UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-Q
 
ý      Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 
For the quarterly period ended June 30, 2015
 
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 1-34948

GENERAL GROWTH PROPERTIES, INC.
(Exact name of registrant as specified in its charter)

Delaware
 
27-2963337
(State or other jurisdiction of
 
(I.R.S. Employer
incorporating or organization)
 
Identification Number)
110 N. Wacker Dr., Chicago, IL
 
60606
(Address of principal executive offices)
 
(Zip Code)
 
(312) 960-5000
(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.  ýYes  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).  ýYes  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 x
 
Accelerated filer o
 
 
 
Non-accelerated filer o (Do not check if a smaller reporting company)
 
Smaller reporting company o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  o  Yes  ý No
 
Indicate by checkmark whether the Registrant has filed all documents and reports required to be filed by Sections 12,13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.  ýYes  o No

The number of shares of Common Stock, $.01 par value, outstanding on August 4, 2015 was 885,656,505.
 


GENERAL GROWTH PROPERTIES, INC.
INDEX
 
 
PAGE
NUMBER
 
 
 
Part I
FINANCIAL INFORMATION
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 


2

GENERAL GROWTH PROPERTIES, INC.


CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
 
June 30,
2015
 
December 31,
2014
 
(Dollars in thousands, except share and per share amounts)
Assets:
 
 
 
Investment in real estate:
 

 
 

Land
$
3,639,215

 
$
4,244,607

Buildings and equipment
16,230,577

 
18,028,844

Less accumulated depreciation
(2,252,254
)
 
(2,280,845
)
Construction in progress
383,399

 
703,859

Net property and equipment
18,000,937

 
20,696,465

Investment in and loans to/from Unconsolidated Real Estate Affiliates
3,488,329

 
2,604,762

Net investment in real estate
21,489,266

 
23,301,227

Cash and cash equivalents
175,393

 
372,471

Accounts and notes receivable, net
823,704

 
663,768

Deferred expenses, net
172,940

 
184,491

Prepaid expenses and other assets
914,927

 
813,777

Total assets
$
23,576,230

 
$
25,335,734

 
 
 
 
Liabilities:
 

 
 
Mortgages, notes and loans payable
$
13,756,412

 
$
15,998,289

Investment in Unconsolidated Real Estate Affiliates
36,721

 
35,598

Accounts payable and accrued expenses
719,545

 
934,897

Dividend payable
157,901

 
154,694

Deferred tax liabilities
9,443

 
21,240

Junior subordinated notes
206,200

 
206,200

Total liabilities
14,886,222

 
17,350,918

 
 
 
 
Redeemable noncontrolling interests:
 

 
 

Preferred
153,339

 
164,031

Common
123,028

 
135,265

Total redeemable noncontrolling interests
276,367

 
299,296

 
 
 
 
Commitments and Contingencies
—

 
—

 
 
 
 
Equity:
 

 
 

Common stock:
 
 
 
11,000,000,000 shares authorized, $0.01 par value, 969,726,994 issued, 885,648,409 outstanding as of June 30, 2015, and 968,340,597 issued, 884,912,012 outstanding as of December 31, 2014
9,422

 
9,409

Preferred Stock:
 
 
 
500,000,000 shares authorized, $.01 par value, 10,000,000 shares issued and outstanding as of June 30, 2015 and December 31, 2014
242,042

 
242,042

Additional paid-in capital
11,408,288

 
11,351,625

Retained earnings (accumulated deficit)
(2,075,319
)
 
(2,822,740
)
Accumulated other comprehensive loss
(66,352
)
 
(51,753
)
Common stock in treasury, at cost, 56,619,390 shares as of June 30, 2015 and 55,969,390 shares as of December 31, 2014
(1,139,566
)
 
(1,122,664
)
Total stockholders’ equity
8,378,515

 
7,605,919

Noncontrolling interests in consolidated real estate affiliates
27,776

 
79,601

Noncontrolling interest related to long-term incentive plan common units
7,350

 
—

Total equity
8,413,641

 
7,685,520

Total liabilities, redeemable noncontrolling interests and equity
$
23,576,230

 
$
25,335,734

 

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

3

GENERAL GROWTH PROPERTIES, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(UNAUDITED)
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2015
 
2014
 
2015
 
2014
 
(Dollars in thousands, except per share amounts)
Revenues:
 

 
 

 
 
 
 
Minimum rents
$
361,556

 
$
385,011

 
$
735,669

 
$
774,263

Tenant recoveries
168,043

 
185,064

 
345,525

 
366,530

Overage rents
3,485

 
5,388

 
12,300

 
15,209

Management fees and other corporate revenues
26,731

 
17,717

 
45,817

 
34,403

Other
20,166

 
18,715

 
34,814

 
44,373

Total revenues
579,981

 
611,895

 
1,174,125

 
1,234,778

Expenses:
 
 
 
 
 
 
 
Real estate taxes
56,496

 
58,342

 
112,483

 
115,258

Property maintenance costs
12,903

 
14,135

 
32,784

 
35,559

Marketing
3,710

 
4,960

 
8,418

 
10,764

Other property operating costs
72,471

 
81,937

 
148,767

 
167,603

Provision for doubtful accounts
1,306

 
2,713

 
4,577

 
4,855

Property management and other costs
40,369

 
40,013

 
83,162

 
84,963

General and administrative
12,322

 
28,232

 
24,769

 
39,831

Depreciation and amortization
152,849

 
175,213

 
328,797

 
346,690

Total expenses
352,426

 
405,545

 
743,757

 
805,523

Operating income
227,555

 
206,350

 
430,368

 
429,255

 
 
 
 
 
 
 
 
Interest and dividend income
12,843

 
4,856

 
21,664

 
11,265

Interest expense
(142,747
)
 
(175,118
)
 
(315,398
)
 
(354,164
)
Gain (loss) on foreign currency
1,463

 
3,772

 
(21,448
)
 
8,955

Gain from changes in control of investment properties and other
17,768

 
—

 
609,013

 
—

Income before income taxes, equity in income of Unconsolidated Real Estate Affiliates, discontinued operations and allocation to noncontrolling interests
116,882

 
39,860

 
724,199

 
95,311

(Provision for) benefit from income taxes
(74
)
 
(3,944
)
 
11,085

 
(7,636
)
Equity in income of Unconsolidated Real Estate Affiliates
13,278

 
19,320

 
24,530

 
26,477

Unconsolidated Real Estate Affiliates - gain on investment
297,767

 
—

 
309,787

 
—

Income from continuing operations
427,853

 
55,236

 
1,069,601

 
114,152

Discontinued operations
—


121,853

 
—

 
194,825

Net income
427,853

 
177,089

 
1,069,601

 
308,977

Allocation to noncontrolling interests
(5,913
)
 
(3,365
)
 
(12,932
)
 
(7,217
)
Net income attributable to General Growth Properties, Inc.
421,940

 
173,724

 
1,056,669

 
301,760

Preferred Stock dividends
(3,984
)
 
(3,984
)
 
(7,968
)
 
(7,968
)
Net income attributable to common stockholders
$
417,956

 
$
169,740

 
$
1,048,701

 
$
293,792

 
 
 
 
 
 
 
 
Basic Earnings Per Share:
 
 
 
 
 
 
 
Continuing operations
$
0.47

 
$
0.06

 
$
1.18

 
$
0.11

Discontinued operations
—

 
0.14

 
—

 
0.22

Total basic earnings per share
$
0.47

 
$
0.20

 
$
1.18

 
$
0.33

 
 
 
 
 
 
 

Diluted Earnings Per Share:
 
 
 
 
 
 
 
Continuing operations
$
0.44

 
$
0.05

 
$
1.10

 
$
0.11

Discontinued operations
—

 
0.13

 
—

 
0.20

Total diluted earnings per share
$
0.44

 
$
0.18

 
$
1.10

 
$
0.31

Dividends declared per share
$
0.17

 
$
0.15

 
$
0.34

 
$
0.30

 
 
 
 
 
 
 
 
Comprehensive Income, Net:
 

 
 

 
 
 
 
Net income
$
427,853

 
$
177,089

 
$
1,069,601

 
$
308,977

Other comprehensive income (loss)
 
 
 
 
 
 
 

4

GENERAL GROWTH PROPERTIES, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(UNAUDITED)
Net unrealized gains (losses) on financial instruments
21

 
(33
)
 
—

 
(33
)
Foreign currency translation
2,912

 
3,194

 
(14,806
)
 
7,145

Other comprehensive income (loss)
2,933

 
3,161

 
(14,806
)
 
7,112

Comprehensive income
430,786

 
180,250

 
1,054,795

 
316,089

Comprehensive income allocated to noncontrolling interests
(5,935
)
 
(3,202
)
 
(12,725
)
 
(7,069
)
Comprehensive income attributable to General Growth Properties, Inc.
424,851

 
177,048

 
1,042,070

 
309,020

Preferred Stock dividends
(3,984
)
 
(3,984
)
 
(7,968
)
 
(7,968
)
Comprehensive income, net, attributable to common stockholders
$
420,867

 
$
173,064

 
$
1,034,102

 
$
301,052


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

5

GENERAL GROWTH PROPERTIES, INC.

CONSOLIDATED STATEMENTS OF EQUITY
(UNAUDITED)
 
Common
Stock
 
Preferred
Stock
 
Additional
Paid-In
Capital
 
Retained
Earnings
(Accumulated
Deficit)
 
Accumulated 
Other
Comprehensive
Income (Loss)
 
Common
Stock in
Treasury
 
Noncontrolling
Interests in Consolidated Real Estate Affiliates and Long Term Incentive Plan Common Units
 
Total
Equity
 
(Dollars in thousands, except for share amounts)
Balance at January 1, 2014
$
9,395

 
$
242,042

 
$
11,372,443

 
$
(2,915,723
)
 
$
(38,173
)
 
$
(566,863
)
 
$
82,142

 
$
8,185,263

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income


 


 


 
301,760

 


 


 
1,115

 
302,875

Distributions to noncontrolling interests in consolidated Real Estate Affiliates


 


 


 


 


 


 
(2,224
)
 
(2,224
)
Restricted stock grants, net (31,112 common shares)
1

 


 
1,397

 


 


 


 


 
1,398

Employee stock purchase program (96,781 common shares)
1

 


 
1,970

 


 


 


 


 
1,971

Stock option grants, net of forfeitures (83,724 common shares)
1

 


 
13,600

 


 


 


 


 
13,601

Treasury stock purchases (27,624,282 common shares)
 
 
 
 
 
 
 
 
 
 
(555,801
)
 
 
 
(555,801
)
Cash dividends reinvested (DRIP) in stock (11,790 common shares)


 


 
252

 


 


 


 


 
252

Other comprehensive income


 


 


 


 
7,260

 


 


 
7,260

Cash distributions declared ($0.30 per share)


 


 


 
(266,168
)
 


 


 


 
(266,168
)
Cash distributions on Preferred Stock


 


 


 
(7,968
)
 


 


 


 
(7,968
)
Fair value adjustment for noncontrolling interest in Operating Partnership


 


 
(27,593
)
 


 


 


 


 
(27,593
)
 


 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance at June 30, 2014
$
9,398

 
$
242,042

 
$
11,362,069

 
$
(2,888,099
)
 
$
(30,913
)
 
$
(1,122,664
)
 
$
81,033

 
$
7,652,866

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance at January 1, 2015
$
9,409

 
$
242,042

 
$
11,351,625

 
$
(2,822,740
)
 
$
(51,753
)
 
$
(1,122,664
)
 
$
79,601

 
$
7,685,520

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income


 


 


 
1,056,669

 


 


 
2,746

 
1,059,415

Distributions to noncontrolling interests in consolidated Real Estate Affiliates


 


 


 


 


 


 
(52,778
)
 
(52,778
)
Long Term Incentive Plan Common Unit grants, net (1,665,896 LTIP Units)
 
 
 
 
 
 
 
 
 
 
 
 
5,557

 
5,557

Restricted stock grants, net (231,926 common shares)
2

 
—

 
1,869

 


 


 


 


 
1,871

Employee stock purchase program (99,080 common shares)
1

 


 
2,226

 


 


 


 


 
2,227


6

GENERAL GROWTH PROPERTIES, INC.

CONSOLIDATED STATEMENTS OF EQUITY
(UNAUDITED)
Stock option grants, net of forfeitures (1,046,515 common shares)
10

 


 
26,811

 


 


 


 


 
26,821

Treasury stock purchase (650,000 common shares)
 
 
 
 
 
 
 
 
 
 
(16,902
)
 
 
 
(16,902
)
Cash dividends reinvested (DRIP) in stock (8,876 common shares)
—

 
—

 
248

 


 


 


 


 
248

Other comprehensive loss


 


 


 


 
(14,599
)
 


 


 
(14,599
)
Cash distributions declared ($0.34 per share)


 


 


 
(301,280
)
 


 


 


 
(301,280
)
Cash distributions on Preferred Stock


 


 


 
(7,968
)
 


 


 


 
(7,968
)
Fair value adjustment for noncontrolling interest in Operating Partnership


 


 
25,509

 


 


 


 


 
25,509

 
 
 
 
 
 
 
 
 
 
 


 
 
 
 
Balance at June 30, 2015
$
9,422

 
$
242,042

 
$
11,408,288

 
$
(2,075,319
)
 
$
(66,352
)
 
$
(1,139,566
)
 
$
35,126

 
$
8,413,641


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


7

GENERAL GROWTH PROPERTIES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
 
Six Months Ended June 30,
 
2015
 
2014
 
(Dollars in thousands)
Cash Flows provided by Operating Activities:
 

 
 

Net income
$
1,069,601

 
$
308,977

Adjustments to reconcile net income to net cash provided by operating activities:
 

 
 

Equity in income of Unconsolidated Real Estate Affiliates
(24,530
)
 
(26,477
)
Distributions received from Unconsolidated Real Estate Affiliates
19,533

 
19,224

Provision for doubtful accounts
4,577

 
4,910

Depreciation and amortization
328,797

 
352,454

Amortization/write-off of deferred finance costs
6,154

 
5,643

Accretion/write-off of debt market rate adjustments
13,221

 
12,648

Amortization of intangibles other than in-place leases
33,416

 
44,810

Straight-line rent amortization
(15,388
)
 
(25,317
)
Deferred income taxes
(16,111
)
 
3,570

Litigation loss
—

 
17,854

Gain on dispositions, net
(2,174
)
 
(122,154
)
Unconsolidated Real Estate Affiliates- gain on investments
(309,787
)
 
—

Gain from changes in control of investment properties and other
(609,013
)
 
—

Gain on extinguishment of debt
—

 
(66,680
)
Loss (gain) on foreign currency
21,448

 
(8,955
)
Net changes:
 

 
 

Accounts and notes receivable
(3,458
)
 
(618
)
Prepaid expenses and other assets
16,580

 
25,750

Deferred expenses
(22,340
)
 
(4,206
)
Restricted cash
846

 
(2,593
)
Accounts payable and accrued expenses
(42,500
)
 
(8,203
)
Other, net
16,623

 
13,627

Net cash provided by operating activities
485,495

 
544,264

 
 
 
 
Cash Flows provided by (used in) Investing Activities:
 

 
 

Acquisition of real estate and property additions
(341,365
)
 
(160,207
)
Development of real estate and property improvements
(335,769
)
 
(272,719
)
Contributions to Unconsolidated Real Estate Affiliates
(77,306
)
 
(81,617
)
Proceeds from sales of investment properties
1,055,881

 
206,346

Distributions received from Unconsolidated Real Estate Affiliates in excess of income
101,399

 
44,961

Loans to joint venture partners
(211,239
)
 
(87,379
)
Decrease in restricted cash
869

 
2,635

Net cash provided by (used in) investing activities
192,470


(347,980
)
 
 
 
 
Cash Flows used in Financing Activities:
 

 
 

Proceeds from refinancing/issuance of mortgages, notes and loans payable
832,440

 
1,751,346

Principal payments on mortgages, notes and loans payable
(1,369,192
)
 
(1,448,244
)
Deferred finance costs
(2,138
)
 
(10,176
)
Treasury stock purchases
—

 
(555,801
)
Distributions to noncontrolling interests in consolidated real estate affiliates
(52,778
)
 
(2,225
)
Cash distributions paid to common stockholders
(301,043
)
 
(260,126
)
Cash distributions paid to Preferred Stockholders
(7,968
)
 
(7,968
)
Cash redemptions paid to holders of common units
(713
)
 
—

Other, net
26,349

 
1,646

Net cash used in financing activities
(875,043
)
 
(531,548
)
 
 
 
 
Net change in cash and cash equivalents
(197,078
)
 
(335,264
)
Cash and cash equivalents at beginning of period
372,471

 
577,271

Cash and cash equivalents at end of period
$
175,393

 
$
242,007


8

GENERAL GROWTH PROPERTIES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(UNAUDITED)
 
Six Months Ended June 30,
 
2015
 
2014
 
(Dollars in thousands)
 
 
 
 
Supplemental Disclosure of Cash Flow Information:
 

 
 

Interest paid
$
310,756

 
$
344,398

Interest capitalized
7,063

 
8,543

Income taxes paid
6,291

 
2,934

Accrued capital expenditures included in accounts payable and accrued expenses
94,429

 
63,178

Non-Cash acquisition of Treasury Shares
 
 
 
Liabilities
(16,902
)
 
—

Equity
16,902

 
—

Non-Cash Sale of Property
 
 
 
Assets
—

 
21,426

Liabilities and equity
—

 
(21,426
)
Non-Cash Sale of Ala Moana (Refer to Note 3)
 
 
 

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


9
GENERAL GROWTH PROPERTIES, INC.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except share and per share amounts)
(Unaudited)



NOTE 1        ORGANIZATION

Readers of this Quarterly Report should refer to the Company’s (as defined below) audited consolidated financial statements for the year ended December 31, 2014 which are included in the Company’s Annual Report on Form 10-K (our “Annual Report”) for the fiscal year ended December 31, 2014 (Commission File No. 1-34948), as certain footnote disclosures which would substantially duplicate those contained in our Annual Report have been omitted from this Quarterly Report. In the opinion of management, all adjustments necessary for a fair presentation (which include only normal recurring adjustments) have been included in this Quarterly Report. Capitalized terms used, but not defined in this Quarterly Report, have the same meanings as in our Annual Report.
 
General
 
General Growth Properties, Inc. (“GGP” or the “Company”), a Delaware corporation, was organized in July 2010 and is a self-administered and self-managed real estate investment trust, referred to as a “REIT”. In these notes, the terms “we,” “us” and “our” refer to GGP and its subsidiaries.
 
GGP, through its subsidiaries and affiliates, is an owner and operator of retail properties. As of June 30, 2015, we are the owner, either entirely or with joint venture partners, of 131 retail properties.
 
Substantially all of our business is conducted through GGP Operating Partnership, LP (“GGPOP”), GGP Nimbus, LP (“GGPN”) and GGP Limited Partnership (“GGPLP”, and together with GGPN, the “Operating Partnerships"), subsidiaries of GGP. The Operating Partnerships own an interest in the properties that are part of the consolidated financial statements of GGP. As of June 30, 2015, GGP held approximately a 99% common equity ownership (without giving effect to the potential conversion of the Preferred Units and LTIP Units as defined below) of the Operating Partnerships, while the remaining 1% is held by limited partners and certain previous contributors of properties to the Operating Partnerships or their predecessors.
 
GGPOP is the general partner of, and owns a 1.5% equity interest in, each Operating Partnership. GGPOP has common units of limited partnership (“Common Units”), which are redeemable for cash or, at our option, shares of GGP common stock. It also has preferred units of limited partnership interest (“Preferred Units”), of which, certain Preferred Units can be converted into Common Units and then redeemed for cash or, at our option, shares of GGP common stock (Note 10). GGPOP has full value long term incentive plan units and appreciation only long term incentive plan units (collectively “LTIP Units”), which are redeemable for cash or, at our option, shares of GGP common stock (Note 12).

In addition to holding ownership interests in various joint ventures, the Operating Partnerships generally conduct their operations through General Growth Management, Inc. (“GGMI”), General Growth Services, Inc. (“GGSI”), and GGP REIT Services, LLC (“GGPRS”). GGMI and GGSI are taxable REIT subsidiaries (“TRS”s), which provide management, leasing, tenant coordination, business development, marketing, strategic partnership and other services for a majority of our Unconsolidated Real Estate Affiliates (defined below) and for substantially all of our Consolidated Properties, as defined below. GGSI also serves as a contractor to GGMI for these services. GGPRS generally provides financial, accounting, tax, legal, development, and other services to our Consolidated Properties.

We refer to our ownership interests in properties in which we own a majority or controlling interest and are consolidated under accounting principles generally accepted in the United States of America (“GAAP”) as the “Consolidated Properties.” We also own interests in certain properties through joint venture entities in which we own a noncontrolling interest (“Unconsolidated Real Estate Affiliates”) and we refer to those properties as the “Unconsolidated Properties.”

NOTE 2        SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation and Basis of Presentation

The accompanying consolidated financial statements include the accounts of GGP, our subsidiaries and joint ventures in which we have 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

10
GENERAL GROWTH PROPERTIES, INC.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except share and per share amounts)
(Unaudited)


noncontrolling interests in consolidated real estate affiliates as permanent equity of the Company. Intercompany balances and transactions have been eliminated.

We operate in a single reportable segment which includes the operation, development and management of retail and other rental properties, primarily regional malls. Our portfolio is targeted to a range of market sizes and consumer tastes. Each of our operating properties is considered a separate operating segment, as each property earns revenues and incurs expenses, individual operating results are reviewed and discrete financial information is available. The Company's chief operating decision maker is comprised of a team of several members of executive management who use Company NOI in assessing segment operating performance. We do not distinguish or group our consolidated operations based on geography, size or type. Our operating properties have similar economic characteristics and provide similar products and services to our tenants.There are no individual operating segments that are greater than 10% of combined revenue, Company NOI, or combined assets. Company NOI excludes certain non-cash and non-comparable items such as straight-line rent and intangible asset and liability amortization, which are a result of our emergence, acquisition accounting and other capital contribution or restructuring events. Further, all material operations are within the United States and no customer or tenant comprises more than 10% of consolidated revenues. As a result, the Company’s operating properties are aggregated into a single reportable segment.

Properties

Real estate assets are stated at cost less any provisions for impairments. Expenditures for significant betterments and improvements are capitalized. Maintenance and repairs are charged to expense when incurred. Construction and improvement costs incurred in connection with the development of new properties or the redevelopment of existing properties are capitalized. Real estate taxes, interest costs, and internal costs associated with leasing and development overhead incurred during construction periods are capitalized. Capitalization is based on qualified expenditures and interest rates. Capitalized real estate taxes, interest costs, and internal costs associated with leasing and development overhead are amortized over lives which are consistent with the related assets.

Pre-development costs, which generally include legal and professional fees and other third-party costs directly related to the construction assets, are capitalized as part of the property being developed. In the event a development is no longer deemed to be probable of occurring, the capitalized costs are expensed (see also our impairment policies in this note below).

We periodically review the estimated useful lives of our properties, and may adjust them as necessary. The estimated useful lives of our properties range from 20 - 45 years.

Depreciation or amortization expense is computed using the straight-line method based upon the following estimated useful lives:
 
Years
Buildings and improvements
10 - 45
Equipment and fixtures
3 - 20
Tenant improvements
Shorter of useful life or applicable lease term
 
Acquisitions of Operating Properties

Acquisitions of properties are accounted for utilizing the acquisition method of accounting and, accordingly, the results of operations of acquired properties have been included in the results of operations from the respective dates of acquisition. Estimates of future cash flows and other valuation techniques are used to allocate the purchase price of acquired property between land, buildings and improvements, equipment, assumed debt liabilities and identifiable intangible assets and liabilities such as amounts related to in-place tenant leases, acquired above and below-market tenant and ground leases, and tenant relationships.

Identifiable intangible assets and liabilities are calculated for above-market and below-market tenant and ground leases where we are either the lessor or the lessee. The difference between the contractual rental rates and our estimate of market rental rates is measured over a period equal to the remaining non-cancelable term of the leases, including significantly below-market renewal options for which exercise of the renewal option appears to be reasonably assured. The remaining term of leases with renewal options at terms significantly below market reflect the assumed exercise of such below-market renewal options and assume the amortization period would coincide with the extended lease term.

11
GENERAL GROWTH PROPERTIES, INC.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except share and per share amounts)
(Unaudited)



The gross asset balances of the in-place value of tenant leases are included in buildings and equipment in our Consolidated Balance Sheets.
 
Gross Asset
 
Accumulated
Amortization
 
Net Carrying
Amount
 
 
 
 
 
 
As of June 30, 2015
 

 
 

 
 

Tenant leases:
 

 
 

 
 

In-place value
$
450,625

 
$
(271,229
)
 
$
179,396

 
 
 
 
 
 
As of December 31, 2014
 
 
 
 
 
Tenant leases:
 
 
 
 
 
In-place value
$
608,840

 
$
(362,531
)
 
$
246,309


The above-market tenant leases and below-market ground leases are included in prepaid expenses and other assets (Note 14). The below-market tenant leases, above-market ground leases and above-market headquarters office lease are included in accounts payable and accrued expenses (Note 15) in our Consolidated Balance Sheets.

Amortization/accretion of all intangibles, including the intangibles in Note 14 and Note 15, had the following effects on our Income from continuing operations:
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2015
 
2014
 
2015
 
2014
Amortization/accretion effect on continuing operations
$
(29,007
)
 
$
(52,931
)
 
$
(77,887
)
 
$
(105,020
)

Future amortization/accretion of all intangibles, including the intangibles in Note 14 and Note 15, is estimated to decrease results from continuing operations as follows:
Year
 
Amount
2015 Remaining
 
$
54,680

2016
 
92,460

2017
 
69,282

2018
 
44,731

2019
 
26,427


Revenue Recognition and Related Matters

Minimum rents are recognized on a straight-line basis over the terms of the related operating leases, including the effect of any free rent periods. Minimum rents also include lease termination income collected from tenants to allow for the tenant to vacate their space prior to their scheduled termination dates, as well as, accretion related to above-market and below-market tenant leases on acquired properties and properties that were recorded at fair value at the Effective Date.
Overage rent is paid by a tenant when the tenant's sales exceed an agreed upon minimum amount and is recognized on an accrual basis once tenant sales exceed contractual tenant lease thresholds and is calculated by multiplying the sales in excess of the minimum amount by a percentage defined in the lease.
Tenant recoveries 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 the related costs are incurred.
Real estate sales are recognized whenever (1) a sale is consummated, (2) the buyer has demonstrated an adequate commitment to pay for the property, (3) the Company’s receivable is not subject to future subordination, and (4) the Company has transferred to the buyer the risks and rewards of ownership and does not have continuing involvement. Unless all conditions are met, recognition of all or a portion of the profit shall be postponed.

12
GENERAL GROWTH PROPERTIES, INC.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except share and per share amounts)
(Unaudited)


We provide an allowance for doubtful accounts against the portion of accounts receivable, including straight-line rents, which is estimated to be uncollectible. Such allowances are reviewed periodically based upon our recovery experience.

Management Fees and Other Corporate Revenues

Management fees and other corporate revenues primarily represent management and leasing fees, development fees, financing fees and fees for other ancillary services performed for the benefit of certain of the Unconsolidated Real Estate Affiliates. Management fees are reported at 100% of the revenue earned from the joint venture in management fees and other corporate revenues on our Consolidated Statements of Comprehensive Income. Our share of the management fee expense incurred by the Unconsolidated Real Estate Affiliates is reported within equity in income of Unconsolidated Real Estate Affiliates on our Consolidated Statements of Comprehensive Income and in property management and other costs in the Condensed Combined Statements of Income in Note 6. The following table summarizes the management fees from affiliates and our share of the management fee expense:
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2015
 
2014
 
2015
 
2014
Management fees from affiliates
$
26,731

 
$
17,717

 
$
45,817

 
$
34,403

Management fee expense
(7,651
)
 
(6,560
)
 
(14,927
)
 
(13,250
)
Net management fees from affiliates
$
19,080

 
$
11,157


$
30,890


$
21,153

 
Impairment

Operating properties
 
We regularly review our consolidated properties 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, significant decreases in occupancy percentage, debt maturities and management’s intent with respect to the properties and prevailing market conditions.
 
If an indicator of potential impairment exists, the property is tested for recoverability by comparing its carrying amount to the estimated future undiscounted cash flows. Although the carrying amount may exceed the estimated fair value of certain properties, 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 property 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 property, is depreciated over the remaining useful life of the property.

Although we may market a property for sale, there can be no assurance that the transaction will occur until the sale is finalized. However, GAAP requires us to utilize the Company’s expected holding period of our properties when assessing recoverability. If we cannot recover the carrying value of these properties within the planned holding period, we will estimate the fair values of the assets and record impairment charges for properties when the estimated fair value is less than their carrying value.

Impairment indicators for pre-development costs, which are typically costs incurred during the beginning stages of a potential development and construction in progress, are assessed by project and include, but are not limited to, significant changes in the Company’s plans with respect to the project, significant changes in projected completion dates, tenant demand, anticipated revenues or cash flows, development costs, market factors and sustainability of development projects.

Impairment charges are recorded in the Consolidated Statements of Comprehensive Income when the carrying value of a property is not recoverable and it exceeds the estimated fair value of the property, which can occur in accounting periods preceding disposition and/or in the period of disposition.

No provisions for impairment were recognized for the three and six months ended June 30, 2015 and 2014.


13
GENERAL GROWTH PROPERTIES, INC.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except share and per share amounts)
(Unaudited)


Investment in Unconsolidated Real Estate Affiliates

A series of operating losses of an investee or other factors may indicate that an other-than-temporary decline in value of our investment in an Unconsolidated Real Estate Affiliate has occurred. The investment in each of the Unconsolidated Real Estate Affiliates is evaluated for valuation declines below the carrying amount. Accordingly, in addition to the property-specific impairment analysis that we perform for such joint ventures (as part of our operating property impairment process described above), we also considered whether there were other-than-temporary declines with respect to the carrying values of our Unconsolidated Real Estate Affiliates. No impairments related to our investments in Unconsolidated Real Estate Affiliates were recognized for the three and six months ended June 30, 2015 and 2014.

Fair Value Measurements (Note 5)

The accounting principles for fair value measurements establish a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. These tiers include:
 
•
Level 1 - defined as observable inputs such as quoted prices for identical assets or liabilities in active markets;
•
Level 2 - defined as inputs other than quoted prices in active markets that are either directly or indirectly observable; and
•
Level 3 - defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions.

Note 5 includes a discussion of properties measured at fair value on a non-recurring basis using Level 2 and Level 3 inputs and the fair value of debt, which is estimated on a recurring basis using Level 2 and Level 3 inputs. Note 10 includes a discussion of certain redeemable noncontrolling interests that are measured at fair value using Level 1 inputs.

Recently Issued Accounting Pronouncements

Effective January 1, 2015 the definition of discontinued operations has been revised to limit what qualifies for this classification and presentation to disposals of components of a company that represent strategic shifts that have (or will have) a major effect on the company’s operations and financial results. Required expanded disclosures for disposals or disposal groups that qualify for discontinued operations are intended to provide users of financial statements with enhanced information about the assets, liabilities, revenues and expenses of such discontinued operations. In addition, in accordance with this pronouncement, companies are required to disclose the pretax profit or loss of an individually significant component that does not qualify for discontinued operations treatment. Pursuant to its terms, we have adopted this pronouncement effective January 1, 2015. This definition has been applied prospectively and is anticipated to substantially reduce the number of transactions, going forward, that qualify for discontinued operations as compared to historical results. (See Note 4).

Effective January 1, 2016, companies will be required to present debt issuance costs related to a recognized debt liability (excluding revolving credit facility) as a direct deduction from the carrying amount of that debt liability on the balance sheet. The recognition and measurement guidance for debt issuance costs will not be affected. The adoption of this pronouncement will result in the reclassification of unamortized capitalized loan fees from other assets to a direct reduction of the Company’s indebtedness on the consolidated balance sheets.
Effective January 1, 2018, companies will be required to apply a five-step model in accounting for revenue arising from contracts with customers. The core principle of the revenue model is that a company recognizes revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. Lease contracts will be excluded from this revenue recognition criteria; however, the sale of real estate will be required to follow the new model. Expanded quantitative and qualitative disclosures regarding revenue recognition will be required for contracts that are subject to this pronouncement. The new standard can be adopted either retrospectively to each prior reporting period presented or as a cumulative effect adjustment as of the date of adoption. The Company is evaluating the potential impact of this pronouncement on its consolidated financial statements.

14
GENERAL GROWTH PROPERTIES, INC.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except share and per share amounts)
(Unaudited)


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

NOTE 3        ACQUISITIONS, SALES AND JOINT VENTURE ACTIVITY

On April 27, 2015, we sold the office portion of 200 Lafayette in New York, New York for a gross purchase price of approximately $124.5 million. This transaction resulted in a gain on sale of $11.9 million recognized in gain from changes in control of investment properties and other on our Consolidated Statements of Comprehensive Income for the three and six months ended June 30, 2015.

On April 17, 2015, we and our joint venture partners acquired the Crown Building located at 730 Fifth Avenue in New York, New York for a purchase price of $1.78 billion, which was funded with $1.25 billion of secured debt. We have an effective 50% interest in the retail portion of the property. GGP and Jeff Sutton will own, redevelop, lease and manage the retail portion of the property which is $1.30 billion of the purchase price. Vladislav Doronin’s Capital Group and Michael Shvo will own, redevelop, lease and manage the office tower which is $475.0 million of the purchase price. The office tower will be redeveloped into luxury residential condominiums. Our share of the retail property purchase price is $650.0 million, and our share of the equity is $208.5 million. In connection with the acquisition, we provided $204.3 million in loans to our joint venture partners.

On April 1, 2015 we acquired a 50% interest in a joint venture to own 85 Fifth Avenue in New York, New York. The total purchase price was $86.0 million which was funded with $60.0 million of secured debt. GGP’s share of the equity is $14.0 million. In connection with the acquisition, we provided a $7.0 million loan to our joint venture partner.

On March 31, 2015, we acquired a 50% interest in a joint venture with Sears Holdings Corporation that owns anchor pads and in-place leases at 12 stores located at our properties for approximately $165.0 million. We recorded the investment in the joint venture for approximately $164.5 million ($165.0 million net of prorations and acquisition costs) to investment in and loans to/from Unconsolidated Real Estate Affiliates on our Consolidated Balance Sheet as of March 31, 2015. We have also committed to invest $33.3 million in a new REIT formed by Sears Holdings Corporation (Note 18).

We account for the interests in the Crown, 85 Fifth, and Sears joint ventures under the equity method of accounting (Note 6) because we share control over major decisions with the joint venture partners which resulted in the partners obtaining substantive participating rights.

On February 27, 2015, we sold a 25% interest in Ala Moana Center in Honolulu, Hawaii for net proceeds of $907.0 million. We received $670.0 million at closing and will receive the remaining proceeds of $237.0 million in late 2016 upon completion of the redevelopment and expansion. Subsequently on April 10, 2015, we sold an additional 12.5% interest in Ala Moana Center for net proceeds of $453.5 million to another joint venture partner. We received $335.0 million at closing and will receive the remaining proceeds of $118.5 million in late 2016 upon completion of the redevelopment and expansion. As a result, our joint venture partners received a combined 37.5% economic interest in the joint venture.

Upon sale of the 25% interest in Ala Moana Center and in accordance with applicable accounting standards for real estate sales with future development required, we recognized a $584.4 million gain on change in control of investment properties and other as of the closing date calculated on the percentage of the basis (real estate asset carrying value of Ala Moana Center and development costs incurred to date) as compared to the total estimated costs expected to be incurred through completion of the development. During the six months ended June 30, 2015, we recognized an additional $12.8 million gain on change of control of investment properties and other using the percentage of completion method for the construction completed from the closing date on February 27, 2015 through June 30, 2015. We will recognize an additional $51.4 million gain on change of control of investment properties and other through substantial completion of construction. In total, we recorded a gain from change in control of investment properties

15
GENERAL GROWTH PROPERTIES, INC.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except share and per share amounts)
(Unaudited)


and other of $6.0 million and $597.2 million on our Consolidated Statements of Comprehensive Income for the three and six months ended June 30, 2015, respectively, as a result of this transaction.

Upon sale of the 12.5% interest in Ala Moana Center and in accordance with applicable accounting standards for real estate sales with future development required, we recognized a $295.9 million gain in Unconsolidated Real Estate Affiliates - gain on investment as of the closing date calculated on the percentage of the basis (real estate asset carrying value of Ala Moana Center and development costs incurred to date) as compared to the total estimated costs expected to be incurred through completion of the development. During the six months ended June 30, 2015, we recognized an additional $1.9 million gain in Unconsolidated Real Estate Affiliates - gain on investment using the percentage of completion method for the construction completed from the closing date on April 10, 2015 through June 30, 2015. We will recognize an additional $25.6 million gain in Unconsolidated Real Estate Affiliates - gain on investment through substantial completion of construction. In total, we recorded a gain in Unconsolidated Real Estate Affiliates - gain on investment of $297.8 million on our Consolidated Statements of Comprehensive Income for the three and six months ended June 30, 2015 as a result of this transaction.

We account for the 62.5% interest in the joint venture that holds Ala Moana Center under the equity method of accounting (Note 6) because we share control over major decisions with the joint venture partners which resulted in the partners obtaining substantive participating rights. Ala Moana Center was previously wholly owned by GGP and accounted for on a consolidated basis.

The table below summarizes the gain calculation ($ in millions) for the 25% and 12.5% interests sold:

Gain on Sale of Interests in Ala Moana Center
25.0%
12.5%
Total proceeds (net of transaction costs of $6.8 million and $2.5 million, respectively)
$
900.2

$
451.0

Joint venture partner share of debt
462.5

231.3

Total consideration
1,362.7

682.3

Less: JV partner proportionate share of investment in Ala Moana Center and estimated development costs
(714.1
)
(358.9
)
Total gain from changes in control of investment properties and other
648.6

—

Total Unconsolidated Real Estate Affiliates - gain on investment
—

323.4

Gain attributable to JV partner proportionate share of investment in Ala Moana Center at closing
584.4

295.9

Gain attributable to post-sale development activities through June 30, 2015
12.8

1.9

Estimated future gain from changes in control of investment properties and other
51.4

—

Estimated future Unconsolidated Real Estate Affiliates - gain on investment
$
—

$
25.6


NOTE 4        DISCONTINUED OPERATIONS AND GAINS ON DISPOSITIONS OF OPERATING PROPERTIES
 
In the first quarter of 2015, the Company adopted Accounting Standards Update (ASU) No. 2014-08, "Reporting Discontinued operations and Disclosures of Disposals of Components of an Entity" issued by the Financial Accounting Standards Board. ASU No. 2014-08 changes the definition of a discontinued operation to include only those disposals of components of an entity that represent a strategic shift that has (or will have) a major effect on an entity's operations and financial results (e.g., a disposal of a major geographical area, a major line of business, a major equity method investment or other major parts of an entity). The Company’s adoption of ASU No. 2014-08 resulted in a change in how the Company would record operating results and gains on sales of real estate. Any future sales would not be reflected within discontinued operations in the Company’s Consolidated Statements of Comprehensive Income.

The Company did not have any dispositions during the six months ended June 30, 2015 that qualified for discontinued operations presentation subsequent to its adoption of ASU No. 2014-08. The following table summarizes the operations of the properties included in discontinued operations for the three and six months ended June 30, 2014.


16
GENERAL GROWTH PROPERTIES, INC.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except share and per share amounts)
(Unaudited)


 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
 
2014
 
2014
 
 
 
 
 
Retail and other revenue
 
$
8,436

 
$
18,489

Retail and other operating expenses
 
3,659

 
10,636

Operating income

4,777


7,853

Interest expense, net
 
(385
)
 
(1,862
)
Gains on dispositions
 
117,461

 
122,154

Net income from operations
 
121,853


128,145

Gain on debt extinguishment
 
—

 
66,680

Net income from discontinued operations
 
$
121,853


$
194,825


NOTE 5        FAIR VALUE
 
Nonrecurring Fair Value of Operating Properties
 
We estimate fair value relating to impairment assessments based upon discounted cash flow and direct capitalization models that include all projected cash inflows and outflows over a specific holding period, or the negotiated sales price, if applicable. 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. Based upon these inputs, we determined that our valuations of properties using a discounted cash flow or a direct capitalization model were classified within Level 3 of the fair value hierarchy. For our properties for which the estimated fair value was based on negotiated sales prices, we determined that our valuation was classified within Level 2 of the fair value hierarchy.

Disclosure of Fair Value of Financial Instruments

The fair values of our financial instruments approximate their carrying amount in our consolidated financial statements except for debt. Management’s estimates of fair value are presented below for our debt as of June 30, 2015 and December 31, 2014.
 
 
June 30, 2015
 
December 31, 2014
 
 
Carrying Amount (1)
 
Estimated Fair
Value
 
Carrying Amount (1)
 
Estimated Fair
Value
Fixed-rate debt
 
$
11,760,966

 
$
12,203,737

 
$
13,606,936

 
$
14,211,247

Variable-rate debt
 
1,995,446

 
2,005,375

 
2,391,353

 
2,399,547

 
 
$
13,756,412

 
$
14,209,112

 
$
15,998,289

 
$
16,610,794

 
(1) Includes market rate adjustments of $33.1 million and $19.9 million as of June 30, 2015 and December 31, 2014, respectively.

The fair value of our Junior Subordinated Notes approximates their carrying amount as of June 30, 2015 and December 31, 2014. We estimated the fair value of mortgages, notes and other loans payable using Level 2 and Level 3 inputs based on recent financing transactions, estimates of the fair value of the property that serves as collateral for such debt, historical risk premiums for loans of comparable quality, current London Interbank Offered Rate (“LIBOR”), U.S. treasury obligation interest rates and on the discounted estimated future cash payments to be made on such debt. The discount rates estimated reflect our judgment as to what the approximate current lending rates for loans or groups of loans with similar maturities and assume that the debt is outstanding through maturity. We have utilized market information as available or present value techniques to estimate the amounts required to be disclosed. Since such amounts are estimates that are based on limited available market information for similar transactions and do not acknowledge transfer or other repayment restrictions that may exist in specific loans, it is unlikely that the estimated fair value of any such debt could be realized by immediate settlement of the obligation.


17
GENERAL GROWTH PROPERTIES, INC.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except share and per share amounts)
(Unaudited)


NOTE 6        UNCONSOLIDATED REAL ESTATE AFFILIATES

The following is summarized financial information for all of our Unconsolidated Real Estate Affiliates.
 
June 30, 2015
 
December 31, 2014
Condensed Combined Balance Sheets - Unconsolidated Real Estate Affiliates (1)
 

 
 

Assets:
 

 
 

Land
$
1,749,919

 
$
1,152,485

Buildings and equipment
13,424,126

 
10,009,490

Less accumulated depreciation
(2,948,673
)
 
(2,591,347
)
Construction in progress
795,733

 
125,931

Net property and equipment
13,021,105

 
8,696,559

Investment in unconsolidated joint ventures
436,052

 
16,462

Net investment in real estate
13,457,157


8,713,021

Cash and cash equivalents
403,883

 
308,621

Accounts and notes receivable, net
223,182

 
203,511

Deferred expenses, net
364,387

 
281,835

Prepaid expenses and other assets
606,857

 
594,257

Total assets
$
15,055,466

 
$
10,101,245

 
 
 
 
Liabilities and Owners’ Equity:

 
 

Mortgages, notes and loans payable
$
10,715,342

 
$
7,945,828

Accounts payable, accrued expenses and other liabilities
618,319

 
418,995

Cumulative effect of foreign currency translation (“CFCT”)
(47,062
)
 
(35,238
)
Owners’ equity, excluding CFCT
3,768,867

 
1,771,660

Total liabilities and owners’ equity
$
15,055,466

 
$
10,101,245

 
 
 
 
Investment In and Loans To/From Unconsolidated Real Estate Affiliates, Net:
 

 
 

Owners’ equity
$
3,721,805

 
$
1,736,422

Less: joint venture partners’ equity
(1,732,801
)
 
(861,515
)
Plus: excess investment/basis differences
1,462,604

 
1,694,257

Investment in and loans to/from Unconsolidated Real Estate Affiliates, net
$
3,451,608

 
$
2,569,164

 
 
 
 
Reconciliation - Investment In and Loans To/From Unconsolidated Real Estate Affiliates:
 

 
 

Asset - Investment in and loans to/from Unconsolidated Real Estate Affiliates
$
3,488,329

 
$
2,604,762

Liability - Investment in Unconsolidated Real Estate Affiliates
(36,721
)
 
(35,598
)
Investment in and loans to/from Unconsolidated Real Estate Affiliates, net
$
3,451,608

 
$
2,569,164

 
(1) The Condensed Combined Balance Sheets - Unconsolidated Real Estate Affiliates include Ala Moana Center as of June 30, 2015 as the property was contributed into a joint venture during the first quarter of 2015.


18
GENERAL GROWTH PROPERTIES, INC.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except share and per share amounts)
(Unaudited)


 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
 
2015
 
2014
 
2015
 
2014
Condensed Combined Statements of Income - Unconsolidated Real Estate Affiliates (1)
 
 

 
 

 
 
 
 
Revenues:
 
 

 
 

 
 
 
 
Minimum rents
 
$
259,243

 
$
212,018

 
$
483,202

 
$
397,118

Tenant recoveries
 
110,654

 
87,246

 
208,679

 
174,592

Overage rents
 
5,517

 
4,244

 
11,668

 
9,098

Other
 
12,526

 
7,340

 
25,055

 
19,076

Total revenues
 
387,940

 
310,848

 
728,604

 
599,884

 
 
 
 
 
 
 
 
 
Expenses:
 
 

 
 

 
 
 
 
Real estate taxes
 
35,536

 
26,956

 
62,416

 
54,592

Property maintenance costs
 
10,348

 
8,210

 
23,003

 
19,803

Marketing
 
3,974

 
3,223

 
7,954

 
6,790

Other property operating costs
 
50,989

 
40,819

 
98,558

 
82,715

Provision for doubtful accounts
 
927

 
227

 
4,264

 
1,043

Property management and other costs (2)
 
15,641

 
13,955

 
30,894

 
28,122

General and administrative
 
12,407

 
5,326

 
13,521

 
5,810

Depreciation and amortization
 
99,991

 
76,901

 
193,913

 
152,527

Total expenses
 
229,813

 
175,617

 
434,523

 
351,402

Operating income
 
158,127

 
135,231

 
294,081

 
248,482

 
 
 
 
 
 
 
 
 
Interest income
 
1,609

 
1,301

 
3,563

 
2,848

Interest expense
 
(108,688
)
 
(73,325
)
 
(200,985
)
 
(146,010
)
Provision for income taxes
 
(159
)
 
(91
)
 
(364
)
 
(279
)
Equity in loss of unconsolidated joint ventures
 
(302
)
 
—

 
(482
)
 
—

Income from continuing operations
 
50,587

 
63,116

 
95,813

 
105,041

Net income from disposed investment
 
—

 
454

 
—

 
778

Allocation to noncontrolling interests
 
(8
)
 
(13
)
 
(17
)
 
(17
)
Net income attributable to the ventures
 
$
50,579

 
$
63,557

 
$
95,796

 
$
105,802

 
 
 
 
 
 
 
 
 
Equity In Income of Unconsolidated Real Estate Affiliates:
 
 

 
 

 
 
 
 
Net income attributable to the ventures
 
$
50,579

 
$
63,557

 
$
95,796

 
$
105,802

Joint venture partners’ share of income
 
(24,321
)
 
(34,011
)
 
(46,564
)
 
(58,224
)
Amortization of capital or basis differences
 
(12,980
)
 
(10,226
)
 
(24,702
)
 
(21,101
)
Equity in income of Unconsolidated Real Estate Affiliates
 
$
13,278

 
$
19,320

 
$
24,530

 
$
26,477

 
(1) The Condensed Combined Statements of Income - Unconsolidated Real Estate Affiliates include income from Ala Moana Center subsequent to the formation of the joint venture on February 27, 2015.
(2) Includes management fees charged to the unconsolidated joint ventures by GGMI and GGSI.
 
The Unconsolidated Real Estate Affiliates represents our investments in real estate joint ventures that are not consolidated. We hold interests in 27 domestic joint ventures, comprising 42 U.S. retail properties and two strip/other retail centers, and one joint venture in Brazil. Generally, we share in the profits and losses, cash flows and other matters relating to our investments in Unconsolidated Real Estate Affiliates in accordance with our respective ownership percentages. We manage most of the properties owned by these joint ventures. As we have joint control of these ventures with our venture partners, we account for these joint ventures under the equity method.

On January 29, 2015, we sold our interest in a joint venture that owns Trails Village, which resulted in our recognition of a gain of $12.0 million. The $12.0 million is recognized within Unconsolidated Real Estate Affiliates - gain on investment on our Consolidated Statements of Comprehensive Income.

On April 10, 2015, we sold a 12.5% interest in Ala Moana Center, which resulted in our recognition of a gain of $297.8 million (Note 3). The $297.8 million is recognized within Unconsolidated Real Estate Affiliates - gain on investment on our Consolidated Statements of Comprehensive Income.


19
GENERAL GROWTH PROPERTIES, INC.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except share and per share amounts)
(Unaudited)


To the extent that the Company contributes assets to a joint venture accounted for using the equity method, the Company’s investment in the joint venture is recorded at the Company’s cost basis in the assets that were contributed to the joint venture. The Company will recognize gains and losses on the contribution of its real estate to joint ventures, relating solely to the outside partner’s interest, to the extent the buyer is independent of the Company, the collection of the sales price is reasonably assured, and the Company will not be required to support the operations of the property or its related obligations to an extent greater than its proportionate interest.

Unconsolidated Mortgages, Notes and Loans Payable, and Retained Debt

Our proportionate share of the mortgages, notes and loans payable of the unconsolidated joint ventures was $5.5 billion as of June 30, 2015 and $3.9 billion as of December 31, 2014, including Retained Debt (as defined below). There can be no assurance that the Unconsolidated Properties will be able to refinance or restructure such debt on acceptable terms or otherwise, or that joint venture operations or contributions by us and/or our partners will be sufficient to repay such loans.

We have debt obligations in excess of our pro rata share of the debt for one of our Unconsolidated Real Estate Affiliates (“Retained Debt”). This Retained Debt represents distributed debt proceeds of the Unconsolidated Real Estate Affiliates in excess of our pro rata share of the non-recourse mortgage indebtedness. The proceeds of the Retained Debt which were distributed to us are included as a reduction in our investment in Unconsolidated Real Estate Affiliates. We had retained debt of $88.6 million at one property as of June 30, 2015, and $89.3 million as of December 31, 2014. We are obligated to contribute funds on an ongoing basis, as needed, to our Unconsolidated Real Estate Affiliates in amounts sufficient to pay debt service on such Retained Debt. If we do not contribute such funds, our distributions from such Unconsolidated Real Estate Affiliates, or our interest in, could be reduced to the extent of such deficiencies. As of June 30, 2015, we do not anticipate an inability to perform on our obligations with respect to Retained Debt.

NOTE 7        MORTGAGES, NOTES AND LOANS PAYABLE

Mortgages, notes and loans payable and the weighted-average interest rates are summarized as follows:
 
 
June 30, 2015 (1)
 
Weighted-Average
Interest Rate (2)
 
December 31, 2014 (3)
 
Weighted-Average
Interest Rate (2)
 
 
 
 
 
 
 
 
 
Fixed-rate debt:
 
 

 
 

 
 

 
 

Collateralized mortgages, notes and loans payable (4)
 
$
11,757,565

 
4.45
%
 
$
13,600,337

 
4.52
%
Corporate and other unsecured loans
 
3,401

 
4.41
%
 
6,599

 
4.41
%
Total fixed-rate debt
 
11,760,966

 
4.45
%
 
13,606,936

 
4.52
%
Variable-rate debt:
 
 

 
 

 
 

 
 

Collateralized mortgages, notes and loans payable (4)
 
1,995,446

 
2.00
%
 
2,291,353

 
2.00
%
Revolving credit facility
 
—

 
—

 
100,000

 
1.73
%
Total variable-rate debt
 
1,995,446

 
2.00
%
 
2,391,353

 
1.99
%
 
 
 
 
 
 
 
 
 
Total Mortgages, notes and loans payable
 
$
13,756,412

 
4.09
%
 
$
15,998,289

 
4.14
%
 
 
 
 
 
 
 
 
 
Junior subordinated notes
 
$
206,200

 
1.73
%
 
$
206,200

 
1.68
%
 
(1) Includes $33.1 million of market rate adjustments, net.
(2) Represents the weighted-average interest rates on our contractual principal balances.
(3) Includes $19.9 million of market rate adjustments, net.
(4) $100.0 million of the fixed-rate balance and $1.4 billion of the variable-rate balance is cross-collateralized.
 
Collateralized Mortgages, Notes and Loans Payable

As of June 30, 2015, $17.9 billion of land, buildings and equipment (before accumulated depreciation) and construction in progress have been pledged as collateral for our mortgages, notes and loans payable. Certain of these consolidated secured loans, representing $1.5 billion of debt, are cross-collateralized with other properties. Although a majority of the $13.8 billion of fixed and variable

20
GENERAL GROWTH PROPERTIES, INC.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except share and per share amounts)
(Unaudited)


rate collateralized mortgages, notes and loans payable are non-recourse, $1.7 billion of such mortgages, notes and loans payable are recourse to the Company as guarantees on secured financings. In addition, certain mortgage loans contain other credit enhancement provisions which have been provided by GGP. Certain mortgages, notes and loans 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.

During the six months ended June 30, 2015, we refinanced consolidated mortgage notes totaling $570.0 million at two properties and generated net proceeds of $200.0 million. The prior loans totaling $370.0 million had a weighted-average term-to-maturity of 1.6 years, and a weighted-average interest rate of 5.8%. The new loans have a weighted-average term-to-maturity of 11.2 years, and a weighted-average interest rate of 3.7%. In addition, we paid down $594.3 million of consolidated mortgage notes at five properties. The prior loans had a weighted-average term-to-maturity of 1.5 years, and a weighted-average interest rate of 5.3%.

Corporate and Other Unsecured Loans

We have certain unsecured debt obligations, the terms of which are described below:
 
 
June 30, 2015 (2)
 
Weighted-Average
Interest Rate
 
December 31, 2014 (2)
 
Weighted-Average
Interest Rate
Unsecured debt:
 
 

 
 

 
 

 
 

HHC Note (1)
 
$
3,404

 
4.41
%
 
$
6,735

 
4.41
%
Revolving credit facility
 
—

 
—

 
100,000

 
1.73
%
Total unsecured debt
 
$
3,404

 
4.41
%
 
$
106,735

 
1.90
%
 
(1) Matures in December 2015.
(2) Excludes minimal market rate discounts that decrease the total amount that appears outstanding in our Consolidated Balance Sheets. The market rate discount amortizes as an addition to interest expense over the life of the loan.
 
Our revolving credit facility (the “Facility”) as amended on October 23, 2013, provides for revolving loans of up to $1.1 billion. The Facility has an uncommitted accordion feature for a total facility of up to $1.5 billion. The Facility is scheduled to mature in October 2018 and is unsecured. Borrowings under the Facility bear interest at a rate equal to LIBOR plus 132.5 to 195 basis points, which is determined by the Company’s leverage level. The Facility contains certain restrictive covenants which limit material changes in the nature of our business conducted, including but not limited to, mergers, dissolutions or liquidations, dispositions of assets, liens, incurrence of additional indebtedness, dividends, transactions with affiliates, prepayment of subordinated debt, negative pledges and changes in fiscal periods. In addition, we are required not to exceed a maximum net debt-to-value ratio, a maximum leverage ratio and a minimum net cash interest coverage ratio; we are not aware of any instances of non-compliance with such covenants as of June 30, 2015. No amounts are outstanding on the Facility, as of June 30, 2015.

Junior Subordinated Notes

GGP Capital Trust I, a Delaware statutory trust (the “Trust”) and a wholly-owned subsidiary of GGPN, completed a private placement of $200.0 million of trust preferred securities (“TRUPS”) in 2006. The Trust also issued $6.2 million of Common Securities to GGPOP. The Trust used the proceeds from the sale of the TRUPS and Common Securities to purchase $206.2 million of floating rate Junior subordinated notes of GGPOP due 2036. Distributions on the TRUPS are equal to LIBOR plus 1.45%. Distributions are cumulative and accrue from the date of original issuance. The TRUPS mature on April 30, 2036, but may be redeemed beginning on April 30, 2011 if the Trust exercises its right to redeem a like amount of Junior subordinated notes. The Junior subordinated notes bear interest at LIBOR plus 1.45% and are fully recourse to the Company. Though the Trust currently is a wholly-owned subsidiary of GGPN, we are not the primary beneficiary of the Trust and, accordingly, it is not consolidated for accounting purposes. We have recorded the Junior subordinated notes as a liability and our common equity interest in the Trust as prepaid expenses and other assets in our Consolidated Balance Sheets as of June 30, 2015 and December 31, 2014.


21
GENERAL GROWTH PROPERTIES, INC.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except share and per share amounts)
(Unaudited)


Letters of Credit and Surety Bonds

We had outstanding letters of credit and surety bonds of $49.7 million as of June 30, 2015 and $49.1 million as of December 31, 2014. These letters of credit and bonds were issued primarily in connection with insurance requirements, special real estate assessments and construction obligations.

We are not aware of any instances of non-compliance with our financial covenants related to our mortgages, notes and loans payable as of June 30, 2015.

NOTE 8        INCOME TAXES

We have elected to be taxed as a REIT under the Internal Revenue Code. We intend to maintain REIT status. To qualify as a REIT, the Company must meet a number of organizational and operational requirements, including a requirement to distribute at least 90% of our taxable ordinary income. In addition, the Company is required to meet certain asset and income tests.

As a REIT, we will generally not be subject to corporate level Federal income tax on taxable income we distribute currently to our stockholders. If we fail to qualify as a REIT in any taxable year, we will be subject to Federal income taxes at regular corporate rates (including any applicable alternative minimum tax) and may not be able to qualify as a REIT for four subsequent taxable years. Even if we qualify for taxation as a REIT, we may be subject to certain state and local taxes on our income or property, and to Federal income and excise taxes on our undistributed taxable income and capital gains. We are currently statutorily open to audit by the Internal Revenue Service for the years ended December 31, 2011 through 2014 and are statutorily open to audit by state taxing authorities for the years ended December 31, 2010 through 2014.

We believe that it is reasonably possible that all of our currently remaining unrecognized tax benefits may be recognized by the end of 2015 upon the expiration of the statute of limitations.

NOTE 9        WARRANTS

Brookfield owns 73,930,000 warrants (the “Warrants”) to purchase common stock of GGP with an initial weighted average exercise price of $10.70. Each Warrant was fully vested upon issuance, has a term of seven years and expires on November 9, 2017. Below is a summary of Warrants that were originally issued and are still outstanding.

Initial Warrant Holder
 
 Number of Warrants
 
Initial Exercise Price
Brookfield - A
 
57,500,000

 
$
10.75

Brookfield - B
 
16,430,000

 
10.50

 
 
73,930,000

 
 

 
The exercise prices of the Warrants are subject to adjustment for future dividends, stock dividends, distribution of assets, stock splits or reverse splits of our common stock or certain other events. In accordance with the agreement, these calculations adjust both the exercise price and the number of shares issuable for the originally issued 73,930,000 Warrants. During 2014 and 2015, the number of shares issuable upon exercise of the outstanding Warrants changed as follows:

 
 
 
 
Exercise Price
Record Date
 
Issuable Shares
 
 Brookfield - A
 
Brookfield - B
April 15, 2014
 
85,668,428

 
9.28

 
9.06

July 15, 2014
 
86,215,500

 
9.22

 
9.01

October 15, 2014
 
86,806,928

 
9.16

 
8.94

December 15, 2014
 
87,353,999

 
9.10

 
8.89

April 15, 2015
 
87,856,714

 
9.05

 
8.84

 


22
GENERAL GROWTH PROPERTIES, INC.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except share and per share amounts)
(Unaudited)


Brookfield has the option for 57,500,000 Warrants to either full share settle (i.e. deliver cash for the exercise price of the Warrants in the amount of approximately $618 million in exchange for approximately 68,000,000 shares of common stock) or net share settle. The remaining 16,430,000 Warrants owned or managed by Brookfield must be net share settled. As of June 30, 2015, the Warrants are exercisable into approximately 57 million common shares of the Company, at a weighted-average exercise price of approximately $9.00 per share. Due to their ownership of Warrants, Brookfield’s potential ownership of the Company may change as a result of payments of dividends and changes in our stock price.

NOTE 10    EQUITY AND REDEEMABLE NONCONTROLLING INTERESTS

Allocation to Noncontrolling Interests

Noncontrolling interests consists of the redeemable interests related to GGPOP Common, Preferred and LTIP Units and the noncontrolling interest in our consolidated joint ventures. The following table reflects the activity included in the allocation to noncontrolling interests.
 
 
Three months ended June 30,
 
Six months ended June 30,
 
 
2015
 
2014
 
2015
 
2014
Distributions to preferred GGPOP units
 
$
(2,232
)
 
$
(2,232
)
 
$
(4,464
)
 
$
(4,464
)
Net income allocation to noncontrolling interests in GGPOP from continuing operations (common units)
 
(2,283
)
 
(973
)
 
(5,722
)
 
(1,637
)
Net income allocation to noncontrolling interests in GGPOP from continuing operations (LTIP units)
 
(887
)
 
—

 
(1,793
)
 
—

Net income allocated to noncontrolling interest in consolidated real estate affiliates
 
(511
)
 
(160
)
 
(953
)
 
(1,116
)
Allocation to noncontrolling interests
 
(5,913
)
 
(3,365
)
 
(12,932
)
 
(7,217
)
Other comprehensive (income) loss allocated to noncontrolling interests
 
(22
)
 
163

 
207

 
148

Comprehensive income allocated to noncontrolling interests
 
$
(5,935
)
 
$
(3,202
)
 
$
(12,725
)
 
$
(7,069
)

Redeemable Noncontrolling Interests

The noncontrolling interest related to the Common, Preferred, and LTIP Units of GGPOP are presented either as redeemable noncontrolling interests or as noncontrolling interests in our permanent equity on our Consolidated Balance Sheets. Classification as redeemable or permanent equity is considered on a tranche-by-tranche basis and is dependent on whether we could be required, under certain events outside of our control, to redeem the securities for cash by the holders of the securities. Those tranches for which we could be required to redeem the security for cash are included in redeemable equity. If we control the decision to redeem the securities for cash, the securities are classified as permanent equity.

The Common and Preferred Units of GGPOP are recorded at the greater of the carrying amount adjusted for the noncontrolling interest’s share of the allocation of income or loss (and its share of other comprehensive income or loss) and dividends or their redemption value (i.e. fair value) as of each measurement date. The excess of the fair value over the carrying amount from period to period is recorded within additional paid-in capital in our Consolidated Balance Sheets. Allocation to noncontrolling interests is presented as an adjustment to net income to arrive at Net income (loss) attributable to General Growth Properties, Inc.

The common redeemable noncontrolling interests have been recorded at fair value for all periods presented. One tranche of preferred redeemable noncontrolling interests has been recorded at fair value, while the other tranches of preferred redeemable noncontrolling interests have been recorded at carrying value.

Generally, the holders of the Common Units share in any distributions by GGPOP with our common stockholders. However, the GGPOP operating partnership agreement permits distributions solely to GGP if such distributions were required to allow GGP to comply with the REIT distribution requirements or to avoid the imposition of excise tax. Under certain circumstances, the conversion rate for each Common Unit is required to be adjusted to give effect to stock distributions. If the holders had requested redemption of the Common Units as of June 30, 2015, the aggregate amount of cash we would have paid would have been $153.3 million.

23
GENERAL GROWTH PROPERTIES, INC.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except share and per share amounts)
(Unaudited)



GGPOP issued Preferred Units that are convertible into Common Units of GGPOP at the rates below (subject to adjustment). The holder may convert the Preferred Units into Common Units of GGPOP at any time, subject to certain restrictions. The Common Units are convertible into common stock at approximately a one-to-one ratio at the current stock price.
 
 
Number of Common Units for each Preferred Unit
 
Number of Contractual Preferred Units Outstanding as of June 30, 2015
 
Converted Basis to Common Units Outstanding as of June 30, 2015
 
Conversion Price
 
Redemption Value (1)
Series B
 
3.00000

 
1,268,957

 
3,806,871

 
$
16.66670

 
101,569

Series D
 
1.50821

 
532,750

 
803,498

 
33.15188

 
26,637

Series E
 
1.29836

 
502,658

 
652,631

 
38.51000

 
25,133

 
 
 

 
 

 
 

 
 

 
$
153,339

 
(1) The conversion price of Series B preferred units is lower than the GGP June 30, 2015 closing common stock price of $25.66; therefore, the June 30, 2015 common stock price of $25.66, and an additional conversion rate of 1.0397624 shares is used to calculate the Series B redemption value.

The following table reflects the activity of the redeemable noncontrolling interests for the six months ended June 30, 2015, and 2014.
Balance at January 1, 2014
$
228,902

Net income
1,637

Distributions
(1,450
)
Other comprehensive loss
(148
)
Fair value adjustment for noncontrolling interests in Operating Partnership
30,762

Balance at June 30, 2014
$
259,703

 
 
Balance at January 1, 2015
$
299,296

Net income
5,722

Distributions
(2,222
)
Redemption of GGPOP units
(713
)
Other comprehensive loss
(207
)
Fair value adjustment for noncontrolling interests in Operating Partnership
(25,509
)
Balance at June 30, 2015
$
276,367


Common Stock Dividend

Our Board of Directors declared common stock dividends during 2015 and 2014 as follows:

Declaration Date
 
Record Date
 
Payment Date
 
Dividend Per Share
2015
 
 
 
 
 
 
May 21
 
July 15
 
July 31, 2015
 
$
0.17

February 19
 
April 15
 
April 30, 2015
 
0.17

2014
 
 
 
 
 
 
November 14
 
December 15
 
January 2, 2015
 
$
0.17

August 12
 
October 15
 
October 31, 2014
 
0.16

May 15
 
July 15
 
July 31, 2014
 
0.15

February 26
 
April 15
 
April 30, 2014
 
0.15


24
GENERAL GROWTH PROPERTIES, INC.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except share and per share amounts)
(Unaudited)



Our Dividend Reinvestment Plan (“DRIP”) provides eligible holders of GGP’s common stock with a convenient method of increasing their investment in the Company by reinvesting all or a portion of cash dividends in additional shares of common stock. Eligible stockholders who enroll in the DRIP on or before the fourth business day preceding the record date for a dividend payment will be able to have that dividend reinvested. As a result of the DRIP elections, 8,876 shares were issued during the six months ended June 30, 2015 and 11,790 shares were issued during the six months ended June 30, 2014.

Common Stock Purchase

In June 2015, we entered into transactions to purchase 650,000 shares of our common stock on multiple exchanges through the open market at a weighted average price of $26.00 per share (Note 18). These shares are presented as Common stock in treasury on our Consolidated Balance Sheets as of June 30, 2015.

Preferred Stock

On February 13, 2013, we issued, in a public offering, 10,000,000 shares of 6.375% Series A Cumulative Perpetual Preferred Stock (the “Preferred Stock”) at a price of $25.00 per share, resulting in net proceeds of $242.0 million after issuance costs. The Preferred Stock is recorded net of issuance costs within equity on our Consolidated Balance Sheets, and accrues a quarterly dividend at an annual rate of 6.375%. The dividend is paid in arrears in preference to dividends on our common stock, and reduces net income available to common stockholders, and therefore, earnings per share.

The Preferred Stock does not have a stated maturity date but we may redeem the Preferred Stock after February 12, 2018, for $25.00 per share plus all accrued and unpaid dividends. We may redeem the Preferred Stock prior to February 12, 2018, in limited circumstances that preserve ownership limits and/or our status as a REIT, as well as during certain circumstances surrounding a change of control. Upon certain circumstances surrounding a change of control, holders of Preferred Stock may elect to convert each share of their Preferred Stock into a number of shares of GGP common stock equivalent to $25.00 plus accrued and unpaid dividends, but not to exceed a cap of 2.4679 common shares (subject to certain adjustments related to GGP common share splits, subdivisions, or combinations).
 
Our Board of Directors declared preferred stock dividends during 2015 and 2014 as follows:
Declaration Date
 
Record Date
 
Payment Date
 
Dividend Per Share
2015
 
 
 
 
 
 
May 21
 
June 15
 
July 1, 2015
 
$
0.3984

February 19
 
March 16
 
April 1, 2015
 
0.3984

2014
 
 
 
 
 
 
November 14
 
December 15
 
January 2, 2015
 
$
0.3984

August 12
 
September 15
 
October 1, 2014
 
0.3984

May 15
 
June 16
 
July 1, 2014
 
0.3984

February 26
 
March 17
 
April 1, 2014
 
0.3984


NOTE 11    EARNINGS PER SHARE

Basic earnings per share (“EPS”) is computed by dividing net income available to common stockholders by the weighted-average number of common shares outstanding. Diluted EPS is computed after adjusting the numerator and denominator of the basic EPS computation for the effects of all potentially dilutive common shares. The dilutive effect of the Warrants and the dilutive effect of options and their equivalents (including fixed awards and nonvested stock issued under stock-based compensation plans), are computed using the “treasury” method.


25
GENERAL GROWTH PROPERTIES, INC.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except share and per share amounts)
(Unaudited)


Information related to our EPS calculations is summarized as follows:

 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
 
2015
 
2014
 
2015
 
2014
Numerators - Basic and Diluted:
 
 

 
 

 
 
 
 
Income from continuing operations
 
$
427,853

 
$
55,236

 
$
1,069,601

 
$
114,152

Preferred Stock dividends
 
(3,984
)
 
(3,984
)
 
(7,968
)
 
(7,968
)
Allocation to noncontrolling interests
 
(5,913
)
 
(2,687
)
 
(12,932
)
 
(6,175
)
Income from continuing operations - attributable to common stockholders
 
417,956

 
48,565

 
1,048,701

 
100,009

 
 
 
 
 
 
 
 
 
Discontinued operations
 
—

 
121,853

 
—

 
194,825

Allocation to noncontrolling interests
 
—

 
(678
)
 
—

 
(1,042
)
Discontinued operations - net of noncontrolling interests
 
—

 
121,175

 
—

 
193,783

 
 
 
 
 
 
 
 
 
Net income
 
427,853

 
177,089

 
1,069,601

 
308,977

Preferred Stock dividends
 
(3,984
)
 
(3,984
)
 
(7,968
)
 
(7,968
)
Allocation to noncontrolling interests
 
(5,913
)
 
(3,365
)
 
(12,932
)
 
(7,217
)
Net income attributable to common stockholders
 
$
417,956

 
$
169,740

 
$
1,048,701

 
$
293,792

 
 
 
 
 
 
 
 
 
Denominators:
 
 

 
 

 
 
 
 
Weighted-average number of common shares outstanding - basic
 
886,218

 
883,763

 
885,842

 
889,975

Effect of dilutive securities
 
66,371

 
56,962

 
67,644

 
54,408

Weighted-average number of common shares outstanding - diluted
 
952,589

 
940,725

 
953,486

 
944,383

 
 
 
 
 
 
 
 
 
Anti-dilutive Securities:
 
 

 
 

 
 
 
 
Effect of Preferred Units
 
5,472

 
5,506

 
5,472

 
5,506

Effect of Common Units
 
4,795

 
4,834

 
4,797

 
4,834

Effect of LTIP Common Units
 
1,732

 
—

 
1,495

 
—

Weighted-average number of anti-dilutive securities
 
11,999

 
10,340

 
11,764

 
10,340

 
For the three and six months ended June 30, 2015 and 2014, dilutive options and dilutive shares related to the Warrants are included in the denominator of EPS.

Outstanding Common Units and LTIP Common Units have been excluded from the diluted EPS calculation for all periods presented because including such units would also require that the share of GGPOP income attributable to such units be added back to net income therefore resulting in no effect on EPS. Outstanding Preferred Units have been excluded from the diluted EPS calculation for all periods presented because including the Preferred Units would also require that the Preferred Unit dividend be added back to the net income, resulting in them being anti-dilutive.

GGP owned 56,619,390 and 55,969,390 shares of treasury stock as of June 30, 2015 and June 30, 2014 respectively. These shares are presented as Common stock in treasury, at cost, on our Consolidated Balance Sheets. Accordingly, these shares have been excluded from the calculation of EPS.


26
GENERAL GROWTH PROPERTIES, INC.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except share and per share amounts)
(Unaudited)


NOTE 12    STOCK-BASED COMPENSATION PLANS

The General Growth Properties, Inc. 2010 Equity Plan (the ‘‘Equity Plan’’) reserved for issuance of 4% of outstanding shares on a fully diluted basis. The Equity Plan provides for grants of nonqualified stock options, incentive stock options, stock appreciation rights, restricted stock, other stock-based awards and performance-based compensation (collectively, the ‘‘Awards’’). Directors, officers and other employees of GGP’s and its subsidiaries and affiliates are eligible for the Awards. The Equity Plan is not subject to the Employee Retirement Income Security Act of 1974, as amended. No participant may be granted more than 4,000,000 shares, or the equivalent dollar value of such shares, in any year. Options granted under the Equity Plan will be designated as either nonqualified stock options or incentive stock options. An option granted as an incentive stock option will, to the extent it fails to qualify as an incentive stock option, be treated as a nonqualified option. The exercise price of an option may not be less than the fair value of a share of GGP’s common stock on the date of grant. The term of each option will be determined prior to the date of grant, but may not exceed 10 years.

On November 12, 2014, the Company’s Equity Plan was amended to allow for the grant of LTIP Units to certain officers, directors, and employees of the Company as an alternative to the Company’s stock options. LTIP Units are classes of partnership interests that under certain conditions, including vesting, are convertible by the holder into Common Units, which are redeemable by the holder for Common Shares on a one-to-one ratio (subject to adjustment for changes to GGP’s capital structure) or for the cash value of such shares at the option of the Company.

Compensation expense related to stock-based compensation plans for the three and six months ended June 30, 2015, and 2014 is summarized in the following table in thousands:
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2015
 
2014
 
2015
 
2014
Stock options - Property management and other costs
$
1,803

 
$
1,792

 
$
3,692

 
$
3,997

Stock options - General and administrative
2,746

 
3,574

 
5,540

 
8,270

Restricted stock - Property management and other costs
769

 
446

 
1,542

 
867

Restricted stock - General and administrative
163

 
279

 
311

 
555

LTIP Units - Property management and other costs
221

 
—

 
605

 
—

LTIP Units - General and administrative
2,512

 
—

 
4,978

 
—

Total
$
8,214

 
$
6,091

 
$
16,668

 
$
13,689


The following tables summarize stock option and LTIP Unit activity for the Equity Plan for GGP for the six months ended June 30, 2015, and 2014:
 
2015
 
2014
 
Shares
 
Weighted Average
Exercise
Price
 
Shares
 
Weighted Average
Exercise
Price
Stock options Outstanding at January 1,
19,744,224

 
$
17.36

 
21,565,281

 
$
17.28

Granted
267,253

 
29.15

 
50,000

 
22.41

Exercised
(1,046,515
)
 
16.84

 
(83,724
)
 
15.78

Forfeited
(223,195
)
 
19.98

 
(244,346
)
 
19.06

Expired
(3,332
)
 
19.24

 
(8,102
)
 
14.39

Stock options Outstanding at June 30,
18,738,435

 
$
17.52

 
21,279,109

 
$
17.28



27
GENERAL GROWTH PROPERTIES, INC.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except share and per share amounts)
(Unaudited)



2015
 
2014

Shares
 
Weighted Average Exercise Price
 
Shares
 
Weighted Average Exercise Price
LTIP Units Outstanding at January 1,
—

 
$
—

 
—

 
$
—

Granted
1,758,396

 
29.33

 
—

 
—

Exercised
—

 
—

 
—

 
—

Forfeited
(8,846
)
 
29.15

 
—

 
—

Expired
—

 
—

 
—

 
—

LTIP Units Outstanding at June 30,
1,749,550

 
$
29.33

 
—

 
$
—


There was no significant restricted stock activity for the six months ended June 30, 2015 and 2014.

NOTE 13    ACCOUNTS AND NOTES RECEIVABLE, NET

The following table summarizes the significant components of Accounts and notes receivable, net.
 
 
June 30, 2015
 
December 31, 2014
Trade receivables
 
$
96,675

 
$
124,698

Notes receivable
 
511,695

 
320,881

Straight-line rent receivable
 
226,491

 
230,172

Other accounts receivable
 
3,590

 
3,638

Total accounts and notes receivable
 
838,451

 
679,389

Provision for doubtful accounts
 
(14,747
)
 
(15,621
)
Total accounts and notes receivable, net
 
$
823,704

 
$
663,768


Notes receivable includes $204.3 million of notes receivables from our joint venture partners related to the acquisition of 730 Fifth Avenue in New York, New York (Note 3). The first note was issued for $104.3 million, bears interest at 8.0% compounded annually and matures on February 12, 2025. The second note was issued for $100.0 million to the joint venture partner acquiring the office portion of the property and bears interest at LIBOR plus 13.2% subject to terms and conditions in the loan agreement and matures on April 17, 2025.

Also included in notes receivable is $96.7 million and $44.1 million due from our joint venture partner related to the acquisition of the properties at 685 Fifth Avenue and 530 Fifth Avenue in New York, New York. The notes receivable bear interest at 7.5% and 9% respectively. Interest is compounded quarterly with accrued but unpaid interest increasing the loan balance The notes are collateralized by our partner's ownership interest in the joint ventures. The loans mature on June 27, 2024 and June 18, 2024, respectively.

Included in notes receivable is a $114.3 million note receivable issued to Rique Empreendimentos e Participacoes Ltda. (“Rique”) in conjunction with our sale of Aliansce Shopping Centers, S.A. (“Aliansce”) to Rique and Canada Pension Plan Investment Board on September 30, 2013. The note receivable is denominated in Brazilian Reais, bears interest at an effective interest rate of approximately 14%, is collateralized by shares of common stock in Aliansce, and requires annual principal and interest payments over the term. On May 28, 2015, we agreed to extend the term of the note receivable issued to Rique by five years through September 30, 2023. This extension did not change the effective interest rate. We recognize the impact of changes in the exchange rate on the note receivable as gain or loss on foreign currency in our Consolidated Statements of Comprehensive Income.

NOTE 14    PREPAID EXPENSES AND OTHER ASSETS
 
The following table summarizes the significant components of Prepaid expenses and other assets.

28
GENERAL GROWTH PROPERTIES, INC.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except share and per share amounts)
(Unaudited)


 
June 30, 2015
 
December 31, 2014
 
Gross Asset
 
Accumulated
Amortization
 
Balance
 
Gross Asset
 
Accumulated
Amortization
 
Balance
Intangible assets:
 

 
 

 
 

 
 

 
 

 
 

Above-market tenant leases, net
$
692,940

 
$
(411,954
)
 
$
280,986

 
$
870,103

 
$
(498,016
)
 
$
372,087

Below-market ground leases, net
119,545

 
(9,714
)
 
109,831

 
119,866

 
(8,906
)
 
110,960

Real estate tax stabilization agreement, net
111,506

 
(29,302
)
 
82,204

 
111,506

 
(26,146
)
 
85,360

Total intangible assets
$
923,991


$
(450,970
)
 
$
473,021

 
$
1,101,475


$
(533,068
)
 
$
568,407

 
 
 
 
 
 
 
 
 
 
 
 
Remaining prepaid expenses and other assets:
 

 
 

 
 

 
 

 
 

 
 

Security and escrow deposits
 

 
 

 
81,511

 
 
 
 
 
93,676

Prepaid expenses
 

 
 

 
43,293

 
 
 
 
 
76,306

Other non-tenant receivables (1)
 

 
 

 
282,200

 
 
 
 
 
28,712

Deferred tax, net of valuation allowances
 

 
 

 
7,123

 
 
 
 
 
4,220

Other
 

 
 

 
27,779

 
 
 
 
 
42,456

Total remaining prepaid expenses and other assets
 

 
 

 
441,906

 
 

 
 

 
245,370

Total prepaid expenses and other assets
 

 
 

 
$
914,927

 
 

 
 

 
$
813,777

 
(1) Includes receivable due from our joint venture partners due upon completion of the redevelopment at Ala Moana.

NOTE 15    ACCOUNTS PAYABLE AND ACCRUED EXPENSES

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

29
GENERAL GROWTH PROPERTIES, INC.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except share and per share amounts)
(Unaudited)


 
June 30, 2015
 
December 31, 2014
 
Gross Liability
 
Accumulated
Accretion
 
Balance
 
Gross Liability
 
Accumulated
Accretion
 
Balance
Intangible liabilities:
 

 
 

 
 

 
 

 
 

 
 

Below-market tenant leases, net
392,522

 
(203,589
)
 
$
188,933

 
502,919

 
(259,390
)
 
$
243,529

Above-market headquarters office leases, net
15,268

 
(7,736
)
 
$
7,532

 
15,268

 
(6,867
)
 
$
8,401

Above-market ground leases, net
9,127

 
(1,706
)
 
$
7,421

 
9,127

 
(1,522
)
 
$
7,605

Total intangible liabilities
$
416,917


$
(213,031
)
 
$
203,886

 
$
527,314


$
(267,779
)
 
$
259,535

 
 
 
 
 
 
 
 
 
 
 
 
Remaining Accounts payable and accrued expenses:
 

 
 

 
 

 
 

 
 

 
 

Accrued interest
 

 
 

 
45,945

 
 

 
 

 
54,332

Accounts payable and accrued expenses
 

 
 

 
68,304

 
 

 
 

 
82,292

Accrued real estate taxes
 

 
 

 
81,709

 
 

 
 

 
85,910

Deferred gains/income
 

 
 

 
106,061

 
 

 
 

 
114,968

Accrued payroll and other employee liabilities
 

 
 

 
37,303

 
 

 
 

 
55,059

Construction payable
 

 
 

 
94,429

 
 

 
 

 
198,471

Tenant and other deposits
 

 
 

 
11,966

 
 

 
 

 
21,423

Insurance reserve liability
 

 
 

 
16,707

 
 

 
 

 
16,509

Capital lease obligations
 

 
 

 
11,727

 
 

 
 

 
12,066

Conditional asset retirement obligation liability
 

 
 

 
9,200

 
 

 
 

 
10,135

Uncertain tax position liability
 

 
 

 
5,252

 
 

 
 

 
6,663

Other
 

 
 

 
27,056

 
 

 
 

 
17,534

Total remaining Accounts payable and accrued expenses
 

 
 

 
515,659

 
 

 
 

 
675,362

Total Accounts payable and accrued expenses
 

 
 

 
$
719,545

 
 

 
 

 
$
934,897


NOTE 16    LITIGATION

In the normal course of business, from time to time, we are involved in legal proceedings relating to the ownership and operations of our properties. In management’s opinion, the liabilities, if any, that may ultimately result from such legal actions are not expected to have a material effect on our consolidated financial position, results of operations or liquidity. Neither the Company nor any of the Unconsolidated Real Estate Affiliates is currently involved in any material pending legal proceedings nor, to our knowledge, is any material legal proceeding currently threatened against the Company or any of the Unconsolidated Real Estate Affiliates.

NOTE 17    COMMITMENTS AND CONTINGENCIES

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 been straight-lined over the term of the lease, to the extent applicable. The following is a summary of our contractual rental expense as presented in our Consolidated Statements of Comprehensive Income:

30
GENERAL GROWTH PROPERTIES, INC.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except share and per share amounts)
(Unaudited)


 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
 
2015
 
2014
 
2015
 
2014
 
 
(Dollars in thousands)
 
 
 
 
Contractual rent expense, including participation rent
 
$
2,032

 
$
3,193

 
$
4,332

 
$
6,452

Contractual rent expense, including participation rent and excluding amortization of above and below-market ground leases and straight-line rent
 
1,444

 
2,039

 
3,141

 
4,142


NOTE 18    SUBSEQUENT EVENTS

As of June 30, 2015, we entered into transactions to purchase 650,000 shares of our common stock for a net settlement of $16.9 million. This is shown as treasury stock on the Consolidated Balance Sheet as of June 30, 2015. Subsequent to June 30, 2015, these shares were canceled and removed from treasury stock.

On July 7, 2015, we purchased 1,125,760 shares of Seritage Growth Properties common stock at $29.58 per share for a total of $33.3 million as part of the spinoff of Sears Holdings Corporation.

31

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 whose 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.

Overview

Our primary business is owning and operating best-in-class retail properties that provide an outstanding environment and experience for our communities, retailers, employees, consumers and shareholders. We are an S&P 500 real estate company with a property portfolio comprised primarily of Class A malls (defined by sales per square foot) and urban retail properties. Our properties are the core centers of retail, dining, and entertainment within their trade areas and, therefore, represent hubs of such activity predominantly located in the United States. As of June 30, 2015, we own, either entirely or with joint venture partners, 131 retail properties located throughout the United States comprising approximately 127 million square feet of gross leasable area ("GLA").

We provide management and other services to substantially all of our properties, including properties which we own through joint venture arrangements and which are unconsolidated for GAAP purposes. Our management operating philosophies and strategies are the same whether the properties are consolidated or unconsolidated.

We seek to increase long-term Company NOI and Company EBITDA (as defined below) growth through proactive management and leasing of our properties. We believe that the most significant operating factor affecting incremental cash flow, Company NOI and Company EBITDA growth is increased rents earned from tenants at our properties. This growth is primarily achieved by:

•
contractual fixed rental increases;
•
positive re-leasing spreads on a suite-to-suite basis;
•
income from redevelopment projects;
•
opportunistic acquisition of high quality retail properties; and
•
managing operating expenses.

As of June 30, 2015, the level of long-term, or “permanent” occupancy, was 90.2%. Since June 30, 2014, we have seen an increase in rents between the rent paid on expiring leases and the rent commencing under new leases, on a suite-to-suite basis. On a suite-to-suite basis, the leases commencing occupancy in 2015 exhibited initial rents that were 10.40% higher than the final rents paid on expiring leases.

We may recycle capital by opportunistically investing in high quality retail properties. In addition, controlling operating expenses by leveraging our scale to maximize synergies is a critical component to Company NOI and Company EBITDA growth.

We have identified approximately $2.1 billion of income producing development and redevelopment projects within our portfolio, over 80% of which is being invested into Class A malls. We currently expect to achieve average returns of approximately 9-11% for all projects.

We believe our long-term strategy can provide our shareholders with a competitive risk-adjusted total return comprised of dividends and share price appreciation.

Financial Overview

Our Company NOI (as defined below) increased 3.7% from $1,049.2 million for the six months ended June 30, 2014 to $1,088.3 million for the six months ended June 30, 2015. Our Company FFO (as defined below) increased 6.4% from $590.0 million for the six months ended June 30, 2014 to $627.9 million for the six months ended June 30, 2015. Net income attributable to General Growth Properties, Inc. increased from $301.8 million for the six months ended June 30, 2014 to $1,056.7 million for the six months ended June 30, 2015.

See Non-GAAP Supplemental Financial Measures below for a discussion of Company NOI and Company FFO, along with a reconciliation to the comparable GAAP measures, Operating income and Net income attributable to General Growth Properties, Inc.


32

Operating Metrics

The following table summarizes selected operating metrics for our portfolio.
 
June 30, 2015 (1)
 
June 30, 2014 (1)
 
% Change
In-Place Rents per square foot (2)
 

 
 

 
 

Consolidated Properties
$
65.09

 
$
67.93

 
(4.18
)%
Unconsolidated Properties
89.00

 
79.94

 
11.33
 %
Total
$
72.75

 
$
71.43

 
1.85
 %
 
 
 
 
 
 
Percentage Leased
 
 
 
 
 
Consolidated Properties
95.6
%
 
96.2
%
 
(60) bps

Unconsolidated Properties
96.7
%
 
97.0
%
 
(30) bps

Total
96.0
%
 
96.5
%
 
(50) bps

 
 
 
 
 
 
Tenant Sales Volume (All Less Anchors) (3)
 
 
 
 
 
Consolidated Properties
$
12,144

 
$
12,746

 
(4.72
)%
Unconsolidated Properties
8,363

 
7,078

 
18.15
 %
Total
$
20,506

 
$
19,824

 
3.45
 %
 
 
 
 
 
 
Tenant Sales per square foot (3)
 
 
 
 
 
Consolidated Properties
$
512

 
$
517

 
(0.97
)%
Unconsolidated Properties
774

 
696

 
11.21
 %
Total
$
595

 
$
563

 
5.68
 %
 
 
 
 
 
 
 
(1) Metrics exclude one asset that is being de-leased in preparation for redevelopment, assets acquired after January 1, 2014 and other assets.
(2) Rent is presented on a cash basis and consists of base minimum rent and common area costs.
(3) Tenant Sales (All Less Anchors) is presented as total sales volume in millions of dollars and Tenant Sales for tenants occupying less than 10,000 square feet is presented as sales per square foot in dollars on a trailing 12-month basis.
 
Lease Spread Metrics

The following table summarizes signed leases that are scheduled to commence in the respective period compared to expiring rent for the prior tenant in the same suite where the downtime between new and previous tenant was less than 24 months and the occupied space between the previous tenant and new tenant did not change by more than 10,000 square feet.
 
# of Leases
 
SF
 
Term
(in years)
 
Initial Rent PSF 1
 
Expiring Rent PSF 2
 
Initial Rent
Spread
 
% Change
Trailing 12 Commencements
1,616

 
4,756,024

 
6.70

 
62.3
 
$
56.42

 
$
5.88

 
10.40
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(1) Represents initial annual rent over the lease consisting of base minimum rent and common area maintenance.
(2) Represents expiring rent at end of lease consisting of base minimum rent and common area maintenance.


33

Results of Operations
 
Three months ended June 30, 2015 and 2014
 
The following table is a breakout of the components of minimum rents:
 
Three Months Ended June 30,
 
 
 
 
 
2015
 
2014
 
$ Change
 
% Change
 
(Dollars in thousands)
 
 
 
 
Components of Minimum rents:
 

 
 

 
 

 
 

Base minimum rents
$
358,936

 
$
390,065

 
$
(31,129
)
 
(8.0
)%
Lease termination income
1,912

 
2,993

 
(1,081
)
 
(36.1
)
Straight-line rent
9,302

 
13,381

 
(4,079
)
 
(30.5
)
Above and below-market tenant leases, net
(8,594
)
 
(21,428
)
 
12,834

 
(59.9
)
Total Minimum rents
$
361,556

 
$
385,011

 
$
(23,455
)
 
(6.1
)%

Base minimum rents decreased $31.1 million primarily due to our sale of an interest in Ala Moana Center during the first quarter of 2015 and our sale of an interest in Bayside Marketplace during the fourth quarter of 2014. This resulted in $34.7 million less base minimum rents in the second quarter of 2015 compared to the second quarter of 2014 as the properties are now accounted for as Unconsolidated Real Estate Affiliates.
 
Tenant recoveries decreased $17.0 million primarily due to our sale of an interest in Ala Moana Center during the first quarter of 2015 and our sale of an interest in Bayside Marketplace during the fourth quarter of 2014. This resulted in $17.5 million less in tenant recoveries in the second quarter of 2015 compared to the second quarter of 2014 as the properties are now accounted for as Unconsolidated Real Estate Affiliates.

Overage rents decreased $1.9 million primarily due to our sale of an interest in Ala Moana Center during the first quarter of 2015 and our sale of an interest in Bayside Marketplace during the fourth quarter of 2014. This resulted in $1.8 million less in overage rents in the second quarter of 2015 compared to the second quarter of 2014 as the properties are now accounted for as Unconsolidated Real Estate Affiliates.

Management fees and other corporate revenues increased $9.0 million primarily due to a $6.0 million fee related to the residential condominium joint venture at Ala Moana, $1.3 million in management fees related to the new Ala Moana Center and Bayside Marketplace joint ventures, and $1.3 million in financing fees earned at the Crown Building located at 730 Fifth Avenue in the second quarter of 2015.

Other property operating costs decreased $9.5 million primarily due to our sale of an interest in Ala Moana Center during the first quarter of 2015 and our sale of an interest in Bayside Marketplace during the fourth quarter of 2014. This resulted in $8.6 million less in other property operating costs in the second quarter of 2015 compared to the second quarter of 2014 as the properties are now accounted for as Unconsolidated Real Estate Affiliates.

General and administrative expense decreased $15.9 million in the second quarter of 2015 compared to the second quarter of 2014 primarily due to the $17.9 million loss from the settlement of litigation in the second quarter of 2014.

Depreciation and amortization expense decreased $22.4 million primarily due to our sale of an interest in Ala Moana Center during the first quarter of 2015 and our sale of an interest in Bayside Marketplace during the fourth quarter of 2014. This resulted in $16.2 million less in depreciation and amortization expense in the second quarter of 2015 compared to the second quarter of 2014 as the properties are now accounted for as Unconsolidated Real Estate Affiliates.

Interest and dividend income increased $8.0 million primarily due to $8.0 million of interest income from the notes receivable from our joint venture partners related to the acquisition of properties in New York, New York.

Interest expense decreased $32.4 million primarily due to our sale of an interest in Ala Moana Center during the first quarter of 2015 and our sale of an interest in Bayside Marketplace during the fourth quarter of 2014. This resulted in $12.8 million less in interest expense in the second quarter of 2015 compared to the second quarter of 2014 as the properties are now accounted for as Unconsolidated Real Estate Affiliates. In addition, there was a $7.1 million decrease in contractual interest related to mortgage notes that were paid down during the first quarter of 2015, a $4.0 million decrease related to the write off of market rate adjustments

34

on debt that was paid down or refinanced during the period and a corporate loan secured by fourteen properties decreased by $3.0 million due to a 2014 amendment that reduced the interest rate.
 
The gain on foreign currency is related to the impact of changes in the exchange rate on a note receivable denominated in Brazilian Reais, and received in conjunction with the sale of Aliansce in the third quarter of 2013 (Note 13).

The gain from changes in control of investment properties and other of $17.8 million in the second quarter of 2015 is primarily due to our sale of the office portion of 200 Lafayette and our sale of an interest in Ala Moana Center (Note 3).

Equity in income of Unconsolidated Real Estate Affiliates decreased $6.0 million primarily due to a $3.8 million increase in interest expense on the 730 Fifth Avenue joint venture which closed in the second quarter of 2015 (Note 3).

Unconsolidated Real Estate Affiliates - gain on investment is related to the $297.8 million gain on the sale of an additional 12.5% interest in Ala Moana Center during the second quarter of 2015 (Note 3).
 
Six months ended June 30, 2015 and 2014
 
The following table is a breakout of the components of minimum rents:
 
Six Months Ended June 30,
 
 
 
 
 
2015
 
2014
 
$ Change
 
% Change
 
(Dollars in thousands)
 
 
 
 
Components of Minimum rents:
 

 
 

 
 

 
 

Base minimum rents
$
739,721

 
$
781,325

 
$
(41,604
)
 
(5.3
)%
Lease termination income
10,448

 
7,191

 
3,257

 
45.3

Straight-line rent
15,389

 
24,675

 
(9,286
)
 
(37.6
)
Above and below-market tenant leases, net
(29,889
)
 
(38,928
)
 
9,039

 
(23.2
)
Total Minimum rents
$
735,669

 
$
774,263

 
$
(38,594
)
 
(5.0
)%

Base minimum rents decreased $41.6 million primarily due to our sale of an interest in Ala Moana Center during the first quarter of 2015 and our sale of an interest in Bayside Marketplace during the fourth quarter of 2014. This resulted in $48.8 million less base minimum rents in the first six months of 2015 compared to the first six months of 2014 as the properties are now accounted for as Unconsolidated Real Estate Affiliates.
 
Tenant recoveries decreased $21.0 million primarily due to our sale of an interest in Ala Moana Center during the first quarter of 2015 and our sale of an interest in Bayside Marketplace during the fourth quarter of 2014. This resulted in $25.1 million less in tenant recoveries in the first six months of 2015 compared to the first six months of 2014 as the properties are now accounted for as Unconsolidated Real Estate Affiliates.

Overage rents decreased $2.9 million primarily due to our sale of an interest in Ala Moana Center during the first quarter of 2015 and our sale of an interest in Bayside Marketplace during the fourth quarter of 2014. This resulted in $3.2 million less in overage rents in the first six months of 2015 compared to the first six months of 2014 as the properties are now accounted for as Unconsolidated Real Estate Affiliates.

Management fees and other corporate revenues increased $11.4 million primarily due to a $6.0 million fee related to the residential condominium joint venture at Ala Moana, $2.0 million in management fees related to the new Ala Moana Center and Bayside Marketplace joint ventures, and $1.3 million in financing fees earned at the Crown Building located at 730 Fifth Avenue in the first six months of 2015.

Other revenue decreased $9.6 million primarily due to non-recurring land condemnation revenues of $10.0 million received in the first quarter of 2014.

Other property operating costs decreased $18.8 million primarily due to our sale of an interest in Ala Moana Center during the first quarter of 2015 and our sale of an interest in Bayside Marketplace during the fourth quarter of 2014. This resulted in $14.4 million less in other property operating costs in the first six months of 2015 compared to the first six months of 2014 as the properties are now accounted for as Unconsolidated Real Estate Affiliates.


35

General and administrative expense decreased $15.1 million in the first six months of 2015 compared to the first six months of 2014 primarily due to the $17.9 million loss from the settlement of litigation in the second quarter of 2014.

Depreciation and amortization expense decreased $17.9 million primarily due to our sale of an interest in Ala Moana Center during the first quarter of 2015 and our sale of an interest in Bayside Marketplace during the fourth quarter of 2014. This resulted in $23.7 million less in depreciation and amortization expense in the first six months of 2015 compared to the first six months of 2014 as the properties are now accounted for as Unconsolidated Real Estate Affiliates.

Interest and dividend income increased $10.4 million primarily due to $11.3 million of interest income from the notes receivable from our joint venture partners related to the acquisition of properties in New York, New York.

Interest expense decreased $38.8 million primarily due to our sale of an interest in Ala Moana Center during the first quarter of 2015 and our sale of an interest in Bayside Marketplace during the fourth quarter of 2014. This resulted in $16.1 million less in interest expense in the first six months of 2015 compared to the first six months of 2014 as the properties are now accounted for as Unconsolidated Real Estate Affiliates. In addition, there was a $9.8 million decrease in contractual interest related to mortgage notes that were paid down during the first quarter of 2015 and a corporate loan secured by fourteen properties decreased by $6.2 million due to a 2014 amendment that reduced the interest rate.
 
The gain (loss) on foreign currency is related to the impact of changes in the exchange rate on a note receivable denominated in Brazilian Reais, and received in conjunction with the sale of Aliansce in the third quarter of 2013 (Note 13).

The gain from changes in control of investment properties and other of $609.0 million in 2015 is primarily due to our sale of an interest in Ala Moana Center which caused the property to go from consolidated to unconsolidated. Also, the gain on the sale of the office portion of 200 Lafayette is included in the amount (Note 3).

Unconsolidated Real Estate Affiliates - gain on investment is related to the $297.8 million gain on the sale of an additional 12.5% interest in Ala Moana Center (Note 3) and the $12.0 million gain on the sale of our interest in a joint venture in the first quarter of 2015 (Note 6).

Liquidity and Capital Resources
 
Our primary source of liquidity is from the ownership and management of our properties. We may generate cash from refinancings or borrowings under our revolving credit facility. Our primary uses of cash include payment of operating expenses, debt service, reinvestment in and redevelopment of properties, tenant allowances and dividends.
 
We anticipate maintaining financial flexibility by managing our future maturities, amortization of debt, and minimizing cross collateralizations and corporate guarantees. We believe that we currently have sufficient liquidity to satisfy all of our commitments in the form of $175.4 million of consolidated unrestricted cash and $1.1 billion of available credit under our credit facility as of June 30, 2015, as well as anticipated cash provided by operations.
 
Our key financing objectives include:

•
to obtain property-secured debt with laddered maturities;

•
to minimize the amount of debt that is cross-collateralized and/or recourse to us; and

•
to adhere to investment-grade debt levels.

We may also raise capital through public or private issuances of debt securities, preferred stock, common stock, common units of the Operating Partnerships (as defined in Note 1) or other capital raising activities.
 
During the six months ended June 30, 2015, we executed the following refinancing and capital transactions (at our proportionate share):
 
•
completed $660.0 million in secured financings, lowering the interest rate 230 basis points from 6.0% to 3.7%, lengthening the term-to-maturity from 1.4 years to 10.8 years, and generating net proceeds of $208.3 million; and

•
paid down $594.3 million of consolidated mortgage notes with a weighted-average term-to-maturity of 1.5 years, and a weighted-average interest rate of 5.3%.

36


As of June 30, 2015, we had $1.5 billion of debt pre-payable without penalty. We may pursue opportunities to refinance this debt at lower interest rates and longer maturities.
 
As a result of our financing efforts in 2015, we have reduced the amount of debt due in the next three years from $2.0 billion to $0.9 billion, representing 5.0% of our total debt at maturity. The maximum amount due in any one of the next ten years is no more than $2.8 billion or approximately 15% of our total debt at maturity.
 
As of June 30, 2015, our proportionate share of total debt aggregated $19.3 billion. Our total debt includes our consolidated debt of $13.8 billion and our share of Unconsolidated Real Estate Affiliates debt of $5.5 billion. Of our proportionate share of total debt, $1.9 billion is recourse to the Company or its subsidiaries (including the Facility) due to guarantees or other security provisions for the benefit of the note holder.

The following table illustrates the scheduled payments for our proportionate share of total debt as of June 30, 2015. The $206.2 million of Junior Subordinated Notes are due in 2036, but we may redeem them any time after April 30, 2011 (Note 7). As we do not expect to redeem the notes prior to maturity, they are included in the consolidated debt maturing subsequent to 2019.
 
Consolidated(1)
 
Unconsolidated(1)
 
(Dollars in thousands)
2015
$
165,518

 
$
9,549

2016
380,314

 
26,592

2017
536,566

 
199,158

2018
1,835,788

 
236,513

2019
1,030,062

 
1,158,002

Subsequent
9,817,377

 
3,912,525

 
$
13,765,625

 
$
5,542,339

 
(1) Excludes $32.5 million of adjustments related to debt market rate adjustment.
 
We believe we will be able to extend the maturity date, repay or refinance the consolidated debt that is scheduled to mature in 2015. We also believe that the joint ventures will be able to refinance the debt of our Unconsolidated Real Estate Affiliates upon maturity; however, there can be no assurance that we will be able to refinance or restructure such debt on acceptable terms or otherwise, or that joint venture operations or contributions by us and/or our partners will be sufficient to repay such loans.

Acquisitions and Joint Venture Activity

From time-to-time we may acquire whole or partial interests in high-quality retail properties and may sell assets.

On February 27, 2015, we formed a partnership to own and operate Ala Moana Center located in Honolulu, Hawaii. Effective with the partnership formation, we closed on the sale of a 25% equity interest in Ala Moana Center to the joint venture partner. The transaction generated approximately $907.0 million of net proceeds, of which we received approximately $670.0 million of net proceeds at closing. The remaining net proceeds of approximately $237.0 million will be paid in late 2016 upon completion of the redevelopment and expansion.

On April 10, 2015, we closed on the sale of a 12.5% equity interest in Ala Moana Center to another joint venture partner. The transaction generated approximately $453.5 million of net proceeds, of which we received approximately $335 million of net proceeds at closing. The remaining net proceeds of approximately $118.5 million will be paid in late 2016 upon completion of the redevelopment and expansion.

We will account for the 62.5% interest in the joint venture that holds Ala Moana Center under the equity method of accounting because we share control over major decisions with the joint venture partners, which resulted from the partners obtaining substantive participating rights. Prior to the closing on February 27, 2015, Ala Moana Center was previously wholly owned by GGP and accounted for on a consolidated basis.

On March 31, 2015, we acquired a 50% interest in a joint venture with Sears Holdings Corporation that owns anchor pads and in-place leases at 12 stores located at our properties for approximately $165.0 million. We recorded the investment in the joint venture

37

for approximately $164.5 million ($165.0 million net of prorations and acquisition costs) to investment in and loans to/from Unconsolidated Real Estate Affiliates on our Consolidated Balance Sheet as of March 31, 2015.

On April 1, 2015 we acquired a 50% interest in a joint venture to own 85 Fifth Avenue in New York, New York. The total purchase price was $86 million which was funded with $60 million of secured debt. GGP’s share of the equity is $14.0 million. In connection with the acquisition, we provided a $7.0 million loan to our joint venture partner.

On April 17, 2015, we and our joint venture partners acquired the Crown Building located at 730 Fifth Avenue in New York, New York for a gross purchase price of $1.8 billion, which was funded with $1.25 billion of secured debt. We have an effective 50% interest in the retail portion of the property. GGP and Jeff Sutton will own, redevelop, lease and manage the retail portion of the property which is $1.3 billion of the purchase price. Vladislav Doronin’s Capital Group and Michael Shvo will own, redevelop, lease and manage the office tower which is $475.0 million of the purchase price. The office tower will be redeveloped into luxury residential condominiums.Our share of the retail property is $650.0 million, and our share of the equity is $208.5 million. In connection with the acquisition, we provided $204.3 million in loans to our joint venture partners.

We account for the interests in the Crown, 85 Fifth, and Sears joint ventures under the equity method of accounting (Note 6) because we share control over major decisions with the joint venture partners which resulted in the partners obtaining substantive participating rights.

Warrants and Brookfield Investor Ownership
 
Brookfield owns or manages on behalf of third parties all of the Company’s outstanding Warrants (Note 9) which are exercisable into approximately 57 million common shares (assuming net share settlement) of the Company at a weighted-average exercise price of $9.00 per share. The exercise price and common shares issuable under the Warrants adjusts for future dividends declared by the Company.

As of February 4, 2015, Brookfield’s potential ownership of the Company (assuming full share settlement of the Warrants) was 39.8%, which is stated in their Form 13D filed on the same date. If Brookfield held or managed this same ownership through the maturity date of the Warrants, assuming: (a) GGP’s common stock price increased $10 per share and (b) the Warrants were adjusted for the impact of regular dividends, we estimate that their ownership would be 38.7% under net share settlement, and 40.1% under full share settlement.

Redevelopments
 
We are currently redeveloping several consolidated and unconsolidated properties primarily to improve the productivity and value of the property, convert large-scale anchor boxes into smaller leasable areas and to create new in-line retail space and new restaurant venues.
 
We have identified approximately $2.1 billion of income producing redevelopment projects within our portfolio, over 80% of which is being invested into Class A malls. We plan to fund these redevelopments with available cash flow, construction financing, and proceeds from debt refinancings. We continue to evaluate a number of other redevelopment projects to further enhance the quality of our assets. We currently expect to achieve returns that average 9-11% for all projects (cash on cost, first year stabilized). Expected returns are based on the completion of current and future redevelopment projects, and the success of the leasing and asset management plans in place for each project. Expected returns are subject to a number of variables, risks, and uncertainties including those disclosed within Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2014 (our "Annual Report"). We also refer the reader to our disclosure related to forward-looking statements, below. The following table illustrates our planned redevelopments:

38

Property
Description
 
Ownership %
 
GGP’s Total
Projected Share
of Cost
 
GGP’s
Investment to
Date 1
 
Expected 
Return
on Investment 2
 
Expected
Project
Opening
Major Development Summary (in millions, at share unless otherwise noted)
 
 
 
 

 
 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Open
 
 
 
 
 

 
 

 
 
 
 
 
Total Open Projects
 
Various
 
$
442.0

 
$
421.7

 
12%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Under Construction
 
 
 
 
 

 
 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Mayfair Mall 3
Wauwatosa, WI
Nordstrom
 
100%
 
72.3

 
45.2

 
6-8%
 
Q4 2015
 
 
 
 
 
 
 
 
 
 
 
 
Ridgedale Center 3
Minnetonka, MN
Nordstrom, Macy's Expansion, New Inline GLA and renovation
 
100%
 
106.2

 
76.7

 
8-9%
 
Q4 2015
 
 
 
 
 
 
 
 
 
 
 
 
Southwest Plaza
Littleton, CO
Redevelopment
 
100%
 
72.6

 
46.1

 
9-10%
 
Q4 2015
 
 
 
 
 
 
 
 
 
 
 
 
Ala Moana Center 4
Honolulu, HI
Demolish existing Sears store and expand mall, adding anchor, box and inline tenants, reconfigure center court
 
62.5%
 
358.3

 
280.0

 
9-10%
 
Q4 2015
 
 
 
 
 
 
 
 
 
 
 
 
Baybrook Mall
Friendswood, TX
Expansion
 
53%
 
90.5

 
45.9

 
9-10%
 
Q4 2015
 
 
 
 
 
 
 
 
 
 
 
 
Other Projects
Various Malls
Redevelopment projects at various malls
 
N/A
 
344.6

 
99.0

 
8-9%
 
Various
 
 
 
 
 
 
 
 
 
 
 
 
 
Total Projects Under Construction
 
 
 
$
1,044.5

 
$
592.9

 
8-10%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Projects in Pipeline
 
 
 
 
 

 
 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Staten Island Mall
Staten Island, NY
Expansion
 
100%
 
180.0

 
6.0

 
8-9%
 
TBD
 
 
 
 
 
 
 
 
 
 
 
 
New Mall Development
Norwalk, CT
Ground up mall development
 
100%
 
285.0

 
39.4

 
8-10%
 
TBD
 
 
 
 
 
 
 
 
 
 
 
 
Ala Moana Center 4 Honolulu, HI
Nordstrom box repositioning
 
62.5%
 
53.1

 
6.3

 
9-10%
 
TBD
 
 
 
 
 
 
 
 
 
 
 
 
Other Projects
Various Malls
Redevelopment projects at various malls
 
N/A
 
139.2

 
3.3

 
8-9%
 
TBD
 
 
 
 
 
 
 
 
 
 
 
 
 
Total Projects in Pipeline
 
 
 
$
657.3

 
$
55.0

 
8-10%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total Development Summary 5
 
 
 
$
2,143.8

 
$
1,069.6

 
9-11%
 
 
 
(1) Projected costs and investments to date exclude capitalized interest and internal overhead.
(2) Return on investment represents first year stabilized cash on cost return, based upon budgeted assumptions. Actual costs may vary.
(3) Project ROI includes income related to uplift on existing space.
(4) The Ala Moana estimated project costs are $573 million and $85 million at 100%, consistent with prior quarters. The at share amounts are adjusted to reflect GGP's 62.5% share.
(5)These totals exclude purchase price and any future redevelopment related to the Sears anchor boxes acquired in March 2015.

Our investment in these projects for the three and six months ended June 30, 2015 has increased from December 31, 2014, in conjunction with the applicable development plan and as projects near completion. The continued progression of the redevelopment projects at Ala Moana Center and Baybrook Mall resulted in increases to GGP’s investment to date.


39

Capital Expenditures, Capitalized Interest and Overhead (at share)

The following table illustrates our capital expenditures, capitalized interest, and internal costs associated with leasing and development overhead, which primarily relate to ordinary capital projects at our operating properties. In addition, we incurred tenant allowances and capitalized leasing costs for our operating properties as outlined below. Capitalized interest is based upon qualified expenditures and interest rates; capitalized leasing and development costs are based upon time expended on these activities. These costs are amortized over lives which are consistent with the related asset.
 
 
Six Months Ended June 30,
 
 
2015
 
2014
 
 
(Dollars in thousands)
Capital expenditures (1)
 
$
75,832

 
$
68,818

Tenant allowances (2)
 
76,411

 
61,584

Capitalized interest and capitalized overhead
 
34,191

 
31,112

Total
 
$
186,434

 
$
161,514

 
 
(1) Reflects only non-tenant operating capital expenditures.
(2) Tenant allowances paid on 1.7 million square feet.

The increase in Capital expenditures is primarily driven by refurbishment projects that improve the quality of our properties.

Common Stock Dividends

Our Board of Directors declared common stock dividends during 2015 and 2014 as follows:
Declaration Date
Record Date
Payment Date
Dividend Per Share
2015
 
 
 
May 21
July 15
July 31, 2015
$
0.17

February 19
April 15
April 30, 2015
0.17

2014
 
 
 
November 14
December 15
January 2, 2015
$
0.17

August 12
October 15
October 31, 2014
0.16

May 15
July 15
July 31, 2014
0.15

February 26
April 15
April 30, 2014
0.15


Preferred Stock Dividends

On February 13, 2013, we issued, under a public offering, 10,000,000 shares of 6.375% Series A Cumulative Stock at a price of $25.00 per share. Our Board of Directors declared preferred stock dividends during 2015 and 2014 as follows:
Declaration Date
Record Date
Payment Date
Dividend Per Share
2015
 
 
 
May 21
June 15
July 1, 2015
$
0.3984

February 19
March 16
April 1, 2015
0.3984

2014
 
 
 
November 14
December 15
January 2, 2015
$
0.3984

August 12
September 15
October 1, 2014
0.3984

May 15
June 16
July 1, 2014
0.3984

February 26
March 17
April 1, 2014
0.3984


40


Summary of Cash Flows

Cash Flows from Operating Activities

Net cash provided by operating activities was $485.5 million for the six months ended June 30, 2015 and $544.3 million for the six months ended June 30, 2014. Significant changes in the components of net cash provided by operating activities include:

•
in 2015, a decrease in cash inflows from certain properties contributed to joint ventures; and
•
in 2014, a decrease in interest costs primarily as a result of the redemption of unsecured corporate bonds.
 
Cash Flows from Investing Activities

Net cash provided by (used in) investing activities was $192.5 million for the six months ended June 30, 2015 and ($348.0) million for the six months ended June 30, 2014. Significant components of net cash used in investing activities include:
 
•
in 2015, development of real estate and property improvements, ($335.8) million;
•
in 2015, proceeds from the sale of real estate, $1,055.9 million;
•
in 2015, acquisition of real estate, ($341.4) million; and
•
in 2014, development of real estate and property improvements, ($272.7) million.
 
Cash Flows from Financing Activities

Net cash used in financing activities was $875.0 million for the six months ended June 30, 2015 and $531.5 million for the six months ended June 30, 2014. Significant components of net cash used in financing activities include:

•
in 2015, proceeds from the refinancing or issuance of mortgages, notes, and loans payable, of $832.4 million net of principal payments of ($1,369.2) million;
•
in 2015, cash distributions paid to common stockholders of ($301.0) million;
•
in 2014, proceeds from the refinancing or issuance of mortgages, notes, and loans payable, net of principal payments of $303.1 million;
•
in 2014, the acquisition of 27.6 million shares of our common stock, ($555.8) million; and
•
in 2014, cash distributions paid to common stockholders of ($260.1) million.

Seasonality

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

Critical Accounting Policies

Our discussion and analysis of financial condition and results of operations is based on our consolidated interim financial statements, which have been prepared in accordance with GAAP. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the financial statements and disclosures. Some of these estimates and assumptions require application of difficult, subjective, and/or complex judgment about the effect of matters that are inherently uncertain and that may change in subsequent periods. We evaluate our estimates and assumptions on an ongoing basis. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

A disclosure of our critical accounting policies which affect our more significant judgments and estimates used in the preparation of our condensed consolidated financial statements is included in our Annual Report in Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Refer also to the accounting policies discussed in Note 2.


41

REIT Requirements

In order to remain qualified as a REIT for Federal income tax purposes, we must distribute at least 90% of our taxable ordinary income to stockholders. We are also subject to Federal income tax to the extent we distribute less than 100% of our REIT taxable income, including capital gains. See Note 8 to the consolidated financial statements for more detail on our ability to remain qualified as a REIT.

Recently Issued Accounting Pronouncements

Refer to Note 2 for a discussion of the revised definition of discontinued operations and a recently-issued revenue recognition pronouncement. We have elected to adopt the revised definition of discontinued operations prospectively on January 1, 2015, pursuant to the pronouncement’s terms. On July 9, 2015, the FASB voted for a one-year deferral of the effective date of the new revenue recognition standard. The new standard will become effective beginning with the first quarter 2018. We are currently evaluating its impact on our consolidated financial statements.

Non-GAAP Supplemental Financial Measures and Definitions

Net Operating Income (“NOI”) and Company NOI

The Company defines NOI as income from property operations after operating expenses have been deducted, but prior to deducting financing, administrative and income tax expenses.  NOI excludes reductions in ownership as a result of sales or other transactions and has been reflected on a proportionate basis (at the Company’s ownership share).  Other REITs may use different methodologies for calculating NOI, and accordingly, the Company’s NOI may not be comparable to other REITs.  The Company considers NOI a helpful supplemental measure of its operating performance because it is a direct measure of the actual results of our properties.  Because NOI excludes reductions in ownership as a result of sales or other transactions, general and administrative expenses, interest expense, retail investment property impairment or non-recoverable development costs, depreciation and amortization, gains and losses from property dispositions, allocations to noncontrolling interests, provision for income taxes, discontinued operations, preferred stock dividends, and extraordinary items, it provides a performance measure that, when compared year over year, reflects the revenues and expenses directly associated with owning and operating commercial real estate properties and the impact on operations from trends in occupancy rates, rental rates and operating costs.

The Company also considers Company NOI to be a helpful supplemental measure of its operating performance because it excludes from NOI certain non-cash and non-comparable items such as straight-line rent and intangible asset and liability amortization, which are a result of our emergence, acquisition accounting and other capital contribution or restructuring events. However, due to the exclusions noted, Company NOI should only be used as an alternative measure of the Company’s financial performance.  We present Company NOI and Company FFO (as defined below); as we believe certain investors and other users of our financial information use these measures of the Company’s historical operating performance.

Earnings Before Interest Expense, Income Tax, Depreciation, and Amortization ("EBITDA") and Company EBITDA

The Company defines EBITDA as NOI less certain property management and administrative expenses, net of management fees and other operational items. EBITDA is a commonly used measure of performance in many industries, but may not be comparable to measures calculated by other companies. Management believes EBITDA provides useful information to investors regarding our results of operations because it helps us and our investors evaluate the ongoing operating performance of our properties after removing the impact of our capital structure (primarily interest expense) and our asset base (primarily depreciation and amortization). Management also believes the use of EBITDA facilitates comparisons between us and other equity REITs, retail property owners who are not REITs and other capital-intensive companies. Management uses EBITDA to evaluate property-level results and as one measure in determining the value of acquisitions and dispositions and, like FFO (discussed below), it is widely used by management in the annual budget process and for compensation programs.

The Company also considers Company EBITDA to be a helpful supplemental measure of its operating performance because it excludes from EBITDA certain non-cash and non-comparable items such as straight-line rent and intangible asset and liability amortization, which are a result of our emergence, acquisition accounting and other capital contribution or restructuring events. However, due to the exclusions noted, Company EBITDA should only be used as an alternative measure of the Company's financial performance.


42

Funds From Operations (“FFO”) and Company FFO

The Company determines FFO based upon the definition set forth by National Association of Real Estate Investment Trusts (“NAREIT”).  The Company determines FFO to be its share of consolidated net income (loss) computed in accordance with GAAP, excluding real estate related depreciation and amortization, excluding gains and losses from extraordinary items, excluding cumulative effects of accounting changes, excluding gains and losses from the sales of, or any impairment charges related to, previously depreciated operating properties, plus the allocable portion of FFO of unconsolidated joint ventures based upon the Company’s economic ownership interest, and all determined on a consistent basis in accordance with GAAP.  As with the Company’s presentation of NOI, FFO has been reflected on a proportionate basis.

The Company considers FFO a helpful supplemental measure of the operating performance for equity REITs and a complement to GAAP measures because it is a recognized measure of performance by the real estate industry. FFO facilitates an understanding of the operating performance of the Company’s properties between periods because it does not give effect to real estate depreciation and amortization since 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, the Company believes that FFO provides investors with a clearer view of the Company’s operating performance.
As with the Company’s presentation of Company NOI, the Company also considers Company FFO to be a helpful supplemental measure of the operating performance for equity REITs because it excludes from FFO certain items that are non-cash and certain non-comparable items such as Company NOI adjustments, and FFO items such as mark-to-market adjustments on debt and gains on the extinguishment of debt, and interest expense on debt repaid or settled all which are a result of the Company’s acquisition accounting and other capital contribution or restructuring events.

Reconciliation of Non-GAAP Financial Measures to GAAP Financial Measures

The Company presents NOI and FFO as they are financial measures widely used in the REIT industry.  In order to provide a better understanding of the relationship between the Company’s non-GAAP financial measures of NOI, Company NOI, FFO and Company FFO, reconciliations have been provided as follows: a reconciliation of GAAP operating income to NOI and Company NOI and a reconciliation of net loss attributable to GGP to FFO and Company FFO.  None of the Company’s non-GAAP financial measures represents cash flow from operating activities in accordance with GAAP, none should be considered as an alternative to GAAP net income (loss) attributable to GGP and none are necessarily indicative of cash available to fund cash needs.  In addition, the Company has presented such financial measures on a consolidated and unconsolidated basis (at the Company’s ownership share) as the Company believes that given the significance of the Company’s operations that are owned through investments accounted for on the equity method of accounting, the detail of the operations of the Company’s unconsolidated properties provides important insights into the income and FFO produced by such investments for the Company as a whole.

43

The following table reconciles Company NOI to GAAP Operating Income (dollars in thousands) for the three and six months ended June 30, 2015 and 2014:
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2015
 
2014
 
2015
 
2014
 
 
 
 
 
 
 
 
Company NOI
$
548,213

 
$
526,887

 
$
1,088,312

 
$
1,049,225

Adjustments for minimum rents, real estate taxes and other property operating costs
(5,926
)
 
(7,206
)
 
(25,980
)
 
(25,531
)
Proportionate NOI
542,287

 
519,681

 
1,062,332

 
1,023,694

Unconsolidated Properties
(141,320
)
 
(110,216
)
 
(261,795
)
 
(204,006
)
NOI of Sold Interests
898

 
17,494

 
11,831

 
37,716

Noncontrolling interest in NOI of Consolidated Properties
4,490

 
5,176

 
8,901

 
8,977

Consolidated Properties
406,355

 
432,135

 
821,269

 
866,381

Management fees and other corporate revenues
26,731

 
17,717

 
45,817

 
34,403

Property management and other costs
(40,369
)
 
(40,013
)
 
(83,162
)
 
(84,963
)
General and administrative
(12,322
)
 
(28,232
)
 
(24,769
)
 
(39,831
)
Depreciation and amortization
(152,849
)
 
(175,213
)
 
(328,797
)
 
(346,690
)
Gain (loss) on sales of investment properties
9

 
(44
)
 
10

 
(45
)
Operating Income
$
227,555

 
$
206,350

 
$
430,368

 
$
429,255



44

The following table reconciles Company EBITDA to GAAP Net income attributable to GGP for the three and six months ended June 30, 2015 and 2014:

 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
 
2015
 
2014
 
2015
 
2014
 
 
 
 
 
 
 
 
 
Company EBITDA
 
$
508,481

 
$
484,957

 
$
1,004,611

 
$
960,481

Adjustments for minimum rents, real estate taxes, other property operating costs, and general and administrative
 
(5,926
)
 
(25,060
)
 
(25,980
)
 
(43,385
)
Proportionate EBITDA
 
502,555

 
459,897

 
978,631

 
917,096

Unconsolidated Properties
 
(127,364
)
 
(100,738
)
 
(239,737
)
 
(187,331
)
EBITDA of sold interests
 
884

 
17,430

 
11,713

 
37,572

Noncontrolling interest in EBITDA of Consolidated Properties
 
4,320

 
5,018

 
8,548

 
8,653

Consolidated Properties
 
380,395

 
381,607

 
759,155

 
775,990

Depreciation and amortization
 
(152,849
)
 
(175,213
)
 
(328,797
)
 
(346,690
)
Interest income
 
12,843

 
4,856

 
21,664

 
11,265

Interest expense
 
(142,747
)
 
(175,118
)
 
(315,398
)
 
(354,164
)
Gain (loss) on foreign currency
 
1,463

 
3,772

 
(21,448
)
 
8,955

(Provision for) benefit from income taxes
 
(74
)
 
(3,944
)
 
11,085

 
(7,636
)
Equity in income of Unconsolidated Real Estate Affiliates
 
13,278

 
19,320

 
24,530

 
26,477

Unconsolidated Real Estate Affiliates - gain on investment
 
297,767

 
—

 
309,787

 
—

Discontinued operations
 
—

 
121,853

 
—

 
194,825

Gain from changes in control of investment properties and other
 
17,768

 
—

 
609,013

 
—

Gain (loss) on sales of investment properties
 
9

 
(44
)
 
10

 
(45
)
Allocation to noncontrolling interests
 
(5,913
)
 
(3,365
)
 
(12,932
)
 
(7,217
)
Net income attributable to GGP
 
$
421,940

 
$
173,724

 
$
1,056,669

 
$
301,760


45


The following table reconciles Company FFO to GAAP net income attributable to GGP for the three and six months ended June 30, 2015 and 2014:
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2015
 
2014
 
2015
 
2014
 
 
 
 
 
 
 
 
Company FFO
318,551

 
297,553

 
$
627,886

 
$
589,974

Adjustments for minimum rents, property operating expenses, general and administrative, market rate adjustments, debt extinguishment, income taxes, and FFO from discontinued operations
(4,195
)
 
(25,632
)
 
(53,871
)
 
17,133

Proportionate FFO (1)
314,356

 
271,921

 
574,015

 
607,107

Depreciation and amortization of capitalized real estate costs
(210,694
)
 
(218,079
)
 
(440,565
)
 
(433,401
)
Gain from changes in control of investment properties and other
17,768

 
—

 
609,013

 
—

Preferred stock dividends
3,984

 
3,984

 
7,968

 
7,968

Gain on sales of investment properties
8

 
117,417

 
11

 
123,716

Unconsolidated Real Estate Affiliates - gain on investment
297,767

 
—

 
309,787

 
—

Noncontrolling interests in depreciation of Consolidated Properties
1,921

 
2,268

 
3,956

 
3,931

Redeemable noncontrolling interests
(3,170
)
 
(973
)
 
(7,516
)
 
(1,637
)
Depreciation and amortization of discontinued operations
—

 
(2,814
)
 
—

 
(5,924
)
Net income attributable to GGP
421,940

 
173,724

 
1,056,669

 
301,760

 
(1) FFO as defined by the NAREIT

Forward-Looking Statements

Certain statements made in this section or elsewhere in this report may be deemed “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Although the Company believes the expectations reflected in any forward-looking statement are based on reasonable assumption, it can give no assurance that its expectations will be attained, and it is possible that actual results may differ materially from those indicated by these forward-looking statements due to a variety of risks, uncertainties and other factors. Such factors include, but are not limited to, the Company’s ability to refinance, extend, restructure or repay near and intermediate term debt, its indebtedness, its ability to raise capital through equity issuances, asset sales or the incurrence of new debt, retail and credit market conditions, impairments, its liquidity demands and economic conditions. The Company discusses these and other risks and uncertainties in its annual and quarterly periodic reports filed with the Securities and Exchange Commission. The Company may update that discussion in its periodic reports, but otherwise takes no duty or obligation to update or revise these forward-looking statements, whether as a result of new information, future developments, or otherwise.

ITEM 3        QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 
There have been no significant changes in the market risks described in our Annual Report.

ITEM 4        CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

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

Based on that evaluation, the CEO and the CFO have concluded that our disclosure controls and procedures are effective.


46

Internal Control over Financial Reporting

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

PART II    OTHER INFORMATION

ITEM 1        LEGAL PROCEEDINGS

In the normal course of business, from time to time, we are involved in legal proceedings relating to the ownership and operations of our properties. In management’s opinion, the liabilities, if any, that may ultimately result from such legal actions are not expected to have a material effect on our consolidated financial position, results of operations or liquidity. Neither the Company nor any of the Unconsolidated Real Estate Affiliates is currently involved in any material pending legal proceedings nor, to our knowledge, is any material legal proceeding currently threatened against the Company or any of the Unconsolidated Real Estate Affiliates.

ITEM 1A    RISK FACTORS

There are no material changes to the risk factors previously disclosed in our Annual Report.

ITEM 2        UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

The following table provides information with respect to the stock repurchases made by GGP during the six months ended June 30, 2015:

Period
Total Number of Shares Purchased (1)
Average Price Paid per Share
Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs
Maximum Number of Approximate Dollar Value of Shares that May Yet be Purchased Under the Plans or Programs
June 2015
650,000

$
26.00

650,000

$
100,656,624

Total
650,000

$
26.00

650,000

$
100,656,624


(1) The Company's stock repurchase program, approved by our Board of Directors on August 8, 2011, authorizes the purchase of up to $250 million of the Company's common stock.

ITEM 3        DEFAULTS UPON SENIOR SECURITIES

None

ITEM 4         MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5        OTHER INFORMATION

None



47

ITEM 6         EXHIBITS
10.1

 
First Amendment dated July 1, 2015 to Fourth Amended and Restated Agreement of Limited Partnership of GGP Operating Partnership, LP (f/k/a GGP Limited Partnership) dated May 1, 2014.
 
 
 
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 General Growth Properties, Inc.’s. Quarterly Report on Form 10-Q for the quarter ended June 30, 2015, has been filed with the SEC on August 6, 2015, formatted in XBRL (Extensible Business Reporting Language): (1) Consolidated Balance Sheets, (2) Consolidated Statements of Comprehensive Income, (3) Consolidated Statements of Equity, (4) Consolidated Statements of Cash Flows and (5) Notes to Consolidated Financial Statements.

Pursuant to Item 601(b)(4)(iii) of Regulation S-K, the registrant has not filed debt instruments relating to long-term debt that is not registered and for which the total amount of securities authorized thereunder does not exceed 10% of total assets of the registrant and its subsidiaries on a consolidated basis as of June 30, 2015. The registrant agrees to furnish a copy of such agreements to the SEC upon request.

48

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.

 
GENERAL GROWTH PROPERTIES, INC.
 
(Registrant)
 
 
 
 
Date: August 6, 2015
By:
/s/ Michael Berman
 
 
Michael Berman
 
 
Chief Financial Officer
 
 
(on behalf of the Registrant)


49

EXHIBIT INDEX
 
10.1
 
First Amendment dated July 1, 2015 to Fourth Amended and Restated Agreement of Limited Partnership of GGP Operating Partnership, LP (f/k/a GGP Limited Partnership) dated May 1, 2014.
 
 
 
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 General Growth Properties, Inc.’s. Quarterly Report on Form 10-Q for the quarter ended June 30, 2015, has been filed with the SEC on August 6, 2015, formatted in XBRL (Extensible Business Reporting Language): (1) Consolidated Balance Sheets, (2) Consolidated Statements of Comprehensive Income, (3) Consolidated Statements of Equity, (4) Consolidated Statements of Cash Flows and (5) Notes to Consolidated Financial Statements.




50




FIRST AMENDMENT TO
FOURTH AMENDED AND RESTATED
AGREEMENT OF LIMITED PARTNERSHIP
OF GGP OPERATING PARTNERSHIP, LP
THIS FIRST AMENDMENT (this “Amendment”) is made and entered into as of July 1, 2015, by and among the undersigned parties.
W I T N E S S E T H:
WHEREAS, GGP Operating Partnership, LP (the “Partnership”), a Delaware limited partnership, exists pursuant to that certain Fourth Amended and Restated Agreement of Limited Partnership, dated as of May 1, 2014, as amended (the “Partnership Agreement”), and the Delaware Revised Uniform Limited Partnership Act;
WHEREAS, GGP Real Estate Holding II, Inc., a Delaware corporation, is the sole general partner of the Partnership (the “General Partner”);
WHEREAS, pursuant to Section 8.3 of the Partnership Agreement, the Partnership may upon its determination that the issuance of additional units is in the best interests of the Partnership, issue additional Preferred Units, and the General Partner is authorized, on behalf of each of the partners, to amend the Partnership Agreement to reflect the issuance of Series I Preferred Units;
NOW, THEREFORE, in consideration of the mutual covenants and agreements herein contained and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto do herby agree as follows:
1.Capitalized Terms. Capitalized terms used but not defined herein shall have the definitions assigned to such terms in the Partnership Agreement.
2.    Amendment of Section 1.1.
The term “Series J Preferred Units” shall be inserted immediately following the definition of “Series J Preferred Units” and shall be defined as follows:
“Series J Preferred Units” shall mean the series of preferred units of the Partnership designated as Series J Preferred Units having such designations, preferences and other rights described in Schedule I.
3.    Amendment of Preferred Units. Section 4.7 of the Partnership Agreement is hereby deleted in its entirety and the following is hereby inserted in its place and stead:
4.7    Preferred Units. The Series B Preferred Units, Series D Preferred Units, Series E Preferred Units, Series F Preferred Units, Series G Preferred Units, Series H Preferred Units, Series I Preferred Units and Series J Preferred Units have been established and have the rights, preferences, limitations and qualifications as are described in Schedule A, Schedule B, Schedule C, Schedule D, Schedule E, Schedule F, Schedule G and Schedule I, respectively, in addition to the applicable rights and preferences contained herein.
4.    Amendment of Distributions with Respect to Preferred Units. Section 5.9 of the Partnership Agreement is amended by inserting the following subsection (h) immediately following subsection (g):
(g)
The holders of Series J Preferred Units are entitled to monthly, cumulative partnership distributions when, if and as declared, in an amount calculated at the applicable per annum rate applied to the $1,000 liquidation preference per Series J Preferred Unit, as more particularly described in Schedule I.
5.    Amendment of Liquidation Preference of Preferred Units. Section 7.8 of the Partnership Agreement is amended by inserting the following subsection (h) immediately following subsection (g):
(g)
The holders of Series J Preferred Units shall have the rights and preferences described in Schedule I.
6.    Addition of Schedule I. Schedule I attached hereto shall be inserted into the Partnership Agreement immediately following Schedule H.
7.    New Exhibit A. Exhibit A to the Partnership Agreement, identifying the Partners, the number and class of series of Units owned by each of them and their respective Percentage Interests, if any, is hereby deleted in its entirety and the Exhibit A in the form attached hereto is hereby inserted in its place and stead.
8.    Other Provisions Unaffected. Except as expressly amended hereby, the Partnership Agreement shall remain in full force and effect in accordance with its terms.
IN WITNESS WHEREOF, the undersigned have executed this Amendment on the day and year first written above.

GENERAL PARTNER:

GGP REAL ESTATE HOLDING II, INC.,
a Delaware corporation

By:     /s/ Stacie L. Herron                    
Stacie L. Herron
Vice President and Secretary

SCHEDULE I
1.Definitions. As used in this Schedule I, the following terms shall have the meanings set forth below, unless the context otherwise requires.
“Applicable Margin” means, at any date of determination, a percentage per annum determined by reference to the Loan-to-Value Ratio as set forth below:
Pricing Level
Loan-to-Value Ratio
Applicable Margin for Base Rate Units
Applicable Margin for LIBOR Units
I
≤ 45%
0.325%
1.325%
II
>45% and ≤ 50%
0.450%
1.450%
III
>50% and ≤ 55%
0.575%
1.575%
IV
>55% and ≤ 60%
0.700%
1.700%
V
>60%
0.950%
1.950%

The Applicable Margin for each Base Rate Unit shall be determined by reference to the Loan-to-Value Ratio in effect from time to time and the Applicable Margin for each LIBOR Unit shall be determined by reference to the Loan-to-Value Ratio in effect on the first day of such distribution period.
“Base Rate” means, at any time, the highest of (a) the Prime Rate, (b) the Federal Funds Rate plus 0.50% per annum and (c) except during any period of time during which a notice delivered to the Borrowers and each Lender under Section 4.02 of the Credit Agreement shall remain in effect, LIBOR for an Interest Period of one month plus 1.00% per annum; each change in the Base Rate shall take effect simultaneously with the corresponding change or changes in the Prime Rate, the Federal Funds Rate or LIBOR.
“Base Rate Unit” shall mean Series J Preferred Units that generate monthly distributions based upon the Base Rate.
“Credit Agreement” shall mean the Third Amended and Restated Credit Agreement, dated as of October 23, 2013 (as it may be amended, restated, amended and restated, supplemented or otherwise modified from time to time), by and among GGP Limited Partnership, General Growth Properties, Inc., GGPLP Real Estate 2010 Loan Pledgor Holding, LLC, GGPLPLLC 2010 Loan Pledgor Holding, LLC, GGPLP L.L.C., GGPLP 2010 Loan Pledgor Holding, LLC, GGP Operating Partnership, LP and GGP Nimbus, LP, as Borrowers, the other Loan Parties party thereto from time to time, and the other financial institutions that are party thereto from time to time, as Lenders, as Lenders, and Wells Fargo Bank, National Association, as Administrative Agent.
“Default Rate” shall mean (a) in respect of any distributions payable pursuant to Section 6(a) (i) or (ii) hereof, the rate otherwise applicable to such Series J Unit plus an additional two percent (2.0%) per annum and (b) in respect to any distributions payable pursuant to Section 6(a)(iii) hereof, a rate per annum equal to the Base Rate as in effect from time to time plus the Applicable Margin plus an additional two percent (2.0%) per annum.
“Distribution Payment Date” shall mean, with respect to any Distribution Period, the first day of each month of each year, or, if not a business day, the next succeeding business day.
“Interest Period” means, with respect to each LIBOR Unit, each period commencing on the date such LIBOR Unit is made, or in the case of the Continuation of a LIBOR Unit the last day of the preceding Interest Period for such Loan, and ending on the numerically corresponding day in the first, second, third or sixth calendar month, or if agreed by all relevant affected Lenders, first calendar week, thereafter, as the Borrowers may select in a Notice of Borrowing, Notice of Continuation or Notice of Conversion, as the case may be, except that each Interest Period that commences on the last Business Day of a calendar month (or on any day for which there is no numerically corresponding day in the appropriate subsequent calendar month) shall end on the last Business Day of the appropriate subsequent calendar month.
“Distribution Period” means, with respect to any LIBOR Unit, a period of seven (7) days, or one (1), two (2), three (3) or six (6) months, commencing on the date such LIBOR Unit is issued, on the day such LIBOR Unit is converted from a Base Rate Unit or on the last day of the immediately preceding Distribution Period for such Unit and ending on the day which corresponds numerically to such date seven (7) days, or one (1), two (2), three (3) or six (6) months thereafter, as applicable, provided that (i) each Distribution Period of one (1), two (2), three (3) or six (6) months that commences on the last business day of a calendar month (or on any day for which there is no numerically corresponding day in the appropriate subsequent calendar month) shall end on the last business day of the appropriate subsequent calendar month; (ii) each Distribution Period that would otherwise end on a day that is not a business day shall end on the next succeeding business day, other than with respect to Distribution Periods of seven days, if said next succeeding business day falls in a new calendar month, such Distribution Period shall end on the immediately preceding business day; (iii) unless the Distribution Period for a LIBOR Unit is seven (7) days, no Libor Unit shall have a Distribution Period of less than one month and, if the Distribution Period for any LIBOR Unit would otherwise be a shorter period, such Unit shall bear interest at the Base Rate plus the Applicable Margin for Base Rate Units; and (iv) with respect to the Distribution Payment Date occurring in August, 2015, the Distribution Period shall be the period commencing on June 26 and ending on August 1, 2015.
“Federal Funds Rate” means, for any period, a fluctuating interest rate per annum equal for each day during such period to the weighted average of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers, as published for such day (or, if such day is not a Business Day, for the next preceding Business Day) by the Federal Reserve Bank of New York, or, if such rate is not so published for any day which is a Business Day, the average of the quotations for such day on such transactions received by the Administrative Agent from three Federal Funds brokers of recognized standing selected by the Administrative Agent.
“LIBOR” means, for the Interest Period for any LIBOR Distribution and a Base Rate Loan determined in accordance with clause (c) of the definition thereof, the rate of interest obtained by dividing (i) the rate of interest per annum determined on the basis of the rate for deposits in Dollars for a period equal to the applicable Interest Period which appears on Reuters Screen LIBOR01 Page (or any applicable successor page) at approximately 11:00 a.m. (London time) two (2) Business Days prior to the first day of the applicable Interest Period by (ii) a percentage equal to 1 minus the stated maximum rate (stated as a decimal) of all reserves, if any, required to be maintained with respect to Eurocurrency funding (currently referred to as “Eurocurrency liabilities”) as specified in Regulation D of the Board of Governors of the Federal Reserve System (or against any other category of liabilities which includes deposits by reference to which the interest rate on LIBOR Distributions is determined or any applicable category of extensions of credit or other assets which includes loans by an office of any Lender outside of the United States). If, for any reason, the rate referred to in the preceding clause (i) does not appear on Reuters Screen LIBOR01 Page (or any applicable successor page), then the rate to be used for such clause (i) shall be determined by the Administrative Agent to be the arithmetic average of the rate per annum at which deposits in Dollars would be offered by first class banks in the London interbank market to the Administrative Agent at approximately 11:00 a.m. (London time) two Business Day prior to the first day of the applicable Interest Period for a period equal to such Interest Period. Any change in the maximum rate or reserves described in the preceding clause (ii) shall result in a change in LIBOR on the date on which such change in such maximum rate becomes effective.
“LIBOR Unit” shall mean Series J Preferred Units that generate monthly distributions at the LIBOR Rate.
“Loan-to-Value Ratio” shall mean the ratio, as of a particular date, calculated in accordance with the Credit Agreement.
“Prime Rate” means, at any time, the rate of interest per annum publicly announced from time to time by the Administrative Agent as its prime rate. Each change in the Prime Rate shall be effective as of the opening of business on the day such change in such prime rate occurs. The parties hereto acknowledge that the rate announced publicly by the Administrative Agent as its prime rate is an index or base rate and shall not necessarily be its lowest or best rate charged to its customers or other banks.
2.    Designation and Number; Etc. The Series J Preferred Units have been established and shall have such rights, preferences, limitations and qualifications as are described herein (in addition to the rights, preferences, limitations and qualifications contained in the Third Amended and Restated Agreement of Limited Partnership to the extent applicable). The authorized number of Series J Preferred Units shall be 500,000. Notwithstanding anything to the contrary contained herein, in the event of a conflict between the provisions of this Schedule I and any other provision of the Fourth Amended and Restated Agreement of Limited Partnership, the provisions of this Schedule I shall control.
3.    Rank. The Series J Preferred Units shall, with respect to the payment of distributions and the distribution of amounts upon voluntary or involuntary liquidation, dissolution or winding-up of the Partnership, rank as follows:
(a)    senior to all classes or series of Common Units and to all Units the terms of which provide that such Units shall rank junior to the Series J Preferred Units;
(b)    on a parity with the Series B Preferred Units, Series D Preferred Units, Series E Preferred Units, Series F Preferred Units, Series G Preferred Units, Series H Preferred Units and Series I Preferred Units and each other series of Preferred Units issued by the Partnership which does not provide by its express terms that it ranks junior or senior in right of payment to the Series J Preferred Units with respect to payment of distributions or amounts upon liquidation, dissolution or winding-up; and
(c)    junior to any class or series of Preferred Units issued by the Partnership that ranks senior to the Series J Preferred Units.
4.    Voting. The Partnership shall not, without the affirmative vote or consent of the holders of at least two-thirds of the outstanding Series J Preferred Units voting separately as a class:
(a)    authorize, create or increase the authorized or issued amount of any class or series of partnership interests of the Partnership ranking senior to the Series J Preferred Units with respect to the payment of distributions or rights upon liquidation, dissolution or winding up of the Partnership, or reclassify any authorized partnership interests into, or create, authorize or issue any obligation or interest convertible into, exchangeable for or evidencing the right to purchase, any such senior partnership interests; or
(b)    amend, alter or repeal the provisions of these Series J Preferred Units, whether by merger, consolidation or otherwise, so as to materially and adversely affect any right, preference, privilege or voting power of the Series J Preferred Units or the holders thereof.
For purposes of this Section 4, each Series J Preferred Unit shall have one (1) vote. Notwithstanding anything to the contrary contained herein, the foregoing voting provisions shall not apply if, prior to the time when the act with respect to which such vote would otherwise be required shall be effected, all outstanding Series J Preferred Units shall have been redeemed. Except as provided herein, the holders of Series J Preferred Units shall not have any voting or consent rights or other rights to participate in the management of the Partnership or to receive notices of meetings.
5.    Unit Type Conversions. The Series J Preferred Units are distinguished by “Type.” The “Type” of Unit refers to whether such Unit is a Base Rate Unit or a LIBOR Unit, each of which constitutes a Type of Series J Preferred Unit. The holders of Series J Preferred Units shall have the right to convert Units of one Type into Units of another Type at any time or from time to time. Unit holders shall designate the Type of Series J Preferred Unit being acquired at the time of issuance, and such Type shall continue unless such holder directs the Partnership to convert such Type into another Type. Absent instructions from a Unit holder to select the duration of any Distribution Period for any LIBOR Unit, such Unit shall continue as a LIBOR Unit with a Distribution Period of one (1) month on the last day of the then-current Distribution Period for such Unit or, if outstanding as a Base Rate Unit, shall remain as a Base Rate Unit.
6.    Distributions.
(a)    Regular Distributions. Subject to the rights of the holders of Preferred Units ranking senior to or on parity with the Series J Preferred Units, the holders of Series J Preferred Units shall be entitled to receive on each Distribution Payment Date, out of assets of the Partnership legally available for the payment of the distributions, monthly cumulative cash distributions at the following rates per annum on the $1,000 liquidation preference per Series J Preferred Unit:
(i)    during such periods as the Series J Preferred Units are Base Rate Units, the Base Rate plus the Applicable Margin;
(ii)    during such periods as the Series J Preferred Units are LIBOR Units, the LIBOR Rate for such period plus the Applicable Margin; and
(iii)    an amount equal to any fees payable under the Credit Agreement during such periods resulting from or arising out of borrowings or the ability to borrow under the Credit Agreement.
Notwithstanding anything to the contrary contained herein, during any period when an Event of Default exists (as such term is defined in the Credit Agreement), the holders of Series J Preferred Units shall be entitled to receive on each Distribution Payment Date, cash distributions at the applicable Default Rate on $1,000 liquidation preference per Unit and all distributions thereon not paid when due. In addition to any distributions due under this Section 6, the Partnership shall pay to holders of Series J Preferred Units a late payment premium in the amount of two percent (2%) of any payments of distributions made after the Distribution Payment Date.
(b)    Distributions on the Series J Preferred Units shall only be paid when, as and if declared by the General Partner, however, distributions shall accumulate whether or not so declared.
(c)    Distributions on the Series J Preferred Units shall accrue and be cumulative from, and including, the date of original issuance and shall be payable (when, as and if declared by the General Partner) monthly in arrears on each Distribution Payment Date. The initial distribution on the Series J Preferred Units, which shall be paid on August 3, 2015 if declared by the General Partner, shall be for less than a full month and shall be in the amount of $1.6148 per Series J Preferred Unit. Distributions payable on the Series J Preferred Units shall be computed on the basis of a year of 360 days and actual days elapsed (including the first day but excluding the last day) occurring in the period for which such Distribution is payable.
(d)    The Partnership shall pay distributions to holders of record at the close of business on the applicable distribution record date. The record date for distributions upon the Series J Preferred Units shall be the business day immediately preceding the related Distribution Payment Date, or such other date that the General Partner shall designate that is not more than 30 days prior to the applicable Distribution Payment Date.
(e)    No distribution on the Series J Preferred Units shall be declared by the General Partner or paid or set apart for payment by the Partnership at such time as and to the extent that the terms and provisions of any bona fide agreement of the Partnership, including any agreement relating to bona fide indebtedness, prohibits such declaration, payment or setting apart for payment or provides that such declaration, payment or setting apart for payment would constitute a breach thereof, or a default thereunder, or to the extent that such declaration of payment shall be restricted or prohibited by law (and such failure to pay distributions on the Series J Preferred Units shall prohibit other distributions by the Partnership as described in this Schedule I).
(f)    Distributions on the Series J Preferred Units shall accrue and accumulate, however, whether the Partnership has earnings, whether there are funds legally available for the payment of distributions and whether such distributions are declared by the General Partner.
(g)    Except as provided in Section 6(h) of this Schedule I, so long as any Series J Preferred Units are outstanding, (i) no cash or non-cash distributions (other than in Common Units or other Units ranking junior to the Series J Preferred Units as to payment of distributions and amounts upon liquidation, dissolution or winding-up of the Partnership) shall be declared or paid or set apart for payment upon the Common Units or any other class or series of partnership interests in the Partnership or Units ranking, as to payment of distributions or amounts distributable upon liquidation, dissolution or winding-up of the Partnership, on a parity with or junior to the Series J Preferred Units, for any period and (ii) no Common Units or other Units ranking junior to or on a parity with the Series J Preferred Units as to payment of distributions or amounts upon liquidation, dissolution or winding-up of the Partnership shall be redeemed, purchased or otherwise acquired for any consideration (or any monies be paid to or made available for a sinking fund for the redemption of any such Units) by the Partnership (except by conversion into or exchange for other Units ranking junior to the Series J Preferred Units as to payment of distributions and amounts upon liquidation, dissolution or winding-up of the Partnership or by redemptions pursuant to any redemption rights agreements) unless, in the case of either clause (i) or (ii), full cumulative distributions have been or contemporaneously are declared and paid or declared and a sum sufficient for the payment thereof set apart for such payment.
(h)    When distributions are not paid in full (or a sum sufficient for such full payment is not set apart for such payment) upon the Series J Preferred Units and any other partnership interests in the Partnership or Units ranking on a parity as to payment of distributions with the Series J Preferred Units, all distributions declared upon the Series J Preferred Units and any other partnership interests in the Partnership or Units ranking on a parity as to payment of distributions with the Series J Preferred Units shall be declared or paid pro rata so that the amount of distributions declared per Unit of Series J Preferred Units and such other partnership interests in the Partnership shall in all cases bear to each other the same ratio that accrued and unpaid distributions per Unit on the Series J Preferred Units and such other partnership interests in the Partnership (which shall not include any accumulation in respect of unpaid distributions for prior distribution periods if such Units do not have cumulative distributions) bear to each other
(i)    Any distribution payment made on Series J Preferred Units shall first be credited against the earliest accumulated but unpaid distribution due with respect to such Units that remains payable.
(j)    If, for any taxable year, the Partnership elects to designate as “capital gain dividends” (as defined in Section 857 of the Internal Revenue Code of 1986, as amended, or any successor revenue code or section) any portion of the total distributions (as determined for Federal income tax purposes) paid or made available for the year to holders of all partnership interests of the Partnership (the “Capital Gains Amount”), then the portion of the Capital Gains Amount that shall be allocable to holders of the Series I Preferred Unit shall be in the same portion that the total distributions paid or made available to the holders of the Series I Preferred Unit for the year bears to the total distributions for the year made with respect to all partnership interests in the Partnership. Distributions with respect to the Series J Preferred Units are intended to qualify as permitted distributions of cash that are not treated as a disguised sale within the meaning of Treasury Regulation §1.707-4 and the provisions of this Schedule I shall be construed and applied consistently with such Treasury Regulations.

7.    Liquidation Preference.
(a)    In the event of any voluntary or involuntary liquidation, dissolution or winding-up of the Partnership, before any payment or distribution of the assets of the Partnership (whether capital or surplus) shall be made to or set apart for the holders of Common Units or any other partnership interests in the Partnership or Units ranking junior to the Series J Preferred Units as to the distribution of assets upon the liquidation, dissolution or winding-up of the Partnership, the holders of the Series J Preferred Units shall, with respect to each such Unit, be entitled to receive, out of the assets of the Partnership available for distribution to Partners after payment or provision for payment of all debts and other liabilities of the Partnership and subject to the rights of the holders of any series of Preferred Units ranking senior to or on parity with the Series J Preferred Units with respect to payment of amounts upon liquidation, dissolution or winding-up of the Partnership, an amount equal to $1,000.00 (or property having a fair market value as determined by the General Partner valued at $1,000.00 per Series J Preferred Unit), plus an amount equal to all distributions (whether or not earned or declared) accrued and unpaid thereon to the date of final distribution (including all accumulated and unpaid distributions).
(b)    If, upon any such voluntary or involuntary liquidation, dissolution or winding-up of the Partnership, the assets of the Partnership, or proceeds thereof, distributable among the holders of the Series J Preferred Units are insufficient to pay in full the preferential amount aforesaid on the Series J Preferred Units and liquidating payments on any other Units or partnership interests in the Partnership of any class or series ranking, as to payment of distributions and amounts upon the liquidation, dissolution or winding-up of the Partnership, on a parity with the Series J Preferred Units, then such assets, or the proceeds thereof, shall be distributed among the holders of Series J Preferred Units and any such other Units or partnership interests in the Partnership ratably in accordance with the respective amounts that would be payable on such Series J Preferred Units and such other Units or partnership interests in the Partnership if all amounts payable thereon were paid in full.
(c)    Written notice of such liquidation, dissolution or winding-up of the Partnership, stating the payment date or dates when, and the place or places where, the amounts distributable in such circumstances shall be payable, shall be given by first class mail, postage pre-paid, not less than 30 nor more than 60 days prior to the payment date stated therein, to each record holder of the Series J Preferred Units at the respective addresses of such holders as the same shall appear on the transfer records of the Partnership.
(d)    After payment of the full amount of liquidating distributions to which they are entitled as provided in Section 7(a) of this Schedule I, the holders of Series J Preferred Units shall have no right or claim to any of the remaining assets of the Partnership.
(e)    For the purposes of this Section 7, none of (i) a consolidation or merger of the Partnership with or into another entity, (ii) a merger of another entity with or into the Partnership or (iii) a sale, lease or conveyance of all or substantially all of the Partnership’s assets, properties or business shall be deemed to be a liquidation, dissolution or winding-up of the Partnership (unless all or substantially all of the proceeds thereof are distributed by the Partnership, in which case a liquidation, dissolution or winding-up of the Partnership shall be deemed to have occurred).
8.    Optional Redemption. The holders of the Series J Preferred Units shall have the right to redeem the Series J Preferred Units, in whole or in part, for cash, at a redemption price of the $1,000 liquidation value of such Units, plus all accumulated and unpaid distributions.
9.    Purpose. The Series J Preferred Units are issued by the Partnership in accordance with, and pursuant to, Section 8.3 of the Fourth Amended and Restated Agreement of Limited Partnership of GGP Operating Partnership, LP, as amended, in connection with borrowings by General Growth Properties, Inc., as borrower, pursuant to the (i) Credit Agreement and (ii) Intercompany Credit Agreement between General Growth Properties, Inc. and GGP Limited Partnership dated June 26, 2015 (the “Intercompany Credit Agreement”). Accordingly, the terms set forth on this Schedule I are intended to be equivalent to the terms of borrowings by General Growth Properties, Inc., as borrower, pursuant to the Credit Agreement and Intercompany Credit Agreement. To the extent that the terms herein do not provide such equivalency, whether through omission or otherwise, the Partnership shall be authorized, notwithstanding any provision herein to the contrary, to make such adjustments to the provisions of this Schedule I and the Series J Preferred Units.







Exhibit 31.1
 
CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO SECTION 302
OF THE SARBANES-OXLEY ACT OF 2002
 
I, Sandeep Mathrani, certify that:
 
1.                              I have reviewed this report on Form 10-Q of General Growth Properties, Inc.;
 
2.                              Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
 
3.                              Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
 
4.                              The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
 
a)                     Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
 
b)                     Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
 
c)                      Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
 
d)                     Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting.
 
5.                              The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):
 
a)  All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
 
b)  Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
 
 
Date: August 6, 2015
/s/ Sandeep Mathrani
 
Sandeep Mathrani
 
Chief Executive Officer







Exhibit 31.2
 
CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO SECTION 302
OF THE SARBANES-OXLEY ACT OF 2002
 
I, Michael Berman, certify that:
 
1.                              I have reviewed this report on Form 10-Q of General Growth Properties, Inc.;
 
2.                              Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
 
3.                              Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
 
4.                              The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
 
a)                     Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
 
b)                     Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
 
c)                      Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
 
d)                     Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting.
 
5.                              The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):
 
a)  All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
 
b)  Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
 
 
Date: August 6, 2015
/s/ Michael Berman
 
Michael Berman
 
Chief Financial Officer






Exhibit 32.1
 
CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO SECTION 906
OF THE SARBANES-OXLEY ACT OF 2002
 
In connection with the Quarterly Report of General Growth Properties, Inc. (the “Company”) on Form 10-Q for the period ended June 30, 2015, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Sandeep Mathrani, in my capacity as Chief Executive Officer of the Company, do hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
 
(1)         The Report fully complies with the requirements of Section 13 (a) or 15 (d) of the Securities Exchange Act of 1934; and
 
(2)         The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
 
 
/s/ Sandeep Mathrani
 
Sandeep Mathrani
Chief Executive Officer
August 6, 2015







Exhibit 32.2
 
CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO SECTION 906
OF THE SARBANES-OXLEY ACT OF 2002
 
In connection with the Quarterly Report of General Growth Properties, Inc. (the “Company”) on Form 10-Q for the period ended June 30, 2015, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Michael Berman, in my capacity as Chief Financial Officer of the Company, do hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
 
(1)         The Report fully complies with the requirements of Section 13 (a) or 15 (d) of the Securities Exchange Act of 1934; and
 
(2)         The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
 
 
/s/ Michael Berman
 
Michael Berman
Chief Financial Officer
August 6, 2015



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