Rouse Properties (RSE) 10-Q 2014 Q3 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 September 30, 2014

or

o Transition 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 x
Non-accelerated filer o	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, $0.01 par value, outstanding on October 31, 2014 was 57,742,605.

Rouse Properties Inc.

Index

			PAGE NUMBER
Part I	FINANCIAL INFORMATION
	Item 1.	Consolidated Financial Statements (Unaudited)
		Consolidated Balance Sheets as of September 30, 2014 and December 31, 2013	3
		Consolidated Statements of Operations and Comprehensive Loss for the three and nine months ended September 30, 2014 and 2013	4
		Consolidated Statements of Equity for the nine months ended September 30, 2014 and 2013	5
		Consolidated Statements of Cash Flows for the nine months ended September 30, 2014 and 2013	6
		Notes to Consolidated Financial Statements	7
	Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	31
		and Liquidity and Capital Resources
	Item 3.	Quantitative and Qualitative Disclosures about Market Risk	49
	Item 4.	Controls and Procedures	50
Part II	OTHER INFORMATION
	Item 1.	Legal Proceedings	51
	Item 1A.	Risk Factors	51
	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	51
	Item 3.	Defaults Upon Senior Securities	51
	Item 4.	Mine Safety Disclosures	51
	Item 5.	Other Information	51
	Item 6.	Exhibits	51
	SIGNATURE		52
	EXHIBIT INDEX		53

2

ROUSE PROPERTIES, INC.

CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

	September 30, 2014			December 31, 2013
	(In thousands)
Assets:
Investment in real estate:
Land	$	378,354		$	353,061
Buildings and equipment	1,846,054			1,595,070
Less accumulated depreciation	(176,421		)	(142,432		)
Net investment in real estate	2,047,987			1,805,699
Cash and cash equivalents	21,287			14,224
Restricted cash	44,596			46,836
Accounts receivable, net	31,217			30,444
Deferred expenses, net	51,429			46,055
Prepaid expenses and other assets, net	69,506			76,252
Total assets	$	2,266,022		$	2,019,510
Liabilities:
Mortgages, notes and loans payable, net	$	1,587,572		$	1,454,546
Accounts payable and accrued expenses, net	123,295			109,683
Total liabilities	1,710,867			1,564,229
Commitments and contingencies	—			—
Equity:
Preferred stock: $0.01 par value; 50,000,000 shares authorized, 0 issued and outstanding as of September 30, 2014 and December 31, 2013	—			—
Common stock: $0.01 par value; 500,000,000 shares authorized, 57,746,765 issued and 57,742,605 outstanding as of September 30, 2014 and 49,652,596 issued and 49,648,436 outstanding as of December 31, 2013	578			497
Additional paid-in capital	688,129			565,798
Accumulated deficit	(150,290		)	(111,125		)
Accumulated other comprehensive loss	(230		)	—
Total stockholders' equity	538,187			455,170
Noncontrolling interest	16,968			111
Total equity	555,155			455,281
Total liabilities and equity	$	2,266,022		$	2,019,510

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

3

ROUSE PROPERTIES, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(UNAUDITED)

	Three Months Ended   September 30,						Nine Months Ended   September 30,
	2014			2013			2014			2013
	(In thousands, except per share amounts)
Revenues:
Minimum rents	$	51,817		$	40,733		$	144,608		$	119,296
Tenant recoveries	20,518			17,918			58,430			50,254
Overage rents	726			188			2,664			2,479
Other	1,722			1,476			4,711			4,161
Total revenues	74,783			60,315			210,413			176,190
Expenses:
Property operating costs	18,639			16,015			52,535			43,831
Real estate taxes	7,287			6,517			19,553			18,300
Property maintenance costs	2,394			2,158			8,170			8,361
Marketing	572			720			1,653			2,032
Provision for (recovery of) doubtful accounts	271			(136		)	659			364
General and administrative	6,132			5,575			18,613			15,675
Provision for impairment	10,665			—			10,665			—
Depreciation and amortization	27,130			15,748			71,593			47,418
Other	1,371			585			2,631			2,052
Total expenses	74,461			47,182			186,072			138,033
Operating income	322			13,133			24,341			38,157
Interest income	34			166			310			492
Interest expense	(26,592		)	(18,002		)	(63,239		)	(59,305		)
Loss before income taxes and discontinued operations	(26,236		)	(4,703		)	(38,588		)	(20,656		)
Provision for income taxes	(136		)	20			(383		)	(235		)
Loss from continuing operations	(26,372		)	(4,683		)	(38,971		)	(20,891		)
Discontinued operations:
Loss from discontinued operations	—			—			—			(23,158		)
Gain on extinguishment of debt	—			—			—			13,995
Discontinued operations, net	—			—			—			(9,163		)
Net loss	$	(26,372	)	$	(4,683	)	$	(38,971	)	$	(30,054	)
Net income attributable to non-controlling interests	(194		)	—			(194		)	—
Net loss attributable to Rouse Properties Inc.	$	(26,566	)	$	(4,683	)	$	(39,165	)	$	(30,054	)
Loss from continuing operations per share attributable to Rouse Properties Inc - Basic and Diluted	$	(0.46	)	$	(0.09	)	$	(0.69	)	$	(0.42	)
Net loss per share attributable to Rouse Properties Inc - Basic and Diluted	$	(0.46	)	$	(0.09	)	$	(0.69	)	$	(0.61	)
Dividends declared per share	$	0.17		$	0.13		$	0.51		$	0.39
Other comprehensive loss:
Net loss	$	(26,372	)	$	(4,683	)	$	(38,971	)	$	(30,054	)
Other comprehensive loss:
Unrealized gain (loss) on financial instrument	425			—			(230		)	—
Comprehensive loss	$	(25,947	)	$	(4,683	)	$	(39,201	)	$	(30,054	)

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

4

ROUSE PROPERTIES, INC.

CONSOLIDATED STATEMENTS OF EQUITY

(UNAUDITED)

	Common Stock (shares)		Class B Common Stock (shares)		Common Stock		Class B Common Stock			Additional Paid-In Capital			Accumulated Deficit			Accumulated Other Comprehensive Loss			Non-controlling Interest		Total Equity
	(In thousands, except share amounts)
Balance at December 31, 2012	49,235,528		359,056		$	493	$	4		$	588,668		$	(56,380	)	$	—		$	111	$	532,896
Net loss	—		—		—		—			—			(30,054		)	—			—		(30,054		)
Conversion of Class B share to common shares	359,056		(359,056	)	4		(4		)	—			—			—			—		—
Offering costs	—		—		—		—			(332		)	—			—			—		(332		)
Dividends to common shareholders ($0.13 per share)	—		—		—		—			(19,366		)	—			—			—		(19,366		)
Issuance and amortization of stock compensation	36,573		—		—		—			2,248			—			—			—		2,248
Exercise of Options	4,080		—		—		—			60			—			—			—		60
Forfeited restricted shares	(4,160	)	—		—		—			—			—			—			—		—
Sale of treasury stock	10,559		—		—		—			187			—			—			—		187
Balance at September 30, 2013	49,641,636		—		$	497	$	—		$	571,465		$	(86,434	)	$	—		$	111	$	485,639
Balance at December 31, 2013	49,648,436		—		$	497	$	—		$	565,798		$	(111,125	)	$	—		$	111	$	455,281
Net income (loss)	—		—		—		—			—			(39,165		)	—			194		(38,971		)
Comprehensive loss	—		—		—		—			—			—			(230		)	—		(230		)
Issuance of 8,050,000 shares of common stock, net of underwriting discount	8,050,000		—		81		—			150,616			—			—			—		150,697
Offering costs	—		—		—		—			(467		)	—			—			—		(467		)
Dividends to common shareholders ($0.13 per share for issuance of 8,050,000 shares and $0.17 per share for Q1, Q2, and Q3 dividend)	—		—		—		—			(30,583		)	—			—			—		(30,583		)
Issuance and amortization of stock compensation	42,489		—		—		—			2,737			—			—			—		2,737
Exercise of options	1,680		—		—		—			28			—			—			—		28
Net assets attributable to Non Controlling Interest (as a result of Business Combinations)	—		—		—		—			—			—			—			16,663		16,663
Balance at September 30, 2014	57,742,605		—		$	578	$	—		$	688,129		$	(150,290	)	$	(230	)	$	16,968	$	555,155

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

5

ROUSE PROPERTIES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

	Nine Months Ended   September 30,
	2014			2013
	(In thousands)
Cash Flows from Operating Activities:
Net loss	$	(38,971	)	$	(30,054	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Provision for doubtful accounts	659			365
Depreciation	65,100			44,147
Amortization	6,493			4,784
Amortization/write-off of deferred financing costs	3,420			6,685
Amortization/write-off of debt market rate adjustments	8,789			6,821
Amortization of above/below market leases and tenant inducements	9,850			12,424
Straight-line rent amortization	(1,184		)	(2,556		)
Provision for impairment	10,665			21,661
Gain on extinguishment of debt	—			(14,324		)
Stock based compensation	2,737			2,248
Net changes:
Accounts receivable	(248		)	2,738
Prepaid expenses and other assets	(2,795		)	(770		)
Deferred expenses	(10,854		)	(8,203		)
Restricted cash	782			(210		)
Accounts payable and accrued expenses	8,524			849
Net cash provided by operating activities	62,967			46,605
Cash Flows from Investing Activities:
Acquisitions of investments in real estate	(109,330		)	—
Development, building and tenant properties	(81,655		)	(51,887		)
Demand deposit with affiliate	—			107,500
Restricted cash	1,458			(10,042		)
Net cash (used in) provided by investing activities	(189,527		)	45,571
Cash Flows from Financing Activities:
Proceeds received from equity offering	156,976			—
Discount from equity offering	(6,279		)	—
Proceeds received from stock option exercise	28			60
Payments for offering costs	(467		)	(332		)
Sale of treasury stock	—			187
Proceeds from refinance/issuance of mortgages, notes and loans payable	137,000			256,500
Borrowing under revolving line of credit	45,000			—
Principal payments on mortgages, notes and loans payable	(97,319		)	(330,429		)
Repayment under revolving credit line	(73,000		)	—
Dividends paid	(27,152		)	(16,383		)
Deferred financing costs	(1,164		)	(4,030		)
Net cash provided by (used in) financing activities	133,623			(94,427		)
Net change in cash and cash equivalents	7,063			(2,251		)
Cash and cash equivalents at beginning of period	14,224			8,092
Cash and cash equivalents at end of period	$	21,287		$	5,841
Supplemental Disclosure of Cash Flow Information:
Interest paid, net of capitalized interest	$	49,461		$	46,842
Capitalized interest	1,875			(786		)
Non-Cash Transactions:
Change in accrued capital expenditures included in accounts payable and accrued expenses	$	(2,592	)	$	6,126
Dividends declared, not yet paid	9,885			6,453
Assumption of mortgage related to the acquisition of a property	112,505			41,680

	Nine Months Ended   September 30,
	2014			2013
	(In thousands)
Capitalized market rate adjustments and deferred financing amortization	281			223
Supplemental cash flow information related to acquisition accounting:
Non-cash changes related to acquisition accounting:
Land	$	8,969		$	9,088
Buildings and equipment, net	103,123			34,818
Deferred expenses, net	1,841			1,430
Prepaid and other assets	5,461			1,098
Mortgages, notes and loans payable	(112,505		)	(41,913		)
Accounts payable and accrued expenses	(6,889		)	(4,521		)

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

6

ROUSE PROPERTIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1ORGANIZATION

Readers of this Quarterly Report should refer to the Company’s (as defined below) audited Consolidated and Combined Financial Statements for the year ended December 31, 2013 which are included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2013 (the “Annual Report”), as certain footnote disclosures which would substantially duplicate those contained in the 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 the 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"). Prior to January 12, 2012, Rouse Properties, Inc. and its subsidiaries ("Rouse" or the "Company") were a wholly-owned subsidiary of GGP Limited Partnership (“GGP LP”). 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, the Company 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 the Company by GGP on the Spin-Off Date and are presented as if the transferred business was our business for all historical periods prior to the Spin-Off Date. As such, the Company's assets and liabilities on the Spin-Off Date were reflective of GGP's respective carrying values. Unless the context otherwise requires, references to “we”, “us” and “our” refer to Rouse.

Principles of Consolidation and Basis of Presentation

The accompanying consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP"). The accompanying consolidated financial statements include the accounts of Rouse, as well as all subsidiaries of Rouse and all joint ventures in which the Company has a controlling interest. For consolidated joint ventures, the noncontrolling partner’s share of the assets, liabilities and operations of the joint ventures (generally computed as the joint venture partner’s ownership percentage) is included in noncontrolling interests as permanent equity of the Company. All intercompany transactions have been eliminated in consolidation as of and for the three and nine months ended September 30, 2014 and 2013.

The Company operates in a single reportable segment referred to as its retail segment, which includes the operation, development and management of regional malls. Each of the Company's 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 our operations based on geography, size or type and all operations are within the United States. No customer or tenant comprises more than 10% of consolidated revenues, and the properties have similar economic characteristics. As a result, the Company’s operating properties are aggregated into a single reportable segment.

NOTE 2SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Properties

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

Pre-development costs, which generally include legal and professional fees and other directly-related third party costs, are capitalized as part of the property being developed. In the event a development is no longer deemed to be probable, the costs previously capitalized are expensed.

Tenant improvements, either paid directly or in the form of construction allowances paid to tenants, are capitalized and depreciated over the shorter of the useful life or applicable lease term. Maintenance and repair costs are expensed when incurred. Expenditures for significant betterments and improvements are capitalized. In leasing tenant space, the Company may provide funding to the lessee through a tenant allowance. In accounting for a tenant allowance, the Company determines whether the allowance represents

7

ROUSE PROPERTIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

funding for the construction of leasehold improvements and evaluates the ownership of such improvements. If the Company is considered the owner of the leasehold improvements for accounting purposes, it capitalizes the amount of the tenant allowance and depreciates it over the shorter of the useful life of the leasehold improvements or the related lease term. If the tenant allowance represents a payment for a purpose other than funding leasehold improvements, or in the event that the Company is not considered the owner of the improvements for accounting purposes, the allowance is capitalized as 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 requires that if impairment indicators exist and the undiscounted cash flows expected to be generated by an asset are less than its carrying amount, an impairment provision should be recorded to write down the carrying amount of such asset to its fair value. The Company reviews all 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, high loan to value ratios, and carrying values in excess of the fair values. 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 and capitalization rates, and estimated holding periods for the applicable assets. Although the estimated fair value of certain assets may exceed 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 group. The adjusted carrying amount, which represents the new cost basis of the asset, is depreciated over the remaining useful life of the asset.

The Company determined there were events and circumstances which changed management's estimated holding period for Boulevard Mall during the nine months ended September 30, 2013. During 2013, the servicer of the loan for Boulevard Mall placed the loan into special servicing status and communicated to the Company that they would be unwilling to extend the term and discount the loan. As a result of this and the continued decline in operating results of the property, management concluded that it was in the best interest of the Company to convey the property to the lender. As the Company intended on conveying the property to the lender during 2013, the Company revised its intended hold period of this property to less than one year. The change in the hold period adjusted the undiscounted cash flows utilized in the impairment analysis and the Company concluded that the carrying value of the property was not recoverable. The Company recorded an impairment charge on the property of $21.7 million during the first quarter of 2013, as the aggregate carrying value was higher than the fair value of the property. This impairment charge is included in "Loss from discontinued operations" on the Company's Consolidated Statements of Operations and Comprehensive Loss for the nine months ended September 30, 2013.

During the nine months ended September 30, 2013, the Company conveyed its interest in the property to the lender, which resulted in a gain on extinguishment of debt of $14.0 million, which is recorded in "Discontinued operations, net" on the Company's Consolidated Statements of Operations and Comprehensive Loss.

8

ROUSE PROPERTIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

In August 2014, upon a maturity default on the Steeplegate Mall mortgage loan, the loan servicer appointed a receiver to take over the operations of the property until the property could be conveyed to the lender or a third party purchaser. As a result, the Company revised its intended hold period of this property to less than one year. The change in the hold period adjusted the undiscounted cash flows utilized in the impairment analysis and the Company concluded that the carrying value of the property was not recoverable. The Company recorded an impairment charge on the property of $7.6 million during the three and nine months ended September 30, 2014, as the aggregate carrying value was higher than the fair value of the property. This impairment charge is included in “Provision for impairment” on the Company’s Consolidated Statements of Operations and Comprehensive Loss.

The Company determined there were events and circumstances which changed management’s estimated holding period for Collin Creek Mall during the three and nine months ended September 30, 2014. As a result of the continued decline in operating metrics and results of the property, management has shortened the estimated hold period of the property. The Company is in discussions with the lender on the property’s non-recourse mortgage debt and is identifying options regarding the property’s disposition. The change in the hold period adjusted the undiscounted cash flows utilized in the impairment analysis and the Company concluded that the carrying value of the property was not recoverable. The Company recorded an impairment charge on the property of $3.1 million during the three and nine months ended September 30, 2014, as the aggregate carrying value was higher than the fair value of the property. This impairment charge is included in “Provision for impairment” on the Company’s Consolidated Statement of Operations and Comprehensive Loss.

Intangible Assets and Liabilities

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)
September 30, 2014
Tenant leases:
In-place value	$	102,053		$	(40,246	)	$	61,807
Above-market	114,844			(57,105		)	57,739
Below-market	(68,621		)	21,842			(46,779		)
Ground leases:
Below-market	3,682			(498		)	3,184
December 31, 2013
Tenant leases:
In-place value	$	100,125		$	(37,888	)	$	62,237
Above-market	132,986			(64,303		)	68,683
Below-market	(59,641		)	19,394			(40,247		)
Ground leases:
Below-market	2,173			(392		)	1,781

The gross asset balances of the in-place value of tenant leases are included in "Buildings and Equipment" on the Company's Consolidated Balance Sheets. Acquired in-place tenant leases are amortized over periods that approximate the related lease terms. The above-market tenant leases and below-market ground leases are included in "Prepaid expenses and other assets, net", and below-market tenant leases are included in "Accounts payable and accrued expenses, net" as detailed in Notes 4 and 6, respectively.

9

ROUSE PROPERTIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Amortization of in-place intangible assets and liabilities decreased the Company's income by $7.2 million and $4.0 million for the three months ended September 30, 2014 and 2013, respectively. Amortization of in-place intangible assets and liabilities decreased the Company's income by $19.1 million and $12.9 million for the nine months ended September 30, 2014 and 2013, respectively. Amortization of in-place intangibles is included in "Depreciation and amortization" on the Company's Consolidated Statements of Operations and Comprehensive Loss.

Amortization of above-market and below-market lease intangibles decreased the Company's revenue by $2.4 million and $3.7 million for the three months ended September 30, 2014 and 2013, respectively. Amortization of above-market and below-market lease intangibles decreased the Company's revenue by $9.8 million and $12.2 million for the nine months ended September 30, 2014 and 2013, respectively. Amortization of above-market and below-market lease intangibles is included in "Minimum rents" on the Company's Consolidated Statements of Operations and Comprehensive Loss.

Future amortization/accretion of these intangibles is estimated to decrease the Company's net income as follows:

Year	In-place lease intangibles		Above/(below) market leases, net
	(In thousands)
Remainder of 2014	$	6,486	$	2,974
2015	16,118		8,144
2016	11,140		5,829
2017	7,083		3,801
2018	4,906		992
2019	3,836		(297		)

Cash and Cash Equivalents

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

Restricted Cash

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

Interest Rate Hedging Instruments

The Company recognizes its derivative financial instruments in either "Prepaid expenses and other assets, net" or "Accounts payable and accrued expenses, net", as applicable, in the Consolidated Balance Sheets and measures those instruments at fair value. The accounting for changes in fair value (i.e., gain or loss) of a derivative depends on whether it has been designated and qualifies as part of a hedging relationship, and further, on the type of hedging relationship. To qualify as a hedging instrument, a derivative must pass prescribed effectiveness tests, performed quarterly using both quantitative and qualitative methods. The Company entered into a derivative agreement as of September 30, 2014 that qualifies as a hedging instrument and was designated, based upon the exposure of being hedged, as a cash flow hedge. The fair value of this cash flow hedge as of September 30, 2014 was $0.2 million and is included in "Accounts payable and accrued expenses, net" in the Company's Consolidated Balance Sheets. The fair value of the Company's interest rate hedge is classified as Level 2 in the fair value measurement table. To the extent they are effective, changes in fair value of cash flow hedges are reported in "Accumulated other comprehensive income (loss)" ("AOCI/L") and reclassified into earnings in the same period or periods during which the hedged item affects earnings. The ineffective portion of the hedge, if any, is recognized in current earnings during the period of change in fair value. The gain or loss on the termination of an effective cash flow hedge is reported in AOCI/L and reclassified into earnings in the same period or periods during which the hedged item affects earnings. The Company also assesses the credit risk that the counterparty will not perform according to the terms of the contract.

10

ROUSE PROPERTIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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 and tenant inducements. Minimum rent revenues also include percentage rents in lieu of minimum rent from those leases where we receive a percentage of tenant revenues. The following is a summary of amortization of straight-line rent, lease termination income, net amortization related to above and below-market tenant leases, amortization of tenant inducements, and percentage rent in lieu of minimum rent for the three and nine months ended September 30, 2014 and 2013:

	Three Months Ended   September 30,						Nine Months Ended   September 30,
	2014			2013			2014			2013
	(In thousands)
Straight-line rent amortization	$	97		$	684		$	1,184		$	2,507
Lease termination income	901			30			1,356			283
Net amortization of above and below-market tenant leases	(2,433		)	(3,740		)	(9,829		)	(12,154		)
Amortization of lease inducement	(11		)	(250		)	(21		)	(750		)
Percentage rents in lieu of minimum rent	1,691			1,853			4,659			5,339

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 the Company's Consolidated Balance Sheets and are reduced for allowances for doubtful accounts:

	September 30, 2014		December 31, 2013
	(In thousands)
Straight-line rent receivables, net	$	13,829	$	12,645

The Company provides an allowance for doubtful accounts against the portion of accounts receivable, including straight-line rents, which is estimated to be uncollectible. Such allowances are reviewed periodically based upon our recovery experience. The Company also evaluates the probability of collecting future rent which is recognized currently under a straight-line methodology. This analysis considers the long term nature of the Company's leases, as a certain portion of the straight-line rent currently recognizable will not be billed to the tenant until future periods. The Company's experience relative to unbilled straight-line rent receivable is that a certain portion of the amounts recorded as straight-line rental revenue are never collected from (or billed to) tenants due to early lease terminations. For that portion of the recognized deferred rent that is not deemed to be probable of collection, an allowance for doubtful accounts has been provided. Accounts receivable are shown net of an allowance for doubtful accounts of $2.8 million as of September 30, 2014 and December 31, 2013.

Tenant recoveries are recoveries from tenants that are established in the leases or computed based upon a formula related to real estate taxes, insurance and other property operating expenses and are generally recognized as revenues in the period in which 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.

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.

Other revenues generally consist of amounts earned by the Company for vending, advertising, and marketing revenues earned at the Company's malls and is recognized on an accrual basis over the related service period.

11

ROUSE PROPERTIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Loss Per Share

Basic net loss per share is computed by dividing the net loss applicable to common stockholders by the weighted-average number of shares of common stock outstanding for the period. Diluted net income per share is calculated similarly; however, it reflects potential dilution of securities by adding other potential shares of common stock, including stock options and non-vested restricted stock, to the weighted-average number of shares of common stock outstanding for the period. For the three and nine months ended September 30, 2014 and 2013, there were 3,313,869 and 2,585,971 stock options outstanding, respectively, that potentially could be converted into shares of common stock and 213,009 and 286,132 shares of non-vested restricted stock outstanding, respectively. These stock options and shares of restricted stock have been excluded from this computation, as their effect is anti-dilutive. The Company had the following weighted-average shares outstanding:

	Three Months Ended September 30,		Nine Months Ended   September 30,
	2014	2013	2014	2013
Weighted average shares - basic and diluted	57,519,412	49,346,798	57,062,578	49,340,373

Fair Value

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:

• 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, the Company utilizes 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, the Company's fair value estimates, which are made at the end of each reporting period, may be different than the amounts that may ultimately be realized upon the sale or disposition of these assets.

12

ROUSE PROPERTIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following table sets forth information regarding the Company's financial and non-financial instruments that are measured at fair value on a recurring and non-recurring basis by the above categories:

	Total Fair Value Measurement			Quoted Price in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)			Significant Unobservable Inputs (Level 3)
	(In thousands)
September 30, 2014
Recurring basis:
Assets:
Interest rate cap	$	4		$	—	$	4		$	—
Liabilities:
Interest rate swap	$	(230	)	$	—	$	(230	)	$	—
Non-recurring basis:
Investment in Real Estate (1)	$	79,600		$	—	$	—		$	79,600
December 31, 2013
Recurring basis:
Assets:
Interest rate cap	$	45		$	—	$	45		$	—
Non-recurring basis:
Investment in Real Estate (1)	$	33,475		$	—	$	—		$	33,475

Explanatory Note:

⁽¹⁾ The carrying value includes each mall's respective land, building, and in-place lease value.

The following is a reconciliation of the carrying value of properties that were impaired during the nine months ended September 30, 2014:

	Steeplegate Mall (1)			Collin Creek Mall (1)
Beginning carrying value, January 1, 2014	$	34,789		$	60,120
Capital expenditures	252			1,042
Depreciation and amortization expense	(1,364		)	(2,703		)
Loss on impairment of real estate	(7,586		)	(3,079		)
Ending carrying value, September 30, 2014	$	26,091		$	55,380

Explanatory Note:

⁽¹⁾ The carrying value includes each mall's respective land, building, in-place lease value, and above and below market lease values.

The Company estimates fair value relating to impairment assessments utilizing a direct capitalization rate on forecasted net operating income or discounted cash flows that include all projected cash inflows and outflows over a specific holding period. Such projected cash flows are comprised of contractual rental revenues and forecasted rental revenues and expenses based upon market conditions and expectations for growth. Capitalization rates and discount rates utilized in these models are based on a reasonable range of current market rates for each property analyzed. The determination on which method to use is based on expected market conditions specific to the property being assessed. Based upon these inputs, the Company determined that its valuation of a property using a discounted cash flow model was classified within Level 3 of the fair value hierarchy.

13

ROUSE PROPERTIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following table sets forth quantitative information about the unobservable inputs of the Company's Level 3 real estate, which are recorded at fair values as of September 30, 2014:

Unobservable Quantitative Inputs
Discount Rate	11.0	%
Terminal Capitalization Rate	10.0% - 10.5%

The Company uses interest rate swaps and caps to mitigate the effect of interest rate movements on its variable-rate debt. The Company has one interest rate swap and one interest rate cap as of September 30, 2014 and the interest rate swap qualified for hedge accounting. The interest rate swap has met the effectiveness test criteria since inception and changes in its fair value are reported in "Other comprehensive income (loss)" ("OCI/L") and are reclassified into earnings in the same period or periods during which the hedged item affects earnings. The interest rate cap did not qualify for hedge accounting and so the changes in its fair value are reported in earnings during the period incurred. The fair value of the Company's interest rate hedges, classified under Level 2, are determined based on prevailing market data for contracts with matching durations, current and anticipated LIBOR information, consideration of the Company's credit standing, credit risk of the counterparty, and reasonable estimates about relevant future market conditions. See Note 7 for additional information regarding the Company's interest rate hedging instruments.

The Company's financial instruments are short term in nature and as such their fair values approximate their carrying amount in our Consolidated Financial Statements except for debt. As of September 30, 2014 and December 31, 2013, management’s estimates of fair value are presented below. The Company estimated the fair value of the debt by using a future discounted cash flow analysis based on the use and weighting of multiple market inputs. As a result of the frequency and availability of market data, the inputs used to measure the estimated fair value of debt are Level 3 inputs. The primary sensitivity in these calculations is based on the selection of appropriate discount rates. 

	September 30, 2014				December 31, 2013
	Carrying Amount		Estimated Fair Value		Carrying Amount		Estimated Fair Value
	(In thousands)
Fixed-rate debt	$	1,242,060	$	1,188,899	$	1,021,432	$	1,013,726
Variable-rate debt	345,512		346,748		433,114		434,508
Total mortgages, notes and loans payable, net	$	1,587,572	$	1,535,647	$	1,454,546	$	1,448,234

14

ROUSE PROPERTIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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. Deferred financing costs 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)
September 30, 2014
Deferred lease costs	$	52,596	$	(13,206	)	$	39,390
Deferred financing costs	18,674		(6,635		)	12,039
Total	$	71,270	$	(19,841	)	$	51,429
December 31, 2013
Deferred lease costs	$	43,570	$	(12,039	)	$	31,531
Deferred financing costs	18,979		(4,455		)	14,524
Total	$	62,549	$	(16,494	)	$	46,055

Asset Retirement Obligations

The Company evaluates any potential asset retirement obligations, including those related to disposal of asbestos containing materials and environmental remediation liabilities. The Company recognizes the fair value of such obligations in the period incurred if a reasonable estimate of fair value can be determined. As of September 30, 2014 and December 31, 2013, a preliminary estimate of the cost of the environmental remediation liability was approximately $4.5 million and $4.7 million, respectively, which is included in "Accounts payable and accrued expenses, net" on the Company's Consolidated Balance Sheets. The Company does not believe that actual remediation costs will be materially different than the estimates as of September 30, 2014.

Use of Estimates

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

Recent Accounting Pronouncements

In April 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2014-08, "Presentation of Financial Statements and Property, Plant, and Equipment: Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity," which requires entities to disclose only disposals representing a strategic shift in operations as discontinued operations. The new guidance requires expanded disclosures about discontinued operations that will provide financial statement users with more information about the assets, liabilities, income, and expenses of discontinued operations. The new standard is effective in the first quarter of 2015 for public organizations with calendar year ends. Early adoption is permitted but only for disposals (or classifications as held for sale) that have not been reported in the financial statements previously issued or available for issuance. The Company early adopted this guidance and there was no impact of adoption during the nine months ended September 30, 2014.

15

ROUSE PROPERTIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

In May 2014, the FASB issued ASU 2014-09, “Revenue from Contracts with Customers (Topic 606).” This topic provides for five principles which should be followed to determine the appropriate amount and timing of revenue recognition for the transfer of goods and services to customers. The principles in this ASU should be applied to all contracts with customers regardless of industry. The amendments in this ASU are effective for reporting periods beginning after December 15, 2016, with two transition methods of adoption allowed. Early adoption for reporting periods prior to December 15, 2016 is not permitted. The Company is evaluating the financial statement impact of the guidance in this ASU and determining which transition method we will utilize.

In August 2014, the FASB issued ASU 2014-15 “Disclosure of Uncertainties about an Entity's Ability to Continue as a Going Concern." This topic provides guidance on management’s responsibility to evaluate whether there is substantial doubt about a company’s ability to continue as a going concern and requires related footnote disclosures. The amendments in this ASU are effective for the annual period ending after December 15, 2016, and for annual and interim periods thereafter. Early adoption is permitted. The Company is currently evaluating the impact of the guidance in this ASU.

NOTE 3ACQUISITIONS

The Company includes the results of operations of real estate assets acquired in the Company's Consolidated Statements of Operations and Comprehensive Loss from the date of the related transactions.

	Date Acquired	Property Name	Location	Square Footage Acquired	Purchase Price
2014 Acquisitions					(In thousands)
	05/22/2014	Bel Air Mall (1)(2)	Mobile, AL	1,004,439	$	131,917
	08/29/2014	The Mall at Barnes Crossing and Marketplace (3)	Tupelo, MS	736,607	98,850
			2014 Acquisitions Total	1,741,046	$	230,767
2013 Acquisitions
	07/24/2013	Greenville Mall (1) (4)	Greenville, NC	413,759	$	48,900
	12/11/2013	Chesterfield Towne Center (1) (5)	Richmond, VA	1,016,258	165,500
	12/11/2013	The Centre at Salisbury (1) (6)	Salisbury, MD	721,396	127,000
			2013 Acquisitions Total	2,151,413	$	341,400

Explanatory Notes:

⁽¹⁾ Rouse acquired a 100% interest in the mall.

⁽²⁾The Company assumed an existing $112.5 million non-recourse mortgage loan with the acquisition. The loan bears interest at a fixed rate of 5.30%, matures in December 2015, and amortizes over 30 years.

⁽³⁾ Rouse acquired a 51% controlling interest in the mall and related properties. In conjunction with the closing of this transaction, the Company closed on a new $67.0 million non-recourse mortgage loan that bears interest at a fixed rate of 4.29%, matures in September 2024, and is interest only for the first three years. See Note 12 for further details.

⁽⁴⁾The Company assumed an existing $41.7 million non-recourse mortgage loan with the acquisition. The loan bears interest at a fixed rate of 5.29%, matures in December 2015, and amortizes over 30 years.A fair value adjustment of $0.2 million was recorded as a result of the mortgage assumption.    

⁽⁵⁾ The Company assumed an existing $109.7 million non-recourse mortgage loan with the acquisition. The loan bears interest at a fixed rate of 4.75%, matures in October 2022, and amortizes over 30 years. A fair value adjustment of $1.3 million was recorded as a result of the mortgage assumption.    

⁽⁶⁾ The Company assumed an existing $115.0 million partial recourse mortgage loan with the acquisition. The loan bears interest at a fixed rate of 5.79%, matures in May 2016, and is interest only.A fair value adjustment of $1.2 million was recorded as a result of the mortgage assumption.

16

ROUSE PROPERTIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following table presents certain additional information regarding the Company's acquisitions as of September 30, 2014 and December 31, 2013:

	Property Name	Land		Building and Improvements		Acquired Lease Intangibles		Acquired Above Market Lease Intangibles		Acquired Below Market Lease Intangibles			Other
2014 Acquisitions		(In thousands)
	Bel Air Mall	$	8,969	$	111,206	$	11,329	$	3,952	$	(6,889	)	$	3,350
	The Mall at Barnes Crossing and Marketplace	17,969		75,949		6,973		4,700		(8,100		)	1,359
	Total	$	26,938	$	187,155	$	18,302	$	8,652	$	(14,989	)	$	4,709
2013 Acquisitions
	Greenville Mall (1)	$	9,088	$	36,961	$	5,076	$	1,098	$	(4,521	)	$	1,430
	Chesterfield Towne Center (2)	19,387		135,825		8,755		4,843		(6,741		)	2,181
	The Centre at Salisbury (3)	22,580		96,050		9,326		4,043		(4,729		)	972
	Total	$	51,055	$	268,836	$	23,157	$	9,984	$	(15,991	)	$	4,583

Explanatory Notes:

⁽¹⁾ Excludes fair value adjustment on mortgage assumption of $0.2 million.

⁽²⁾ Excludes fair value adjustment on mortgage assumption of $1.3 million.

⁽³⁾ Excludes fair value adjustment on mortgage assumption of $1.2 million.

The Company incurred acquisition and transaction related costs of $0.5 million and $0.3 million for the three months ended September 30, 2014 and 2013, respectively, and $0.9 million and $0.4 million for the nine months ended September 30, 2014 and 2013, respectively. Acquisition and transaction related costs consist of due diligence costs such as legal fees, environmental studies and closing costs. These costs were recorded in "Other expense" on the Company's Consolidated Statements of Operations and Comprehensive Loss.

During the three and nine months ended September 30, 2014, the Company recorded approximately $5.2 million and $7.0 million, respectively, in revenues and $0.5 million and $1.7 million, respectively, in net loss related to the acquisitions of Bel Air Mall and The Mall at Barnes Crossing and Marketplace. During the three and nine months ended September 30, 2013, the Company recorded approximately $1.3 million in revenues and $0.3 million in net loss related to the acquisition of Greenville Mall.

The following condensed pro forma financial information for the nine months ended September 30, 2014 includes pro forma adjustments related to the acquisition of Bel Air Mall and The Mall at Barnes Crossing and Marketplace, which is presented assuming the acquisition had been consummated as of January 1, 2014. For the nine months ended September 30, 2013 the pro forma financial information for the nine months ended September 30, 2013 includes pro forma adjustments related to the 2014 acquisitions of Bel Air Mall and The Mall at Barnes Crossing and Marketplace, as well as the 2013 acquisition of Greenville Mall, which is presented assuming the acquisition had been consummated as of January 1, 2013.

The following condensed pro forma financial information is not necessarily indicative of what the actual results of operations of the Company would have been assuming the acquisition had been consummated as of January 1, nor does it purport to represent the results of operations for future periods. Pro forma adjustments include above and below-market amortization, straight-line rent, interest expense, and depreciation and amortization.

17

ROUSE PROPERTIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

	Nine months ended
	September 30, 2014
	As Adjusted (Unaudited)
	(In thousands, except per share amounts)
Total revenues	$	225,313
Net loss	(38,847		)
Net loss per share - basic and diluted	$	(0.68	)
Weighted average shares - basic and diluted	57,062,578

	Nine months ended
	September 30, 2013
	As Adjusted (Unaudited)
	(In thousands, except per share amounts)
Total revenues	$	195,315
Net loss	(30,043		)
Net loss per share - basic and diluted	$	(0.61	)
Weighted average shares - basic and diluted	49,340,373

NOTE 4PREPAID EXPENSES AND OTHER ASSETS, NET

The following table summarizes the significant components of prepaid expenses and other assets, net:

	September 30, 2014		December 31, 2013
	(In thousands)
Above-market tenant leases, net (Note 2)	$	57,739	$	68,683
Deposits	627		682
Below-market ground leases, net (Note 2)	3,184		1,781
Prepaid expenses	5,994		4,776
Other	1,962		330
Total prepaid expenses and other assets, net	$	69,506	$	76,252

18

ROUSE PROPERTIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 5 MORTGAGES, NOTES AND LOANS PAYABLE, NET

Mortgages, notes and loans payable are summarized as follows:

	September 30, 2014			December 31, 2013			Interest Rate at September 30, 2014		Scheduled Maturity Date
Fixed-rate debt:	(in thousands)
Steeplegate Mall (1)	$	46,849		$	47,970		4.94	%	August 2014
Bel Air Mall (2)	111,819			—			5.30		December 2015
Greenville Mall (2)	40,800			41,375			5.29		December 2015
Vista Ridge Mall	69,238			71,270			6.87		April 2016
Washington Park Mall	10,599			10,872			5.35		April 2016
The Centre at Salisbury (2)	115,000			115,000			5.79		May 2016
The Mall at Turtle Creek	77,899			78,615			6.54		June 2016
Collin Creek	58,663			60,206			6.78		July 2016
Grand Traverse	59,724			60,429			5.02		February 2017
Knollwood Mall	35,455			36,281			5.35		October 2017
West Valley (2) (3)	59,000			—			3.24		September 2018
Pierre Bossier	46,845			47,400			4.94		May 2022
Pierre Bossier Anchor	3,658			3,718			4.85		May 2022
Southland Center (MI)	76,337			77,205			5.09		July 2022
Chesterfield Towne Center (2)	108,519			109,737			4.75		October 2022
Animas Valley	50,272			50,911			4.41		November 2022
Lakeland Mall (2)	68,357			69,241			4.17		March 2023
Valley Hills Mall (2)	66,769			67,572			4.47		July 2023
Chula Vista Center (2) (4)	70,000			—			4.18		July 2024
The Mall at Barnes Crossing (2)	67,000			—			4.29		September 2024
Bayshore Mall	—			27,720			—		—
Sikes Senter (2) (4)	—			55,494			—		—
Total fixed-rate debt	$	1,242,803		$	1,031,016
Less: Market rate adjustments	(743		)	(9,583		)
	$	1,242,060		$	1,021,433
Variable-rate debt:
NewPark Mall (2)(5)	$	65,512		$	66,113		3.41	%	May 2017
2013 Term Loan (6)	260,000			260,000			2.90		November 2018
2013 Revolver (6)	20,000			48,000			2.91		November 2017
West Valley Mall (2)	—			59,000			—		—
Total variable-rate debt:	$	345,512		$	433,113
Total mortgages, notes and loans payable, net	$	1,587,572		$	1,454,546

Explanatory Notes:

⁽¹⁾ The loan matured on August 1, 2014 and was not repaid. As such the loan is in default.

⁽²⁾ See the significant property loan refinancings and acquisitions table below, under "—Property-Level Debt" in this Note 5 for additional information regarding the debt related to each property.

⁽³⁾ As of December 31, 2013, the interest rate related to West Valley Mall was variable rate at LIBOR plus 175 basis points. During January 2014, the Company entered into a swap transaction which fixes the interest rate on the loan for this property to 3.24%. See Note 7 for further details.

⁽⁴⁾ On July 1, 2014, the Company removed Chula Vista Center from the 2013 Senior Facility (as defined below) collateral pool and placed a new non-recourse mortgage loan on Chula Vista Center. Sikes Senter was repaid on July 1, 2014 from proceeds from the Chula Vista Center refinancing and upon repayment Sikes was added to the 2013 Senior Facility collateral pool with no change to the outstanding 2013 Senior Facility collateral pool balance.

⁽⁵⁾ During July 2014, the Company reduced the spread fromLIBOR (30 day) plus 405 basis points to LIBOR (30 day) plus 325 basis points.

⁽⁶⁾ LIBOR (30 day) plus 275 basis points.

19

ROUSE PROPERTIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Property-Level Debt

The Company had individual property-level debt (the “Property-Level Debt”) on 20 of its 36 assets, representing $1.3 billion (excluding $0.7 million of market rate adjustments) as of September 30, 2014. As of September 30, 2014, the Property-Level Debt had a weighted average interest rate of 5.0% and an average remaining term of 4.5 years. The Property-Level Debt is generally non-recourse to the Company and is stand-alone (i.e., not cross-collateralized) first mortgage debt with the exception of customary contingent guarantees and indemnities.

In January 2014, the Company retired the $27.6 million mortgage debt balance on Bayshore Mall which had a fixed interest rate of 7.13%.

In April 2014, the loan associated with the Steeplegate Mall was transferred to special servicing. The loan matured on August 1, 2014 and was not repaid. As such, the loan is in default. Upon default, a receiver was appointed and the Company, along with the special servicer and the receiver, are working on an orderly transfer of the deed to the Steeplegate Mall mortgage lender or successor lender should the loan be sold in the coming months. The asset is expected to be conveyed to its lender during the first half of 2015.

In July 2014, the Company retired the $54.6 million mortgage debt balance on Sikes Senter. See the table below for further discussion.

The following is a summary of significant property loan refinancings and acquisitions that have occurred as of September 30, 2014 and as of December 31, 2013 ($ in thousands):

Property	Date	Balance at Date of Refinancing		Interest Rate		Balance of New Loan		New Interest Rate		Net Proceeds (1)		Maturity
September 30, 2014:
The Mall at Barnes Crossing (2)	August 2014	$	—	—	%	$	67,000	4.29	%	$	—	September 2024
Chula Vista Center (3)	July 2014	—		—	%	70,000		4.18	%	15,000		July 2024
Sikes Senter (3)	July 2014	54,618		5.20	%	—		—	%	—		—
Bel Air Mall	May 2014	—		—	%	111,819		5.30	%	—		December 2015
December 31, 2013:
Lakeland Mall (4)	March 2013	$	50,300	5.12	%	$	70,000	4.17	%	$	13,400	March 2023
NewPark Mall (5)	May 2013	62,900		7.45	%	66,500		LIBOR + 4.05%		1,100		May 2017
Valley Hills Mall	June 2013	51,400		4.73	%	68,000		4.47	%	15,000		July 2023
Greenville Mall	July 2013	—		—	%	41,700		5.29	%	—		December 2015
West Valley Mall (6)	September 2013	47,100		3.43	%	59,000		LIBOR + 1.75%		11,400		September 2018
Chesterfield Towne Center	December 2013	—		—	%	109,737		4.75	%	—		October 2022
The Centre at Salisbury (7)	December 2013	—		—	%	115,000		5.79	%	—		May 2016

Explanatory Notes:

⁽¹⁾ Net proceeds are net of closing costs.

⁽²⁾ The loan is interest-only for the first three years.

⁽³⁾ On July 1, 2014, the Company removed Chula Vista Center, located in Chula Vista, CA, from the 2013 Senior Facility collateral pool and placed a new non-recourse mortgage loan on the property. Sikes Senter, located in Wichita Falls, TX, had an outstanding mortgage loan which was repaid on July 1, 2014 from proceeds from the Chula Vista Center refinancing. Upon repayment Sikes Senter was added to the 2013 Senior Facility collateral pool with no change to the outstanding 2013 Senior Facility balance.

⁽⁴⁾ On March 6, 2013, the loan associated with the Lakeland Mall was refinanced for $65.0 million. Subsequently, on March 21, 2013, the loan was increased by $5.0 million to $70.0 million in order to partially fund the acquisition of an anchor building previously owned by a third party.

⁽⁵⁾ The loan provides for an additional subsequent funding of $5.0 million upon achieving certain conditions for a total funding of $71.5 million. During July 2014, the Company reduced the spread from LIBOR (30 day) plus 405 basis points to LIBOR (30 day) plus 325 basis points.

⁽⁶⁾ The loan is interest-only for the first three years and amortizes on a 30 year schedule thereafter. The loan has a five year extension option subject to the fulfillment of certain conditions. During January 2014, the Company entered into a swap transaction and the loan now has a fixed interest rate of 3.24%.

⁽⁷⁾ The loan is interest-only. In conjunction with the acquisition of the Centre at Salisbury, the Company guaranteed a maximum amount of $3.5 million until certain financial covenants are met for two consecutive years.

20

ROUSE PROPERTIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Corporate Facilities

2013 Senior Facility

On November 22, 2013, the Company entered into a $510.0 million secured credit facility that provides borrowings on a revolving basis of up to $250.0 million (the "2013 Revolver") and a $260.0 million senior secured term loan (the "2013 Term Loan" and together with the 2013 Revolver, the "2013 Senior Facility"). Borrowings on the 2013 Senior Facility bear interest at LIBOR plus 185 to 300 basis points based on the Company's corporate leverage. Proceeds from the 2013 Senior Facility were used to retire the Company's 2012 Senior Facility, including the 2012 Revolver and the 2012 Term Loan (as each term is defined below), and the $70.9 million non-recourse mortgage loan on the Southland Mall in California prior to its maturity date in January 2014. The Company has the option, subject to the satisfaction of certain conditions precedent, to exercise an "accordion" provision to increase the commitments under the 2013 Revolver and/or incur additional term loans in the aggregate amount of $250.0 million such that the aggregate amount of the commitments and outstanding loans under the 2013 Secured Facility does not exceed $760.0 million. During the nine months ended September 30, 2014, the Company exercised a portion of its "accordion" feature on the 2013 Senior Facility to increase the available borrowings of the 2013 Revolver thereunder from $250.0 million to $285.0 million. The term and rates of the Company's 2013 Senior Facility were otherwise unchanged.

The 2013 Revolver has an initial term of four years with a one year extension option and the 2013 Term Loan has a term of five years. As of September 30, 2014, the Company has drawn $20.0 million on the 2013 Revolver. The Company is required to pay an unused fee related to the 2013 Revolver equal to 0.20% per year if the aggregate unused amount is greater than or equal to 50% of the 2013 Revolver or 0.30% per year if the aggregate unused amount is less than 50% of the 2013 Revolver.  The default interest rate following a payment event of default under the 2013 Senior Facility is 3.00% more than the then-applicable interest rate. During the three and nine months ended September 30, 2014, the Company incurred $0.2 million and $0.6 million, respectively, of unused fees related to the 2013 Revolver.

The 2013 Senior Facility contains representations and warranties, affirmative and negative covenants and default provisions that are customary for such a real estate loan. In addition, the 2013 Senior Facility requires compliance with certain financial covenants, including borrowing base loan to value and debt yield, corporate maximum leverage ratio, minimum ratio of adjusted consolidated earnings before interest, tax, depreciation and amortization to fixed charges, minimum tangible net worth, minimum mortgaged property requirement, maximum unhedged variable rate debt and maximum recourse indebtedness. Failure to comply with the covenants in the 2013 Senior Facility would result in a default thereunder and, absent a waiver or an amendment from our lenders, permit the acceleration of all outstanding borrowings under the 2013 Senior Facility. No assurance can be given that we would be successful in obtaining such waiver or amendment in this current financial climate, or that any accommodations that we were able to negotiate would be on terms as favorable as those in the 2013 Senior Facility. In addition, any such default may result in the cross-default of our other indebtedness. As of September 30, 2014, the Company was in compliance with all of the debt covenants related to the 2013 Senior Facility.

As of September 30, 2014, $2.1 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 4.7% and 4.6% as of September 30, 2014 and December 31, 2013, respectively. As of September 30, 2014, the average remaining term was 4.4 years.

As of September 30, 2014, the Company issued letters of credit totaling $5.2 million in connection with five of its properties. During the three and nine months ended September 30, 2014, the Company incurred $0.03 million and $0.09 million, respectively, of letter of credit fees. As of December 31, 2013, no letters of credit were issued.

2012 Senior Facility and Subordinated Facility

On January 12, 2012, the Company entered into a senior secured credit facility that provided borrowings on a revolving basis of up to $50.0 million (the "2012 Revolver") and a senior secured term loan (the "2012 Term Loan" and together with the 2012 Revolver, the "2012 Senior Facility"). The interest rate during the year ended 2012 was renegotiated from LIBOR plus 5.0% (with a LIBOR floor of 1.0%) to LIBOR plus 4.5% (with no LIBOR floor). In conjunction with the Company's entrance into the 2013 Senior Facility, the 2012 Senior Facility was terminated.

21

ROUSE PROPERTIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The Company was required to pay an unused fee related to the 2012 Revolver equal to 0.30% per year if the aggregate unused amount was greater than or equal to 50% of the 2012 Revolver or 0.25% per year if the aggregate unused amount was less than 50% of the 2012 Revolver. During the three and nine months ended September 30, 2013, the Company incurred $0.1 million and $0.3 million, respectively, of unused fees related to the 2012 Revolver.

During 2012, the Company also entered into a subordinated unsecured revolving credit facility (the "Subordinated Facility") with a wholly-owned subsidiary of Brookfield Asset Management, Inc., a related party, which bore 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 was 2.00% more than the then-applicable interest rate. Interest was payable monthly.  In addition, the Company was required to pay a semiannual revolving credit fee of $0.3 million. On November 22, 2013, in conjunction with the Company's entrance into the 2013 Senior Facility, the Subordinated Facility was terminated.

NOTE 6ACCOUNTS PAYABLE AND ACCRUED EXPENSES, NET

The following table summarizes the significant components of accounts payable and accrued expenses, net:

	September 30, 2014		December 31, 2013
	(In thousands)
Below-market tenant leases, net (Note 2)	$	46,779	$	40,247
Construction payable	19,229		21,821
Accounts payable and accrued expenses	9,797		10,310
Accrued dividend	9,885		6,454
Accrued interest	7,076		4,213
Accrued real estate taxes	12,098		5,640
Deferred income	6,033		6,539
Accrued payroll and other employee liabilities	5,787		7,942
Tenant and other deposits	1,297		1,249
Asset retirement obligation liability	4,485		4,745
Derivative liability	230		—
Other	599		523
Total accounts payable and accrued expenses, net	$	123,295	$	109,683

NOTE 7DERIVATIVES

Cash Flow Hedges of Interest Rate Risk

The Company records its derivative instruments in its Consolidated Balance Sheets at fair value. The accounting for changes in the fair value of a derivative depends on the intended use of the derivative, whether the derivative has been designated as a hedge and, if so, whether the hedge has met the criteria necessary to apply hedge accounting.

The Company's objectives in using interest rate derivatives are to add stability to interest expense and to manage its exposure to interest rate movements. To accomplish these objectives, the Company primarily uses interest rate swaps and caps as part of its interest rate risk management strategy. Interest rate swaps designated as cash flow hedges involve the receipt of variable-rate amounts from the counterparty in exchange for the Company making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount. Interest rate caps designated as cash flow hedges involve the receipt of variable-rate amounts from a counterparty if interest rates rise above the strike rate on the contract in exchange for an up-front premium.

The effective portion of changes in fair value of derivatives designated and that qualify as cash flow hedges is recorded in accumulated other comprehensive income (loss) ("AOCI/L") and is subsequently reclassified into earnings in the period in which the hedged forecasted transactions affect earnings. During the three and nine months ended September 30, 2014, such derivatives

22

ROUSE PROPERTIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

were used to hedge the variable cash flows associated with existing variable-rate borrowings. The ineffective portion of the change in fair value of the derivatives is recognized in earnings. During the three and nine months ended September 30, 2014, the Company recorded no hedge ineffectiveness for the interest rate swap.

Amounts reported in AOCI/L related to derivatives are reclassified to interest expense as interest payments are made on the Company’s variable-rate debt. As of September 30, 2014, the Company expects that an additional $0.7 million will be reclassified as an increase to interest expense over the next 12 months.

Interest Rate Swap

The Company entered into an interest rate swap to hedge the risk of changes in cash flows on borrowings related to the West Valley Mall in January 2014. The interest related to this loan was computed at a variable rate of LIBOR + 1.75% and the Company swapped this for a fixed rate of 1.49% plus a spread of 1.75%. The interest rate swap protects the Company from increases in the hedged cash flows attributable to increases in LIBOR. The interest rate swap matures in June 2018.

As of September 30, 2014, the Company had the following outstanding interest rate derivative that was designated as a cash flow hedge of interest rate risk:

Interest Rate Derivative	Number of Instruments	Notional Amount
		(in thousands)
Interest rate swap	1	$59,000

Non-Designated Hedges - Interest Rate Caps

Derivatives not designated as hedges are not speculative and are used to manage the Company’s exposure to interest rate movements and other identified risks but do not meet the hedge accounting requirements. Changes in the fair value of the derivative not designated as hedges are recorded directly in earnings. For the three and nine months ended September 30, 2014, such amounts equaled $(1,208) and $40,815, respectively. For the three and nine months ended September 30, 2013 such amounts equaled $4,749 and $7,387, respectively. The Company did not have any non-designated hedges during the three and nine months ended September 30, 2014. As of September 30, 2014, the Company had the following outstanding derivative that was not designated as a hedge in qualifying hedging relationships:

Interest Rate Derivative	Number of Instruments	Notional Amount
		(in thousands)
Interest rate cap	1	$65,512

The table below presents the fair value of the Company’s derivative financial instruments as well as their classification on the Company's Consolidated Balance Sheets as of September 30, 2014 and December 31, 2013:

Instrument Type	Location in consolidated balance sheets	Notional Amount		Designated Benchmark Interest Rate	Strike Rate		Fair Value at September 30, 2014			Fair Value at December 31, 2013		Maturity Date
Derivative not designated as hedging instruments		(dollars in thousands)
Interest Rate Cap	Prepaid expenses and other assets, net	$	65,512	One-month LIBOR	4.5	%	$	4		$	45	May 2016
Derivative designated as hedging instruments
Pay fixed / receive variable rate swap	Accounts payable and accrued expenses, net	59,000		One-month LIBOR	1.5	%	(230		)	—		June 2018

23

ROUSE PROPERTIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The table below presents the effect of the Company’s derivative financial instruments on the Company's Consolidated Statements of Operations and Comprehensive Loss for the three and nine months ended September 30, 2014. The Company had no cash flow hedges during the three and nine months ended September 30, 2013.

						Location of Losses Reclassified from OCI/L Into Earnings (Effective Portion)					Location of Gain (Loss) Recognized in Earnings (Ineffective Portion)
Hedging Instrument	Gain (Loss) Recognized in OCI/L (Effective Portion)						Loss Recognized in Earnings (Effective Portion)					Gain Recognized in Earnings (Ineffective Portion)
	(dollars in thousands)
Three Months Ended September 30,	2014			2013			2014		2013			2014		2013
Pay fixed / receive variable rate swap	$	224		$	—	Interest expense	$	200	$	—	n.a.	$	—	$	—
Nine Months Ended September 30,	2014			2013			2014		2013			2014		2013
Pay fixed / receive variable rate swap	$	(756	)	$	—	Interest expense	$	526	$	—	n.a.	$	—	$	—

Credit Risk-Related Contingent Features

The Company has an agreement with its derivative counterparty that contains a provision whereby if the Company defaults on any of its indebtedness, including a default whereby repayment of such indebtedness has not been accelerated by the lender, the Company could also be declared in default on its derivative obligations. The Company has not posted any collateral related to this agreement. As of September 30, 2014, the fair value of the derivative liability, which includes accrued interest but excludes any adjustment for nonperformance risk, related to this agreement was $0.3 million. If the Company had breached this provision as of September 30, 2014, it would have been required to settle its obligations under the agreement at its termination value of $0.3 million.

NOTE 8DISPOSITIONS, DISCONTINUED OPERATIONS AND GAINS (LOSSES) ON DISPOSITIONS OF INTEREST IN OPERATING PROPERTIES

The Company's disposition for the nine months ended September 30, 2013 is included in "Loss from discontinued operations" in the Company's Consolidated Statements of Operations and Comprehensive Loss and is summarized in the table set forth below. No dispositions took place during the three and nine months ended September 30, 2014.

In June 2013, the Company conveyed its interest in Boulevard Mall to the lender of the loan related to the property. The property had been transferred to special servicing in January 2013 and was conveyed to the lender in June 2013 in full satisfaction of the debt. Additionally, the conveyance of the property was structured as a reverse like-kind exchange transaction under Internal Revenue Code of 1986 (IRC) Section 1031 for income tax purposes. In June 2014, the Company reversed its value on an outstanding environmental liability on the Boulevard Mall of ($0.4) million and is included in "Other " in the Company's Consolidated Statements of Operations and Comprehensive Loss.

24

ROUSE PROPERTIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

	Nine Months Ended   September 30,
	2013
	(in thousands)
Total revenues	$	4,812
Operating expenses including depreciation and amortization	3,082
Provision for impairment	21,661
Total expenses	24,743
Operating loss	(19,931		)
Interest expense	(3,227		)
Net loss from discontinued operations	(23,158		)
Gain on extinguishment of debt	13,995
Net loss from discontinued operations	$	(9,163	)
Net loss from discontinued operations per share-Basic and Diluted	$	(0.19	)

NOTE 9INCOME TAXES

The Company elected to be taxed as a REIT beginning with the filing of its tax return for the 2011 fiscal year. As of September 30, 2014, the Company has met the requirements of a REIT and has filed its tax returns for the 2013 fiscal year accordingly. Subject to its ability to meet the requirements of a REIT, the Company intends to maintain this status in future periods.

To qualify as a REIT, the Company must meet a number of organizational and operational requirements, including requirements to distribute at least 90% of its 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, the Company will generally not be subject to corporate level federal income tax on taxable income that it distributes currently to its stockholders. If the Company fails to qualify as a REIT in any taxable year, it 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 the Company qualifies for taxation as a REIT, it may be subject to certain state and local taxes on its income or property, and to federal income and excise taxes on its undistributed taxable income.

The Company has a subsidiary that it elected to treat as a taxable REIT subsidiary (TRS), which is subject to federal and state income taxes. For each of the three months ended September 30, 2014 and 2013, the Company incurred approximately $0.02 million in taxes associated with the TRS. For each of the nine months ended September 30, 2014 and 2013, the Company incurred approximately $0.05 million and $0.06 million in taxes, respectively, associated with the TRS.

NOTE 10COMMON STOCK

On January 13, 2014, the Company issued 8,050,000 shares of common stock in an underwritten public offering at a public offering price of $19.50 per share. Net proceeds of the public offering were approximately $150.7 million after deducting the underwriting discount of $6.3 million, but before deducting offering expenses.

During the year ended December 31, 2013, 359,056 shares of the Company's Class B common stock were converted into 359,056 shares of the Company's common stock, at the request of the then holders of the Class B common stock. During the year ended December 31, 2013, the Company also sold 10,559 shares of common stock which were held as treasury stock at a stock price of $17.91 per share.

Brookfield Asset Management, Inc. and its affiliates (collectively, “Brookfield”) owned approximately 33.6% of the Company's common stock as of September 30, 2014.

25

ROUSE PROPERTIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Dividends

On February 27, 2014, the Company's Board of Directors declared a first quarter common stock dividend of $0.17 per share, which was paid on April 30, 2014 to stockholders of record on April 15, 2014.

On May 1, 2014, the Company's Board of Directors declared a second quarter common stock dividend of $0.17 per share, which was paid on July 31, 2014 to stockholders of record on July 15, 2014.

On July 31, 2014, the Company's Board of Directors declared a third quarter common stock dividend of $0.17 per share, which was paid on October 31, 2014 to stockholders of record on October 15, 2014.

Dividend Reinvestment and Stock Purchase Plan

On May 12, 2014, the Company established a Dividend Reinvestment and Stock Purchase Plan ("DRIP"). Under the DRIP, the Company's stockholders may purchase additional shares of common stock by automatically reinvesting all or a portion of the cash dividends paid on their shares of common stock or by making optional cash payments, or both, at fees described in the DRIP prospectus. The DRIP commenced with the payment of the second quarter dividend which was paid on July 31, 2014 to stockholders of record on July 15, 2014. As a result of the DRIP elections, 2,403 shares were issued under the DRIP during the nine months ended September 30, 2014.

Employee Stock Purchase Plan

On July 1, 2014, the Company commenced enrollment under its Employee Stock Purchase Plan (the "ESPP"). The ESPP was implemented to provide eligible employees of the Company and its participating subsidiaries with an opportunity to purchase common stock of the Company with a discount of 5%, through accumulated payroll deductions or other permitted contributions. The ESPP was adopted by the Company's Board of Directors on February 27, 2014 and approved by its stockholders on May 9, 2014. The first offering period commenced on August 1, 2014 and had a duration of three months, closing on October 31, 2014. The maximum number of shares of common stock that may be issued under the ESPP is 500,000 subject to adjustments under certain circumstances.

NOTE 11STOCK BASED COMPENSATION PLANS

Incentive Stock Plans

On January 12, 2012, the Company adopted the Rouse Properties, Inc. 2012 Equity Incentive Plan (the "Equity Plan").

Stock Options

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

26

ROUSE PROPERTIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following tables summarize stock option activity for the Equity Plan for the nine months ended September 30, 2014 and 2013:

	2014			2013
	Shares		Weighted Average Exercise Price	Shares		Weighted Average Exercise Price
Stock options outstanding at January 1,	2,579,171		$15.14	1,945,643		$14.64
Granted	778,498		18.36	695,900		16.48
Exercised	(1,680	)	16.48	(4,080	)	14.72
Forfeited	(42,120	)	15.34	(51,492	)	14.43
Expired	—		—	—		—
Stock options outstanding at September 30,	3,313,869		$15.90	2,585,971		$15.14

	Stock Options Outstanding (1)
Issuance	Shares	Weighted Average Remaining Contractual Term (in years)	Weighted Average Exercise Price
March 2012	1,500,514	7.50	$14.72
May 2012	21,900	7.67	13.71
August 2012	36,400	7.92	13.75
October 2012	297,257	8.08	14.47
February 2013	679,300	8.42	16.48
February 2014	750,300	9.42	18.40
July 2014	28,198	9.83	17.20
Stock options outstanding at September 30, 2014	3,313,869	8.20	$15.90

Explanatory Note:

⁽¹⁾As of September 30, 2014, 818,837 stock options became fully vested and are currently exercisable. As of September 30, 2014, the intrinsic value of these options was $1.0 million, and such stock options had a weighted average exercise price of $14.97 and a weighted average remaining contractual term of 7.72 years.

The Company recognized $0.5 million and $0.3 million for the three months ended September 30, 2014 and 2013, respectively, and $1.3 million and $1.0 million for the nine months ended September 30, 2014 and 2013, respectively, in compensation expense related to the stock options which is recorded in "General and administrative" on the Company's Consolidated Statements of Operations and Comprehensive Loss.

Restricted Stock

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

27

ROUSE PROPERTIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following table summarizes restricted stock activity for the nine months ended September 30, 2014 and 2013:

	2014			2013
	Shares		Weighted Average Grant Date Fair Value	Shares		Weighted Average Grant Date Fair Value
Non-vested restricted stock grants outstanding at January 1,	278,617		$14.85	263,669		$14.69
Granted	42,489		18.40	36,573		16.48
Forfeited	—		—	(4,160	)	14.72
Canceled	—		—	—		—
Vested	(108,097	)	15.05	(9,950	)	15.77
Non-vested restricted stock grants outstanding at September 30,	213,009		$15.45	286,132		$14.85

The 4,160 shares of restricted stock that were forfeited during the nine months ended September 30, 2013 were held in treasury for future restricted stock or option issuances.

The weighted average remaining contractual term (in years) of granted, non-vested restricted awards as of September 30, 2014 was 0.9 years.

The Company recognized $0.5 million and $0.4 million in compensation expense related to the restricted stock for the three months ended September 30, 2014 and 2013, respectively, and $1.4 million and $1.2 million for the nine months ended September 30, 2014 and 2013, respectively, which is recorded in "General and administrative" on the Company's Consolidated Statements of Operations and Comprehensive Loss.

Other Disclosures

As of September 30, 2014, there was $8.3 million of total unrecognized compensation expense related to all nonvested options and restricted stock grants. Of this total, $1.0 million in 2014, $3.1 million in 2015, $2.4 million in 2016, $1.1 million in 2017, $0.6 million in 2018 and $0.1 million in 2019, will be recognized, respectively, in "General and administrative" on the Company's Consolidated Statements of Operations and Comprehensive Loss.  These amounts may be impacted by future grants, changes in forfeiture estimates or vesting terms, and actual forfeiture rates differing from estimated forfeiture rates.

NOTE 12NON-CONTROLLING INTEREST

The non-controlling interest on the Company's Consolidated Balance Sheets represents Series A Cumulative Non-Voting Preferred Stock ("Preferred Shares") of Rouse Holdings, Inc. ("Holdings"), a subsidiary of Rouse and the interest in the Mall at Barnes Crossing entities.

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.

On August 29, 2014, the Company purchased a 51% interest in three limited liability companies entities which together own and operate the Mall at Barnes Crossing, the Market Center, a strip shopping center located adjacent to the property, and various vacant land parcels associated with the development. The Company determined it holds the controlling interest in the Barnes Crossing entities. As a result, the joint venture is presented on the Company's Consolidated Financial Statements as of September 30, 2014 and for the three and nine months ended September 30, 2014 on a consolidated basis, with the interests of the third parties reflected as a non-controlling interest.

28

ROUSE PROPERTIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

In connection with the acquisition, the Company formed a joint venture with the other interest holders in the properties.  Pursuant to the joint venture arrangements, the Company has the exclusive authority to manage the business of the joint venture, except for certain actions (e.g., disposing of the properties and incurring debt under certain circumstances) that would require the consent of a third-party partner.  At any time after August 29, 2017 (or earlier under certain circumstances), the Company will have the right to purchase its partners’ interests in the joint venture at a purchase price generally equal to their fair market value (the “Call Price”).  In addition, during the 30-day period beginning on August 29, 2017, a third-party partner will have a one-time option to cause us to purchase each third-party partners’ respective interests in the joint venture at a purchase price calculated in the same manner as the Call Price.  Consideration paid to our partners for their interests in the joint venture may, under certain circumstances, be in the form of shares of our common stock and/or common units (“Units”) of our operating partnership, Rouse Properties, LP (the “Operating Partnership”).  If the consideration for the Call Price includes Units, the Company, the Operating Partnership and a third-party partner will enter into a tax protection agreement that will provide for indemnification of such partner under certain circumstances against certain tax liabilities incurred by such partner, if such liabilities result from a transaction involving a taxable disposition of The Mall at Barnes Crossing or the failure to offer to such partner the opportunity to guarantee certain indebtedness.

NOTE 13RELATED PARTY TRANSACTIONS

Transition Services Agreement with GGP

The Company entered into a transition services agreement with GGP whereby GGP or its subsidiaries provided to the Company, on a transitional basis, certain specified services for various terms not exceeding 18 months following the spin-off. The services that GGP provided to the Company included, 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 were intended to allow GGP to fully recover their 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 for each of the transition services were generally based on an hourly fee arrangement and pass-through out-of-pocket costs. As of December 31, 2013, the transition services agreement with GGP was terminated. For the three and nine months ended September 30, 2013, costs associated with the transition services agreement were $0.01 million and $0.1 million, respectively.

Office Lease with Brookfield

Upon its spin-off from GGP, the Company assumed a 10-year lease agreement with Brookfield, as landlord, for office space for its corporate office in New York City. Costs associated with the office lease were $0.3 million for the three months ended September 30, 2014 and 2013 and $0.8 million for the nine months ended September 30, 2014 and 2013. There are no outstanding amounts payable as of September 30, 2014 and December 31, 2013.  In addition, the landlord completed the build out of the Company's office space during 2012 for $1.7 million and there were no outstanding costs payable as of September 30, 2014. The costs associated with the build out of the Company's office space were capitalized in "Buildings and equipment" on the Company's Consolidated Balance Sheets.

During 2012, the Company entered into a five-year lease agreement with Brookfield, as landlord, for office space for its regional office in Dallas, Texas. The lease commenced in October 2012 with no payments due for the first 12 months. During April 2013, the Company amended the lease and expanded its current space. Effective December 30, 2013, the Brookfield subsidiary sold the office building in which the office space is located to a third party.

Subordinated Credit Facility with Brookfield

On the Spin-Off Date, the Company entered into the Subordinated Facility with a wholly-owned subsidiary of Brookfield, as lender, for a $100.0 million revolving credit facility.  The Company paid a one time upfront fee of $0.5 million related to this facility in 2012. In addition, the Company was required to pay a semi-annual revolving credit fee of $0.3 million related to this facility. On November 22, 2013, in conjunction with the Company's entrance into the 2013 Senior Facility, the Subordinated Facility was terminated (see Note 5).

Business Infrastructure Costs

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ROUSE PROPERTIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Upon its spin-off from GGP, the Company commenced the development of its 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 to procure the various applications and infrastructure of the Company. The Company incurred approximately $0.1 million and $0.2 million of infrastructure costs during the three months ended September 30, 2014 and 2013, respectively, and $0.3 million and $2.6 million during the nine months ended September 30, 2014 and 2013, respectively. As of September 30, 2014 and December 31, 2013, the Company had approximately $8.3 million and $8.0 million, respectively, of infrastructure costs which were capitalized in "Buildings and equipment" on the Company's Consolidated Balance Sheets. As of September 30, 2014, no costs were outstanding and payable. As of December 31, 2013, $0.1 million of costs of were outstanding and payable.

Financial Service Center

During 2013, the Company engaged BCO's financial service center to manage certain administrative services of Rouse, such as accounts payable and receivable, employee expenses, lease administration, and other similar types of services. Approximately $0.5 million and $0.3 million in costs were incurred for the three months ended September 30, 2014 and 2013, respectively, and $1.4 million and $0.9 million for the nine months ended September 30, 2014 and 2013, respectively. As of September 30, 2014 and December 31, 2013, there were $0.2 million and no costs outstanding and payable, respectively.

The Company is also required to pay a monthly information technology services fee to BCO. Approximately $0.8 million and $0.6 million in costs were incurred for the three months ended September 30, 2014 and 2013, respectively, and $2.3 million and $1.5 million for the nine months ended September 30, 2014 and 2013, respectively, of which there were $0.8 million and no costs outstanding and payable as of September 30, 2014 and December 31, 2013, respectively.

Demand Deposit from Brookfield U.S. Holdings

In August 2012, the Company entered into an agreement with Brookfield U.S. Holdings ("U.S. Holdings") to place funds into an interest bearing account which earns interest at LIBOR plus 1.05% per annum. The demand deposit is secured by a note from U.S. Holdings and is guaranteed by Brookfield Asset Management Inc. The demand deposit had an original maturity of February 14, 2013 and has now been extended to November 14, 2014. However, the Company may demand the funds earlier by providing U.S. Holdings with three days notice. The Company earned approximately $0.03 million and $0.2 million in interest income for the three months ended September 30, 2014 and 2013, respectively. The Company earned approximately $0.3 million and $0.5 million in interest income for the nine months ended September 30, 2014 and 2013, respectively. As of September 30, 2014 and December 31, 2013, the Company had no outstanding deposit with U.S. Holdings.

NOTE 14SUBSEQUENT EVENTS

On October 16, 2014, the Company placed a new non-recourse mortgage loan on the Bayshore Mall located in Eureka, CA for $46.5 million. The loan bears interest at a fixed rate of 3.96%,, matures in November 2024, and is interest only for the first three years.

On October 30, 2014, the Company's Board of Directors declared a fourth quarter common stock dividend of $0.17 per share which will be paid on January 30, 2015 to stockholders of record on January 15, 2015.

On October 31, 2014, the Company executed a contract to sell Knollwood Mall in St. Louis Park, MN, a 457,000 square foot retail center for $106.7 million. Knollwood Mall is currently under construction to convert the asset from an enclosed mall to a power center. The closing of the transaction is subject to satisfaction of customary 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 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 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 Securities and Exchange Commission (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.  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

As of September 30, 2014, our portfolio consisted of 36 regional malls in 23 states totaling over 25.5 million square feet of retail and ancillary space which were 90.6% leased and 86.7% occupied. Including anchors, our properties were 94.1% leased and 91.0% occupied. We elected to be treated as a REIT beginning with the filing of our federal income tax return for the 2011 taxable year. As of September 30, 2014, we have met the requirements of a REIT and have filed our tax returns for the 2013 fiscal year accordingly. Subject to our ability to meet the requirements of a REIT, we 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. Overage rent is typically earned in the fourth quarter.

Our objective is to achieve growth in NOI, Core NOI, FFO and Core FFO by leasing, operating and repositioning retail properties with locations that are either market dominant (the only mall within an extended distance) or trade area dominant (the premier mall serving the defined regional consumer). We seek to continue to control costs and to deliver an appropriate tenant mix, higher occupancy rates and increased sales productivity, resulting in higher minimum rents.

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

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

• Increasing tenant sales in which we participate through overage rent;

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

• Prudently investing capital into our properties to generate an increased overall return.

Overview—Basis of Presentation

We were formed in August 2011 for the purpose of holding certain assets and assuming certain liabilities of GGP. Following the distribution of these assets and liabilities to us on January 12, 2012, we began operating our business as a stand-alone owner and operator of regional malls. The financial information included in this Quarterly Report has been presented on a consolidated basis for the periods presented.

Recent Developments

On July 1, 2014, we removed Chula Vista Center from the 2013 Senior Facility collateral pool and placed a new $70.0 million non-recourse mortgage loan, secured by the asset. The loan bears interest at a fixed rate of 4.18%, has a term of ten years and is interest only for the first three years. Sikes Senter had an outstanding mortgage loan of $54.6 million with a fixed interest rate of 5.20% which was repaid on July 1, 2014 with proceeds from the Chula Vista Center refinancing. Upon repayment, Sikes Senter was added to the 2013 Senior Facility collateral pool with no change to the outstanding 2013 Senior Facility balance. We received proceeds of approximately $15.0 million before transaction costs which resulted from these refinancings.

In July 2014, we reduced the spread on the non-recourse mortgage loan on NewPark Mall located in Newark, CA, from LIBOR plus 405 basis points to LIBOR plus 325 basis points.

In July 2014, our Board of Directors declared a third quarter common stock dividend of $0.17 per share which was paid on October 31, 2014 to stockholders of record on October 15, 2014.

In August 2014, we acquired a controlling interest of 51.0% in The Mall at Barnes Crossing and Market Center located in Tupelo, MS, reflecting a gross value of $98.9 million and we placed a new $67.0 million non-recourse mortgage loan on the property. The loan bears interest at a fixed rate of 4.29%, has a term of 10 years, and is interest only for the first three years.

In connection with the acquisition, we formed a joint venture with the other interest holders in the properties.  Pursuant to the joint venture arrangements, we have the exclusive authority to manage the business of the joint venture, except for certain actions (e.g., disposing of the properties and incurring debt under certain circumstances) that would require the consent of a third-party partner.  At any time after August 29, 2017 (or earlier under certain circumstances), we will have the right to purchase our partners’ interests in the joint venture at a purchase price generally equal to their fair market value (the “Call Price”).  In addition, during the 30-day period beginning on August 29, 2017, a third-party partner will have a one-time option to cause us to purchase each third-party partners’ respective interests in the joint venture at a purchase price calculated in the same manner as the Call Price.  Consideration paid to our partners for their interests in the joint venture may, under certain circumstances, be in the form of shares of our common stock and/or common units (“Units”) of our operating partnership, Rouse Properties, LP (the “Operating Partnership”).  If the consideration for the Call Price includes Units, we, the Operating Partnership and a third-party partner will enter into a tax protection agreement that will provide for indemnification of such partner under certain circumstances against certain tax liabilities incurred by such partner, if such liabilities result from a transaction involving a taxable disposition of The Mall at Barnes Crossing or the failure to offer to such partner the opportunity to guarantee certain indebtedness.

Results of Operations

As of September 30, 2014, our total portfolio consisted of 36 properties (which excludes Boulevard Mall, which was disposed of during the year ended December 31, 2013). Properties that were in operation and owned as of January 1, 2013, excluding properties that are or will be undergoing construction to convert assets from enclosed malls to open air power centers and three assets that have been reclassified as a special consideration assets⁽¹⁾, are referred to as our Same Property portfolio. As of September 30, 2014, our Same Property portfolio consisted of 26 properties. The following table identifies which of our properties were excluded from our Same Property portfolio:

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Property	Location
Acquisitions:
The Mall at Barnes Crossing	Tupelo, MS
Greenville Mall	Greenville, NC
Chesterfield Towne Center	Richmond, VA
The Centre at Salisbury	Salisbury, MD
Bel Air Mall	Mobile,AL
Redevelopments:
Knollwood Mall	St. Louis Park, MN
Gateway Mall	Springfield, OR
Special Consideration Assets:(1)
Steeplegate Mall	Concord, NH
Collin Creek Mall	Plano, TX
Vista Ridge Mall	Lewisville, TX
Disposition:
Boulevard Mall	Las Vegas, NV

Explanatory Note:

⁽¹⁾ An asset is designated as special consideration asset when a property has a heightened probability of being conveyed to its lender absent substantive renegotiation.

Three Months Ended September 30, 2014 compared to the Three Months Ended September 30, 2013

		September 30, 2014			September 30, 2013			$ Change			% Change
	(In thousands)
Revenues:
Minimum rents		$	51,817		$	40,733		$	11,084		27.2	%
Tenant recoveries		20,518			17,918			2,600			14.5
Overage rents		726			188			538			>100.0
Other		1,722			1,476			246			16.7
Total revenues		74,783			60,315			14,468			24.0
Expenses:
Property operating costs		18,639			16,015			2,624			16.4
Real estate taxes		7,287			6,517			770			11.8
Property maintenance costs		2,394			2,158			236			10.9
Marketing		572			720			(148		)	(20.6	)
Provision for (recovery of) doubtful accounts		271			(136		)	407			>100.0
General and administrative		6,132			5,575			557			10.0
Provision for impairment		10,665			—			10,665			100.0
Depreciation and amortization		27,130			15,748			11,382			72.3
Other		1,371			585			786			>100.0
Total expenses		74,461			47,182			27,279			57.8
Operating income		322			13,133			(12,811		)	(97.5	)
Interest income		34			166			(132		)	(79.5	)
Interest expense		(26,592		)	(18,002		)	(8,590		)	(47.7	)
Loss before income taxes and discontinued operations		(26,236		)	(4,703		)	(21,533		)	>100.0
Provision for income taxes		(136		)	20			(156		)	>100.0
Loss from continuing operations		(26,372		)	(4,683		)	(21,689		)	>100.0
Net loss		$	(26,372	)	$	(4,683	)	$	(21,689	)	>100.0

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Revenues

Total revenues increased $14.5 million for the three months ended September 30, 2014 compared to the three months ended September 30, 2013. The increase in revenues was primarily due to an increase in minimum rents due to the acquisitions of Chesterfield Towne Center, The Centre at Salisbury, Bel Air Mall and The Mall at Barnes Crossing which were acquired subsequent to September 30, 2013.

Operating Expenses

Property operating expenses increased $3.9 million for the three months ended September 30, 2014 compared to the three months ended September 30, 2013. Property operating expenses include property operating costs, real estate taxes, property maintenance costs, marketing, and provision for doubtful accounts. As a result of the property acquisitions of Greenville Mall, Chesterfield Towne Center, The Centre at Salisbury, Bel Air Mall and The Mall at Barnes Crossing our property operating expenses increased $4.1 million for the three months ended September 30, 2014 compared to the three months ended September 30, 2013. Our Special Consideration Assets had a reduction to expense of $0.6 million. The Same Property portfolio increased our operating expenses by approximately $0.4 million for the three months ended September 30, 2014 compared to the three months ended September 30, 2013.

General and administrative expenses increased by $0.6 million for the three months ended September 30, 2014 compared to the three months ended September 30, 2013. The increase was primarily attributable to additional costs incurred for our information technology platform. Employee costs increased as well, due to the ramp up of staffing that occurred throughout 2013.

Provision for impairment increased $10.7 million as we impaired the Steeplegate Mall and Collin Creek Mall during the three months ended September 30, 2014. As of September 30, 2014, we assessed whether the carrying amount of the properties could be recovered through the estimated future undiscounted cash flows. As our intended holding period changed during the three months ended September 30, 2014, the undiscounted cash flows were now less than the carrying amount of the assets. As a result, we recorded an impairment charge for the excess carrying amount over the estimated fair value of the properties. During the three months ended September 30, 2013, no provision for impairment was recorded.

Depreciation and amortization expenses increased $11.4 million for the three months ended September 30, 2014 compared to the three months ended September 30, 2013. The increase was primarily attributable to the properties we acquired throughout 2014 and 2013.

Other Income and Expenses

Interest expense increased $8.6 million for the three months ended September 30, 2014 compared to the three months ended September 30, 2013. The increase was primarily related to the write-off of the market rate assumption of $6.3 million related to the Sikes Senter loan payoff. The remainder of the increase in interest expense is related to the loans we assumed on the properties acquired subsequent to September 30, 2013.

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Nine Months Ended September 30, 2014 compared to the Nine Months Ended September 30, 2013

		September 30, 2014			September 30, 2013			$ Change			% Change
	(In thousands)
Revenues:
Minimum rents		$	144,608		$	119,296		$	25,312		21.2	%
Tenant recoveries		58,430			50,254			8,176			16.3
Overage rents		2,664			2,479			185			7.5
Other		4,711			4,161			550			13.2
Total revenues		210,413			176,190			34,223			19.4
Expenses:
Property operating costs		52,535			43,831			8,704			19.9
Real estate taxes		19,553			18,300			1,253			6.8
Property maintenance costs		8,170			8,361			(191		)	(2.3	)
Marketing		1,653			2,032			(379		)	(18.7	)
Provision for (recovery of) doubtful accounts		659			364			295			81.0
General and administrative		18,613			15,675			2,938			18.7
Provision for impairment		10,665			—			10,665			100.0
Depreciation and amortization		71,593			47,418			24,175			51.0
Other		2,631			2,052			579			28.2
Total expenses		186,072			138,033			48,039			34.8
Operating income		24,341			38,157			(13,816		)	(36.2	)
Interest income		310			492			(182		)	(37.0	)
Interest expense		(63,239		)	(59,305		)	(3,934		)	(6.6	)
Loss before income taxes and discontinued operations		(38,588		)	(20,656		)	(17,932		)	(86.8	)
Provision for income taxes		(383		)	(235		)	(148		)	(63.0	)
Loss from continuing operations		(38,971		)	(20,891		)	(18,080		)	(86.5	)
Loss from discontinued operations		—			(23,158		)	23,158			100.0
Gain on extinguishment of debt		—			13,995			(13,995		)	(100.0	)
Discontinued operations, net		—			(9,163		)	9,163			100.0
Net loss		$	(38,971	)	$	(30,054	)	$	(8,917	)	(29.7	)

Revenues

Total revenues increased $34.2 million for the nine months ended September 30, 2014 compared to the nine months ended September 30, 2013. The increase in revenues was primarily due to an increase in Minimum rents due to the property acquisitions of Chesterfield Towne Center, The Centre at Salisbury, Bel Air Mall and The Mall at Barnes Crossing, which were acquired subsequent to September 30, 2013.

Operating Expenses

Property operating expenses increased $9.7 million for the nine months ended September 30, 2014 compared to the nine months ended September 30, 2013. Property operating expenses include property operating costs, real estate taxes, property maintenance costs, marketing, and provision for doubtful accounts. An increase of $10.2 million for the nine months ended September 30, 2014 compared to the nine months ended September 30, 2013 was due to the property acquisitions of Greenville Mall, Chesterfield Towne Center, The Centre at Salisbury, Bel Air Mall and The Mall at Barnes Crossing. Our Special Consideration Assets had an expense reduction of $0.9 million for the nine months ended September 30, 2014 compared to September 30, 2013. The Same Property portfolio had an increase in property operating expenses of $0.5 million for the nine months ended September 30, 2014 compared to the nine months ended September 30, 2013.

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General and administrative expenses increased by $2.9 million for the nine months ended September 30, 2014 compared to the nine months ended September 30, 2013, which was primarily attributable to an increase in costs related to our information technology platform year over year, as well as an increase in employee costs due to the ramp up of staffing that occurred throughout 2013.

Provision for impairment resulted in a charge of $10.7 million as we impaired the Steeplegate Mall and Collin Creek Mall during the nine months ended September 30, 2014. As of September 30, 2014, we assessed whether the carrying amount of the properties could be recovered through the estimated future undiscounted cash flows. As our intended holding period changed during the nine months ended September 30, 2014, the undiscounted cash flows were now less than the carrying amount of the assets. As a result, we recorded an impairment charge for the excess carrying amount over the estimated fair value of the properties.

Depreciation and amortization expenses increased $24.2 million for the nine months ended September 30, 2014 compared to the nine months ended September 30, 2013. The increase was primarily attributable to the properties acquired during 2014 and 2013.

Other Income and Expenses

Interest expense increased $3.9 million for the nine months ended September 30, 2014 compared to the nine months ended September 30, 2013. The increase was primarily related to the write-off of $5.7 million of market rate assumptions related to the loan payoffs on Sikes Senter and Bayshore Mall during the nine months ended September 30, 2014. The remainder of the increase in interest expense was related to the loans we assumed on the properties we acquired subsequent to September 2013. This was offset by the refinancings of Lakeland Mall, Valley Hills Mall and NewPark Mall in which $2.9 million of extinguishment costs, write-off of deferred financing fees, and defeasance costs were incurred during the nine months ended September 30, 2013.

Loss from discontinued operations for the nine months ended September 30, 2013, included the historical operations of Boulevard Mall, as we conveyed our interest in the property to the lender during 2013. This resulted in a net loss on discontinued operations of $9.2 million for the nine months ended September 30, 2013. No assets were disposed of during the nine months ended September 30, 2014.

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Operating Metrics

Leasing Volume

The following table represents the leases signed during the three months ended September 30, 2014:

2014 Leasing Activity(1)(2)	Number of Leases	Square Feet	Term (in years)	Initial Inline Rent PSF (4)(5)		Initial Freestanding Rent PSF (4)(6)		Average Inline Rent PSF (5)(7)		Average Freestanding Rent PSF (6)(7)
New Leases
Under 10,000 sq. ft.	36	88,797	8.0	$38.60		$51.49		$42.43		$54.94
Over 10,000 sq. ft.	10	189,501	8.3	11.59		—		13.19		—
Total New Leases	46	278,298	8.2	19.74		51.49		22.02		54.94
Renewal Leases
Under 10,000 sq. ft.	50	189,206	3.1	$29.02		$17.23		$29.39		$17.67
Over 10,000 sq. ft.	3	48,739	4.2	9.43		9.80		9.63		9.80
Total Renewal Leases	53	237,945	3.3	25.63		14.60		25.98		14.89
Sub-Total	99	516,243	5.9	$	22.21	$	19.78	$	23.68	$	20.51
Percent in Lieu	16	71,639	n.a.	n.a.		n.a		n.a.		n.a
Total Q3 2014 (3)	115	587,882	5.9	$22.21		$19.78		$23.68		$20.51
Total Q2 2014	128	565,373
Total Q1 2014	109	529,122
Total YTD 2014	352	1,682,377

Explanatory Notes:

⁽¹⁾ Excludes anchors and specialty leasing. An anchor is defined as a department store or discount department store in traditional spaces whose merchandise appeals to a broad range of shoppers or spaces which are greater than 70,000 square feet.

⁽²⁾ Represents signed leases as of September 30, 2014.

⁽³⁾ The total leasing commissions were approximately $3.6 million for the three months ended September 30, 2014. There were no material tenant concessions with respect to the leases signed during the three months ended September 30, 2014.

⁽⁴⁾ Represents initial rent at time of rent commencement consisting of base minimum rent, common area costs, and real estate taxes.

⁽⁵⁾ Inline spaces are all mall shop locations excluding anchor and freestanding stores.

⁽⁶⁾ Freestanding spaces are outparcel retail locations (locations that are not attached to the primary complex of buildings that comprise a shopping center). Excludes anchor stores.

⁽⁷⁾ Represents average rent over the lease term consisting of base minimum rent, common area costs, and real estate taxes.

The following table represents our weighted average in-place rent for freestanding and mall space that is less than 10,000 square feet for the three months ended September 30, 2014 for our Same Property portfolio:

	In-Place Rent < 10k SF (1)
	September 30, 2014
Freestanding (2)	$19.12
Mall (3)	$39.46
Total Same Property portfolio	$37.22

Explanatory Notes:

⁽¹⁾ Rent is presented on a cash basis and consists of base minimum rent, common area maintenance costs, and real estate taxes.

⁽²⁾ Freestanding spaces are outparcel retail locations (locations that are not attached to the primary complex of buildings that comprise a shopping center). Excludes anchor stores.

⁽³⁾ Mall shop locations excluding anchor and freestanding stores.

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New and Renewal Lease Spread

The following table represents leasing and rent spread information for renewals and new leases that we signed during the three months ended September 30, 2014, as compared to the rents of the expiring leases on the same space:

New and Renewal Lease Spread (1)
	Number of Leases	Square Feet	Term (in years)	Initial Rent PSF (2)	Average Rent PSF (3)	Expiring Rent PSF (4)	Initial Rent Spread		Average Rent Spread
Three Months Ended September 30, 2014	57	227,415	4.0	$26.50	$27.13	$24.27	$2.23	9.2%	$2.86	11.8%
Total YTD 2014	210	830,653	4.2	$25.51	$26.36	$23.72	$1.79	7.5%	$2.64	11.1%

Explanatory Notes:

⁽¹⁾ Excludes anchors, percent in lieu, and specialty leasing.

⁽²⁾ Represents initial rent per square foot at time of rent commencement, with rent consisting of base minimum rent, common area costs, and real estate taxes.

⁽³⁾ Represents average rent per square foot over the lease term, with rent consisting of base minimum rent, common area costs, and real estate taxes.

⁽⁴⁾Represents expiring rent per square foot at end of lease, with rent consisting of base minimum rent, common area costs, and real estate taxes.

Same Property Trends

• Percentage leased increased to 90.6% as of September 30, 2014 from 90.5% as of September 30, 2013 in our Same Property portfolio. This increase is the result of signing leases representing aggregate space amounts greater than scheduled lease and space expirations since September 30, 2013.

• Average in-place rents for mall spaces that are less than 10,000 square feet increased to $39.46 as of September 30, 2014 from $38.72 as of September 30, 2013 in our Same Property portfolio. The increase is attributable to higher rents on new and renewal leases as compared to the existing rents of the Same Property portfolio

Liquidity and Capital Resources

Our primary uses of cash include payment of operating expenses, working capital, capital expenditures, debt repayments, including principal and interest, reinvestment in properties, development and redevelopment of properties, acquisitions, tenant allowances, and dividends.

Our primary sources of cash are operating cash flow, refinancings of existing loans, equity offerings, and borrowings under our 2013 Revolver.

Our short-term (less than one year) liquidity requirements include scheduled debt maturities, recurring operating costs, capital expenditures, debt service requirements, and dividend requirements on our shares of common stock. We anticipate that these needs will be met with cash flows provided by operations and funds available under our 2013 Revolver.

Our long-term (greater than one year) liquidity requirements include scheduled debt maturities, capital expenditures to maintain, renovate and expand existing malls, property acquisitions, and development projects. Management anticipates that net cash provided by operating activities, asset sales, the funds available under our 2013 Revolver, and funds received from subsequent equity offerings will provide sufficient capital resources to meet our long-term liquidity requirements.

As of September 30, 2014, our combined contractual debt, excluding non-cash debt market rate adjustments, was approximately $1.59 billion. The aggregate principal and interest payments due on our outstanding indebtedness as of September 30, 2014 are approximately $67.9 million for the year ending December 31, 2014, which includes $46.8 million related to the Steeplegate mortgage which is expected to be satisfied by a deed in lieu of foreclosure and approximately $233.0 million for the year ending December 31, 2015.

Property-Level Debt

We had individual Property-Level Debt on 20 of our 36 assets, representing $1.3 billion (excluding $0.7 million of market rate adjustments) as of September 30, 2014. As of September 30, 2014, the Property-Level Debt had a weighted average interest rate of 5.0% and an average remaining term of 4.5 years. The Property-Level Debt is generally non-recourse to us and is stand-alone (i.e, not cross-collateralized) first mortgage debt with the exception of customary contingent guarantees/indemnities.

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In January 2014, we retired the $27.6 million mortgage debt balance on Bayshore Mall which had a fixed interest rate of 7.13%.

In April 2014, the loan associated with the Steeplegate Mall was transferred to special servicing. The loan matured on August 1, 2014 and was not repaid. As such, the loan is in default. Upon default, a receiver was appointed and we along with the special servicer and the receiver are working on an orderly transfer of the deed to the Steeplegate Mall mortgage lender or successor lender should the loan be sold in the coming months. The asset is expected to be conveyed to its lender during the first half of 2015.

In July 2014, we retired the $54.6 million mortgage debt balance on Sikes Senter. See the table below for further discussion.

The following is a summary of significant property loan refinancings and acquisitions that have occurred as of September 30, 2014 and as of December 31, 2013 ($ in thousands):

Property	Date	Balance at Date of Refinancing		Interest Rate		Balance of New Loan		New Interest Rate		Net Proceeds (1)		Maturity
September 30, 2014:
The Mall at Barnes Crossing (2)	August 2014	$	—	—	%	$	67,000	4.29	%	$	—	September 2024
Chula Vista Center (3)	July 2014	—		—	%	70,000		4.18	%	15,000		July 2024
Sikes Senter (3)	July 2014	54,618		5.20	%	—		—	%	—		—
Bel Air Mall	May 2014	—		—	%	111,819		5.30	%	—		December 2015
December 31, 2013:
Lakeland Mall (4)	March 2013	$	50,300	5.12	%	$	70,000	4.17	%	$	13,400	March 2023
NewPark Mall (5)	May 2013	62,900		7.45	%	66,500		LIBOR + 4.05%		1,100		May 2017
Valley Hills Mall	June 2013	51,400		4.73	%	68,000		4.47	%	15,000		July 2023
Greenville Mall	July 2013	—		—	%	41,700		5.29	%	—		December 2015
West Valley Mall (6)	September 2013	47,100		3.43	%	59,000		LIBOR + 1.75%		11,400		September 2018
Chesterfield Towne Center	December 2013	—		—	%	109,737		4.75	%	—		October 2022
The Centre at Salisbury (7)	December 2013	—		—	%	115,000		5.79	%	—		May 2016

Explanatory Notes:

⁽¹⁾ Net proceeds are net of closing costs.

⁽²⁾ The loan is interest-only for the first three years.

⁽³⁾ On July 1, 2014, we removed Chula Vista Center, located in Chula Vista, CA from the 2013 Senior Facility collateral pool and placed a new non-recourse mortgage loan on the property. Sikes Senter, located in Wichita Falls, TX had an outstanding mortgage loan which was repaid on July 1, 2014 from proceeds from the Chula Vista Center refinancing. Upon repayment Sikes Senter was added to the 2013 Senior Facility collateral pool with no change to the outstanding 2013 Senior Facility balance.

⁽⁴⁾ On March 6, 2013, the loan associated with the Lakeland Mall was refinanced for $65.0 million. Subsequently, on March 21, 2013, the loan was increased by $5.0 million to $70.0 million in order to partially fund the acquisition of an anchor building previously owned by a third party.

⁽⁵⁾ The loan provides for an additional subsequent funding of $5.0 million upon achieving certain conditions for a total funding of $71.5 million. During July 2014,

we reduced the spread the spread from LIBOR (30 day) plus 405 basis points to LIBOR (30 day) plus 325 basis points.

⁽⁶⁾ The loan is interest-only for the first three years and amortizes on a 30 year schedule thereafter. The loan has a five year extension option subject to the fulfillment of certain conditions. During January 2014, we entered into a swap transaction and the loan now has a fixed interest rate of 3.24%.

⁽⁷⁾ The loan is interest-only. In conjunction with the acquisition of The Centre at Salisbury, we guaranteed a maximum amount of $3.5 million until certain financial covenants are met for two consecutive years.

Corporate Facilities

2013 Senior Facility

On November 22, 2013, we entered into the 2013 Senior Facility which provides borrowings on the 2013 Revolver of up to $250.0 million and $260.0 million on the 2013 Term Loan. Borrowings on the 2013 Senior Facility bear interest at LIBOR + 185 to 300 basis points based on our corporate leverage. Proceeds from the 2013 Senior Facility were used to retire our 2012 Senior Facility, including the 2012 Revolver and the 2012 Term Loan, and the $70.9 million non-recourse mortgage loan on the Southland Mall in California prior to its maturity date in January 2014. During the nine months ended September 30, 2014, we exercised a portion of our "accordion" feature on our 2013 Senior Facility to increase the available borrowings of our 2013 Revolver thereunder from $250.0 million to $285.0 million. The term and rates of our 2013 Senior Facility were otherwise unchanged.

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The 2013 Revolver has an initial term of four years with a one year extension option and the 2013 Term Loan has a term of five years. As of September 30, 2014, $20.0 million was drawn on the 2013 Revolver. We are required to pay an unused fee related to the 2013 Revolver equal to 0.20% per year if the aggregate unused amount is greater than or equal to 50% of the 2013 Revolver or 0.30% per year if the aggregate unused amount is less than 50% of the 2013 Revolver. The default interest rate following a payment event of default under the 2013 Senior Facility is 3.00% more than the then-applicable interest rate. During the three and nine months ended September 30, 2014, we incurred $0.2 million and $0.6 million, respectively, of unused fees related to the 2013 Revolver.

The 2013 Senior Facility contains representations and warranties, affirmative and negative covenants and default provisions that are customary for such a real estate loan. In addition, the 2013 Senior Facility requires compliance with certain financial covenants, including borrowing base loan to value and debt yield, corporate maximum leverage ratio, minimum ratio of adjusted consolidated earnings before interest, tax, depreciation and amortization to fixed charges, minimum tangible net worth, minimum mortgaged property requirement, maximum unhedged variable rate debt and maximum recourse indebtedness. Failure to comply with the covenants in the 2013 Senior Facility would result in a default thereunder and, absent a waiver or an amendment from our lenders, permit the acceleration of all outstanding borrowings under the 2013 Senior Facility. No assurance can be given that we would be successful in obtaining such waiver or amendment in this current financial climate, or that any accommodations that we were able to negotiate would be on terms as favorable as those in the 2013 Senior Facility. In addition, any such default may result in the cross-default of our other indebtedness. As of September 30, 2014, we were in compliance with all of the debt covenants related to the 2013 Senior Facility.

As of September 30, 2014, $2.1 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 4.7% and 4.6% as of September 30, 2014 and December 31, 2013, respectively. As of September 30, 2014, the average remaining term was 4.4 years.

As of September 30, 2014, we issued letters of credit totaling $5.2 million in connection with five of its properties. During the three and nine months ended September 30, 2014, we incurred $0.03 million and $0.09 million, respectively, of letter of credit fees. As of December, 31 2013, no letters of credit were issued.

2012 Senior Facility and Subordinated Facility

On January 12, 2012, we entered into a senior credit facility that provided borrowings on a revolving basis of up to $50.0 million (the "2012 Revolver") and a senior secured term loan (the "2012 Term Loan" and together with the 2012 Revolver, the "2012 Senior Facility"). The interest rate during the year ended 2012 was renegotiated from LIBOR plus 5.0% (with a LIBOR floor of 1.0%) to LIBOR plus 4.5% (with no LIBOR floor). In conjunction with our entrance into the 2013 Senior Facility, the 2012 Senior Facility was terminated.

We were required to pay an unused fee related to the 2012 Revolver equal to 0.30% per year if the aggregate unused amount was greater than or equal to 50% of the 2012 Revolver or 0.25% per year if the aggregate unused amount was less than 50% of the 2012 Revolver. During the three and nine months ended September 30, 2013, we incurred $0.1 million and $0.3 million, respectively, of unused fees related to the 2012 Revolver.

During 2012, we also entered into a subordinated unsecured revolving credit facility (the "Subordinated Facility") with a wholly-owned subsidiary of Brookfield Asset Management, Inc., a related party, which bore 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 was 2.00% more than the then-applicable interest rate. Interest was payable monthly. In addition, we were required to pay a semiannual revolving credit fee of $0.3 million. On November 22, 2013, in conjunction with our entrance into the 2013 Senior Facility, the Subordinated Facility was terminated.

Hedging Instruments

Our objectives in using interest rate derivatives are to add stability to interest expense and to manage our exposure to interest rate movements. To accomplish these objectives, we primarily use interest rate swaps and caps as part of our interest rate risk management strategy. Interest rate swaps designated as cash flow hedges involve the receipt of variable-rate amounts from the counterparty in exchange for us making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount. Interest rate caps designated as cash flow hedges involve the receipt of variable-rate amounts from a counterparty if interest rates rise above the strike rate on the contract in exchange for an up-front premium.

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The table below presents the fair value of our derivative financial instruments as well as their classification on our Consolidated Balance Sheets as of September 30, 2014 and December 31, 2013:

Instrument Type	Location in consolidated balance sheets	Notional Amount		Designated Benchmark Interest Rate	Strike Rate		Fair Value at September 30, 2014			Fair Value at December 31, 2013		Maturity Date
Derivative not designated as hedging instruments		(dollars in thousands)
Interest Rate Cap	Prepaid expenses and other assets, net	$	65,512	One-month LIBOR	4.5	%	$	4		$	45	May 2016
Derivative designated as hedging instruments
Pay fixed / receive variable rate swap	Accounts payable and accrued expenses, net	59,000		One-month LIBOR	1.5	%	(230		)	—		June 2018

Capital Expenditures

Redevelopment

We continue to evaluate and execute the redevelopment of various malls within our portfolio in order to generate increased returns. A component of our business strategy is to identify value creation initiatives for our properties and to then invest capital to reposition and refresh our properties. These redevelopment opportunities are typically commenced in conjunction with leasing activity for the respective space. We anticipate funding our redevelopment projects with the net cash provided by operating activities and corporate and property level borrowings.

The table below describes our current redevelopment projects, which commenced during 2013 and 2014 (dollars in thousands):

Property	Description	Total Project Square Feet	Total Estimated Project Cost	Cost as of September 30, 2014
Three Rivers Mall Kelso, WA	Convert anchors and unproductive space to Regal Cinemas, Sportsman's Warehouse and high volume restaurants.	103,000	$20,100	$12,205
Knollwood Mall St. Lous Park, MN	De-mall and construct new exterior facing junior boxes including Nordstrom Rack, small shops, and a new outparcel building.	118,000	$32,200	$11,255
Newpark Mall Newark, CA	140,000 SF of new entertainment, including AMC Theater and a two level restaurant pavilion with patio seating.	175,000	$52,500(1)	$9,697
Gateway Mall Springfield, OR	De-mall and construct new exterior facing junior boxes including Marshall's, Hobby Lobby, Petco and new outparcels	288,000	$43,300	$5,775

Explanatory Note:

⁽¹⁾ After deducting the estimated benefit of the NPV of municipal incentives.

Operating Property Capital Expenditures

The table below describes our current operating property capital expenditures for the three and nine months ended September 30, 2014:

	Three Months Ended		Nine Months Ended
(In thousands)	September 30, 2014
Ordinary capital expenditures (1)	$	2,355	$	3,781
Cosmetic capital expenditures	1,997		6,284
Tenant improvements and allowances (2)	9,285		17,171
Total	$	13,637	$	27,236

Explanatory Notes:

⁽¹⁾ Includes non-tenant recurring and non-recurring capital expenditures.

⁽²⁾ Includes tenant improvements and allowances on current operating properties, excluding anchors and strategic projects.

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Summary of Cash Flows

Nine Months Ended September 30, 2014 compared to the Nine Months Ended September 30, 2013

Cash Flows from Operating Activities

Net cash provided by operating activities was $63.0 million for the nine months ended September 30, 2014 compared to $46.6 million for the nine months ended September 30, 2013. The increase in cash provided by operating activities was primarily due to the property acquisitions of Greenville Mall, Chesterfield Towne Center, The Centre at Salisbury, Bel Air Mall and the Mall at Barnes Crossing joint venture, acquired subsequent to September 30, 2013.

Cash Flows from Investing Activities

Net cash (used in) provided by investing activities was $(189.5) million for the nine months ended September 30, 2014, compared to $45.6 million for the nine months ended September 30, 2013. During the nine months ended September 30, 2014, cash was used for the acquisitions of Bel Air Mall and the joint venture interest in the Mall at Barnes Crossing. During the nine months ended September 30, 2013, we reduced our demand deposit with Holdings by $107.5 million in order to pay down $100.0 million on our 2012 Term Loan.

Cash Flows from Financing Activities

Net cash provided by (used in) financing activities was $133.6 million for the nine months ended September 30, 2014, compared to $(94.4) million for the nine months ended September 30, 2013.

The increase of $228.0 million in net cash provided by financing activities was primarily due to $150.7 million in net proceeds received from our common stock offering during the nine months ended September 30, 2014. Additionally, during the nine months ended September 30, 2014, we received $137.0 million in proceeds from refinancings / issuances of mortgages, notes and loans payable as a result of new loans placed on Chula Vista Center and the Mall at Barnes Crossing. Principal payments were $97.3 million for the nine months ended September 30, 2014 compared to $330.4 million for the nine months ended September 30, 2013. The reduction in principal payments is primarily due to the $100.0 million paydown on our 2012 Term Loan and repayment of outstanding loans of $211.7 million related to the refinancing of the Lakeland Mall, NewPark Mall, Valley Hills Mall and West Valley Mall during the nine months ended September 30, 2013. The $97.3 million in principal payments for the nine months ended September 30, 2014, included the $54.6 million retirement of the Sikes Senter debt.

During the nine months ended September 30, 2013, we received $256.5 million in proceeds from refinancings / issuances of mortgages, notes, and loans payable as a result of our refinancing of the Lakeland Mall, NewPark Mall, Valley Hills Mall and West Valley Mall.

During the nine months ended September 30, 2014, we also repaid our outstanding balance of $73.0 million on our 2013 Revolver, of which $45.0 million was drawn during 2014.

Contractual Cash Obligations and Commitments

The following table aggregates our contractual cash obligations and commitments as of September 30, 2014:

	2014		2015		2016		2017		2018		Thereafter		Total
	(in thousands)
Long-term debt-principal(1)(2)	$	51,641	$	168,564	$	334,377	$	183,015	$	328,088	$	522,630	$	1,588,315
Interest payments(3)	16,249		64,482		44,245		30,646		26,550		73,726		255,898
Operating lease obligations	331		1,324		1,340		1,409		1,421		3,587		9,412
Total	$	68,221	$	234,370	$	379,962	$	215,070	$	356,059	$	599,943	$	1,853,625

Explanatory Notes:

⁽¹⁾ Excludes $0.7 million of non-cash debt market rate adjustments.

⁽²⁾ Includes $46.8 million related to the Steeplegate mortgage that will be satisfied by deed in lieu of foreclosure for the year ending 2014.

⁽³⁾ Based on rates as of September 30, 2014. Variable rates are based on LIBOR rate of 0.16%.

We lease land or buildings at certain properties from third parties. The leases generally provide us with a right of first refusal in the event of a proposed sale of the property by the landlord. Rental payments are expensed as incurred and have, to the extent applicable, been straight-lined over the term of the lease.

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Off-Balance Sheet Financing Arrangements

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

REIT Requirements

In order to maintain our qualification 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. We have no present intention to pay any dividends on our common stock in the future other than in order to maintain our REIT status. Our Board of Directors may decide to pay dividends in the form of cash, common stock or a combination of cash and common stock.

Seasonality

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

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions. These estimates and assumptions affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. For example, estimates and assumptions have been made with respect to fair values of assets and liabilities for purposes of applying the acquisition method of accounting, the useful lives of assets, capitalization of development and leasing costs, 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, fair value of debt, valuation of stock options granted and hedging instruments. Actual results could differ from these and other estimates.

Critical Accounting Policies

Critical accounting policies are those that are both significant to the overall presentation of our financial condition and results of operations and require management to make difficult, complex or subjective judgments. Our critical accounting policies are discussed in our Annual Report and have not changed as of September 30, 2014.

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Non-GAAP Financial Measures

Real Estate Property 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 expenses, and provision for doubtful accounts). We define Core NOI as NOI excluding straight-line rent, amortization of tenant inducements, amortization of above and below-market tenant leases, and amortization of above and below-market ground rent expense. 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, impairment, reorganization items, strategic initiatives, provision for income taxes, gain on extinguishment of debt, straight-line rent, above and below-market tenant leases, and above and below-market ground 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 income (loss) or net income (loss). 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.

In addition, management believes that NOI and Core NOI provide useful information to the investment community about our operating performance. However, due to the exclusions noted above, NOI and Core NOI should only be used as supplemental measures of our financial performance and not as an alternative to GAAP operating income (loss) or net income (loss). For reference, and as an aid in understanding management's computation of NOI and Core NOI, a reconciliation from the consolidated net loss as computed in accordance with GAAP to NOI and Core NOI (including Same Property portfolio Core NOI and Same Property portfolio CORE NOI, as adjusted) is presented below:

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	For the three months ended September 30,
	2014											2013
	Consolidated			Discontinued Operations		Non- Controlling Interest			Total			Consolidated			Discontinued Operations		Non- Controlling Interest		Total
	(In thousands)
Net loss	$	(26,372	)	$	—	$	(194	)	$	(26,566	)	$	(4,683	)	$	—	$	—	$	(4,683	)
Gain on extinguishment of debt	—			—		—			—			—			—		—		—
Loss from discontinued operations	—			—		—			—			—			—		—		—
Provision for income taxes	136			—		—			136			(20		)	—		—		(20		)
Interest expense	26,592			—		(78		)	26,514			18,002			—		—		18,002
Interest income	(34		)	—		—			(34		)	(166		)	—		—		(166		)
Other	1,371			—		—			1,371			585			—		—		585
Provision for impairment	10,665			—		—			10,665			—			—		—		—
Depreciation and amortization	27,130			—		(98		)	27,032			15,748			—		—		15,748
General and administrative	6,132			—		—			6,132			5,575			—		—		5,575
Rouse Properties NOI	$	45,620		$	—	$	(370	)	$	45,250		$	35,041		$	—	$	—	$	35,041
Above and below market ground rent expense, net	39			—		—			39			32			—		—		32
Above and below market tenant leases, net	2,433			—		—			2,433			3,740			—		—		3,740
Amortization of tenant inducements	11			—		—			11			250			—		—		250
Amortization of straight line rent	(97		)	—		—			(97		)	(684		)	—		—		(684		)
Rouse Properties Core NOI	$	48,006		$	—	$	(370	)	$	47,636		$	38,379		$	—	$	—	$	38,379
Non same property assets (1)	(15,004		)	—		—			(15,004		)	(7,425		)	—		—		(7,425		)
Termination income	(901		)	—		—			(901		)	(30		)	—		—		(30		)
Same Property Core NOI	$	32,101		$	—	$	(370	)	$	31,731		$	30,924		$	—	$	—	$	30,924
Adjust for legacy litigation expenses and (recoveries)	67			—		—			67			(62		)	—		—		(62		)
Same property core net operating income, as adjusted	$	32,168		$	—	$	(370	)	$	31,798		$	30,862		$	—	$	—	$	30,862

⁽¹⁾ Represents the acquisitions of Greenville Mall, Chesterfield Towne Center, The Centre at Salisbury, Bel Air Mall and The Mall at Barnes Crossing which were acquired in July 2013, December 2013, December 2013, May 2014, and August 2014, respectively, and the disposition of Boulevard Mall in June 2013. Same Property portfolio also excludes Knollwood Mall and Gateway Mall which are or will be under construction to convert the assets from enclosed malls to open air power centers. The Steeplegate Mall was designated as a special consideration asset as of March 31, 2014 and during the three months ended September 30, 2014, the Company added Collin Creek Mall and Vista Ridge Mall as special consideration assets which are also excluded from our Same Property portfolio. An asset is designated as special consideration when a property has a heightened probability of being conveyed to its lender absent substantive renegotiation.

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	For the nine months ended September 30,
	2014											2013
	Consolidated			Discontinued Operations		Non- Controlling Interest			Total			Consolidated			Discontinued Operations			Non- Controlling Interest		Total
	(In thousands)
Net loss	$	(38,971	)	$	—	$	(194	)	$	(39,165	)	$	(30,054	)	$	—		$	—	$	(30,054	)
Gain on extinguishment of debt	—			—		—			—			(13,995		)	—			—		(13,995		)
Loss from discontinued operations	—			—		—			—			23,158			(23,158		)	—		—
Provision for income taxes	383			—		—			383			235			—			—		235
Interest expense	63,239			—		(78		)	63,161			59,305			3,227			—		62,532
Interest income	(310		)	—		—			(310		)	(492		)	—			—		(492		)
Other	2,631			—		—			2,631			2,052			—			—		2,052
Provision for impairment	10,665			—		—			10,665			—			21,661			—		21,661
Depreciation and amortization	71,593			—		(98		)	71,495			47,418			763			—		48,181
General and administrative	18,613			—		—			18,613			15,675			—			—		15,675
Rouse Properties NOI	$	127,843		$	—	$	(370	)	$	127,473		$	103,302		$	2,493		$	—	$	105,795
Above and below market ground rent expense, net	106			—		—			106			93			—			—		93
Above and below market tenant leases, net	9,829			—		—			9,829			12,154			176			—		12,330
Amortization of tenant inducements	21			—		—			21			750			—			—		750
Amortization of straight line rent	(1,184		)	—		—			(1,184		)	(2,507		)	(30		)	—		(2,537		)
Rouse Properties Core NOI	$	136,615		$	—	$	(370	)	$	136,245		$	113,792		$	2,639		$	—	$	116,431
Non same property assets (1)	(40,939		)	—		—			(40,939		)	(20,346		)	(2,639		)	—		(22,985		)
Termination income	(1,356		)	—		—			(1,356		)	(304		)	—			—		(304		)
Same Property Core NOI	$	94,320		$	—	$	(370	)	$	93,950		$	93,142		$	—		$	—	$	93,142
Adjust for legacy litigation expenses and (recoveries)	852			—		—			852			(528		)	—			—		(528		)
Same property core net operating income, as adjusted	$	95,172		$	—	$	(370	)	$	94,802		$	92,614		$	—		$	—	$	92,614

⁽¹⁾ Represents the acquisitions of Greenville Mall, Chesterfield Towne Center, The Centre at Salisbury, Bel Air Mall and The Mall at Barnes Crossing which were acquired in July 2013, December 2013, December 2013, May 2014, and August 2014, respectively, and the disposition of Boulevard Mall in June 2013. Same Property portfolio also excludes Knollwood Mall and Gateway Mall which are or will be under construction to convert the assets from enclosed malls to open air power centers. The Steeplegate Mall was designated as a special consideration asset as of March 31, 2014 and during the three months ended September 30, 2014, the Company added Collin Creek Mall and Vista Ridge Mall as special consideration assets which are also excluded from our Same Property portfolio. An asset is designated as special consideration when a property has a heightened probability of being conveyed to its lender absent substantive renegotiation.

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 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 tenant inducements, amortization of above- and below-market tenant leases, amortization of above- and below-market ground rent expense, reorganization items, amortization of deferred financing costs, mark-to-market adjustments on debt, write-off of market rate adjustments on debt, write-off of deferred financing costs, debt extinguishment costs, provision for income taxes, gain on extinguishment of debt, and other costs. 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

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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 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.

For reference, and as an aid in understanding management's computation of FFO and Core FFO, a reconciliation from the consolidated net loss as computed in accordance with GAAP to FFO and Core FFO is presented below:

	For the three months ended September 30,
	2014											2013
	Consolidated			Discontinued Operations		Non- Controlling Interest			Total			Consolidated			Discontinued Operations		Non- Controlling Interest		Total
	(In thousands)
Net loss	$	(26,372	)	$	—	$	(194	)	$	(26,566	)	$	(4,683	)	$	—	$	—	$	(4,683	)
Depreciation and amortization	27,130			—		(98		)	27,032			15,748			—		—		15,748
Provision for impairment	10,665			—		—			10,665			—			—		—		—
Loss from discontinued operations	—			—		—			—			—			—		—		—
Gain on extinguishment of debt	—			—		—			—			—			—		—		—
Rouse Properties FFO	$	11,423		$	—	$	(292	)	$	11,131		$	11,065		$	—	$	—	$	11,065
Provision for income taxes	136			—		—			136			(20		)	—		—		(20		)
Interest expense:
Amortization and write-off of market rate adjustments	7,129			—		—			7,129			2,141			—		—		2,141
Amortization and write-off of deferred financing costs	1,267			—		—			1,267			1,629			—		—		1,629
Debt extinguishment costs	259			—		—			259			—			—		—		—
Amortization of straight line rent for corporate and regional offices	35			—		—			35			(27		)	—		—		(27		)
Other	1,371			—		—			1,371			585			—		—		585
Above and below market ground rent expense, net	39			—		—			39			32			—		—		32
Above and below market tenant leases, net	2,433			—		—			2,433			3,740			—		—		3,740
Amortization of tenant inducements	11			—		—			11			250			—		—		250
Amortization of straight line rent	(97		)	—		—			(97		)	(684		)	—		—		(684		)
Rouse Properties Core FFO	$	24,006		$	—	$	(292	)	$	23,714		$	18,711		$	—	$	—	$	18,711

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	For the nine months ended September 30,
	2014											2013
	Consolidated			Discontinued Operations		Non- Controlling Interest			Total			Consolidated			Discontinued Operations			Non- Controlling Interest		Total
	(In thousands)
Net loss	$	(38,971	)	$	—	$	(194	)	$	(39,165	)	$	(30,054	)	$	—		$	—	$	(30,054	)
Depreciation and amortization	71,593			—		(98		)	71,495			47,418			763			—		48,181
Provision for impairment	10,665			—		—			10,665			—			21,661			—		21,661
Loss from discontinued operations	—			—		—			—			23,158			(23,158		)	—		—
Gain on extinguishment of debt	—			—		—			—			(13,995		)	—			—		(13,995		)
Rouse Properties FFO	$	43,287		$	—	$	(292	)	$	42,995		$	26,527		$	(734	)	$	—	$	25,793
Provision for income taxes	383			—		—			383			235			—			—		235
Interest expense:
Amortization and write-off of market rate adjustments	9,015			—		—			9,015			5,689			1,131			—		6,820
Amortization and write-off of deferred financing costs	3,420			—		—			3,420			6,607			103			—		6,710
Debt extinguishment costs	259			—		—			259			1,886			—			—		1,886
Amortization of straight line rent for corporate and regional offices	56			—		—			56			67			—			—		67
Other	2,631			—		—			2,631			2,052			—			—		2,052
Above and below market ground rent expense, net	106			—		—			106			93			—			—		93
Above and below market tenant leases, net	9,829			—		—			9,829			12,154			176			—		12,330
Amortization of tenant inducements	21			—		—			21			750			—			—		750
Amortization of straight line rent	(1,184		)	—		—			(1,184		)	(2,507		)	(30		)	—		(2,537		)
Rouse Properties Core FFO	$	67,823		$	—	$	(292	)	$	67,531		$	53,553		$	646		$	—	$	54,199

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ITEM 3      QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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

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ITEM 4      CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

Our Chief Executive Officer ("CEO") and Chief Financial Officer ("CFO") participated in an evaluation by our management of the effectiveness of our disclosure controls and procedures asof the end of our fiscal quarter ended September 30, 2014. Based on their participation in that evaluation, our CEO and CFO concluded that our disclosure controls and procedures were effective as of September 30, 2014 to ensure that information required to be disclosed in our reports filed or submitted under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms, and to ensure that information required to be disclosed in our reports filed or furnished under the Securities Exchange Act of 1934 is accumulated and communicated to our management, including our CEO and CFO, as appropriate to allow timely decisions regarding required disclosures.

Our CEO and CFO also participated in an evaluation by our management of any changes in our internal control over financial reporting that occurred during the quarter ended September 30, 2014. That evaluation did not identify any changes that have materially affected, or were reasonably likely to materially affect, our internal control over financial reporting.

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PART II OTHER INFORMATION

ITEM 1.       LEGAL 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 1A.   RISK FACTORS

There are no material changes to the risk factors previously disclosed in Part I, Item 1A. in our Annual Report.

ITEM 2.    UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Unregistered Sales of Securities

There were no unregistered sales of equity securities during the three months ended September 30, 2014.

Issuer Purchases of Equity Securities

We did not acquire any shares of our common stock during the three months ended September 30, 2014.

ITEM 3.  DEFAULTS UPON SENIOR SECURITIES

None

ITEM 4.  MINE SAFETY DISCLOSURES

Not Applicable

ITEM 5.   OTHER INFORMATION

None

ITEM 6.   EXHIBITS

31.1Certification 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 months ended September 30, 2014 has been filed with the SEC on November 3, 2014, formatted in XBRL (Extensible Business Reporting Language): (1) Consolidated Balance Sheets, (2) Consolidated Statements of Operations and Comprehensive Income (Loss), (3) Consolidated Statements of Equity, (4) Consolidated Statements of Cash Flows and (5) Notes to Consolidated Financial Statements, tagged as blocks of text.

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 September 30, 2014.  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:	November 3, 2014	By:	/s/ John Wain
			John Wain
			Chief Financial Officer
			(on behalf of the Registrant and as Principal Financial 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 months ended September 30, 2014 has been filed with the SEC on November 3, 2014, formatted in XBRL (Extensible Business Reporting Language): (1) Consolidated Balance Sheets, (2) Consolidated Statements of Operations and Comprehensive Loss, (3) Consolidated Statements of Equity, (4) Consolidated Statements of Cash Flows and (5) Notes to Consolidated Financial Statements, tagged as blocks of text.

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