
	(In thousands)
Fixed-rate debt	$	995,545	$	1,040,964	$	731,235	$	787,551
Variable-rate debt		287,946		287,946		328,449		328,162

Total mortgages, notes and loans payable	$	1,283,491	$	1,328,910	$	1,059,684	$	1,115,713

Offering Costs

Costs associated with the rights offering to our stockholders were deferred and charged against the gross proceeds of the offering upon the sale of shares during the year ended December 31, 2012 (note 12).

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 properies, 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. All other leases are treated as operating leases. As of December 31, 2012, all of our leases are treated as operating leases.

Deferred Expenses

Deferred expenses are comprised of deferred lease costs incurred in connection with obtaining new tenants or renewals of lease agreements with current tenants, which are amortized on a straight-line basis over the terms of the related leases, and deferred financing costs which are amortized on a straight-line basis (which approximates the effective interest method) over the lives of the related mortgages, notes, and loans payable. The following table summarizes our deferred lease and financing costs:

	Gross Asset		Accumulated Amortization			Net Carrying Amount

	(In thousands)
As of December 31, 2012
Deferred lease costs	$	31,397	$	(9,162	)	$	22,235
Deferred financing costs		25,068		(6,897	)		18,171

Total	$	56,465	$	(16,059	)	$	40,406

As of December 31, 2011
Deferred lease costs	$	25,133	$	(5,367	)	$	19,766
Deferred financing costs		15,783		—			15,783

Total	$	40,916	$	(5,367	)	$	35,549

Stock-Based Compensation

The Company recognizes all stock-based compensation to employees, including grants of employee stock options and restricted stock awards, in the financial statements as compensation cost over the vesting period based on their fair value on the date of grant.

Asset Retirement Obligations

The Company evaluated any potential asset retirement obligations, including those related to disposal of asbestos containing materials and environmental remediation liabilities. The Company recognizes the fair value of such obligations in the period incurred if a reasonable estimate of fair value can be determined. As of December 31, 2012 and 2011, the Company recorded a preliminary estimate of the cost of the environmental remediation liability of approximately $4.5 million and $4.3 million, respectively, which is included in other liabilities within the accompanying consolidated and combined balance sheets. The ultimate cost of remediation to be incurred by the Company in the future may differ from the estimates as of December 31, 2012.

Reorganization Items

Reorganization items are expense or income items that were incurred or realized as a result of the Chapter 11 cases and are presented separately in the combined statements of operations of the Predecessor. These items include professional fees and similar types of expenses and gains on liabilities subject to compromise directly related to the Chapter 11 cases, resulting from activities of the reorganization process, and interest earned on cash accumulated as a result of the Chapter 11 cases. No reorganization items were recorded for the years ended December 31, 2012 and 2011 or the period from November 10, 2010 through December 31, 2010.

Reorganization items are as follows:

	Predecessor

Reorganization Items	Period from January 1, 2010 to November 9, 2010
	(In thousands)
Loss on liabilities subject to compromise—other	$	868
Gain on liabilities subject to compromise—mortgage debt(1)		(36,581	)
U.S. Trustee fees		748
Restructuring costs(2)		44,480

Total reorganization items	$	9,515

(1): Such net gains include the fair value adjustments of mortgage debt resulting from the write off of existing fair value of debt adjustments for the entities that emerged from bankruptcy prior to GGP emerging from bankruptcy.
(2): Restructuring costs primarily include professional fees incurred related to the bankruptcy filings, the estimated Key Employee Incentive Program ("KEIP") payment, finance costs related to the RPI Businesses and the write off of unamortized deferred finance costs related to the RPI Businesses.

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, recoverable amounts of receivables, initial valuations and related amortization periods of deferred costs and intangibles, particularly with respect to acquisitions, impairment of long-lived assets and fair value of debt. Actual results could differ from these and other estimates.

Reclassifications

Certain prior year balances have been reclassified to conform to the current year presentation, which has not changed the operating results of the prior year. During 2012, the Company reclassified the 2012 and 2011 restricted cash balances that were previously included in prepaid expenses and other assets to restricted cash on the consolidated and combined balance sheets.