Rouse Properties (RSE) 10-Q 2012 Q2 Quarterly report

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

x  Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended June 30, 2012

or

oTransition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the Transition Period from                 to                 

COMMISSION FILE NUMBER 001-35287

ROUSE PROPERTIES, INC.

(Exact name of registrant as specified in its charter)

Delaware	90-0750824
(State or other jurisdiction of	(I.R.S. Employer
incorporation or organization)	Identification Number)

1114 Avenue of the Americas, Suite 2800, New York, NY	10036
(Address of principal executive offices)	(Zip Code)

(212) 608-5108

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 (the “Exchange Act”) during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. x Yes o No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). x Yes o No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company.

Large accelerated filer o	Accelerated filer o
Non-accelerated filer x	Smaller reporting company o
(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). o Yes x No

The number of shares of Common Stock, $.01 par value, outstanding on August 10, 2012 was 49,225,133.

ROUSE PROPERTIES, INC.

INDEX

			PAGE NUMBER
Part I	FINANCIAL INFORMATION
	Item 1:	Consolidated and Combined Financial Statements (Unaudited)
		Consolidated and Combined Balance Sheets as of June 30, 2012 and December 31, 2011	3
		Consolidated and Combined Statements of Operations and Comprehensive Loss for the three and six months ended June 30, 2012 and 2011	4
		Consolidated and Combined Statements of Equity for the six months ended June 30, 2012 and 2011	5
		Consolidated and Combined Statements of Cash Flows for the six months ended June 30, 2012 and 2011	6
		Notes to Consolidated and Combined Financial Statements	7
	Item 2:	Management’s Discussion and Analysis of Financial Condition and Results of Operations	19
		Liquidity and Capital Resources	24
	Item 3:	Quantitative and Qualitative Disclosures about Market Risk	28
	Item 4:	Controls and Procedures	28
Part II	OTHER INFORMATION
	Item 1:	Legal Proceedings	28
	Item 1A:	Risk Factors	28
	Item 2:	Unregistered Sales of Equity Securities and Use of Proceeds	28
	Item 3:	Defaults Upon Senior Securities	29
	Item 4:	Mine Safety Disclosures	29
	Item 5:	Other Information	29
	Item 6:	Exhibits	29
	SIGNATURE		30
	EXHIBIT INDEX		31

2

ROUSE PROPERTIES, INC.

CONSOLIDATED AND COMBINED BALANCE SHEETS

(UNAUDITED)

	June 30, 2012			December 31, 2011
	(In thousands)
Assets:
Investment in real estate:
Land	$	315,779		$	299,941
Buildings and equipment	1,212,035			1,162,541
Less accumulated depreciation	(91,463		)	(72,620		)
Net investment in real estate	1,436,351			1,389,862
Cash and cash equivalents	163,299			204
Short term investment	29,989			—
Accounts receivable, net	20,216			17,561
Deferred expenses, net	40,396			35,549
Prepaid expenses and other assets	147,333			140,348
Total assets	$	1,837,584		$	1,583,524
Liabilities:
Mortgages, notes and loans payable	$	1,185,995		$	1,059,684
Accounts payable and accrued expenses	86,470			97,512
Total liabilities	1,272,465			1,157,196
Commitments and contingencies	—			—
Equity:
Common stock: $0.01 par value; 500,000,000 shares authorized, 49,225,133 and 0 shares issued and outstanding, respectively	493			—
Class B common stock: $0.01 par value; 1,000,000 shares authorized, 359,056 and 0 shares issued and outstanding, respectively	4			—
Additional paid-in capital	594,314			—
GGP Equity	—			426,328
Accumulated deficit	(29,738		)	—
Accumulated other comprehensive loss	(65		)	—
Total stockholders’ equity	565,008			426,328
Noncontrolling interest	111			—
Total equity	565,119			426,328
Total liabilities and equity	$	1,837,584		$	1,583,524

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

3

ROUSE PROPERTIES, INC.

CONSOLIDATED AND COMBINED STATEMENTS OF OPERATIONS

AND COMPREHENSIVE LOSS

(UNAUDITED)

	Three Months Ended						Six Months Ended
	June 30, 2012			June 30, 2011			June 30, 2012			June 30, 2011
	(In thousands, except per share amounts)
Revenues:
Minimum rents	$	38,072		$	36,554		$	75,284		$	74,956
Tenant recoveries	16,915			17,842			33,511			35,938
Overage rents	659			461			2,104			1,762
Other	1,303			1,398			2,458			2,698
Total revenues	56,949			56,255			113,357			115,354
Expenses:
Real estate taxes	5,575			6,089			11,565			12,114
Property maintenance costs	3,351			3,075			6,792			6,960
Marketing	660			808			1,121			1,574
Other property operating costs	14,992			13,555			29,391			27,591
Provision for doubtful accounts	451			302			714			512
General and administrative	5,240			3,197			10,384			5,726
Depreciation and amortization	16,773			19,518			35,047			38,486
Other	1,983			(606		)	6,442			(78		)
Total expenses	49,025			45,938			101,456			92,885
Operating income	7,924			10,317			11,901			22,469
Interest income	8			7			9			8
Interest expense	(23,699		)	(16,782		)	(53,688		)	(35,322		)
Loss before income taxes	(15,767		)	(6,458		)	(41,778		)	(12,845		)
Provision for income taxes	(173		)	(140		)	(239		)	(288		)
Net loss	$	(15,940	)	$	(6,598	)	$	(42,017	)	$	(13,133	)
Net loss per share - Basic and Diluted	$	(0.32	)	$	(0.18	)	$	(0.98	)	$	(0.37	)
Dividends declared per share	$	0.07		$	—		$	0.07		$	—
Comprehensive loss:
Net loss	$	(15,940	)	$	(6,598	)	$	(42,017	)	$	(13,133	)
Other comprehensive gain (loss):
Net unrealized gain (loss) on financial instrument	65			—			(65		)	—
Comprehensive loss	$	(15,875	)	$	(6,598	)	$	(42,082	)	$	(13,133	)

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

4

ROUSE PROPERTIES, INC.

CONSOLIDATED AND COMBINED STATEMENTS OF EQUITY

(UNAUDITED)

	Common Shares	Class B Common Shares	Common Stock		Class B Common Stock		Additional Paid-In Capital			GGP Equity			Accumulated Deficit			Accumulated Other Comprehensive Loss			Noncontrolling Interest		Total Equity
	(In thousands, except share amounts)
Balance at January 1, 2011	—	—	$	—	$	—	$	—		$	329,862		$	—		$	—		$	—	$	329,862
Net loss	—	—	—		—		—			(13,133		)	—			—			—		(13,133		)
Contributions from GGP, net	—	—	—		—		—			132,601			—			—			—		132,601
Balance at June 30, 2011	—	—	$	—	$	—	$	—		$	449,330		$	—		$	—		$	—	$	449,330
Balance at January 1, 2012	—	—	$	—	$	—	$	—		$	426,328		$	—		$	—		$	—	$	426,328
Net loss	—	—	—		—		—			(12,279		)	(29,738		)	—			—		(42,017		)
Other comprehensive loss	—	—	—		—		—			—			—			(65		)	—		(65		)
Distributions to GGP prior to the spin-off	—	—	—		—		—			(8,394		)	—			—			—		(8,394		)
Contributions from noncontrolling interest	—	—	—		—		—			—			—			—			111		111
Issuance of 35,547,049 shares of common stock and 359,056 shares of Class B common stock related to the spin-off and transfer of GGP equity on the spin-off date	35,547,049	359,056	356		4		405,295			(405,655		)	—			—			—		—
Issuance of 13,333,333 shares of common stock related to the rights offering	13,333,333	—	133		—		199,867			—			—			—			—		200,000
Offering costs	—	—	—		—		(8,392		)	—			—			—			—		(8,392		)
Dividends	—	—	—		—		(3,471		)	—			—			—			—		(3,471		)
Issuance and amortization of stock compensation	344,751	—	4		—		1,015			—			—			—			—		1,019
Balance at June 30, 2012	49,225,133	359,056	$	493	$	4	$	594,314		$	—		$	(29,738	)	$	(65	)	$	111	$	565,119

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

5

ROUSE PROPERTIES, INC.

CONSOLIDATED AND COMBINED STATEMENTS OF CASH FLOWS

(UNAUDITED)

	Six Months Ended June 30,
	2012			2011
	(In thousands)
Cash Flows from Operating Activities:
Net loss	$	(42,017	)	$	(13,133	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Provision for doubtful accounts	714			512
Depreciation	31,747			35,525
Amortization	3,300			2,961
Amortization/write-off of deferred finance costs	5,468			—
Amortization/write-off of debt market rate adjustments	14,342			3,656
Amortization of above/below market leases	13,009			12,650
Straight-line rent amortization	(3,156		)	(3,764		)
Stock based compensation	1,019			—
Net changes:
Accounts receivable	(211		)	(760		)
Prepaid expenses and other assets	(60		)	1,887
Deferred expenses	(3,390		)	(3,272		)
Restricted cash	(2,256		)	6,858
Accounts payable and accrued expenses	5,692			(1,650		)
Net cash provided by operating activities	24,201			41,470
Cash Flows from Investing Activities:
Acquisition/development of real estate and property additions/improvements	(20,113		)	(9,587		)
Purchase of short term investment	(29,989		)	—
Increase in restricted cash	(18,749		)	(104		)
Net cash used in investing activities	(68,851		)	(9,691		)
Cash Flows from Financing Activities:
Proceeds received from rights offering	200,000			—
Payments for offering costs	(8,062		)	—
Change in GGP investment, net	(8,394		)	120,653
Contributions from noncontrolling interests	111			—
Proceeds from refinance/issuance of mortgages, notes and loans payable	560,750			—
Borrowing under revolving line of credit	10,000			—
Principal payments on mortgages, notes and loans payable	(510,795		)	(154,117		)
Repayment under revolving line of credit	(10,000		)	—
Deferred financing costs	(25,865		)	—
Net cash provided by (used in) financing activities	207,745			(33,464		)
Net change in cash and cash equivalents	163,095			(1,685		)
Cash and cash equivalents at beginning of period	204			1,816
Cash and cash equivalents at end of period	$	163,299		$	131
Supplemental Disclosure of Cash Flow Information:
Interest paid	$	34,748		$	32,249
Non-Cash Transactions:
Change in accrued capital expenditures included in accounts payable and accrued expenses	$	96		$	355
Assumption of mortgage related to the acquisition of a property	62,000			—
Other non-cash GGP investment, net	—			11,948

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

6

ROUSE PROPERTIES, INC.

NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS

NOTE 1                 ORGANIZATION

Readers of this Quarterly Report should refer to the Company’s (as defined below) audited Combined Financial Statements for the year ended December 31, 2011 which are included in the Company’s Annual Report on Form 10-K (the “Annual Report”) for the fiscal year ended December 31, 2011 as certain footnote disclosures which would substantially duplicate those contained in our Annual Report have been omitted from this Quarterly Report.  Capitalized terms used, but not defined in this Quarterly Report, have the same meanings as in our Annual Report.

General

Rouse Properties, Inc. is a Delaware corporation that was created to hold certain assets and liabilities of General Growth Properties, Inc. (“GGP”). As of January 1, 2012, Rouse Properties Inc. and its subsidiaries (“Rouse” or the “Company”) was a wholly-owned subsidiary of GGP Limited Partnership (“GGPLP”). GGP distributed the assets and liabilities of 30 of its wholly-owned properties (“RPI Businesses”) to Rouse on January 12, 2012 (the “Spin-Off Date”).  Before the spin-off, we had not conducted any business as a separate company and had no material assets or liabilities. The operations, assets and liabilities of the business were transferred to us by GGP on the spin-off date and are presented as if the transferred business was our business for all historical periods described.  As such, our assets and liabilities on the Spin-Off Date are reflective of GGP’s respective carrying values.  Unless the context otherwise requires, references to “we”, “us” and “our” refer to Rouse from January 12, 2012 through June 30, 2012 and RPI Businesses before January 12, 2012.  Before the spin-off, RPI Businesses were operated as subsidiaries of GGP, which operates as a real estate investment trust (“REIT”). After the spin-off, we expect to continue to operate as a REIT.

Principles of Combination and Consolidation and Basis of Presentation

The accompanying consolidated and combined financial statements are prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”).  The consolidated balance sheet as of June 30, 2012 includes the accounts of Rouse, as well as all subsidiaries of Rouse.  The accompanying consolidated and combined statements of operations and comprehensive loss for the three months ended June 30, 2012 includes the consolidated accounts of Rouse and for the six months ended June 30, 2012 includes the consolidated accounts of Rouse and the combined accounts of RPI Businesses.  Accordingly, the results presented for the six months ended June 30, 2012 reflect the aggregate operations and changes in cash flows and equity on a carved-out basis for the period from January 1, 2012 through January 12, 2012 and on a consolidated basis from January 13, 2012 through June 30, 2012.  The accompanying financial statements for the periods prior to the Spin-Off Date are prepared on a carve out basis from the consolidated financial statements of GGP using the historical results of operations and bases of the assets and liabilities of the transferred businesses and including allocations from GGP.  All intercompany transactions have been eliminated in consolidation and combination as of and for the periods ended June 30, 2012 and 2011, except end-of-period intercompany balances on December 31, 2011 and Spin-Off Date balances between GGP and RPI Businesses have been considered elements of RPI Businesses’ equity.  In the opinion of management, the accompanying consolidated and combined financial statements contain all adjustments, consisting of normal recurring accruals, necessary to present fairly the financial position of the Company and its results of operations and cash flows for the interim periods presented.  The Company believes that the disclosures made are adequate to prevent the information presented from being misleading.

Our historical financial results reflect allocations for certain corporate costs and we believe such allocations are reasonable; however, such results do not reflect what our expenses would have been had the Company been operating as a separate stand-alone public company. The corporate allocations for the six months ended June 30, 2012 include allocations for the period from January 1, 2012 through January 12, 2012 which aggregated $0.4 million.  The corporate allocations for the three and six months ended June 30, 2011 totaled $3.2 million and $5.7 million, respectively.  These allocations have been included in general and administrative expenses on the consolidated and combined statements of operations. Costs of the services that were allocated or charged to us were based on either actual costs incurred or a proportion of costs estimated to be applicable to us based on a number of factors, most significantly our percentages of GGP’s adjusted revenue and gross leasable area of assets and also the number of properties.

We operate in a single reportable segment referred to as our retail segment, which includes the operation, development and management of regional malls. 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 combined revenues. As a result, the Company’s operating properties are aggregated into a single reportable segment.

7

ROUSE PROPERTIES, INC.

NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS

Properties

Acquisition accounting was applied to real estate assets within the Rouse portfolio 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.  Expenditures for development in progress, as well as significant renovations are capitalized.  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.  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 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 and RPI Businesses did not record impairment charges related to its operating properties for the three and six months ended June 30, 2012 and 2011, respectively.

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

8

ROUSE PROPERTIES, INC.

NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS

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:

	For the three months ended June 30,						For the six months ended June 30,
	2012			2011			2012			2011
				(In thousands)
Amortization of straight-line rent	$	1,657		$	1,683		$	3,156		$	3,764
Lease termination income	70			62			218			449
Net amortization of above and below-market tenant leases	(6,574		)	(6,803		)	(13,009		)	(12,650		)
Percentage rents in lieu of minimum rent	2,058			2,000			4,060			4,025

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 and amounts doubtful of collection:

	June 30, 2012		December 31, 2011
	(In thousands)
Straight-line rent receivables, net	$	9,242	$	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 deferred 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 $3.5 million and $2.9 million as of June 30, 2012 and December 31, 2011, respectively.

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.

Loss Per Share

Basic net loss per share is computed by dividing the net loss applicable to common shareholders 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 common shares, including stock options and nonvested restricted shares, to the weighted-average number of common shares outstanding for a period, if dilutive. As of June 30, 2012, there were 1,652,486 stock options outstanding that potentially could be converted into common shares and 339,655 shares of nonvested restricted stock. These stock options and 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:

9

ROUSE PROPERTIES, INC.

NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS

	For the three months ended June 30,		For the six months ended June 30,
	2012	2011	2012	2011
Weighted average shares - basic and dilutive	49,242,014	35,906,105	43,013,900	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 sale or disposition of these assets.

The fair values of our financial instruments approximate their carrying amount in our consolidated and combined financial statements except for debt. At June 30, 2012 and December 31, 2011, management’s required estimates of fair value are presented below. We estimated the fair value of this debt using Level 2 and Level 3 inputs based on recent financing transactions, estimates of the fair value of the property that serves as collateral for such debt, historical risk premiums for loans of comparable quality, current London Interbank Offered Rate (“LIBOR”), a widely quoted market interest rate which is frequently the index used to determine the rate at which we borrow funds, 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. 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.

	June 30, 2012				December 31, 2011
	Carrying Amount		Estimated Fair Value		Carrying Amount		Estimated Fair Value
			(In thousands)
Fixed-rate debt	$	860,921	$	898,452	$	731,235	$	787,551
Variable-rate debt	325,074		325,074		328,449		328,162
Total mortgages, notes and loans payable	$	1,185,995	$	1,223,526	$	1,059,684	$	1,115,713

Offering Costs

Costs associated with the offering were deferred and charged against the gross proceeds of the offering upon the sale of shares during the six months ended June 30, 2012 (note 11).

Cash and Cash Equivalents

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

Short Term Investment

The Company considers its investment in the U.S. treasury security to be a held-to-maturity security as it has the intent and ability

10

ROUSE PROPERTIES, INC.

NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS

to hold until maturity and as such, is recorded at amortized cost.  During the three month period ended June 30, 2012 the Company purchased a six month U.S Treasury security with a par value of $30.00 million for $29.99 million.  As of June 30, 2012 the fair value of this treasury was $29.99 million.  The Company used Level 1 inputs in determining the fair value of the U.S. treasury security as of June 30, 2012.

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.  The restricted cash balance is included in prepaid expenses and other assets on the consolidated and combined balance sheets and totaled $36.8 million and $14.2 million at June 30, 2012 and December 31, 2011, respectively.

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 June 30, 2012
Deferred lease costs	$	26,752	$	(6,753	)	$	19,999
Deferred financing costs	23,754		(3,357		)	20,397
Total	$	50,506	$	(10,110	)	$	40,396
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.

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.

NOTE 2                 ACQUISITION

On February 21, 2012, we completed the acquisition of Grand Traverse Mall, which had previously been owned by GGP. We acquired the property for approximately $62.0 million through the assumption of a restructured and discounted $62.0 million, five year non-recourse loan at a 5.02% interest rate.  In addition we also funded cash payments of $2.4 million for escrows, $1.3 million

11

ROUSE PROPERTIES, INC.

NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS

for deferred financing costs and $0.5 million for acquisition costs.

NOTE 3                 INTANGIBLE ASSETS AND LIABILITIES

Acquisition accounting was applied to each of the properties within the Rouse portfolio either when GGP emerged from bankruptcy or upon any subsequent acquisitions.  The following table summarizes our intangible assets and liabilities as a result of the application of acquisition accounting:

	Gross Asset (Liability)			Accumulated (Amortization)/ Accretion			Net Carrying Amount
				(In thousands)
As of June 30, 2012
Tenant leases:
In-place value	$	95,649		$	(33,776	)	$	61,873
Above-market	152,547			(49,951		)	102,596
Below-market	(51,263		)	15,993			(35,270		)
Ground leases:
Below-market	2,173			(205		)	1,968
As of December 31, 2011
Tenant leases:
In-place value	$	101,425		$	(33,389	)	$	68,036
Above-market	157,139			(40,464		)	116,675
Below-market	(53,882		)	13,762			(40,120		)
Ground leases:
Below-market	2,173			(142		)	2,031

The gross asset balances of the in-place value of tenant leases are included in buildings and equipment in our consolidated and combined balance sheets. Acquired in-place tenant leases are amortized over periods that approximate the related lease terms. The above-market and below-market tenant and below-market ground leases are included in prepaid expenses and other assets and accounts payable and accrued expenses as detailed in Notes 4 and 6, respectively. Above and below-market lease values are amortized to revenue over the non-cancelable terms of the respective leases (averaging approximately five years for tenant leases and approximately 35 years for ground leases).

Amortization of these intangible assets and liabilities decreased our income by $12.1 million and $15.6 million for the three months ended June 30, 2012 and 2011, respectively, and $25.5 million and $30.3 million for the six months ended June 30, 2012 and 2011, respectively.

Future amortization is estimated to decrease income by an additional $21.3 million for the remainder of  2012, $32.6 million in 2013, $23.7 million in 2014, $17.3 million in 2015 and $12.9 million in 2016.

NOTE 4                 PREPAID EXPENSES AND OTHER ASSETS

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

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ROUSE PROPERTIES, INC.

NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS

	June 30, 2012		December 31, 2011
	(In thousands)
Above-market tenant leases, net (Note 3)	$	102,596	$	116,675
Security and escrow deposits	36,816		14,225
Below-market ground leases, net (Note 3)	1,968		2,031
Prepaid expenses	2,563		4,349
Other	3,390		3,068
Total prepaid expenses and other assets	$	147,333	$	140,348

NOTE 5                 MORTGAGES, NOTES AND LOANS PAYABLE

Mortgages, notes and loans payable are summarized as follows:

	June 30, 2012		December 31, 2011
	(In thousands)
Fixed-rate debt:
Collateralized mortgages, notes and loans payable	$	860,921	$	731,235
Variable-rate debt:
Collateralized mortgages, notes and loans payable	325,074		328,449
Total mortgages, notes and loans payable	$	1,185,995	$	1,059,684

On the Spin-Off Date, we entered into a senior secured credit facility (“Senior Facility”) with a syndicate of banks, as lenders, and Wells Fargo Bank, National Association, as administrative agent, and Wells Fargo Securities, LLC, RBC Capital Markets, LLC, and U.S. Bank National Association, as joint lead arrangers that provides borrowings on a revolving basis of up to $50.0 million (the “Revolver”) and a senior secured term loan (the “Term Loan” and together with the Revolver, the “Facilities”) which provided an advance of approximately $433.5 million. The Facilities closed concurrently with the consummation of the spin-off and have a term of three years. The Facilities bear interest at a base rate (based on one month LIBOR, with a LIBOR floor of 1%) plus 5.00%.  During the period ended June 30, 2012, the outstanding balance on the Term Loan decreased from $433.5 million to $325.1 million due to the repayments on the Term Loan concurrent with the refinancing of the Pierre Bossier and Southland Center Malls.

In addition, we are required to pay an unused fee related to the Revolver equal to 0.30% per year if the aggregate unused amount is greater than or equal to 50% of the Revolver or 0.25% per year if the aggregate unused amount is less that 50% of the Revolver.  For the three and six months ended June 30, 2012, $0.04 million and $0.07 million of unused fees are included in interest expense, respectively.  The proceeds from the Term Loan were used to paydown existing debt of the portfolio and costs associated with the spin-off and the Facilities. As of June 30, 2012, no amounts are drawn on our Revolver.

The Senior Facility has affirmative and negative covenants that are customary for a real estate loan, including, without limitation, restrictions on incurrence of indebtedness and liens on the mortgage collateral; restrictions on pledges; restrictions on subsidiary distributions; with respect to the mortgage collateral, limitations on our ability to enter into transactions including mergers, consolidations, sales of assets for less than fair market value and similar transactions; conduct of business; restricted distributions; transactions with affiliates; and limitation on speculative hedge agreements. In addition, we are required to comply with financial maintenance covenants relating to the following: (1) net indebtedness to value ratio, (2) liquidity, (3) minimum fixed charge coverage ratio, (4) minimum tangible net worth, and (5) minimum portfolio debt yield. Failure to comply with the covenants in the Senior Facility would result in a default under the credit agreement governing the Facilities and, absent a waiver or an amendment from our lenders, permit the acceleration of all outstanding borrowings under the Senior Facility, which would also result in a cross-default of our Subordinated Facility.  The Company is in compliance with these financial maintenance covenants as of June 30, 2012.

We also entered into a subordinated unsecured revolving credit facility with a wholly-owned subsidiary of Brookfield Asset

13

ROUSE PROPERTIES, INC.

NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS

Management, Inc., a related party that provides borrowings on a revolving basis of up to $100.0 million (the “Subordinated Facility”). The Subordinated Facility has a term of three years and six months and will bear interest at LIBOR (with a LIBOR floor of 1%) plus 8.50%. The default interest rate following a payment event of default under the Subordinated Facility will be 2.00% more than the then applicable interest rate. Interest will be payable monthly.  In addition, we are required to pay a semi annual revolving credit fee of $0.25 million.  As of June 30, 2012, no amounts have been drawn from the Subordinated Facility.

We have entered into a hedge transaction related to a portion of our Term Loan for approximately $0.13 million.  This hedge transaction was for an interest rate cap with a notional amount of $110.0 million and caps the daily LIBOR at 1%.  As of June 30, 2012 the $0.07 million loss on this interest cap is recorded in accumulated other comprehensive loss.

On May 11, 2012, we refinanced the Pierre Bossier Mall for approximately $48.5 million.  The loan bears interest at a fixed rate of 4.94% and has a term of ten years.  Approximately $38.2 million of the proceeds were used to release Pierre Bossier Mall from the Term Loan, including $9.7 million in excess of Pierre Bossier Mall’s allocated Term Loan balance.

On June 15, 2012, we refinanced the Southland Center for approximately $78.8 million.  The loan bears interest at a fixed rate of  5.09% and has a term of ten years.  Approximately $70.2 million of the proceeds were used to release Southland Center from the Term Loan, including $11.7 million in excess of Southland Center’s allocated Term Loan balance.

As of June 30, 2012, $1.52 billion of land, buildings and equipment (before accumulated depreciation) have been pledged as collateral for our mortgages, notes and loans payable. Certain mortgage notes 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. The weighted-average interest rate on our collateralized mortgages, notes and loans payable was approximately 5.3% as of June 30, 2012 and 4.9% as of December 31, 2011.

NOTE 6                 ACCOUNTS PAYABLE AND ACCRUED EXPENSES

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

	June 30, 2012		December 31, 2011
	(In thousands)
Below-market tenant leases, net (Note 3)	$	35,270	$	40,120
Accounts payable and accrued expenses	16,442		28,454
Accrued interest	3,040		4,065
Accrued real estate taxes	8,354		6,553
Deferred income	2,593		1,211
Accrued payroll and other employee liabilities	4,335		76
Construction payable	6,475		6,719
Tenant and other deposits	1,454		1,424
Conditional asset retirement obligation liability	4,400		4,252
Other	4,107		4,638
Total accounts payable and accrued expenses	$	86,470	$	97,512

NOTE 7                 INCOME TAXES

RPI Businesses historically operated under GGP’s REIT structure. We plan to elect to be taxed as a REIT in connection with the filing of our tax return for the 2011 fiscal year and intend to maintain this status in future periods. To qualify as a REIT, we 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 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

14

ROUSE PROPERTIES, INC.

NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS

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.

We have subsidiaries which we may elect to treat as taxable REIT subsidiaries and which are therefore subject to federal and state income taxes.

NOTE 8                 COMMON STOCK

On January 12, 2012, GGP distributed the assets and liabilities of RPI Businesses to Rouse. Pursuant to the spin-off, we received certain of the assets and liabilities of GGP. Upon this spin-off we issued 35,547,049 shares of our common stock to the existing GGP shareholders. In connection therewith $405.3 million of GGP’s equity was converted to paid in capital. The GGP shareholders received approximately 0.0375 shares of Rouse common stock for every share of GGP common stock owned as of the record date of December 31, 2011. We also issued 359,056 shares of our Class B common stock, par value $0.01 per share to GGP LP.  The Class B common stock have the same rights as the Rouse common stock, except the Class B common stock do not have any voting rights. The Class B common stock can be converted into common stock beginning on January 1, 2013 upon the request of the shareholder.

On March 26, 2012, we completed a rights offering and backstop purchase. Under the terms of the rights offering and backstop purchase, we issued 13,333,333 shares of our common stock at a subscription price of $15.00 per share. Net proceeds of the rights offering and backstop purchase approximated $191.9 million. As a result of the rights offering and backstop purchase, Brookfield Asset Management, Inc. and its affiliates and co-investors (collectively, “Brookfield”) own approximately 54.38% of the Company as of June 30, 2012.

On May 11, 2012 the Board of Directors declared a second quarter common stock dividend of $0.07 per share which was paid on July 30, 2012 to stockholders of record on July 16, 2012.

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.

The following tables summarize stock option activity for the Equity Plan for the six month period ended June 30, 2012.

15

ROUSE PROPERTIES, INC.

NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS

	2012
	Shares	Weighted Average Exercise Price
Stock options outstanding at January 1	—	$	—
Granted	1,652,486	14.70
Exercised	—	—
Forfeited	—	—
Expired	—	—
Stock options outstanding at June 30	1,652,486	$	14.70

	Stock Options Outstanding
Issuance	Shares	Weighted Average Remaining Contractual Term (in years)	Weighted Average Exercise Price
March 2012	1,615,986	9.75	$	14.72
May 2012	36,500	9.92	13.71
Total	1,652,486	9.75	$	14.70

We recognized $0.1 million and $0.4 million in compensation expense related to the stock options for the three and six months ended June 30, 2012.  There was no stock compensation expense for the three and six months ended June 30, 2011.

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. 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 six month period ended June 30, 2012:

	2012
	Shares		Weighted Average Grant Date Fair Value
Nonvested restricted stock grants outstanding as of beginning of period	—		$	—
Granted	344,751		14.69
Canceled	—		—
Vested	(5,096	)	14.72
Nonvested restricted stock grants outstanding as of end of period	339,655		$	14.69

The weighted average remaining contractual term (in years) of nonvested awards as of June 30, 2012 was 3.2 years.

The total fair value of restricted stock grants which vested was $0.04 million and $0.08 million during the three and six months ended June 30, 2012.  We recognized $0.2 million and $0.6 million in compensation expense related to the restricted stock for the three and six months ended June 30, 2012.  There was no stock compensation expense for the three and six months ended June 30,

16

ROUSE PROPERTIES, INC.

NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS

2011.

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 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	1.45	%
Dividend yield	4.25	%
Expected volatility	35.00	%
Expected life (in years)	6.50

As of June 30, 2012, total compensation expense which had not yet been recognized related to nonvested options and restricted stock grants was $9.1 million. Of this total, $1.3 million is expected to be recognized in 2012, $2.4 million in 2013, $2.4 million in 2014, $1.8 million in 2015, $1.1 million in 2016, and $0.1 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.

NOTE 10               NONCONTROLLING INTEREST

Noncontrolling interest on our consolidated and combined balance sheets represent Series A Cumulative Non-Voting Preferred Stock (“Preferred Shares”) of Rouse Holdings, Inc. (Holdings), a subsidiary of Rouse.  Holdings issued 111 Preferred Shares at a par value of $1,000 per share to third parties on June 29, 2012.  The Preferred Shareholders are entitled to a cumulative preferential annual cash dividend of 12.5%.  These Preferred Shares may only be redeemed at the option of Holdings for $1,000 per share plus all accrued and unpaid dividends.  Furthermore, in the event of a voluntary or involuntary liquidation of Holdings the Preferred Shareholders are entitled to a liquidation preference of $1,000 per share plus all accrued and unpaid dividends.  The Preferred Shares are not convertible into or exchangeable for any property or securities of Holdings.

NOTE 11               RELATED PARTY TRANSACTIONS

Transactions with GGP

As described in Note 1 to the consolidated and combined financial statements, the accompanying consolidated and combined financial statements present the operations of RPI Businesses as carved-out from the financial statements of GGP. Transactions between RPI Businesses have been eliminated in the combined presentation. Also as described in Note 1, an allocation of certain centralized GGP costs incurred for activities such as employee benefit programs (including incentive stock plans and stock based compensation expense), property management and asset management functions, centralized treasury, payroll and administrative functions have been made to the property operating costs of RPI Businesses. Transactions between the RPI Businesses and GGP or other GGP subsidiaries have not been eliminated except that end-of-period intercompany balances on December 31, 2011 and Spin-Off Date balances between GGP and RPI Businesses have been considered elements of RPI Businesses’ equity.

Transition Services Agreement with GGP

We have entered into a transition services agreement with GGP whereby GGP or its subsidiaries will provide to us, on a transitional basis, certain specified services for various terms not exceeding 18 months following the spin-off. The services that GGP provides to us include, among others, payroll, human resources and employee benefits, financial systems management, treasury and cash management, accounts payable services, telecommunications services, information technology services, asset management services, legal and accounting services and various other corporate services. The charges for the transition services generally are intended to allow GGP to fully recover the costs directly associated with providing the services, plus a level of profit consistent with an arm’s length transaction together with all out-of-pocket costs and expenses. The charges of each of the transition services are generally based on an hourly fee arrangement and pass-through out-of-pocket costs. We may terminate certain specified services by giving prior written notice to GGP of any such termination.  Costs associated with the transition services agreement were $0.4

17

ROUSE PROPERTIES, INC.

NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS

million and $1.0 million for the three and six months ended June 30, 2012 and $0.2 million of these costs are payable at June 30, 2012.

Services Agreement with Brookfield

We have entered into a services agreement with Brookfield, pursuant to which Brookfield employees are serving as our Chief Financial Officer and Vice President, Finance for a period of up to 12 months following the spin-off.  Costs associated with the services agreement were $0.3 million and $0.5 million for the three and six months ended June 30, 2012 and these costs are all payable at June 30, 2012.

Office Lease with Brookfield

Upon spin off we assumed a 10-year lease agreement with Brookfield, as landlord, for office space. Costs associated with the office lease were $0.3 million and $0.5 million for the three and six months ended June 30, 2012 and $0.1 million was payable as of June 30, 2012.  In addition, the landlord completed the build out of our office space during 2012 for $1.7 million of which $0.2 million was payable as of June 30, 2012. The costs associated to the build out of our office space were capitalized in buildings and equipment.

Subordinated Credit Facility with Brookfield

We entered into a credit agreement with a wholly-owned subsidiary of Brookfield, as lender, for a $100.0 million revolving subordinated credit facility.  We paid a one time upfront fee of $0.50 million related to this facility.  In addition, we are required to pay a semi annual revolving credit fee of $0.25 million related to this facility.  As of June 30, 2012, no amounts have been drawn on this facility and no amounts are payable related to the up front fee or revolving credit fee.

Backstop Agreement with Brookfield

In conjunction with the rights offering we entered into a backstop agreement with Brookfield whereby Brookfield agreed to purchase from us, at the rights offering subscription price, unsubscribed shares of our common stock such that the gross proceeds of the rights offering will be $200 million. Costs associated with the backstop agreement were $6.0 million during the six months ended June 30, 2012, are included as a reduction in equity through offering costs for the six months ended June 30, 2012.

Business Infrastructure Costs

Upon our spin-off from GGP we commenced the development of our information technology platform.  The development of this platform requires us to purchase, design and create various information technology applications and infrastructure.  Brookfield Corporate Operations, LLC (“BCO”) has been engaged to assist in the project development and procure the various applications and infrastructure of the Company.  As of June 30, 2012, we have incurred $1.1 million of infrastructure costs which were payable as of June 30, 2012 and are capitalized in buildings and equipment.

Financial Service Center

We engaged BCO’s financial service center to manage administrative services of Rouse, such as accounts payable and receivable, employee expenses, lease administration, and other similar type services.  No costs were incurred for the three and six months ended June 30, 2012.

NOTE 12               SUBSEQUENT EVENTS

On August 9, 2012 we acquired a 59,100 square foot anchor at our Pierre Bossier Mall for $6.35 million.  The property is currently leased to Virginia College for a 15 year term.

On August 13, 2012 we entered into a contract to purchase The Mall at Turtle Creek in Jonesboro, Arkansas for approximately $96 million inclusive of the assumption of an existing $79.5 million mortgage. The acquisition is pending completion of due diligence and performance of customary seller closing conditions.

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

All references to numbered Notes are to specific footnotes to our Consolidated and Combined Financial Statements included in this Quarterly Report and which descriptions are incorporated into the applicable response by reference.  The following discussion should be read in conjunction with such Consolidated and Combined 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.

Forward-looking information

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

Forward-looking statements include:

·Descriptions of plans or objectives for future operations

·Projections of our revenues, net operating income (“NOI”), core net operating income (“Core NOI”), earnings per share, funds from operations (“FFO”), core funds from operations (“Core FFO”) 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

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.

There are several factors, many beyond our control, which could cause results to differ materially from our expectations, some of which are described in Item 1A Risk Factors in our Annual Report on Form 10-K for the year ended December 31, 2011 (our “Annual Report”).  These factors are incorporated herein by reference. Any factor could by itself, or together with one or more other factors, adversely affect our business, results of operations or financial condition.

Overview—Introduction

Our portfolio consists of 31 regional malls in 19 states totaling approximately 22 million square feet of retail and ancillary space. We plan to elect to be treated as a REIT in connection with the filing of our first tax return, subject to meeting the requirements of a REIT at the time of election, and intend to maintain this status in future periods.

The majority of the income from our properties is derived from rents received through long-term leases with retail tenants. These long-term leases generally require the tenants to pay base rent which is a fixed amount specified in the lease. The base rent is often subject to scheduled increases during the term of the lease. Our financial statements refer to this as “minimum rents.” Certain of our leases also include a component which requires tenants to pay amounts related to all or substantially all of their share of real estate taxes and certain property operating expenses, including common area maintenance and insurance. The revenue earned attributable to real estate tax and operating expense recoveries are recorded as “tenant recoveries.” Another component of income is overage rent. Overage rent is paid by a tenant when its sales exceed an agreed upon minimum amount. Overage rent is calculated by multiplying the tenant’s sales in excess of the minimum amount by a percentage defined in the lease, the majority of which is typically earned in the fourth quarter.

Our objective is to achieve growth in NOI, Core NOI, FFO and Core FFO (see “Non-GAAP Financial Measures”) by leasing, operating and repositioning retail properties which are primarily the only dominant enclosed mall in a market or submarket.  We plan to control costs within our portfolio of properties and to deliver an appropriate tenant mix, higher occupancy rates and increased sales productivity, resulting in higher minimum rent.

We believe that the most significant operating factor affecting incremental cash flow, NOI, Core NOI, FFO and Core FFO is increased rents earned from tenants at our properties. We anticipate that rental revenue increases will primarily be achieved by:

19

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

·Increasing tenant sales in which we participate through overage rent; and

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

·Prudently investing capital into our properties.

Overview—Basis of Presentation

The accompanying consolidated and combined financial statements are prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”).  The consolidated balance sheet as of June 30, 2012 includes the accounts of Rouse, as well as all subsidiaries.  The accompanying consolidated and combined statement of operations and comprehensive loss for the three months ended June 30, 2012 includes the consolidated accounts of Rouse and for the six months ended June 30, 2012 the consolidated accounts of Rouse and the combined accounts of RPI Businesses.  Accordingly, the results presented for the six months ended June 30, 2012 reflect the aggregate operations and changes in cash flows and equity on a carved-out basis for the period from January 1, 2012 through January 12, 2012 and on a consolidated basis from January 13, 2012 through June 30, 2012.  The accompanying financial statements for the periods prior to the Spin-Off Date are prepared on a carve out basis from the consolidated financial statements of GGP using the historical results of operations and bases of the assets and liabilities of the transferred businesses and including allocations from GGP.  All intercompany transactions have been eliminated in consolidation and combination as of and for the periods ended June 30, 2012 and 2011, except end-of-period intercompany balances on December 31, 2011 and Spin-Off Date balances between GGP and RPI Businesses have been considered elements of RPI Businesses’ equity.

The consolidated and combined financial information included in this Quarterly Report does not necessarily reflect the financial condition, results of operations or cash flows that we would have achieved as a separate, publicly-traded company during the periods presented or those that we will achieve in the future.

Recent Developments

On May 11, 2012 the Board of Directors declared a second quarter common stock dividend of $0.07 per share which was paid on July 30, 2012 to stockholders of record on July 16, 2012.

On May 11, 2012, we refinanced the Pierre Bossier Mall for approximately $48.5 million.  The loan bears interest at a fixed rate of 4.94% and has a term of ten years.  Approximately $38.2 million of the proceeds were used to release Pierre Bossier Mall from the Term Loan, including $9.7 million in excess of Pierre Bossier Mall’s allocated Term Loan balance.  Net proceeds after closing costs were approximately $9.9 million.

On June 15, 2012, we refinanced the Southland Center Mall for approximately $78.8 million.  The loan bears interest at a fixed rate of 5.09% and has a term of ten years.  Approximately $70.2 million of the proceeds were used to release Southland Center from the Term Loan, including $11.7 million in excess of Southland Center’s allocated Term Loan balance.  Net proceeds after closing costs were approximately $8.2 million.

Operating Metrics

During the three month period ended June 30, 2012, we leased 551,146 square feet bringing the total volume completed during 2012 to 781,691 square feet.  At June 30, 2012, the leased percentage was 88.4%, an increase of 70 basis points compared to December 31, 2011 and an increase of 90 basis points compared to March 31, 2012.

The following table summarizes selected operating metrics for the portfolio as of June 30, 2012:

	% Leased (1)		% Occupied (2)		In - Place Rent <10K SF (3)		Tenant Sales PSF (4)		Occupancy Cost (5)
Total Portfolio	88.4	%	85.6	%	$	37.25	$	294	12.7	%

(1)  Represents contractual obligations for space in regional malls and excludes traditional anchor stores.

(2)  Represents tenants’ physical or economic presence in regional malls and excludes traditional anchor stores.

(3)  Weighted average rent of mall stores at June 30, 2012.  Rent is presented on a cash basis and consists of base minimum rent, common area costs, and real estate taxes.

(4)  Rolling twelve month tenant sales for mall stores less than 10,000 square feet.

(5)  Represents tenants less than 10,000 square feet utilizing comparative tenant sales.

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The following table table summarizes leasing activity for the three months ended June 30, 2012 with respect to leases which are scheduled to commence in 2012 and 2013:

	Number of Leases (1)	Square Feet	Term	Initial Rent PSF		Average Rent PSF
New Leases
Under 10,000 sq. ft.	39	134,021	7.6	$	23.03	$	24.58
Over 10,000 sq. ft.	5	156,578	10	10.14		10.27
Total New Leases	44	290,599	8.9	16.08		16.87
Renewal Leases
Under 10,000 sq. ft.	76	175,071	3.6	$	36.15	$	37.36
Over 10,000 sq. ft.	2	43,580	5.0	17.07		17.39
Total Renewal Leases	78	218,651	3.8	$	32.35	$	33.38
Sub-Total before Percent in Lieu	122	509,250	6.7	23.07		23.96
Percent in Lieu	15	41,896	n.a.	n.a.		n.a.
Total Q2 2012	137	551,146	6.7	$	23.07	$	23.96
Total Q1 2012	60	230,545
Total 2012	197	781,691

(1) Excluding anchors and specialty leasing.

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Results of Operations

Three Months Ended June 30, 2012 and 2011

	For the three months ended June 30,
	2012			2011			$ Change			% Change
Revenues:
Minimum rents	$	38,072		$	36,554		$	1,518		4.2	%
Tenant recoveries	16,915			17,842			(927		)	(5.2	)
Overage rents	659			461			198			43.0
Other	1,303			1,398			(95		)	(6.8	)
Total revenues	56,949			56,255			694			1.2
Expenses:
Real estate taxes	5,575			6,089			(514		)	(8.4	)
Property maintenance costs	3,351			3,075			276			9.0
Marketing	660			808			(148		)	(18.3	)
Other property operating costs	14,992			13,555			1,437			10.6
Provision for doubtful accounts	451			302			149			49.3
General and administrative	5,240			3,197			2,043			63.9
Depreciation and amortization	16,773			19,518			(2,745		)	(14.1	)
Other	1,983			(606		)	2,589			(427.2	)
Total expenses	49,025			45,938			3,087			6.7
Operating income	7,924			10,317			(2,393		)	(23.2	)
Interest income	8			7			1			14.3
Interest expense	(23,699		)	(16,782		)	(6,917		)	41.2
Loss before income taxes	(15,767		)	(6,458		)	(9,309		)	144.1
Provision for income taxes	(173		)		(140	)	(33		)	23.6
Net loss	$	(15,940	)	$	(6,598	)	$	(9,342	)	141.6	%

Total revenues increased $0.7 million for the three months ended June 30, 2012 as compared to the three months ended June 30, 2011 primarily due to the acquisition of Grand Traverse Mall in February 2012.  Additionally, prior to the Spin-Off Date, certain leases were executed that converted the existing net leases to gross leases or percent in lieu leases which resulted in a decrease in recovery income.  The conversion of these leases were completed at rates that in the aggregate were less than the rates of the prior leases.

Other property operating costs increased $1.4 million for the three months ended June 30, 2012 primarily due to an increase in electric expense, professional fees and the acquisition of Grand Traverse in February 2012.  As a result of the acquisition, three months of other property operating expenses were recorded for the period ended June 30, 2012 and none for the three months ended June 30, 2011.

General and administrative increased $2.0 million for the three months ended June 30, 2012.  The increase is due to the fact that we assumed responsibility for certain overhead costs which include costs related to property management, human resources, security, payroll and benefits, legal, corporate communications and information services.  For the three months ended June 30, 2011, these costs were charged or allocated to us based on GGP’s corporate costs based on a number of factors, most significantly our percentage of GGP’s adjusted revenue and assets and the number of properties.

Depreciation and amortization decreased $2.7 million for the three months ended June 30, 2012 primarily due to the decrease in amortization of in place leases expense.  In place lease amortization decreased as only those tenants that were in place when acquisition accounting was recorded have an associated in place lease value and,  as a result of those tenant expirations in place lease amortization has continued to decrease.

Other expenses increased $2.6 million for the three months ended June 30, 2012 primarily due to one time costs incurred by the

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Company during its initial year of stand alone operations.  These other costs primarily consist of $0.5 million in severance costs, $0.2 million in recruiting costs, and $1.2 million in temporary employee expenses.

Interest expense increased $6.9 million for the three months ended June 30, 2012 primarily due to deferred financing amortization, write-off of deferred financing costs, and interest expense.  The Company incurred $2.0 million in amortization of deferred financing costs for the three months ended June 30, 2012 as a result of the additional deferred financing costs associated with the refinancings completed by the Company during 2012 as compared to no amortization of deferred financing costs for the three months ended June 30, 2011.  Furthermore, the Company incurred $1.8 million in write-off of deferred financing costs for the three months ended June 30, 2012 as a result of the write off of the Term Loan financing costs associated with the Pierre Bossier and Southland Center refinancings as compared to no write-off of deferred financing costs for the three months ended June 30, 2011.  The remainder of the change was due to the increase in debt within the overall portfolio.

Six Months Ended June 30, 2012 and 2011

	For the six months ended June 30,
	2012			2011			$ Change			% Change
Revenues:
Minimum rents	$	75,284		$	74,956		$	328		0.4	%
Tenant recoveries	33,511			35,938			(2,427		)	(6.8	)
Overage rents	2,104			1,762			342			19.4
Other	2,458			2,698			(240		)	(8.9	)
Total revenues	113,357			115,354			(1,997		)	(1.7	)
Expenses:
Real estate taxes	11,565			12,114			(549		)	(4.5	)
Property maintenance costs	6,792			6,960			(168		)	(2.4	)
Marketing	1,121			1,574			(453		)	(28.8	)
Other property operating costs	29,391			27,591			1,800			6.5
Provision for doubtful accounts	714			512			202			39.5
General and administrative	10,384			5,726			4,658			81.3
Depreciation and amortization	35,047			38,486			(3,439		)	(8.9	)
Other	6,442			(78		)	6,520			(8,359.0	)
Total expenses	101,456			92,885			8,571			9.2
Operating income	11,901			22,469			(10,568		)	(47.0	)
Interest income	9			8			1			12.5
Interest expense	(53,688		)	(35,322		)	(18,366		)	52.0
Loss before income taxes	(41,778		)	(12,845		)	(28,933		)	225.2
Provision for income taxes	(239		)	(288		)	49			(17.0	)
Net loss	$	(42,017	)	$	(13,133	)	$	(28,884	)	219.9	%

Total revenues decreased $2.0 million for the six months ended June 30, 2012 as compared to the six months ended June 30, 2011.  Prior to the Spin-Off Date, certain leases were executed that converted the existing net leases to gross leases or percent in lieu leases which resulted in a decrease in recovery income.  The conversion of these leases were completed at rates that in the aggregate were less than the rates of the prior leases.

Other property operating costs increased $1.8 million for the six months ended June 30, 2012 primarily due to an increase in electric expense, landscaping expense, professional fees and the acquisition of Grand Traverse in February 2012.  As a result of the acquisition four months of other property operating expenses were recorded for the six months ended June 30, 2012 and none for the six months ended June 30, 2011.

General and administrative increased $4.7 million for the six months ended June 30, 2012.  The increase is due to the fact that we assumed responsibility for certain overhead costs which include costs related to property management, human resources, security, payroll and benefits, legal, corporate communications and information services.  For the six months ended June 30, 2011, these

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costs were charged or allocated to us based on GGP’s corporate costs based on a number of factors, most significantly our percentage of GGP’s adjusted revenue and assets and the number of properties.

Depreciation and amortization decreased decreased $3.4 million for the six months ended June 30, 2012 primarily due to the decrease in amortization of in place leases due to tenant lease expirations.

Other expenses increased $6.5 million for the six months ended June 30, 2012 primarily due to one time costs incurred by the Company during its initial year of stand alone operations.  These one time costs include $1.2 million in signing bonuses, $1.5 million for severance expenses, $1.7 million for temporary employees and other one-time spin-off costs.

Interest expense increased $18.4 million for the six months ended June 30, 2012 primarily due to deferred financing amortization, write-off of deferred financing costs, write off of market rate adjustments and interest expense.  The Company incurred $3.7 million in amortization of deferred financing costs for the six months ended June 30, 2012 as a result of the additional deferred financing costs associated to the refinancings completed by the Company during 2012 as compared to no amortization of deferred financing costs for the six months ended June 30, 2011.  Furthermore, the Company incurred $1.8 million in write-off of deferred financing costs for the six months ended June 30, 2012 as a result of the write off of the Term Loan deferred financing costs associated with the Pierre Bossier and Southland Center Malls as compared to no write-off of deferred financing costs for the six months ended June 30, 2011.  The Company wrote off $9.0 million of market rate adjustments on loans that were paid off on the date of the spin-off.  The remainder of the change was due to the increase in debt within the overall portfolio.

Liquidity and Capital Resources

Our primary uses of cash include payment of operating expenses, working capital, debt repayment, including principal and interest, reinvestment in properties, development and redevelopment of properties, tenant allowance, dividends and restructuring costs.

Our primary sources of cash are operating cash flows, borrowings under our Senior Facility, borrowings under our Subordinated Facility as described under “Financings” below and the proceeds of our rights offering.

The successful execution of our business strategy will require the availability of substantial amounts of operating and development capital both initially and over time. Sources of such capital could include bank, life insurance company, pension plan or institutional investor borrowings, public and private offerings of debt or equity, sale of certain assets and joint ventures.  We have identified opportunities to invest significant capital to reposition and refresh certain of our properties, but we will sequence long-term redevelopment projects with leasing activity. We believe these capital investments will assist in increasing our revenues significantly and deliver solid net operating income growth over the medium term.  For a discussion of factors that could have an impact on our ability to realize these goals, see “Forward-Looking Information.”

As of June 30, 2012, our combined contractual debt, excluding non-cash debt market rate adjustments, was approximately $1.23 billion. The aggregate principal and interest payments on our outstanding indebtedness as of June 30, 2012 are approximately $44.4 million for the remainder of 2012 and approximately $144.3 million for the year ended December 31, 2013.

We believe that our current liquidity along with cash generated from operations will be sufficient to permit us to meet our debt service obligations, ongoing cost of operations, working capital needs, distribution requirements and capital expenditure requirements for at least the next 12 months. Our future financial and operating performance, ability to service or refinance our debt and ability to comply with the covenants and restrictions contained in our debt agreements will be subject to future economic conditions and to financial, business and other factors, many of which are beyond our control.  For a discussion of factors that could have an impact on our ability to realize these goals, see “Forward-Looking Information.”

Financings

Senior Facility.   On January 12, 2012, we entered into a three year senior secured credit facility (“Senior Facility”) with a syndicate of banks, as lenders, and Wells Fargo Bank, National Association, as administrative agent, and Wells Fargo Securities, LLC, RBC Capital Markets, LLC and U.S. Bank National Association, as joint lead arrangers, that provides borrowings on a revolving basis of up to $50.0 million (the “Revolver”), and a senior secured term loan (the “Term Loan” and together with the Revolver, the “Facilities”) that has provided an advance of approximately $433.5 million. We used the proceeds of the Term Loan to refinance certain mortgage debt that was not assumed by us in connection with the spin-off and to pay other transaction fees and expenses.  During the period ended June 30, 2012, the outstanding balance on the Term Loan decreased from $433.5 million to $325.1 million due to the repayments on the Term Loan concurrent with the refinancing of the Pierre Bossier and Southland Center Malls.

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The Senior Facility has affirmative and negative covenants that are customary for a real estate loan, including, without limitation, restrictions on incurrence of indebtedness and liens on the mortgage collateral; restrictions on pledges; restrictions on subsidiary distributions; with respect to the mortgage collateral, limitations on our ability to enter into transactions including mergers, consolidations, sales of assets for less than fair market value and similar transactions; conduct of business; restricted distributions; transactions with affiliates; and limitation on speculative hedge agreements. In addition, we are required to comply with financial maintenance covenants relating to the following: (1) net indebtedness to value ratio, (2) liquidity, (3) minimum fixed charge coverage ratio, (4) minimum tangible net worth, and (5) minimum portfolio debt yield. Failure to comply with the covenants in the Senior Facility could result in a default under the credit agreement governing these Facilities and, absent a waiver or an amendment from our lenders, permit the acceleration of all outstanding borrowings under the Senior Facility and would cross-default our Subordinated Facility.

Property-Level Debt.   We have individual Property-Level Debt on 16 of our 31 assets, representing approximately $904.7 million (excluding $43.8 million of market rate adjustments) (the “Property-Level Debt”). The Property-Level Debt has a weighted average interest rate of 5.27% and an average remaining term of 4.4 years. The Property-Level Debt is stand-alone (not cross-collateralized) first mortgage debt and is non-recourse with the exception of customary contingent guarantees/indemnities.

Subordinated Facility.    On January 12, 2012, we entered into a subordinated unsecured revolving credit facility with a wholly-owned subsidiary of Brookfield Asset Management Inc. that provides for borrowings on a revolving basis of up to $100.0 million (the “Subordinated Facility”). The Subordinated Facility does not have any affirmative covenants and has the following negative covenants: merger, consolidation and sale of all or substantially all assets; modifications of organizational documents; no adverse modifications to the facilities; and no refinancing or replacement of the Facilities without the Subordinated Facility lender’s consent. There are cross-default provisions with the Senior Facility. If the Facilities are repaid or refinanced prior to the maturity of the Subordinated Facility, then the covenants (other than the covenants related to the mortgage collateral) from the Facilities shall be incorporated by reference to the Subordinated Facility.

Summary of Cash Flows

Cash Flows from Operating Activities

Net cash provided by operating activities was $24.2 million for the six months ended June 30, 2012 compared to net cash provided by operating activities of $41.5 million for the six months ended June 30, 2011.  The decrease in cash provided by operating activities of $17.3 million was due primarily to the funding of the net loss and restricted cash accounts.  Our net loss increased $28.9 million for the six months ended June 30, 2012 compared to the six months ended June 30, 2011.  In addition we funded $2.3 million to our restricted cash accounts during the six months ended June 30, 2012.

Cash Flows from Investing Activities

Net cash used in investing activities was $68.9 million for the six months ended June 30, 2012 compared to $9.7 million for the six months ended June 30, 2011.  The increase in cash used in investing activities was significantly due the purchase of a $30.0 million U.S. Treasury bill and an $18.6 million increase in restricted cash required for capital renovation and replacement reserves.  In addition during the six months ended June 30, 2012 we paid approximately $10.2 million related to three anchor acquisitions which totaled approximately 407,000 square feet, at three various malls within the portfolio which increased our cash paid for the acquisition of real estate as compared to the six months ended June 30, 2011.

Cash Flows from Financing Activities

Net cash provided by financing activities was $207.7 million for the six months ended June 30, 2012 compared to $33.5 million of cash used in financing activities for the six months ended June 30, 2011.  The increase of $241.2 million in net cash provided from financing activities was primarily due to $191.9 million in proceeds related to our rights offering as well as $433.5 million provided by a term loan that was used primarily to pay down $391.3 million of debt at the time of the spin-off as well as provide working capital.

Contractual Cash Obligations and Commitments

The following table aggregates our contractual cash obligations and commitments as of June 30, 2012:

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	2012		2013		2014		2015		2016		Subsequent		Total
	(In thousands)
Long-term debt-principal (1)	$	10,631	$	78,262	$	255,486	$	329,904	$	216,560	$	338,907	$	1,229,750
Interest payments (2)	33,762		66,085		56,102		31,600		23,019		39,911		250,479
Operating lease obligations	538		1,076		1,076		1,076		1,076		5,735		10,577
Total	$	44,931	$	145,423	$	312,664	$	362,580	$	240,655	$	384,553	$	1,490,806

(1)  Excludes $43.8 million of non-cash debt market rate adjustments.

(2)  Based on rates as of June 30, 2012.  Variable rates are based on LIBOR rate of 0.25%.  Since LIBOR is below the LIBOR floor on our variable debt, we used 6.0 % (1.0% floor + 5.0%) to calculate interest expense in future periods.  If we had increased the effective interest rate to 6.25% to calculate future interest on the variable debt, interest payments would have increased $0.4 million, $0.8 million and $0.8 million for the remainder of 2012, 2013, and 2014, respectively

Off-Balance Sheet Financing Arrangements

We do not have any off-balance sheet financing arrangements.

REIT Requirements

In order to qualify as a REIT for federal income tax purposes, among other requirements, we must distribute or pay tax on 100% of our capital gains and we must distribute at least 90% of our ordinary taxable income to stockholders. To avoid current entity level U.S. federal income taxes, we plan to distribute 100% of our capital gains and ordinary income to our stockholders annually. We may not have sufficient liquidity to meet these distribution requirements.  During the second quarter of 2012 our board of directors instituted a quarterly dividend of $0.07.  The board will continue to evaluate the dividend policy on a regular basis.

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.

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 discussed in our Annual Report and have not changed during 2012.

Non-GAAP Financial Measures

Funds from Operations and Core Funds from Operations

Consistent with real estate industry and investment community practices, we use FFO, as defined by the National Association of Real Estate Investment Trusts (“NAREIT”), as a supplemental measure of our operating performance. NAREIT defines FFO as net income (loss) (computed in accordance with current GAAP), excluding impairment write-downs on depreciable real estate, gains or losses from cumulative effects of accounting changes, extraordinary items and sales of depreciable properties, plus real estate related depreciation and amortization.  We also include Core FFO as a supplemental measurement of operating performance.  We define Core FFO as FFO excluding straight-line rent, amortization of above-and below-market tenant leases, amortization of above-and below-market ground rent expense, amortization of deferred financing costs, mark-to-market adjustments on debt, write-off of market rate adjustments on debt, debt extinguishment costs, other non-recurring costs and provision for income taxes.  Other real estate companies may use different methodologies for calculating FFO and Core FFO, and accordingly, our FFO and Core FFO may not be comparable to other real estate companies.

We consider FFO and Core FFO useful supplemental measures and a complement to GAAP measures because they facilitate an understanding of the operating performance of our properties. FFO does not include real estate depreciation and amortization required by GAAP because 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

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that FFO provides investors with a clearer view of our operating performance, particularly with respect to our mall properties.  Core FFO does not include certain items that are non-cash and certain non-comparable items.  FFO and Core FFO are not measurements of our financial performance under GAAP and should not be considered as an alternative to revenues, operating income (loss), net income (loss) or any other performance measures derived in accordance with GAAP or as an alternative to cash flows from operating activities as a measure of our liquidity.

Net Operating Income and Core Net Operating Income

We present NOI and Core NOI, as defined below, in this Quarterly Report as supplemental measures of our performance that are not required by, or presented in accordance with GAAP. We believe that NOI and Core NOI are useful supplemental measures of our operating performance. We define NOI as operating revenues (minimum rents, including lease termination fees, tenant recoveries, overage rents, and other income) less property and related expenses (real estate taxes, repairs and maintenance, marketing, other property operating costs, and provision for doubtful accounts). We define Core NOI as NOI excluding straight-line rent and amortization of above and below-market tenant leases. Other real estate companies may use different methodologies for calculating NOI and Core NOI, and accordingly, our NOI and Core NOI may not be comparable to other real estate companies.

Because NOI and Core NOI exclude general and administrative expenses, interest expense, depreciation and amortization, straight-line rent and above and below-market tenant leases, we believe that NOI and Core NOI provide 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 or net income. We use NOI and Core NOI to evaluate our operating performance on a property-by-property basis because NOI and Core NOI allow 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.

Reconciliation of GAAP Financial Measures to Non-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 GAAP net loss to FFO and Core FFO and a reconciliation of GAAP net loss to NOI and Core NOI.  None of our non-GAAP supplemental financial measures represent cash flow from operating activities in accordance with GAAP, none should be considered as alternatives to GAAP net loss and none are necessarily indicative of cash available to fund cash needs.

The following table reconciles net loss to FFO and Core FFO:

	For the three months ended June 30,						For the six months ended June 30,
	2012			2011			2012			2011
	(In Thousands)
Net loss	$	(15,940	)	$	(6,598	)	$	(42,017	)	$	(13,133	)
Depreciation and amortization	16,773			19,518			35,047			38,486
FFO	833			12,920			(6,970		)	25,353
Provision for income taxes	173			140			239			288
Interest expense
Mark-to-market adjustments on debt	2,661			1,871			5,385			3,670
Write-off of market rate debt adjustments	—			(1,603		)	8,957			(1,489		)
Amortization of deferred financing costs	2,020			—			3,688			—
Write-off of deferred financing costs	1,780			—			1,780			—
Debt extinguishment costs	—			1,582			—			1,475
Other	1,983			(606		)	6,442			(78		)
Above and below market ground rent expense, net	31			31			62			62
Above and below market tenant leases, net	6,574			6,803			13,009			12,650
Amortization of straight line rent	(1,657		)	(1,683		)	(3,156		)	(3,764		)
Core FFO	$	14,398		$	19,455		$	29,436		$	38,167

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The following table reconciles net loss to NOI and Core NOI:

	For the three months ended June 30,						For the six months ended June 30,
	2012			2011			2012			2011
	(In Thousands)
Net loss	$	(15,940	)	$	(6,598	)	$	(42,017	)	$	(13,133	)
Provision for income taxes	173			140			239			288
Interest expense	23,699			16,782			53,688			35,322
Interest income	(8		)	(7		)	(9		)	(8		)
Other	1,983			(606		)	6,442			(78		)
Depreciation and amortization	16,773			19,518			35,047			38,486
General and administrative	5,240			3,197			10,384			5,726
NOI	31,920			32,426			63,774			66,603
Above and below market ground rent expense, net	31			31			62			62
Above and below market tenant leases, net	6,574			6,803			13,009			12,650
Amortization of straight line rent	(1,657		)	(1,683		)	(3,156		)	(3,764		)
Core NOI	$	36,868		$	37,577		$	73,689		$	75,551

ITEM 3QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

There have been no material changes in the market risks described in our Annual Report.

ITEM 4CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

As of the end of the period covered by this report, we carried out an evaluation, under the supervision and with the participation of our management, including the Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15(d)-15(e) under the Securities Exchange Act of 1934, as amended, (the “Exchange Act”)).  Based on that evaluation, the CEO and the CFO have concluded that our disclosure controls and procedures are effective.

Internal Controls over Financial Reporting

There have been no changes in our internal controls during our most recently completed fiscal quarter that have materially affected or are reasonably likely to materially affect our internal control over financial reporting.

PART IIOTHER INFORMATION

ITEM 1LEGAL PROCEEDINGS

In the ordinary course of our business, we are from time to time involved in legal proceedings related to the ownership and operations of our properties. We are not currently involved in any legal or administrative proceedings that we believe are likely to have a materially adverse effect on our business, results of operations or financial condition.

ITEM 1ARISK FACTORS

There are no material changes to the risk factors previously disclosed in Part I, Item 1A in our 2011 Annual Report on Form 10-K.

ITEM 2UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

On March 26, 2012 we sold 6,354,012 shares of our common stock to affiliates of Brookfield at a price of $15.00 per share in accordance with the terms of our backstop purchase agreement with Brookfield. The sale was made in reliance on the exemption

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from registration under Section 4(2) of the Securities Act of 1933, as amended.

ITEM 3DEFAULTS UPON SENIOR SECURITIES

None

ITEM 4MINE SAFETY DISCLOSURES

Not Applicable

ITEM 5OTHER INFORMATION

None

ITEM 6EXHIBITS

31.1	Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2	Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1	Certification of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2	Certification of Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101	The following financial information from Rouse Properties, Inc.’s. Quarterly Report on Form 10-Q for the three and six months ended June 30, 2012, has been filed with the SEC on August 13, 2012, formatted in XBRL (Extensible Business Reporting Language): (1) Consolidated and Combined Balance Sheets, (2) Consolidated and Combined Statements of Operations and Comprehensive Loss, (3) Consolidated and Combined Statements of Equity, (4) Consolidated and Combined Statements of Cash Flows and (5) Notes to Consolidated and Combined Financial Statements, tagged as blocks of text.  Pursuant to Rule 406T of Regulation S-T, this information is deemed not filed or part of a registration statement or prospectus for purposes of sections 11 or 12 of the Securities Act of 1933, is deemed not filed for purposes of section 18 of the Securities Exchange Act of 1934, and is not otherwise subject to liability under these sections.

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 June 30, 2012.  The registrant agrees to furnish a copy of such agreements to the SEC upon request.

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SIGNATURE

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

	ROUSE PROPERTIES, INC.
	(Registrant)
Date:  August 13, 2012	By:	/s/ Rael Diamond
		Rael Diamond
		Chief Financial Officer
		(on behalf of the Registrant and as Principal Accounting Officer)

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EXHIBIT INDEX

31.1	Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2	Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1	Certification of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2	Certification of Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101	The following financial information from Rouse Properties, Inc’s. Quarterly Report on Form 10-Q for the three and six months ended June 30, 2012, has been filed with the SEC on August 13, 2012, formatted in XBRL (Extensible Business Reporting Language): (1) Consolidated and Combined Balance Sheets, (2) Consolidated and Combined Statements of Operations and Comprehensive Loss, (3) Consolidated and Combined Statements of Equity, (4) Consolidated and Combined Statements of Cash Flows and (5) Notes to Consolidated and Combined Financial Statements, tagged as blocks of text. Pursuant to Rule 406T of Regulation S-T, this information is deemed not filed or part of a registration statement or prospectus for purposes of sections 11 or 12 of the Securities Act of 1933, is deemed not filed for purposes of section 18 of the Securities Exchange Act of 1934, and is not otherwise subject to liability under these sections.

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