ROUSE PROPERTIES, INC.
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
2016
|
|
December 31,
2015
|
|
|
(In thousands)
|
Assets:
|
|
|
|
|
|
|
Investment in real estate:
|
|
|
|
|
|
|
Land
|
|
$
|
427,952
|
|
|
$
|
428,157
|
|
Buildings and equipment
|
|
2,180,341
|
|
|
2,151,443
|
|
Less accumulated depreciation
|
|
(257,953
|
)
|
|
(239,091
|
)
|
Net investment in real estate
|
|
2,350,340
|
|
|
2,340,509
|
|
Cash and cash equivalents
|
|
6,516
|
|
|
5,420
|
|
Restricted cash
|
|
32,752
|
|
|
34,568
|
|
Accounts receivable, net
|
|
43,434
|
|
|
43,196
|
|
Deferred expenses, net
|
|
45,975
|
|
|
44,859
|
|
Prepaid expenses and other assets, net
|
|
44,540
|
|
|
49,034
|
|
Total assets
|
|
$
|
2,523,557
|
|
|
$
|
2,517,586
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
Mortgages, notes and loans payable, net
|
|
$
|
1,735,926
|
|
|
$
|
1,694,841
|
|
Accounts payable and accrued expenses, net
|
|
127,992
|
|
|
147,288
|
|
Total liabilities
|
|
1,863,918
|
|
|
1,842,129
|
|
|
|
|
|
|
|
|
Commitments and contingencies
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
Mezzanine Equity:
|
|
|
|
|
Non-controlling interest in Operating Partnership
|
|
141,965
|
|
|
140,953
|
|
|
|
|
|
|
Equity:
|
|
|
|
|
|
|
Preferred stock: $0.01 par value; 50,000,000 shares authorized, 0 issued and outstanding at March 31, 2016 and December 31, 2015
|
|
—
|
|
|
—
|
|
Common stock: $0.01 par value; 500,000,000 shares authorized, 58,287,506 issued and 57,882,048 outstanding at March 31, 2016 and 58,097,933 issued and 57,797,475 outstanding at December 31, 2015
|
|
581
|
|
|
581
|
|
Additional paid-in capital
|
|
643,203
|
|
|
643,828
|
|
Accumulated deficit
|
|
(131,264
|
)
|
|
(121,182
|
)
|
Accumulated other comprehensive loss
|
|
(4,257
|
)
|
|
(65
|
)
|
Treasury stock, at cost, $0.01 par value, 343,055 shares at March 31, 2016 and 238,055 shares at December 31, 2015
|
|
(5,073
|
)
|
|
(3,509
|
)
|
Total stockholders' equity
|
|
503,190
|
|
|
519,653
|
|
Non-controlling interest
|
|
14,484
|
|
|
14,851
|
|
Total equity
|
|
517,674
|
|
|
534,504
|
|
Total liabilities, mezzanine equity and equity
|
|
$
|
2,523,557
|
|
|
$
|
2,517,586
|
|
The accompanying notes are an integral part of these consolidated financial statements.
ROUSE PROPERTIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
(UNAUDITED)
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
2016
|
|
2015
|
|
(In thousands, except per share amounts)
|
Revenues:
|
|
|
|
|
|
Minimum rents
|
$
|
56,265
|
|
|
$
|
51,534
|
|
Tenant recoveries
|
20,843
|
|
|
19,949
|
|
Overage rents
|
1,744
|
|
|
1,590
|
|
Other
|
1,780
|
|
|
1,488
|
|
Total revenues
|
80,632
|
|
|
74,561
|
|
Expenses:
|
|
|
|
|
|
Property operating costs
|
16,959
|
|
|
16,875
|
|
Real estate taxes
|
7,032
|
|
|
7,474
|
|
Property maintenance costs
|
2,899
|
|
|
3,385
|
|
Marketing
|
421
|
|
|
389
|
|
Provision for doubtful accounts
|
613
|
|
|
497
|
|
General and administrative
|
6,839
|
|
|
6,470
|
|
Provision for impairment
|
—
|
|
|
2,900
|
|
Depreciation and amortization
|
26,348
|
|
|
25,986
|
|
Other
|
11,361
|
|
|
2,159
|
|
Total operating expenses
|
72,472
|
|
|
66,135
|
|
Operating income
|
8,160
|
|
|
8,426
|
|
|
|
|
|
Interest income
|
4
|
|
|
13
|
|
Interest expense
|
(17,953
|
)
|
|
(19,151
|
)
|
Gain on extinguishment of debt
|
—
|
|
|
22,840
|
|
(Loss) income before income taxes and gain on sale of real estate assets
|
(9,789
|
)
|
|
12,128
|
|
Provision for income taxes
|
(158
|
)
|
|
(236
|
)
|
(Loss) income before gain on sale of real estate assets
|
(9,947
|
)
|
|
11,892
|
|
Gain on sale of real estate assets
|
—
|
|
|
32,509
|
|
Net (loss) income
|
(9,947
|
)
|
|
44,401
|
|
Net (income) loss attributable to non-controlling interests
|
(135
|
)
|
|
6
|
|
Net (loss) income attributable to Rouse Properties Inc.
|
(10,082
|
)
|
|
44,407
|
|
Preferred distributions
|
(1,750
|
)
|
|
—
|
|
Net (loss) income allocable to common shareholders
|
$
|
(11,832
|
)
|
|
$
|
44,407
|
|
|
|
|
|
Per common share data:
|
|
|
|
Net (loss) income per share allocable to common shareholders
|
|
|
|
Basic
|
$
|
(0.21
|
)
|
|
$
|
0.77
|
|
Diluted
|
$
|
(0.21
|
)
|
|
$
|
0.76
|
|
|
|
|
|
Dividends declared per share
|
$
|
—
|
|
|
$
|
0.18
|
|
|
|
|
|
Other comprehensive income (loss):
|
|
|
|
Net (loss) income
|
$
|
(9,947
|
)
|
|
$
|
44,401
|
|
Other comprehensive income (loss):
|
|
|
|
Net unrealized loss on financial instruments
|
(4,192
|
)
|
|
(406
|
)
|
Comprehensive (loss) income
|
$
|
(14,139
|
)
|
|
$
|
43,995
|
|
The accompanying notes are an integral part of these consolidated financial statements.
ROUSE PROPERTIES, INC.
CONSOLIDATED STATEMENTS OF EQUITY
(UNAUDITED)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
Stock (shares)
|
|
Common
Stock
|
|
Additional
Paid-In
Capital
|
|
Accumulated
Deficit
|
|
Accumulated Other Comprehensive Loss
|
|
Treasury Stock, at cost
|
|
Non-controlling Interest
|
|
Total
Equity
|
|
(In thousands, except share amounts)
|
Balance at December 31, 2014
|
57,743,981
|
|
|
$
|
578
|
|
|
$
|
679,275
|
|
|
$
|
(162,881
|
)
|
|
$
|
(482
|
)
|
|
$
|
—
|
|
|
$
|
16,845
|
|
|
$
|
533,335
|
|
Net income (loss)
|
—
|
|
|
—
|
|
|
—
|
|
|
44,407
|
|
|
—
|
|
|
—
|
|
|
(6
|
)
|
|
44,401
|
|
Comprehensive loss
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(406
|
)
|
|
—
|
|
|
—
|
|
|
(406
|
)
|
Dividends to common shareholders ($0.18 per share for Q1 dividend)
|
—
|
|
|
—
|
|
|
(10,410
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(10,410
|
)
|
Issuance and amortization of stock compensation
|
53,550
|
|
|
—
|
|
|
865
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
865
|
|
Exercise of options
|
34,248
|
|
|
—
|
|
|
553
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
553
|
|
Net assets attributable to Non-Controlling Interest (as a result of Business Combination)
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
45
|
|
|
45
|
|
Issuance of shares under Employee Stock Purchase Plan ("ESPP")
|
1,437
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Balance at March 31, 2015
|
57,833,216
|
|
|
$
|
578
|
|
|
$
|
670,283
|
|
|
$
|
(118,474
|
)
|
|
$
|
(888
|
)
|
|
$
|
—
|
|
|
$
|
16,884
|
|
|
$
|
568,383
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2015
|
57,797,475
|
|
|
$
|
581
|
|
|
$
|
643,828
|
|
|
$
|
(121,182
|
)
|
|
$
|
(65
|
)
|
|
$
|
(3,509
|
)
|
|
$
|
14,851
|
|
|
$
|
534,504
|
|
Net (loss) income
|
—
|
|
|
—
|
|
|
—
|
|
|
(10,082
|
)
|
|
—
|
|
|
—
|
|
|
135
|
|
|
(9,947
|
)
|
Comprehensive loss
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(4,192
|
)
|
|
—
|
|
|
—
|
|
|
(4,192
|
)
|
Purchase of treasury stock
|
(105,000
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(1,564
|
)
|
|
—
|
|
|
(1,564
|
)
|
Preferred distributions
|
—
|
|
|
—
|
|
|
(1,750
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(1,750
|
)
|
Issuance and amortization of stock compensation
|
169,910
|
|
|
—
|
|
|
822
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
822
|
|
Exercise of options
|
18,567
|
|
|
—
|
|
|
303
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
303
|
|
Distributions to non-controlling interest
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(502
|
)
|
|
(502
|
)
|
Issuance of shares under Employee Stock Purchase Plan ("ESPP")
|
1,096
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Balance at March 31, 2016
|
57,882,048
|
|
|
$
|
581
|
|
|
$
|
643,203
|
|
|
$
|
(131,264
|
)
|
|
$
|
(4,257
|
)
|
|
$
|
(5,073
|
)
|
|
$
|
14,484
|
|
|
$
|
517,674
|
|
The accompanying notes are an integral part of these consolidated financial statements.
ROUSE PROPERTIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
2016
|
|
2015
|
|
(In thousands)
|
Cash Flows from Operating Activities:
|
|
|
|
|
|
Net (loss) income
|
$
|
(9,947
|
)
|
|
$
|
44,401
|
|
Adjustments to reconcile net (loss) income to net cash provided by operating activities:
|
|
|
|
|
|
Provision for doubtful accounts
|
613
|
|
|
497
|
|
Depreciation
|
23,585
|
|
|
23,715
|
|
Amortization
|
2,763
|
|
|
2,271
|
|
Amortization/write-off of deferred financing costs
|
901
|
|
|
899
|
|
Amortization/write-off of debt market rate adjustments
|
(333
|
)
|
|
(9
|
)
|
Amortization of above/below market leases and tenant inducements
|
8
|
|
|
2,498
|
|
Straight-line rent amortization
|
(811
|
)
|
|
42
|
|
Stock based compensation
|
822
|
|
|
865
|
|
Provision for impairment
|
—
|
|
|
2,900
|
|
Gain on extinguishment of debt
|
—
|
|
|
(22,840
|
)
|
Gain on sale of real estate assets
|
—
|
|
|
(32,509
|
)
|
Net changes:
|
|
|
|
|
|
Accounts receivable
|
(40
|
)
|
|
380
|
|
Prepaid expenses and other assets
|
1,313
|
|
|
1,581
|
|
Deferred expenses
|
(3,874
|
)
|
|
(2,889
|
)
|
Restricted cash
|
(1,435
|
)
|
|
(1,536
|
)
|
Accounts payable and accrued expenses
|
1,080
|
|
|
(1,779
|
)
|
Net cash provided by operating activities
|
14,645
|
|
|
18,487
|
|
|
|
|
|
Cash Flows from Investing Activities:
|
|
|
|
|
|
Acquisition of investments in real estate
|
—
|
|
|
(48,000
|
)
|
Proceeds from sale of property, net
|
205
|
|
|
90,197
|
|
Development, building and tenant improvements
|
(44,582
|
)
|
|
(27,388
|
)
|
Restricted cash
|
3,251
|
|
|
1,917
|
|
Net cash (used in) provided by investing activities
|
(41,126
|
)
|
|
16,726
|
|
|
|
|
|
Cash Flows from Financing Activities:
|
|
|
|
|
|
Proceeds received from stock option exercise
|
303
|
|
|
553
|
|
Purchase of treasury stock, at cost
|
(1,564
|
)
|
|
—
|
|
Proceeds from issuance of mortgages, notes and loans payable
|
108,250
|
|
|
31,850
|
|
Borrowings under revolving line of credit
|
63,000
|
|
|
40,000
|
|
Principal payments on mortgages, notes and loans payable
|
(118,230
|
)
|
|
(50,487
|
)
|
Repayments under revolving line of credit
|
(11,000
|
)
|
|
(50,000
|
)
|
Dividends paid
|
(10,404
|
)
|
|
(9,817
|
)
|
Distributions on preferred OP units
|
(738
|
)
|
|
—
|
|
Distributions to non-controlling interests, net
|
(502
|
)
|
|
—
|
|
Deferred financing costs
|
(1,538
|
)
|
|
(289
|
)
|
Net cash provided by (used in) financing activities
|
27,577
|
|
|
(38,190
|
)
|
|
|
|
|
Net change in cash and cash equivalents
|
1,096
|
|
|
(2,977
|
)
|
Cash and cash equivalents at beginning of period
|
5,420
|
|
|
14,308
|
|
Cash and cash equivalents at end of period
|
$
|
6,516
|
|
|
$
|
11,331
|
|
|
|
|
|
Supplemental Disclosure of Cash Flow Information:
|
|
|
|
|
|
Interest paid, net of capitalized interest
|
$
|
18,067
|
|
|
$
|
16,485
|
|
Capitalized interest
|
(1,047
|
)
|
|
(446
|
)
|
|
|
|
|
Non-Cash Transactions:
|
|
|
|
|
|
Change in accrued capital expenditures included in accounts payable and accrued expenses
|
$
|
(10,991
|
)
|
|
$
|
(5,938
|
)
|
Dividends declared, not yet paid
|
—
|
|
|
10,478
|
|
ROUSE PROPERTIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
2016
|
|
2015
|
|
(In thousands)
|
Capitalized market rate adjustments and deferred financing amortization
|
30
|
|
|
61
|
|
|
|
|
|
Supplemental non-cash information related to gain on extinguishment of debt:
|
|
|
|
Land
|
$
|
—
|
|
|
$
|
(5,320
|
)
|
Buildings and equipment, net
|
—
|
|
|
(16,966
|
)
|
Accounts receivable
|
—
|
|
|
490
|
|
Deferred expenses, net
|
—
|
|
|
(681
|
)
|
Prepaid expenses and other assets
|
—
|
|
|
(224
|
)
|
Mortgages, notes and loans payable
|
—
|
|
|
(45,960
|
)
|
Accounts payable and accrued expenses
|
—
|
|
|
(1,803
|
)
|
The accompanying notes are an integral part of these consolidated financial statements.
ROUSE PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(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, 2015, which are included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2015 (the “Annual Report”), as certain footnote disclosures which would substantially duplicate those contained in the 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 the Annual Report.
General
Rouse Properties, Inc. is a Delaware corporation that was created to hold certain assets and liabilities of General Growth Properties, Inc. ("GGP"). Prior to January 12, 2012, Rouse Properties, Inc. and its subsidiaries ("Rouse" or the "Company") were a wholly-owned subsidiary of GGP Limited Partnership (“GGP LP”). GGP distributed the assets and liabilities of
30
of its wholly-owned properties (“RPI Businesses”) to Rouse on January 12, 2012 (the “Spin-Off Date”). Before the spin-off, the Company had not conducted any business as a separate company and had no material assets or liabilities. The operations, assets and liabilities of the business were transferred to the Company by GGP on the Spin-Off Date and are presented as if the transferred business was our business for all historical periods prior to the Spin-Off Date. As such, the Company's assets and liabilities on the Spin-Off Date were reflective of GGP's respective carrying values. Unless the context otherwise requires, references to “we”, “us” and “our” refer to Rouse.
On February 25, 2016, the Company entered into a definitive merger agreement (and other related agreements) to be acquired by affiliates of Brookfield Asset Management Inc. (“Brookfield Asset Management” and, together with its affiliates, “Brookfield”) for
$18.25
per share in an all-cash transaction, a portion of which may be paid out as a special dividend. See Note 16 for additional information regarding the proposed merger with Brookfield.
Principles of Consolidation and Basis of Presentation
The accompanying consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP"). The accompanying consolidated financial statements include the accounts of Rouse, as well as all subsidiaries of Rouse and all joint ventures in which the Company has a controlling interest. For consolidated joint ventures, the non-controlling 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 non-controlling interests as permanent equity of the Company. All intercompany transactions have been eliminated in consolidation as of and for each of the
three
months ended
March 31, 2016
and
2015
.
The Company operates in a
single
reportable segment referred to as its retail segment, which includes the operation, development and management of regional malls. Each of the Company's operating properties is considered a separate operating segment, as each property earns revenues and incurs expenses, individual operating results are reviewed and discrete financial information is available. The Company does not distinguish its operations based on geography, size or type and all operations are within the United States. No customer or tenant comprises more than
10%
of consolidated revenues, and the properties have similar economic characteristics.
NOTE 2
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Properties
Acquisition accounting was applied to real estate assets within the Rouse portfolio either when GGP emerged from bankruptcy in November 2010 or upon any subsequent acquisition. After acquisition accounting is applied, the real estate assets are carried at their cost basis less accumulated depreciation. Real estate taxes and interest costs incurred during development periods are capitalized. Capitalized interest costs are based on qualified expenditures and interest rates in place during the development period.
ROUSE PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
Capitalized real estate taxes, interest and interest related costs are amortized over lives which are consistent with the developed assets.
Pre-development costs, which generally include legal and professional fees and other directly-related third party costs, are capitalized as part of the property being developed. In the event a development is no longer deemed to be probable, the costs previously capitalized are expensed.
Tenant improvements, either paid directly or in the form of construction allowances paid to tenants, are capitalized and depreciated over the shorter of the useful life or applicable lease term. Maintenance and repair costs are expensed when incurred. Expenditures for significant betterments and improvements are capitalized. In leasing tenant space, the Company may provide funding to the lessee through a tenant allowance. In accounting for a tenant allowance, the Company determines whether the allowance represents funding for the construction of leasehold improvements and evaluates the ownership of such improvements. If the Company is considered the owner of the leasehold improvements for accounting purposes, it capitalizes the amount of the tenant allowance and depreciates it over the shorter of the useful life of the leasehold improvements or the related lease term. If the tenant allowance represents a payment for a purpose other than funding leasehold improvements, or in the event that the Company is not considered the owner of the improvements for accounting purposes, the allowance is capitalized as a lease incentive and is recognized over the lease term as a reduction of rental revenue on a straight-line basis.
Depreciation and amortization expense is computed using the straight-line method based upon the following estimated useful lives:
|
|
|
|
Years
|
Buildings and improvements
|
40
|
Equipment and fixtures
|
5 - 10
|
Tenant improvements
|
Shorter of useful life or applicable lease term
|
The Company reviews depreciable lives of its properties periodically and makes adjustments when necessary to reflect a shorter economic life.
Impairment
Operating properties and intangible assets
Accounting for the impairment or disposal of long-lived assets requires that if impairment indicators exist and the undiscounted cash flows expected to be generated by an asset are less than its carrying amount, an impairment provision should be recorded to write down the carrying amount of such asset to its fair value. The Company reviews all real estate assets for potential impairment indicators whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. Impairment indicators are assessed separately for each property and include, but are not limited to, significant decreases in real estate property net operating income and occupancy percentages, high loan to value ratios, and carrying values in excess of the fair values. Impairment indicators for pre-development costs, which are typically costs incurred during the beginning stages of a potential development and developments in progress, are assessed by project and include, but are not limited to, significant changes to the Company’s plans with respect to the project, significant changes in projected completion dates, revenues or cash flows, development costs, market factors and sustainability of development projects.
If an indicator of potential impairment exists, the asset is tested for recoverability by comparing its carrying amount to the estimated future undiscounted cash flows. The cash flow estimates used both for determining recoverability and estimating fair value are inherently judgmental and reflect current and projected trends in rental, occupancy and capitalization rates, and estimated holding periods for the applicable assets. Although the estimated fair value of certain assets may exceed the carrying amount, a real estate asset is only considered to be impaired when its carrying amount cannot be recovered through estimated future undiscounted cash flows. To the extent a provision for impairment is determined to be necessary, the excess of the carrying amount of the asset over its estimated fair value is expensed to operations. The adjusted carrying amount, which represents the new cost basis of the asset, is depreciated over the remaining useful life of the asset.
ROUSE PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
Collin Creek Mall
The Company determined there were events and circumstances which changed management's estimated holding period for Collin Creek Mall during the year ended December 31, 2014. During the three months ended March 31, 2015, the lender had placed the loan into special servicing. As a result of the continued decline in the property's operating results, the Company recorded an impairment charge of
$2.9 million
during the
three months ended March 31, 2015
, as the aggregate carrying value was higher than the fair value of the property. Impairment charges are included in "Provision for impairment" on the Company's Consolidated Statements of Operations and Comprehensive Income (Loss). In April 2015, the property associated with Collin Creek Mall was conveyed to its lender in full satisfaction of the debt.
No
impairment charges were recorded for the three months ended March 31, 2016.
Intangible Assets and Liabilities
The following table summarizes our intangible assets and liabilities as a result of the application of acquisition accounting:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Asset
(Liability)
|
|
Accumulated
(Amortization)/
Accretion
|
|
Net Carrying
Amount
|
|
(In thousands)
|
March 31, 2016
|
|
|
|
|
|
|
|
|
Tenant leases:
|
|
|
|
|
|
|
|
|
In-place value
|
$
|
94,030
|
|
|
$
|
(44,858
|
)
|
|
$
|
49,172
|
|
Above-market
|
96,610
|
|
|
(59,611
|
)
|
|
36,999
|
|
Below-market
|
(66,215
|
)
|
|
26,796
|
|
|
(39,419
|
)
|
Ground leases:
|
|
|
|
|
|
|
|
|
Below-market
|
3,682
|
|
|
(731
|
)
|
|
2,951
|
|
|
|
|
|
|
|
December 31, 2015
|
|
|
|
|
|
|
|
|
Tenant leases:
|
|
|
|
|
|
|
|
|
In-place value
|
$
|
96,301
|
|
|
$
|
(42,446
|
)
|
|
$
|
53,855
|
|
Above-market
|
97,421
|
|
|
(57,241
|
)
|
|
40,180
|
|
Below-market
|
(67,081
|
)
|
|
24,489
|
|
|
(42,592
|
)
|
Ground leases:
|
|
|
|
|
|
|
|
|
Below-market
|
3,682
|
|
|
(692
|
)
|
|
2,990
|
|
The gross asset balances of the in-place value of tenant leases are included in "Buildings and Equipment" on the Company's Consolidated Balance Sheets. Acquired in-place tenant leases are amortized over periods that approximate the related lease terms. The above-market tenant leases and below-market ground leases are included in "Prepaid expenses and other assets, net", and below-market tenant leases are included in "Accounts payable and accrued expenses, net" as detailed in Notes 4 and 6, respectively.
Amortization of in-place intangible assets decreased the Company's income by
$4.7 million
and
$6.0 million
for the
three months ended March 31, 2016
and
2015
, respectively. Amortization of in-place intangibles is included in "Depreciation and amortization" on the Company's Consolidated Statements of Operations and Comprehensive Income (Loss).
Amortization of above-market and below-market lease intangibles decreased the Company's revenue by
$0.01 million
and by
$2.5 million
for the
three months ended March 31, 2016
and
2015
, respectively. Amortization of above-market and below-market lease intangibles is included in "Minimum rents" on the Company's Consolidated Statements of Operations and Comprehensive Income (Loss).
ROUSE PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
Future amortization/accretion of these intangibles is estimated to decrease the Company's net income as follows:
|
|
|
|
|
|
|
|
|
|
Year
|
|
In-place lease intangibles
|
|
Above/(below) market leases, net
|
|
|
(In thousands)
|
Remainder of 2016
|
|
$
|
11,974
|
|
|
$
|
1,704
|
|
2017
|
|
9,205
|
|
|
2,953
|
|
2018
|
|
6,457
|
|
|
658
|
|
2019
|
|
4,675
|
|
|
(606
|
)
|
2020
|
|
3,681
|
|
|
(1,174
|
)
|
2021
|
|
2,492
|
|
|
(913
|
)
|
Cash and Cash Equivalents
The Company considers all demand deposits with a maturity of three months or less, at the date of purchase, to be cash equivalents.
Restricted Cash
Restricted cash consists of security deposits and cash escrowed under loan agreements for debt service, real estate taxes, property insurance, tenant improvements, capital renovations and capital improvements.
Interest Rate Hedging Instruments
The Company recognizes its derivative financial instruments in either "Prepaid expenses and other assets, net" or "Accounts payable and accrued expenses, net", as applicable, on the Consolidated Balance Sheets and measures those instruments at fair value. The accounting for changes in fair value (i.e., gain or loss) of a derivative depends on whether it has been designated and qualifies as part of a hedging relationship, and further, on the type of hedging relationship. To qualify as a hedging instrument, a derivative must pass prescribed effectiveness tests, performed quarterly using both quantitative and qualitative methods. The Company entered into five derivative agreements that qualify as hedging instruments and were designated, based upon the exposure being hedged, as cash flow hedges. The fair value of the cash flow hedges as of
March 31, 2016
was
$5,083
and
$4.3 million
is included in "Prepaid expenses and other assets, net" and "Accounts payable and accrued expenses, net" on the Company's Consolidated Balance Sheets, respectively. The fair value of the Company's interest rate hedge is classified as Level 2 in the fair value measurement table. To the extent they are effective, changes in fair value of cash flow hedges are reported in "Accumulated other comprehensive income (loss)" ("AOCI/L") and reclassified into earnings in the same period or periods during which the hedged item affects earnings. The ineffective portion of the hedge, if any, is recognized in current earnings during the period of change in fair value. The gain or loss on the termination of an effective cash flow hedge is reported in AOCI/L and reclassified into earnings in the same period or periods during which the hedged item affects earnings. The Company also assesses the credit risk that the counterparty will not perform according to the terms of the contract.
Revenue Recognition and Related Matters
Minimum rent revenues are recognized on a straight-line basis over the terms of the related leases. Minimum rent revenues also include amounts collected from tenants to allow for the termination of their leases prior to their scheduled termination dates, amortization related to above and below-market tenant leases on acquired properties and tenant inducements, and percentage rents in lieu of minimum rent from those leases where the Company receives a percentage of tenant revenues.
The following is a summary of amortization of straight-line rent, lease termination income, net amortization related to above and below-market tenant leases, amortization of tenant inducements, and percentage rent in lieu of minimum rent for the
three
months ended
March 31, 2016
and
2015
:
ROUSE PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
March 31,
|
|
|
2016
|
|
2015
|
|
|
(In thousands)
|
Straight-line rent amortization
|
|
$
|
811
|
|
|
$
|
(42
|
)
|
Lease termination income
|
|
154
|
|
|
433
|
|
Net amortization of above and below-market tenant leases
|
|
(8
|
)
|
|
(2,459
|
)
|
Amortization of tenant inducements
|
|
4
|
|
|
(8
|
)
|
Percentage rent in lieu of minimum rent
|
|
2,124
|
|
|
1,597
|
|
Straight-line rent receivables represent the current net cumulative rents recognized prior to when billed and collectible, as provided by the terms of the leases. The following is a summary of straight-line rent receivables, which are included in "Accounts receivable, net," on the Company's Consolidated Balance Sheets and are reduced for allowances for doubtful accounts:
|
|
|
|
|
|
|
|
|
|
March 31, 2016
|
|
December 31, 2015
|
|
(In thousands)
|
Straight-line rent receivables, net
|
$
|
15,668
|
|
|
$
|
14,856
|
|
The Company provides an allowance for doubtful accounts against the portion of accounts receivable, including straight-line rents, which is estimated to be uncollectible. Such allowances are reviewed periodically based upon our recovery experience. The Company also evaluates the probability of collecting future rent which is recognized currently under a straight-line methodology. This analysis considers the long term nature of the Company's leases, as a certain portion of the straight-line rent currently recognizable will not be billed to the tenant until future periods. The Company's experience relative to unbilled straight-line rent receivable is that a certain portion of the amounts recorded as straight-line rental revenue are never collected from (or billed to) tenants due to early lease terminations. For the portion of the recognized deferred rent that is not deemed to be probable of collection, an allowance for doubtful accounts has been provided. Accounts receivable are shown net of an allowance for doubtful accounts of
$3.6 million
and
$3.4 million
as of
March 31, 2016
and
December 31, 2015
, respectively.
Tenant recoveries are amounts due from tenants that are established in the leases or computed based upon a formula related to real estate taxes, insurance and other property operating expenses and are generally recognized as revenues in the period the related costs are incurred. The Company makes certain assumptions and judgments in estimating the reimbursements at the end of each reporting period. The Company does not expect the actual results to materially differ from the estimated reimbursement.
Overage rent is paid by a tenant when its sales exceed an agreed-upon minimum amount. Overage rent is calculated by multiplying the sales in excess of the minimum amount by a percentage defined in the lease. Overage rent is recognized on an accrual basis once tenant sales exceed contractual tenant lease thresholds.
Other revenues generally consist of amounts earned by the Company for vending, advertising, and marketing revenues earned at the Company's malls and is recognized on an accrual basis over the related service period.
(Loss) Income Per Share
Basic net (loss) income per share is computed by dividing the net (loss) income allocable to common stockholders by the weighted-average number of shares of common stock outstanding for the period. Diluted net income per share is calculated similarly; however, it reflects potential dilution of securities by adding the incremental weighted average shares that would have been outstanding assuming all potentially dilutive securities were converted into common stock at the earliest date possible to the weighted-average number of shares of common stock outstanding for the period. As of
March 31, 2016
and
2015
, there were
3,465,674
and
4,104,412
stock options outstanding, respectively, that potentially could be converted into shares of common stock and
205,143
and
145,939
shares of non-vested restricted stock outstanding, respectively. The impact of dilutive stock options and non-vested restricted stock have been considered in the calculation of diluted weighted average shares outstanding for the
three
months ended
March 31, 2015
.
ROUSE PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
The stock options and shares of restricted stock are excluded from the weighted average shares dilution computation for the
three months ended March 31, 2016
, as their effect is anti-dilutive due to the Company's net loss position.
Fair Value
The objective of fair value is to determine the price that would be received upon the sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (the exit price).
GAAP establishes a fair value hierarchy that prioritizes observable and unobservable inputs used to measure fair value:
|
|
•
|
Level 1 — quoted prices (unadjusted) in active markets that are accessible at the measurement date for assets or liabilities;
|
|
|
•
|
Level 2 — observable prices that are based on inputs not quoted in active markets, but corroborated by market data; and
|
|
|
•
|
Level 3 — unobservable inputs that are used when little or no market data is available.
|
The fair value hierarchy gives the highest priority to Level 1 inputs and the lowest priority to Level 3 inputs. In determining fair value, the Company utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible, as well as considers counterparty credit risk in our assessment of fair value. Considerable judgment is necessary to interpret Level 2 and 3 inputs in determining the fair value of our financial and non-financial assets and liabilities. Accordingly, the Company's fair value estimates, which are made at the end of each reporting period, may be different than the amounts that may ultimately be realized upon the sale or disposition of these assets.
The following table sets forth information regarding the Company's financial and non-financial instruments that are measured at fair value on a recurring and non-recurring basis by the above categories:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Fair Value Measurement
|
|
Quoted Price in Active Markets for Identical Assets (Level 1)
|
|
Significant Other Observable Inputs (Level 2)
|
|
Significant Unobservable Inputs
(Level 3)
|
|
|
|
(In thousands)
|
March 31, 2016
|
|
|
|
|
|
|
|
|
|
Recurring basis:
|
|
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
Interest rate cap
|
|
|
$
|
5
|
|
|
$
|
—
|
|
|
$
|
5
|
|
|
$
|
—
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
Interest rate swaps
|
|
|
$
|
(4,274
|
)
|
|
$
|
—
|
|
|
$
|
(4,274
|
)
|
|
$
|
—
|
|
December 31, 2015
|
|
|
|
|
|
|
|
|
|
Recurring basis:
|
|
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
Interest rate cap
|
|
|
$
|
612
|
|
|
$
|
—
|
|
|
$
|
612
|
|
|
$
|
—
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
Interest rate swap
|
|
|
$
|
(677
|
)
|
|
$
|
—
|
|
|
$
|
(677
|
)
|
|
$
|
—
|
|
The Company uses interest rate swaps and caps to mitigate the effect of interest rate movements on its variable-rate debt. The Company has one interest rate cap and five interest rate swaps as of
March 31, 2016
and the interest rate swaps qualified for hedge accounting. The interest rate swaps have met the effectiveness test criteria since inception and changes in their fair value are reported in "Other comprehensive income/(loss)" ("OCI/L") and are reclassified into earnings in the same period or periods during which the hedged item affects earnings. The interest rate cap did not qualify for hedge accounting and changes in its fair value are reported in earnings during the period incurred. The fair value of the Company's interest rate hedges, classified under Level 2, are determined based on prevailing market data for contracts with matching durations, current and anticipated LIBOR information, consideration of the Company's credit standing, credit risk of the counterparty, and reasonable estimates about relevant future market conditions. See Note 7 for additional information regarding the Company's interest rate hedging instruments.
ROUSE PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
The Company's financial instruments are short term in nature and as such their fair values approximate their carrying amounts on our Consolidated Balance Sheets except for debt. As of
March 31, 2016
and
December 31, 2015
, management’s estimates of fair value are presented below. The Company estimated the fair value of the debt by using a future discounted cash flow analysis based on the use and weighting of multiple market inputs including U.S. market lending data and index rates, which are provided by a third party specialist. As a result of the frequency and availability of market data, the inputs used to measure the estimated fair value of debt are Level 3 inputs. The primary sensitivity in these calculations is based on the selection of appropriate discount rates.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2016
|
|
December 31, 2015
|
|
Carrying Amount
|
|
Estimated Fair
Value
|
|
Carrying Amount
|
|
Estimated Fair
Value
|
|
(In thousands)
|
Fixed-rate debt
|
$
|
1,254,613
|
|
|
$
|
1,290,722
|
|
|
$
|
1,137,818
|
|
|
$
|
1,156,729
|
|
Variable-rate debt
|
493,500
|
|
|
496,207
|
|
|
568,695
|
|
|
571,390
|
|
Total mortgages, notes and loans payable, net
(1)
|
$
|
1,748,113
|
|
|
$
|
1,786,929
|
|
|
$
|
1,706,513
|
|
|
$
|
1,728,119
|
|
`
Explanatory Note:
1. Includes
$(0.8)
million and
$(0.3)
as of March 31, 2015 and December 31, 2015, respectively, but excludes amortization of deferred financing costs of
$12.2
million and
$11.7
million as of March 31, 2016 and December 31, 2015, respectively.
Deferred Expenses
Deferred expenses are comprised of deferred leasing costs incurred in connection with obtaining new tenants or renewals of lease agreements with current tenants, which are amortized on a straight-line basis over the terms of the related leases and included in "Depreciation and amortization" on the Company's Consolidated Statements of Operations and Comprehensive Income (Loss) and deferred financing costs related to the 2013 Revolver (as defined below), which are amortized on a straight-line basis (which approximates the effective interest method) over the life of the 2013 Revolver and are included in "Interest expense" on the Company's Consolidated Statements of Operations and Comprehensive Income (Loss). As of March 31, 2016 and December 31, 2015, "Deferred expenses, net" primarily consist of deferred leasing costs, net,of
$45.7 million
and
$44.6 million
, respectively.
Asset Retirement Obligations
The Company evaluates any potential asset retirement obligations, including those related to disposal of asbestos containing materials and environmental remediation liabilities. The Company recognizes the fair value of such obligations in the period incurred if a reasonable estimate of fair value can be determined. As of
March 31, 2016
and
December 31, 2015
, estimated costs of environmental remediation of approximately
$6.2 million
and
$6.1 million
, respectively, have been recorded as a liability in "Accounts payable and accrued expenses, net" on the Company's Consolidated Balance Sheets. The Company does not believe actual remediation costs will be materially different than the estimates as of
March 31, 2016
.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions. These estimates and assumptions affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. For example, estimates and assumptions have been made with respect to fair values of assets and liabilities for purposes of applying the acquisition method of accounting, the useful lives of assets, capitalization of development and leasing costs, recoverable amounts of receivables, impairment of long-lived assets, valuation of hedging instruments and fair value of debt. Actual results could differ from these and other estimates.
Reclassifications
The Company adopted Accounting Standards Update (ASU) No. 2015-03, "
Simplifying the Presentation of Debt Issuance Costs
" issued by the Financial Accounting Standards Board (FASB) on a retrospective basis. This ASU amends Accounting Standards Codification (ASC) 835-30 and requires debt issuance costs related to borrowings to be presented in the Consolidated Balance Sheets as a direct reduction from the carrying amount of the debt. As a result, unamortized debt issuance costs of
$12.2
ROUSE PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
million
and
$11.7 million
as of March 31, 2016 and December 31, 2015, respectively, were reclassified from "Deferred expenses, net" to "
Mortgages, notes and loans payable, net
" on the Consolidated Balance Sheets as of March 31, 2016 and December 31, 2015.
Recent Accounting Pronouncements
In May 2014, the FASB issued ASU 2014-09, "
Revenue from Contracts with Customers (Topic 606)
". This topic provides for five principles which should be followed to determine the appropriate amount and timing of revenue recognition for the transfer of goods and services to customers. The principles in this ASU should be applied to all contracts with customers regardless of industry. The amendments in this ASU are effective for reporting periods beginning after December 15, 2017, with two transition methods of adoption allowed. The Company is evaluating the financial statement impact of the guidance in this ASU.
In August 2014, the FASB issued ASU 2014-15, "
Disclosure of Uncertainties about an Entity's Ability to Continue as a Going Concern
". This topic provides guidance on management's responsibility to evaluate whether there is substantial doubt about a company's ability to continue as a going concern and requires related footnote disclosures. The amendments in this ASU are effective for the annual period after December 15, 2016, and for annual and interim periods thereafter. The Company is currently evaluating the impact of the guidance in this ASU.
In February 2015, the FASB issued ASU 2015-02, “
Consolidation (Topic 810): Amendments to the Consolidation Analysis”,
which makes certain changes to both the variable interest model and the voting model, including changes to (1) the identification of variable interests (fees paid to a decision maker or service provider), (2) the variable interest entity characteristics for a limited partnership or similar entity and (3) the primary beneficiary determination. ASU 2015-02 is effective for the Company beginning January 1, 2016. Early adoption is permitted. The Company adopted ASU 2015-02 during the three months ended March 31, 2016 and it did not have a material impact on the Company's consolidated financial statements.
In January 2016, the FASB issued an update to ASU 2016-01, "
Recognition and Measurement of Financial Assets and Financial Liabilities"
to ASC Topic 825, "
Financial Instruments"
(“ASC 825”). ASU 2016-01 amends certain aspects of recognition, measurement, presentation and disclosure of financial instruments, including the requirement to measure certain equity investments at fair value with changes in fair value recognized in net income. ASU 2016-01 is effective for interim and annual reporting periods in fiscal years beginning after December 15, 2017. We are currently evaluating the impact of the adoption of ASU 2016-01 on our Consolidated Financial Statements.
In February 2016, the FASB issued ASU 2016-02, “
Leases (Topic 842)
.” ASU 2016-02 requires lessees to recognize a lease liability and a right-of-use asset on the balance sheet and aligns many of the underlying principles of the new lessor model with those in ASU 2014-09, “
Revenue from Contracts with Customers (Topic 606)
”. ASU 2016-02 is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early adoption is permitted. We are currently evaluating the requirements of ASU 2016-02 and have not yet determined its impact on our consolidated financial statements.
In March 2016, the FASB issued ASU 2016-09, “
Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting
.” ASU 2016-09 simplifies the accounting for share-based payment award transactions including: income tax consequences, classification of awards as either equity or liabilities and classification on the statement of cash flows. ASU 2016-09 is effective for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years. Early adoption is permitted. We are currently evaluating the requirements of ASU 2016-09 and have not yet determined its impact on our consolidated financial statements.
NOTE 3
ACQUISITIONS
The Company includes the results of operations of real estate assets acquired in the Company's Consolidated Statements of Operations and Comprehensive Income (Loss) from the date of the related transactions.
ROUSE PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
The Company did not acquire any properties during the three months ended March 31, 2016. The following table presents the Company's acquisitions as of
December 31, 2015
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Date Acquired
|
|
Property Name
|
|
Location
|
|
Square Footage Acquired
|
|
Purchase Price
|
2015 Acquisitions
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
01/28/2015
|
|
Mt. Shasta Mall
(1) (2)
|
|
Redding, CA
|
|
521,000
|
|
|
$
|
49,000
|
|
|
06/03/2015
|
|
Fig Garden Village
(1) (3)
|
|
Fresno, CA
|
|
301,459
|
|
|
106,100
|
|
|
11/12/2015
|
|
The Shoppes at Carlsbad
(1) (4)
|
|
Carlsbad, CA
|
|
1,117,040
|
|
|
170,000
|
|
|
|
|
|
|
2015 Acquisitions Total
|
|
1,939,499
|
|
|
$
|
325,100
|
|
Explanatory Notes:
(1)
Rouse acquired a
100%
interest in the mall.
|
|
(2)
|
The Company closed on a new
$31.9 million
non-recourse mortgage loan that bears interest at
4.19%
, matures in March 2025, is interest only for the first
three
years and amortizes over
30
years thereafter.
|
(3)
The Company closed on a new
$74.2 million
non-recourse mortgage loan that bears interest at
4.14%
, matures in June 2025, is interest only for the first
five
years and amortizes over
30
years thereafter.
(4)
In conjunction with the closing of this transaction, Rouse Properties, L.P., our operating partnership (the "Operating Partnership'"), issued
$140.0 million
of its Series A Preferred Units of limited partnership interest (the "Series A Preferred Units"), to the seller. Distributions on the Series A Preferred Units accumulate at an annual rate of
5%
and are payable quarterly. The Series A Preferred Units may be redeemed by the Company after three years (subject to certain tax protection payments if the Company redeems the Series A Preferred Units prior to 2022) and by the holder after ten years, in either case at par plus accumulated and unpaid distributions and in the form of cash or common units of limited partnership ("Common Units") of the Operating Partnership, as determined by us. (See Note 10 for further details on our non-controlling interest in the Operating Partnership.) In December 2015, The Shoppes at Carlsbad was added to the 2013 Senior Facility (as defined below) collateral pool (see Note 5 for details on the 2013 Senior Facility.
The following table presents certain additional information regarding the Company's acquisitions for the year ended
December 31, 2015
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property Name
|
|
Land
|
|
Building and Improvements
|
|
Acquired Lease Intangibles
|
|
Acquired Above Market Lease Intangibles
|
|
Acquired Below Market Lease Intangibles
|
|
Other
|
2015 Acquisitions
|
|
|
(In thousands)
|
|
Mt. Shasta Mall
|
|
$
|
7,809
|
|
|
$
|
38,008
|
|
|
$
|
3,779
|
|
|
$
|
915
|
|
|
$
|
(1,813
|
)
|
|
$
|
302
|
|
|
Fig Garden Village
|
|
18,774
|
|
|
79,528
|
|
|
7,366
|
|
|
3,975
|
|
|
(2,907
|
)
|
|
(636
|
)
|
|
The Shoppes at Carlsbad
|
|
49,452
|
|
|
111,671
|
|
|
11,841
|
|
|
4,109
|
|
|
(8,395
|
)
|
|
1,322
|
|
|
Total
|
|
$
|
76,035
|
|
|
$
|
229,207
|
|
|
$
|
22,986
|
|
|
$
|
8,999
|
|
|
$
|
(13,115
|
)
|
|
$
|
988
|
|
The Company incurred acquisition and transaction related costs of
$0.3 million
and
$0.4 million
for the
three months ended March 31, 2016
and
2015
, respectively. Acquisition and transaction related costs consist of due diligence costs such as legal fees, environmental studies and closing costs. These costs were recorded in "Other" on the Company's Consolidated Statements of Operations and Comprehensive Income (Loss).
During the
three
months ended
March 31, 2015
, the Company recorded approximately
$1.3 million
in revenues and
$0.03 million
in net loss related to the acquisition of Mt. Shasta Mall. There were no acquisitions made during the
three months ended March 31, 2016
.
The following condensed pro forma financial information for the three months ended March 31,
2015
includes pro forma adjustments related to the acquisition of Mt. Shasta Mall which is presented assuming the acquisitions had been consummated as of January 1, 2015. The following condensed pro forma financial information is not necessarily indicative of what the actual results of operations of the Company would have been assuming the acquisitions had been consummated as of January 1, nor does it purport to represent the results of operations for future periods. Pro forma adjustments include above and below-market amortization, straight-line rent, interest expense, and depreciation and amortization.
ROUSE PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
|
|
|
|
|
|
|
|
Three months ended March 31,
|
|
|
2015
|
|
|
As Adjusted (Unaudited)
|
|
|
(Dollars in thousands, except per share amounts)
|
Total revenues
|
|
$
|
75,195
|
|
Net income
|
|
$
|
44,385
|
|
|
|
|
Net income per share - basic
|
|
$
|
0.77
|
|
|
|
|
Net income per share - diluted
|
|
$
|
0.76
|
|
|
|
|
Weighted average shares - basic
|
|
57,603,340
|
|
Weighted average shares - diluted
|
|
58,287,256
|
|
NOTE 4
PREPAID EXPENSES AND OTHER ASSETS, NET
The following table summarizes the significant components of prepaid expenses and other assets, net:
|
|
|
|
|
|
|
|
|
|
March 31,
2016
|
|
December 31,
2015
|
|
(In thousands)
|
Above-market tenant leases, net (Note 2)
|
$
|
36,999
|
|
|
$
|
40,180
|
|
Prepaid expenses
|
3,629
|
|
|
4,372
|
|
Below-market ground leases, net (Note 2)
|
2,951
|
|
|
2,990
|
|
Deposits
|
494
|
|
|
424
|
|
Other
|
467
|
|
|
1,068
|
|
Total prepaid expenses and other assets, net
|
$
|
44,540
|
|
|
$
|
49,034
|
|
ROUSE PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
NOTE 5
MORTGAGES, NOTES AND LOANS PAYABLE, NET
Mortgages, notes and loans payable are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
2016
|
|
December 31,
2015
|
|
Interest Rate at March 31, 2016
|
|
Scheduled Maturity Date
|
Fixed-rate debt:
|
(in thousands)
|
|
|
|
|
The Centre at Salisbury
(1)
|
$
|
—
|
|
|
$
|
115,000
|
|
|
—
|
%
|
|
—
|
|
Vista Ridge Mall
|
64,660
|
|
|
65,611
|
|
|
6.87
|
|
|
April 2016
|
|
The Mall at Turtle Creek
|
76,343
|
|
|
76,615
|
|
|
6.54
|
|
|
June 2016
|
|
NewPark Mall
(1) (2)
|
125,000
|
|
|
—
|
|
|
3.22
|
|
|
September 2018
|
|
West Valley Mall
(3)
|
59,000
|
|
|
59,000
|
|
|
3.24
|
|
|
September 2018
|
|
The Shoppes at Bel Air
(1) (2)
|
110,450
|
|
|
—
|
|
|
3.34
|
|
|
November 2018
|
|
The Shoppes at Gateway
(1) (3)
|
75,000
|
|
|
75,000
|
|
|
3.64
|
|
|
January 2020
|
|
Pierre Bossier Mall
|
45,672
|
|
|
45,875
|
|
|
4.94
|
|
|
May 2022
|
|
Pierre Bossier Anchor
|
3,528
|
|
|
3,550
|
|
|
4.85
|
|
|
May 2022
|
|
Southland Center (MI)
|
74,486
|
|
|
74,806
|
|
|
5.09
|
|
|
July 2022
|
|
Chesterfield Towne Center
|
105,933
|
|
|
106,379
|
|
|
4.75
|
|
|
October 2022
|
|
Animas Valley
|
48,924
|
|
|
49,156
|
|
|
4.41
|
|
|
November 2022
|
|
Lakeland Square
|
66,494
|
|
|
66,814
|
|
|
4.17
|
|
|
April 2023
|
|
Valley Hills Mall
|
65,070
|
|
|
65,362
|
|
|
4.47
|
|
|
July 2023
|
|
Chula Vista Center
|
70,000
|
|
|
70,000
|
|
|
4.18
|
|
|
July 2024
|
|
The Mall at Barnes Crossing
|
67,000
|
|
|
67,000
|
|
|
4.29
|
|
|
September 2024
|
|
Bayshore Mall
|
46,500
|
|
|
46,500
|
|
|
3.96
|
|
|
November 2024
|
|
Mt. Shasta Mall
(1)
|
31,850
|
|
|
31,850
|
|
|
4.19
|
|
|
March 2025
|
|
Fig Garden Village
(1)
|
74,200
|
|
|
74,200
|
|
|
4.14
|
|
|
June 2025
|
|
Greenville Mall
(1)
|
45,263
|
|
|
45,440
|
|
|
4.46
|
|
|
November 2025
|
|
Total fixed-rate debt
|
$
|
1,255,373
|
|
|
$
|
1,138,158
|
|
|
|
|
|
Market rate adjustments
|
(760
|
)
|
|
(340
|
)
|
|
|
|
|
|
$
|
1,254,613
|
|
|
$
|
1,137,818
|
|
|
|
|
|
Variable-rate debt:
|
|
|
|
|
|
|
|
NewPark Mall
(1) (2)
|
$
|
—
|
|
|
$
|
114,245
|
|
|
—
|
%
|
|
—
|
|
The Shoppes at Bel Air
(1) (2)
|
—
|
|
|
110,450
|
|
|
—
|
|
|
—
|
|
The Centre at Salisbury
(1) (4)
|
97,500
|
|
|
—
|
|
|
3.04
|
|
|
March 2019
|
|
2013 Term Loan
(5) (6)
|
285,000
|
|
|
285,000
|
|
|
2.79
|
|
|
November 2018
|
|
2013 Revolver
(5) (6)
|
111,000
|
|
|
59,000
|
|
|
2.79
|
|
|
November 2017
|
|
Total variable-rate debt
|
$
|
493,500
|
|
|
$
|
568,695
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unamortized deferred financing costs
(7)
|
(12,187
|
)
|
|
(11,672
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Total mortgages, notes and loans payable, net
|
$
|
1,735,926
|
|
|
$
|
1,694,841
|
|
|
|
|
|
Explanatory Notes:
(1)
See the significant property loan refinancings and acquisitions table below, under "—Property-Level Debt" in this Note 5 for additional information regarding the debt related to each property.
(2)
The Company entered into a forward interest rate swap transaction which fixed the interest rate on the loan, which is variable, for this property beginning January 2016. Therefore, the amounts are reflected in fixed-rate debt as of March 31, 2016 and variable-rate debt as of December 31 2015.
(3)
The Company entered into an interest swap transaction which fixed the interest rate on the loan, which is variable, for this property. Therefore, the amounts are reflected in fixed-rate debt as of March 31, 2016 and December 31, 2015.
(4)
LIBOR (30 day) plus
260
basis points.
(5)
LIBOR (30 day) plus
235
basis points.
(6)
During 2015, the Company exercised a portion of its "accordion feature" on the 2013 Senior Facility, increasing the 2013 Term Loan (as defined below) from
$260.0 million
to
$285.0 million
and increasing the availability on the 2013 Revolver from
$285.0 million
to
$310.0 million
.
(7)
See Note 2 for information related to the adoption of a new accounting pronouncement during the three months ended March 31, 2016 that have been retrospectively applied, resulting in reclassification of certain debt issuance costs from "Deferred expenses, net" to "Mortgages, notes and loan payable, net."
ROUSE PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
Property-Level Debt
The Company had individual property-level debt (the “Property-Level Debt”) on
19
of its
36
assets, totaling
$1.35 billion
(excluding
$0.8 million
of market rate adjustments) as of
March 31, 2016
. As of
December 31, 2015
, the Company had individual
property-level debt on
19
of its
36
assets, totaling
$1.36 billion
(excluding
$0.3 million
of market rate adjustments). As of
March 31, 2016
and
December 31, 2015
, the Property-Level Debt had a weighted average interest rate of
4.3%
and
4.4%
, respectively, and an average remaining term of
5.2
years, unchanged from December 31, 2015. The Property-Level Debt is generally non-recourse to the Company and is stand-alone (i.e., not cross-collateralized) first mortgage debt with the exception of customary recourse guarantees.
The following is a summary of significant property loan refinancings and acquisitions that have occurred during the
three months ended
March 31, 2016
and the year ended
December 31, 2015
(dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property
|
|
Refinancing Date
|
|
Balance at Date of Refinancing
|
|
Prior Interest Rate
|
|
Balance of New Loan
|
|
New Interest Rate
|
|
Initial Maturity
|
March 31, 2016:
|
|
|
|
|
|
|
|
|
|
|
|
|
The Centre at Salisbury
(1) (2)
|
|
March 2016
|
|
$
|
115,574
|
|
|
5.79
|
%
|
|
$
|
97,500
|
|
|
3.04
|
%
|
|
March 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2015:
|
|
|
|
|
The Shoppes at Gateway
(3)
|
|
December 2015
|
|
$
|
—
|
|
|
—
|
%
|
|
$
|
75,000
|
|
|
3.64
|
%
|
|
January 2020
|
Greenville Mall
(4)
|
|
October 2015
|
|
40,171
|
|
|
5.29
|
%
|
|
45,500
|
|
|
4.46
|
%
|
|
November 2025
|
The Shoppes at Bel Air
(5)
|
|
October 2015
|
|
109,467
|
|
|
5.30
|
%
|
|
110,450
|
|
|
2.78
|
%
|
|
November 2018
|
NewPark Mall
(2) (6)
|
|
September 2015
|
|
64,655
|
|
|
3.44
|
%
|
|
114,245
|
|
|
2.53
|
%
|
|
September 2018
|
Fig Garden Village
(7)
|
|
June 2015
|
|
—
|
|
|
—
|
%
|
|
74,200
|
|
|
4.14
|
%
|
|
June 2025
|
Mt. Shasta Mall
(2)
|
|
February 2015
|
|
—
|
|
|
—
|
%
|
|
31,850
|
|
|
4.19
|
%
|
|
March 2025
|
Explanatory Notes:
(1)
In March 2016, the loan associated with The Centre at Salisbury was refinanced with a partial non-recourse mortgage loan for
$105.0 million
. The initial funding of
$97.5 million
was used to retire the outstanding mortgage loan. The loan bears interest at floating rate of LIBOR (30 day) plus
260
basis points, matures in March 2019 and has a
one
year extension option.
(2)
The loan is interest-only for the first
three
years.
(3)
During 2015, the Company removed the Shoppes at Gateway from the 2013 Senior Facility collateral pool and placed a new
$75.0 million
non-recourse mortgage loan on the property which has an initial maturity date of January 2020 with a
one
year extension option and is interest-only for the first
four
years. In connection with the removal of The Shoppes at Gateway Mall from the 2013 Senior Facility, The Shoppes at Carlsbad was added to the 2013 Senior Facility collateral pool with no change to the outstanding 2013 Senior Facility balance. In December 2015, the Company entered into an interest rate swap on the loan which fixed the interest rate at
3.64%
through January 2020 (see Note 7 for further details).
(4)
In October 2015, the loan associated with Greenville Mall was refinanced with a new non-recourse mortgage loan for
$45.5 million
, which bears interest at a fixed rate of
4.46%
, matures in November 2025, and amortizes over
30
years. This loan replaced a
$40.2 million
non-recourse mortgage loan which had a fixed interest rate of
5.29%
.
(5)
In October 2015, the loan associated with The Shoppes at Bel Air was refinanced with a new non-recourse mortgage loan for
$120.0 million
. The initial funding of
$110.5 million
was used to retire the outstanding mortgage loan of
$109.5 million
, which had a fixed interest rate of
5.30%
. The loan provides for an additional subsequent funding of
$9.5 million
upon achieving certain conditions. The Company entered into an interest rate swap on this loan which fixed the interest rate at
3.34%
through November 2018 (see Note 7 for further details). The loan is interest-only for the first
two
years.
(6)
In September 2015, the loan associated with NewPark Mall was refinanced for
$135.0 million
, with an initial funding of
$114.3 million
. The loan provides for an additional funding of up to
$20.8 million
upon achieving certain conditions. The loans matures in September 2018 with a
one
year extension option and amortizes over
30
years thereafter. The Company entered into an interest rate swap on this loan, which fixed the interest rate at
3.26%
through September 2018. In February 2016, the Company received
$10.8 million
of the available additional funding which bears interest at LIBOR (30 day) plus 210 basis points. Upon receiving the additional funding, the Company entered into an interest rate swap which fixed the interest rate. This loan replaced a
$64.7 million
non-recourse mortgage loan which had a floating rate of LIBOR (30 day) plus
235
basis points (see Note 7 for further details).
(7)
The loan is interest-only for the first five years.
In February 2015, the loan associated with Vista Ridge Mall was transferred to special servicing. The Company has commenced discussions with the special servicer and is working vigorously with the lender to convey the property in full satisfaction of the debt.
ROUSE PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
Corporate Facility
2013 Senior Facility
On November 22, 2013, the Company entered into a
$510.0 million
secured credit facility that provides borrowings on a revolving basis of up to
$250.0 million
(the "2013 Revolver") and a
$260.0 million
senior secured term loan (the "2013 Term Loan" and together with the 2013 Revolver, the "2013 Senior Facility"). Borrowings on the 2013 Senior Facility bear interest at LIBOR plus 185 to 300 basis points based on the Company's corporate leverage. The Company has the option, subject to the satisfaction of certain conditions precedent, to exercise an "accordion" feature to increase the commitments under the 2013 Revolver and/or incur additional term loans in the aggregate amount of
$250.0 million
such that the aggregate amount of the commitments and outstanding loans under the 2013 Secured Facility does not exceed
$760.0 million
. During the year ended
December 31, 2014
, through an amendment to the 2013 Senior Facility ("the 2014 Amendment"), the Company exercised a portion of the "accordion" feature on the 2013 Senior Facility to increase the available borrowings of the 2013 Revolver thereunder from
$250.0 million
to
$285.0 million
. Then, during the year ended
December 31, 2015
, through an amendment to the 2013 Senior Facility, the Company exercised another portion of the "accordion" feature which increased the aggregate amount of commitments under the 2013 Senior Facility from
$545.0 million
to
$595.0 million
. The exercise increased availability on the 2013 Revolver from
$285.0 million
to
$310.0 million
and increased the 2013 Term Loan from
$260.0 million
to
$285.0 million
. The term and rates of the Company's 2013 Senior Facility were otherwise unchanged.
The 2013 Revolver has an initial term of
four
years with a
one
year extension option and the 2013 Term Loan has a term of
five
years. As of
March 31, 2016
, the Company has drawn
$111.0 million
on the 2013 Revolver. The Company is required to pay an unused fee related to the 2013 Revolver equal to
0.20%
per year if the aggregate unused amount is greater than or equal to
50%
of the 2013 Revolver or
0.30%
per year if the aggregate unused amount is less than
50%
of the 2013 Revolver. During each of the
three
months ended
March 31, 2016
and
2015
, the Company incurred
$0.2 million
of unused fees related to the 2013 Revolver. Under the 2013 Revolver, letters of credit totaling
$5.4 million
were outstanding as of
March 31, 2016
in connection with various properties. During the
three
months ended
March 31, 2016
and
2015
, the Company incurred
$0.03 million
and
$0.04 million
, respectively, of letters of credit fees.
The 2013 Senior Facility contains representations and warranties, affirmative and negative covenants and default and cross-default provisions that are customary for such a real estate loan. In addition, the 2013 Senior Facility requires compliance with certain financial covenants, including borrowing base loan to value and debt yield, corporate maximum leverage ratio, minimum ratio of adjusted consolidated earnings before interest, tax, depreciation and amortization to fixed charges, minimum tangible net worth, minimum mortgaged property requirement, maximum unhedged variable rate debt and maximum recourse indebtedness. Failure to comply with the covenants in the 2013 Senior Facility would result in a default thereunder and, absent a waiver or an amendment from our lenders, cause the acceleration of all outstanding borrowings under the 2013 Senior Facility. The default interest rate following a payment event of default under the 2013 Senior Facility is
3.0%
more than the then-applicable interest rate. No assurance can be given that the Company would be successful in obtaining such waiver or amendment, or that any accommodations that the Company was able to negotiate would be on terms as favorable as those in the 2013 Senior Facility. In connection with the 2014 Amendment, certain modifications were made to the financial covenant calculations in the 2013 Senior Facility. As of
March 31, 2016
, the Company was in compliance with all of the debt covenants related to the 2013 Senior Facility.
Total Mortgage and Corporate Debt
As of
March 31, 2016
,
$2.43 billion
of land, buildings and equipment (before accumulated depreciation) have been pledged as collateral for our mortgages, notes and loans payable. Certain mortgage notes payable may be prepaid but are generally subject to a prepayment penalty equal to a yield-maintenance premium, defeasance or a percentage of the loan balance.
The weighted-average interest rate on our collateralized mortgages, notes and loans payable was approximately
3.9%
and
4.1%
as of
March 31, 2016
and
December 31, 2015
, respectively. The average remaining term was
4.5
and
4.7
years as of
March 31, 2016
and
December 31, 2015
, respectively.
ROUSE PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
NOTE 6
ACCOUNTS PAYABLE AND ACCRUED EXPENSES, NET
The following table summarizes the significant components of accounts payable and accrued expenses, net:
|
|
|
|
|
|
|
|
|
|
March 31, 2016
|
|
December 31, 2015
|
|
(In thousands)
|
Below-market tenant leases, net (Note 2)
|
$
|
39,419
|
|
|
$
|
42,592
|
|
Construction payable
|
36,582
|
|
|
47,572
|
|
Accounts payable and accrued expenses
|
9,799
|
|
|
8,096
|
|
Accrued payroll and employee liabilities
|
9,367
|
|
|
7,778
|
|
Accrued real estate taxes
|
8,463
|
|
|
8,773
|
|
Accrued interest
|
7,378
|
|
|
6,868
|
|
Asset retirement obligation liability
|
6,154
|
|
|
6,085
|
|
Derivative liability
|
4,274
|
|
|
677
|
|
Deferred income
|
3,880
|
|
|
5,420
|
|
Tenant and other deposits
|
1,659
|
|
|
1,706
|
|
Accrued dividend
|
—
|
|
|
10,472
|
|
Other
|
1,017
|
|
|
1,249
|
|
Total accounts payable and accrued expenses, net
|
$
|
127,992
|
|
|
$
|
147,288
|
|
NOTE 7
DERIVATIVES
Cash Flow Hedges of Interest Rate Risk
The Company records its derivative instruments on its Consolidated Balance Sheets at fair value. The accounting for changes in the fair value of a derivative depends on the intended use of the derivative, whether the derivative has been designated as a hedge and if so, whether the hedge has met the criteria necessary to apply hedge accounting.
The Company's objectives in using interest rate derivatives are to add stability to interest expense and to manage its exposure to interest rate movements. To accomplish these objectives, the Company primarily uses interest rate swaps and caps as part of its interest rate risk management strategy. Interest rate swaps designated as cash flow hedges involve the receipt of variable-rate amounts from the counterparty in exchange for the Company making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount. Interest rate caps designated as cash flow hedges involve the receipt of variable-rate amounts from a counterparty if interest rates rise above the strike rate on the contract in exchange for an up-front premium.
The effective portion of changes in fair value of derivatives designated and that qualify as cash flow hedges is recorded in accumulated other comprehensive income (loss) ("AOCI/L") and is subsequently reclassified into earnings in the period in which the hedged forecasted transactions affect earnings. During the
three
months ended
March 31, 2016
and 2015, such derivatives were used to hedge the variable cash flows associated with existing variable-rate borrowings. The ineffective portion of the change in fair value of the derivatives is recognized in earnings. During the
three
months ended
March 31, 2016
, the Company recorded a loss of
$0.01 million
of ineffectiveness in earnings.
Amounts reported in AOCI/L related to derivatives are reclassified to interest expense as interest payments are made on the Company’s variable-rate debt. As of
March 31, 2016
, the Company expects that an additional
$2.3 million
will be reclassified as an increase to interest expense over the next 12 months.
ROUSE PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
Interest Rate Swaps
The Company entered into an interest rate swap to hedge the risk of changes in cash flows on borrowings related to the West Valley Mall in January 2014 through June 2018. The interest related to this loan was computed at a variable rate of LIBOR plus
1.75%
and the Company swapped this for a fixed rate of
1.49%
plus a spread of
1.75%
.
In September 2015, the Company entered into an interest rate swap to hedge the risk of changes in cash flows on borrowings related to NewPark Mall through September 2018. The interest related to this loan was computed at a variable rate of LIBOR plus
2.10%
with a forward starting swap, beginning on January 1, 2016 with a fixed interest rate of
1.16%
plus a spread of
2.10%
. In February 2016, the Company received an additional funding related to the NewPark Mall and entered into an interest rate swap to hedge the risk of changes in cash flows on borrowings related to the funding through September 2018. The interest related to the additional funding of this loan was computed at a variable rate of LIBOR plus
2.10%
and the Company swapped this for a fixed rate of
0.71%
plus a spread of
2.10%
.
In October 2015, the Company entered into an interest rate swap to hedge the risk of changes in cash flows on borrowings related to The Shoppes at Bel Air through November 2018. The interest related to this loan was computed at a variable rate of LIBOR plus
2.35%
with a forward starting swap, beginning on January 1, 2016 with a fixed interest rate of
0.99%
plus a spread of
2.35%
.
In December 2015, the Company entered into an interest rate swap to hedge the risk of changes in cash flows on borrowings related to The Shoppes at Gateway through January 2020. The interest related to this loan was computed at a variable rate of LIBOR plus
2.33%
and the Company swapped this for a fixed rate of
1.44%
plus a spread of
2.33%
.
The interest rate swaps protect the Company from increases in the hedged cash flows attributable to increases in LIBOR.
As of
March 31, 2016
, the Company had the following outstanding interest rate derivatives that were designated as cash flow hedges of interest rate risk:
|
|
|
|
|
|
Interest Rate Derivative
|
|
Number of Instruments
|
|
Notional Amount
|
|
|
|
|
(in thousands)
|
Interest rate swaps
|
|
5
|
|
$369,450
|
Non-Designated Hedges - Interest Rate Cap
Derivatives not designated as hedges are not speculative and are used to manage the Company’s exposure to interest rate movements and other identified risks but do not meet the hedge accounting requirements. Changes in the fair value of derivatives not designated as hedges are recorded directly in earnings. For the
three
months ended March 31, 2015, such amounts equaled
$475
. As of
March 31, 2016
, the Company had the following outstanding derivative:
|
|
|
|
|
|
Interest Rate Derivative
|
|
Number of Instruments
|
|
Notional Amount
|
|
|
|
|
(in thousands)
|
Interest rate cap
|
|
1
|
|
$64,221
|
ROUSE PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
The t
able below presents the fair value of the Company’s derivative financial instruments as well as their classification on the Company's Consolidated Balance Sheets as of
March 31, 2016
and
December 31, 2015
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Instrument Type
|
|
Location in consolidated balance sheets
|
|
Notional Amount
|
|
Designated Benchmark Interest Rate
|
|
Strike Rate
|
|
Fair Value at March 31, 2016
|
|
Fair Value at December 31, 2015
|
|
Maturity Date
|
Derivatives not designated as hedging instruments
|
|
(dollars in thousands)
|
Interest Rate Cap
|
|
Prepaid expenses and other assets, net
|
|
$
|
64,221
|
|
|
One-month LIBOR
|
|
4.50
|
%
|
|
$
|
—
|
|
|
$
|
—
|
|
|
May 2016
|
Derivatives designated as hedging instruments
|
|
|
|
|
|
|
|
|
|
|
|
|
Pay fixed / receive variable rate swaps
|
|
Accounts payable and accrued expenses, net
|
|
$
|
59,000
|
|
|
One-month LIBOR
|
|
1.49
|
%
|
|
$
|
(1,001
|
)
|
|
$
|
(577
|
)
|
|
June 2018
|
Pay fixed / receive variable rate swaps
|
|
Accounts payable and accrued expenses, net
|
|
$
|
114,250
|
|
|
One-month LIBOR
|
|
1.16
|
%
|
|
$
|
(1,177
|
)
|
|
$
|
(24
|
)
|
|
September 2018
|
Pay fixed / receive variable rate swaps
|
|
Accounts payable and accrued expenses, net
|
|
$
|
110,450
|
|
|
One-month LIBOR
|
|
0.99
|
%
|
|
$
|
(666
|
)
|
|
$
|
612
|
|
|
November 2018
|
Pay fixed / receive variable rate swaps
|
|
Accounts payable and accrued expenses, net
|
|
$
|
75,000
|
|
|
One-month LIBOR
|
|
1.44
|
%
|
|
$
|
(1,430
|
)
|
|
$
|
(75
|
)
|
|
January 2020
|
Pay fixed / receive variable rate swaps
|
|
Accounts payable and accrued expenses, net
|
|
$
|
10,750
|
|
|
One-month LIBOR
|
|
0.71
|
%
|
|
$
|
5
|
|
|
$
|
—
|
|
|
September 2018
|
The table below presents the effect of the Company’s derivative financial instruments on the Company's Consolidated Statements of Operations and Comprehensive Income (Loss) for the
three
months ended
March 31, 2016
and 2015:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Location of Losses Reclassified from OCI/L Into Earnings (Effective Portion)
|
|
|
|
Location of Gain (Loss) Recognized in Earnings (Ineffective Portion)
|
|
|
Hedging Instrument
|
|
Gain (Loss) Recognized in OCI/L (Effective Portion)
|
|
|
Loss Recognized in Earnings (Effective Portion)
|
|
|
Gain Recognized in Earnings (Ineffective Portion)
|
|
|
(dollars in thousands)
|
Three Months Ended March 31,
|
|
2016
|
|
2015
|
|
|
|
2016
|
|
2015
|
|
|
|
2016
|
|
2105
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pay fixed / receive variable rate swaps
|
|
$
|
(4,895
|
)
|
|
$
|
(601
|
)
|
|
Interest expense
|
|
$
|
703
|
|
|
$
|
195
|
|
|
Interest expense
|
|
$
|
(13
|
)
|
|
$
|
—
|
|
Credit Risk-Related Contingent Features
The borrower (a special purpose entity) has an agreement with its derivative counterparty that contains a provision whereby, if the borrower defaults on any of its indebtedness, including a default whereby repayment of such indebtedness has not been accelerated by the lender, the borrower could also be declared in default on its derivative obligations. The borrower has not posted any collateral related to this agreement. As of
March 31, 2016
, the fair value of the derivative liability, which includes accrued interest but excludes any adjustment for nonperformance risk, related to this agreement was
$4.6 million
. If the borrower had breached this provision as of
March 31, 2016
, it would have been required to settle its obligations under the agreement at its termination value of
$4.6 million
.
NOTE 8
DISPOSITIONS OF REAL ESTATE ASSETS
The results of operations of the properties below, as well as any gain on extinguishment of debt and impairment losses related to the properties, are included on the Company's Consolidated Statements of Operations and Comprehensive Income (Loss) for all periods presented, as applicable.
ROUSE PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
The Shoppes at Knollwood Mall
In January 2015, the Company sold The Shoppes at Knollwood Mall located in St. Louis Park, MN, for gross proceeds of
$106.7 million
. At closing, the Company entered into a development agreement with the buyer to complete the redevelopment of the property. The Company estimated
$7.9 million
of costs remained to complete the redevelopment project and escrowed the same amount of proceeds. The mortgage debt of
$35.1 million
was defeased simultaneously with the sale of the property. The Company recognized a gain of
$32.5 million
as a result of the disposition, which is reflected in "Gain (loss) on sale of real estate assets" on the Company's Consolidated Statements of Operations and Comprehensive Income (Loss) for the
three months ended March 31, 2015
. During the three months ended December 31, 2015, the Company recognized an additional
$2.3 million
gain upon completion of the redevelopment project for the difference between actual costs to complete the project and the original estimated costs.
Steeplegate Mall
In March 2015, the Company conveyed Steeplegate Mall, located in Concord, NH, to its mortgage lender in full satisfaction of the debt. The loan had a net outstanding balance of approximately
$45.9 million
. The Company recognized a
$22.8 million
gain related to the debt extinguishment, which is reflected in "Gain on extinguishment of debt" on the Company's Consolidated Statements of Operations and Comprehensive Income (Loss) for the
three months ended March 31, 2015
.
There were
no
material dispositions that took place during the
three months ended March 31, 2016
.
NOTE 9
INCOME TAXES
The Company elected to be taxed as a REIT beginning with the filing of its tax return for the 2011 fiscal year. As of
March 31, 2016
, the Company has met the requirements of a REIT and has filed its tax returns for the 2014 calendar year accordingly. Subject to its ability to meet the requirements of a REIT, the Company intends to maintain this status in future periods.
To qualify as a REIT, the Company must meet a number of organizational and operational requirements, including requirements to distribute at least
90%
of its ordinary taxable income and to either distribute capital gains to stockholders or pay corporate income tax on the undistributed capital gains. In addition, the Company is required to meet certain asset and income tests.
As a REIT, the Company will generally not be subject to corporate level federal income tax on taxable income that it distributes currently to its stockholders. If the Company fails to qualify as a REIT in any taxable year, it will be subject to federal income taxes at regular corporate rates, including any applicable alternative minimum tax, and may not be able to qualify as a REIT for
four
subsequent taxable years. Even if the Company qualifies for taxation as a REIT, it may be subject to certain state and local taxes on its income or property, and to federal income and excise taxes on its undistributed taxable income.
The Company has a subsidiary that it elected to treat as a taxable REIT subsidiary ("TRS"), which is subject to federal and state income taxes. For each of the
three months ended March 31, 2016
and
2015
, the Company incurred approximately
$0.01 million
, respectively, in taxes associated with the TRS, which are recorded in "Provision for income taxes" on the Company's Consolidated Statements of Operations and Comprehensive Income (Loss).
NOTE 10
NON-CONTROLLING INTEREST IN OPERATING PARTNERSHIP
In November 2015, the Operating Partnership issued
5,600,000
Series A Preferred Units with a liquidation preference of
$25.00
per unit (the "Series A Liquidation Preference"), to an affiliate of Westfield U.S. Holdings, LLC (the “Holder”) as a portion of the consideration for the Operating Partnership's acquisition of The Shoppes at Carlsbad. The Series A Preferred Units provide for a cumulative quarterly preferential cash distribution of
5%
per annum of the Series A Liquidation Preference (i.e.,
$1.25
per unit). Subject to the obligations under the tax protection agreement described below, the Series A Preferred Units will be redeemable at the option of the Operating Partnership, in whole or in part, on or after November 12, 2018, at a redemption price equal to the Series A Liquidation Preference for the redeemed Series A Preferred Units plus accumulated and unpaid distributions to the redemption date (the "Redemption Price"). In addition, on or after November 12, 2025, the Holder will have the right to require the Operating Partnership to redeem all of the then-outstanding Series A Preferred Units at the Redemption Price. Further, if, at any time after January 1, 2022, the aggregate Series A Liquidation Preference exceeds
15%
of the "equity base" (i.e., the value of the Operating Partnership's outstanding Common Units (with such value to be determined pursuant to a formula set forth in the Operating Partnership’s partnership agreement) plus the liquidation preference of the Operating Partnership's outstanding preferred units of limited partnership interest) as of the end of a calendar quarter, then the Holder will have the right to require the Operating
ROUSE PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
Partnership to redeem, at the Redemption Price, up to the amount of Series A Preferred Units necessary for the outstanding Series A Preferred Units to represent
15%
of the equity base.
Except as noted below, any redemption of the Series A Preferred Units may be satisfied, at the Operating Partnership's option, in cash or Common Units, or a combination thereof. The value of any Common Units issued in connection with a redemption will equal
96%
of the volume-weighted average price (VWAP) of the Company's shares of common stock over the
30
trading days prior to the applicable redemption date. Pursuant to the Operating Partnership’s partnership agreement, holders of Common Units have the right to cause the Operating Partnership to redeem their Common Units for cash or, at the Company's election, shares of common stock on a
one
-for-one basis, subject to adjustment as provided in the Operating Partnership’s partnership agreement. Notwithstanding the foregoing, the issuance by the Operating Partnership of Common Units, and the issuance by the Company of shares of common stock, as applicable, in connection with a redemption is subject to certain limitations, including that (i) a resale shelf registration statement with respect to such shares of common stock shall have been filed and become effective, in accordance with a registration rights agreement entered into between the Company and the Holder and (ii) as a result of the redemption, the Holder would not own more than 15% of the outstanding shares of the Company's common stock (assuming all Common Units issued in the redemption were immediately exchanged for common stock (the "As Exchanged Common Shares"). If the conditions of either (i) or (ii) in the prior sentence are not met, the redemption may only be satisfied in cash (in the case of (ii), only with respect to the number of Series A Preferred Units necessary such that the Holder would not own more than 15% of the As Exchanged Common Shares).
Also in connection with the acquisition of The Shoppes at Carlsbad, in November 2015, the Operating Partnership, the Company and the Holder entered into a tax protection agreement pursuant to which the Operating Partnership agreed not to transfer the property for a period of
six years
(through December 31, 2021) (the "Tax Protection Period") if such transfer would result in the recognition of taxable income or gain to the Holder.
The tax protection agreement also requires the Company and the Operating Partnership to indemnify the Holder against certain tax liabilities (calculated pursuant to the tax protection agreement) resulting from specified events (all of which depend upon actions initiated by the Operating Partnership or the Company), including, among others: (i) a transfer of the property during the Tax Protection Period; (ii) the redemption of Series A Preferred Units for cash during the Tax Protection Period; (iii) the redemption of Common Units (previously received by the Holder in connection with an optional redemption of Series A Preferred Units) for cash or shares of common stock during the Tax Protection Period; and (iv) the sale by the Holder of shares of common stock to the extent such shares had been received pursuant to a redemption of Common Units (previously received by the Holder in connection with an optional redemption of Series A Preferred Units during the Tax Protection Period), subject to certain limitations.
The Series A Preferred Units are included within mezzanine equity and are recorded at fair value on the date of issuance and have been adjusted to the greater of their carrying amount or redemption value as of March 31, 2016 and December 31, 2015. Adjustments to increase the carrying amount to redemption value are recorded on the Consolidated Statement of Operations and Comprehensive Income (Loss) as a redemption measurement adjustment.
The following table summarizes activity relating to the non-controlling interest in the Operating Partnership which is included in "Mezzanine equity" on the Company's Consolidated Balance Sheets:
|
|
|
|
|
|
|
|
Non-controlling interest in Operating Partnership
|
|
|
(In thousands)
|
As of November 12, 2015
|
|
$
|
—
|
|
Issuance of Series A Preferred Units
|
|
140,000
|
|
Preferred distribution accrual
|
|
953
|
|
As of December 31, 2015
|
|
$
|
140,953
|
|
Payment of distribution
|
|
(738
|
)
|
Preferred distribution accrual
|
|
1,750
|
|
As of March 31, 2016
|
|
$
|
141,965
|
|
ROUSE PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
NOTE 11
EQUITY
On January 13, 2014, the Company issued
8,050,000
shares of common stock in an underwritten public offering at a public offering price of
$19.50
per share. Net proceeds of the public offering were approximately
$150.7 million
after deducting the underwriting discount of
$6.3 million
, but before deducting offering expenses.
Brookfield owned approximately
33.5%
of the Company's common stock as of
March 31, 2016
.
Common Stock Dividends
As described in Note 16, the merger agreement with Brookfield prohibits the payment of any further dividends by the Company, other than as necessary to maintain the Company's REIT status and a closing dividend as part of the
$18.25
per share consideration payable in the transaction.
Dividend Reinvestment and Stock Purchase Plan
On May 12, 2014, the Company established a Dividend Reinvestment and Stock Purchase Plan ("DRIP"). Under the DRIP, the Company's stockholders may purchase additional shares of common stock by automatically reinvesting all or a portion of the cash dividends paid on their shares of common stock or by making optional cash payments, or both, at fees described in the DRIP prospectus. The DRIP commenced with the dividend paid on July 31, 2014 to stockholders of record on July 15, 2014. To date, the Company has purchased the shares needed to satisfy the DRIP elections in the open market. No additional shares have been issued.
As of February 29, 2016, due to the proposed merger with Brookfield described in Note 16, the Company suspended the Dividend Reinvestment and Stock Purchase Plan.
Employee Stock Purchase Plan
On July 1, 2014, the Company commenced enrollment under its Employee Stock Purchase Plan (the "ESPP"). The ESPP was implemented to provide eligible employees of the Company and its participating subsidiaries with an opportunity to purchase common stock of the Company at a discount of
5%
, through accumulated payroll deductions or other permitted contributions. The ESPP was adopted by the Company's Board of Directors on February 27, 2014 and approved by its stockholders on May 9, 2014. The maximum number of shares of common stock that may be issued under the ESPP is
500,000
subject to adjustments under certain circumstances. As of
March 31, 2016
,
7,382
shares have been issued under the ESPP since its commencement.
As of February 29, 2016, due to the proposed merger with Brookfield described in Note 16
, employees of the Company will not be eligible to further enroll under the ESPP.
Stock Repurchase Program
On
October 29, 2015
, the Board of Directors authorized management to implement a stock repurchase program in the maximum amount of
$50.0 million
over a period of up to
two
years. Purchases made pursuant to the stock repurchase program may be made in the open market from time to time as permitted by federal securities laws and other legal requirements. The timing, manner, price and amount of any repurchases will be determined by the Company in its discretion and will be subject to economic and market conditions, stock price, applicable legal requirements and other factors. The stock repurchase program may be suspended or discontinued at any time.
During the
three months ended March 31, 2016
, the Company settled the repurchase of
105,000
shares of its outstanding stock for
$1.6 million
, at an average cost of
$14.87
. As of
March 31, 2016
, the Company repurchased a total of
343,055
shares of its outstanding common stock for approximately
$5.1 million
, at an average cost of $
14.78
per share. As of
March 31, 2016
, the Company had
$44.9 million
of remaining capacity to repurchase common stock under the stock repurchase program.
NOTE 12
STOCK BASED COMPENSATION PLANS
ROUSE PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
Incentive Stock Plans
On January 12, 2012, the Company adopted the Rouse Properties, Inc. 2012 Equity Incentive Plan (the "Equity Plan"). On February 26, 2015, the Company's Board of Directors approved an amendment ("Plan Amendment") to the Equity Plan increasing the total number of shares available for issuance. On May 8, 2015, the Plan Amendment was approved by the Company's stockholders.
Stock Options
Pursuant to the Equity Plan, the Company granted stock options to certain employees of the Company. The vesting terms of these grants are specific to the individual grant. In general, participating employees are required to remain employed for vesting to occur (subject to certain limited exceptions). In the event that a participating employee ceases to be employed by the Company, any options that have not vested will generally be forfeited. Stock options generally vest annually over a
five
year period.
The following tables summarize stock option activity for the Equity Plan for the
three months ended
March 31, 2016
and
2015
:
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
|
Shares
|
|
Weighted Average Exercise Price
|
|
Shares
|
|
Weighted Average Exercise Price
|
Stock options outstanding at January 1,
|
3,490,421
|
|
|
$16.40
|
|
3,313,869
|
|
|
$15.89
|
Granted
|
—
|
|
|
—
|
|
857,000
|
|
|
17.18
|
Exercised
|
(18,567
|
)
|
|
16.34
|
|
(34,248
|
)
|
|
15.11
|
Forfeited
|
(6,180
|
)
|
|
15.95
|
|
(32,209
|
)
|
|
17.18
|
Expired
|
—
|
|
|
—
|
|
—
|
|
|
—
|
Stock options outstanding at March 31,
|
3,465,674
|
|
|
$16.30
|
|
4,104,412
|
|
|
$16.16
|
|
|
|
|
|
|
|
|
|
|
|
Stock Options Outstanding
(1)
|
Issuance
|
|
Shares
|
|
Weighted Average Remaining Contractual Term (in years)
|
|
Weighted Average Exercise Price
|
March 2012
|
|
1,101,160
|
|
|
6.00
|
|
$14.72
|
August 2012
|
|
36,400
|
|
|
6.42
|
|
13.75
|
October 2012
|
|
276,623
|
|
|
6.58
|
|
14.47
|
February 2013
|
|
520,360
|
|
|
6.92
|
|
16.48
|
February 2014
|
|
596,400
|
|
|
7.92
|
|
18.40
|
July 2014
|
|
25,291
|
|
|
8.33
|
|
17.20
|
February 2015
|
|
709,440
|
|
|
8.92
|
|
17.18
|
March 2015
|
|
200,000
|
|
|
9.08
|
|
17.98
|
Stock options outstanding at March 31, 2016
|
|
3,465,674
|
|
|
7.31
|
|
$16.30
|
Explanatory Note:
(1)
As of
March 31, 2016
,
1,792,875
stock options are fully vested and are currently exercisable. As of
March 31, 2016
, the intrinsic value of these options was
$4.7 million
, and such stock options had a weighted average exercise price of
$15.74
and a weighted average remaining contractual term of
6.8
years.
The Company recognized
$0.5 million
in compensation expense related to the stock options for each of the
three months ended March 31, 2016
and
2015
, which is recorded in "General and administrative" on the Company's Consolidated Statements of Operations and Comprehensive Income (Loss).
Restricted Stock
Pursuant to the Equity Plan, the Company granted restricted stock to certain employees and non-employee directors. The vesting terms of these grants are specific to the individual grant, and are generally
three
to
four
year periods. In general, participating employees are required to remain employed for vesting to occur (subject to certain limited exceptions). In the event that a
ROUSE PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
participating employee ceases to be employed by the Company, any shares that have not vested will generally be forfeited. Dividends are paid on restricted stock and are not returnable, even if the underlying stock does not ultimately vest.
The following table summarizes restricted stock activity for the
three months ended
March 31, 2016
and
2015
:
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
|
Shares
|
|
Weighted Average Grant Date Fair Value
|
|
Shares
|
|
Weighted Average Grant Date Fair Value
|
Non-vested restricted stock grants outstanding at January 1,
|
72,484
|
|
|
$16.97
|
|
205,731
|
|
|
$15.45
|
Granted
|
169,910
|
|
|
17.26
|
|
53,550
|
|
|
17.18
|
Forfeited
|
—
|
|
|
—
|
|
—
|
|
|
—
|
Vested
|
(37,251
|
)
|
|
16.87
|
|
(113,342
|
)
|
|
14.99
|
Non-vested restricted stock grants outstanding at March 31,
|
205,143
|
|
|
$17.23
|
|
145,939
|
|
|
$16.21
|
The weighted average remaining contractual term (in years) of granted, non-vested restricted stock awards as of
March 31, 2016
was
1.8
years.
The Company recognized
$0.3 million
and
$0.4 million
in compensation expense related to restricted stock for the
three months ended March 31, 2016
and
2015
, respectively, which is recorded in "General and administrative" on the Company's Consolidated Statements of Operations and Comprehensive Income (Loss).
Other Disclosures
As of
March 31, 2016
, there was
$8.1 million
of total unrecognized compensation expense related to all nonvested options and restricted stock grants. Of this total,
$2.7 million
in 2016,
$2.6 million
in 2017,
$2.0 million
in 2018,
$0.7 million
in 2019 and $
0.1 million
in 2020 will be recognized, respectively, in "General and administrative" on the Company's Consolidated Statements of Operations and Comprehensive Income (Loss). These amounts may be impacted by future grants, changes in forfeiture estimates or vesting terms, and actual forfeiture rates differing from estimated forfeiture rates.
NOTE 13
NON-CONTROLLING INTEREST
The non-controlling interest on the Company's Consolidated Balance Sheets represents Series A Cumulative Non-Voting Preferred Stock ("Preferred Shares") of Rouse Holding, Inc. ("Holding"), a subsidiary of Rouse, and the interest in the Mall at Barnes Crossing entities.
Holding issued
111
Preferred Shares at a par value of
$1,000
per share to third parties on June 29, 2012. The Preferred Shareholders are entitled to a cumulative preferential annual cash dividend of
12.5%
. These Preferred Shares may only be redeemed at the option of Holding for
$1,000
per share plus all accrued and unpaid dividends. Furthermore, in the event of a voluntary or involuntary liquidation of Holding, the Preferred Shareholders are entitled to a liquidation preference of
$1,000
per share plus all accrued and unpaid dividends. The Preferred Shares are not convertible into or exchangeable for any property or securities of Holding.
On August 29, 2014, the Company purchased a
51%
interest in
three
limited liability companies which together own and operate The Mall at Barnes Crossing, the Market Center, a strip shopping center located adjacent to the property, and various vacant land parcels associated with the development (collectively referred to as "The Mall at Barnes Crossing"). The Company determined it holds the controlling interest in The Mall at Barnes Crossing. As a result, the joint venture is presented on the Company's Consolidated Financial Statements as of
March 31, 2016
and
December 31, 2015
and for the
three
months ended
March 31, 2016
on a consolidated basis, with the interests of the third parties reflected as a non-controlling interest.
In connection with the acquisition, the Company formed a joint venture with other interest holders in the properties. Pursuant to the joint venture arrangements, the Company has the exclusive authority to manage the business of the joint venture, except for certain actions (e.g., disposing of the properties and incurring debt under certain circumstances) that would require the consent of
ROUSE PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
a joint venture partner. At any time after August 29, 2017 (or earlier under certain circumstances), the Company will have the right to purchase its partners' interests in the joint venture at a purchase price generally equal to their fair market value (the "Call Price"). In addition, during the 30-day period beginning on August 29, 2017, a third-party partner will have a one-time option to cause us to purchase each third-party partner's respective interests in the joint venture at a purchase price calculated in the same manner as the Call Price. Consideration paid to our partners for their interests in the joint venture may, under certain circumstances, be in the form of shares of our common stock and/or Common Units of the Operating Partnership. If the consideration for the Call Price includes Common Units, the Company and a third-party partner will enter into a tax protection agreement that will provide for indemnification of such partner under certain circumstances against certain tax liabilities incurred by such partner, if such liabilities result from a transaction involving a taxable disposition of The Mall at Barnes Crossing or the failure to offer such partner the opportunity to guarantee certain indebtedness.
On November 4, 2015, the Company purchased a
1.8%
interest from one of the interest holders for
$0.6 million
. As of
March 31, 2016
, the Company held a
52.8%
interest in The Mall at Barnes Crossing.
NOTE 14
EARNINGS PER SHARE
Earnings per share ("EPS") is calculated using the two class method, which allocates earnings among common stock and participating securities to calculate EPS when an entity's capital structure includes either two or more classes of common stock or common stock and participating securities. Unvested share-based payment awards that contain non-forfeitable rights to dividends or dividend equivalents (whether paid or unpaid) are participating securities. As such, unvested restricted stock of the Company is considered a participating security. The dilutive effect of options and their equivalents (including fixed awards and nonvested stock issued under stock-based compensation plans), is computed using the “treasury” method.
The following table presents a reconciliation of net (loss) income used in basic and diluted EPS calculations (dollars in thousands, except per share data):
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31
|
|
|
2016
|
|
2015
|
Numerator for basic and diluted earnings per share
|
|
|
|
|
Net (loss) income
|
|
$
|
(9,947
|
)
|
|
$
|
44,401
|
|
Net (income) loss attributable to non-controlling interests
|
|
(135
|
)
|
|
6
|
|
Preferred Distributions
|
|
(1,750
|
)
|
|
—
|
|
Net (loss) income allocable to common shareholders
|
|
$
|
(11,832
|
)
|
|
$
|
44,407
|
|
Earnings allocated to unvested participating security holders
|
|
—
|
|
|
—
|
|
Net (loss) attributable to Rouse Properties, Inc. and allocable to common shareholders
|
|
$
|
(11,832
|
)
|
|
$
|
44,407
|
|
|
|
|
|
|
Denominator for basic and diluted earnings per share
|
|
|
|
|
Weighted average common shares outstanding - basic
|
|
57,643,017
|
|
|
57,603,340
|
|
Add: effect of assumed shares issued under treasury stock method for stock options and restricted shares
|
|
—
|
|
|
683,916
|
|
Weighted average common shares outstanding - diluted
|
|
57,643,017
|
|
|
58,287,256
|
|
|
|
|
|
|
Basic and Diluted earnings per share
|
|
|
|
|
Net (loss) income attributable to Rouse Properties, Inc. and allocable to common shareholders- basic
|
|
$
|
(0.21
|
)
|
|
$
|
0.77
|
|
|
|
|
|
|
Net (loss) income attributable to Rouse Properties, Inc. and allocable to common shareholders- diluted
|
|
$
|
(0.21
|
)
|
|
$
|
0.76
|
|
ROUSE PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
ROUSE PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
NOTE 15
RELATED PARTY TRANSACTIONS
Office Lease with Brookfield
Upon its spin-off from GGP, the Company assumed a
10
-year lease agreement with Brookfield, as landlord, for office space for its corporate office in New York City. Costs associated with the office lease were
$0.3 million
for each of the
three months ended March 31, 2016
and
2015
. There were
no
costs outstanding and payable to Brookfield as of
March 31, 2016
.
Business Information and Technology Costs
As part of the spin-off from GGP, the Company commenced the development of its initial information technology platform ("Brookfield Platform"). The development of the Brookfield Platform required the Company to purchase, design and create various information technology applications and infrastructure. Brookfield Corporate Operations, LLC ("BCO") had been engaged to assist in the project development and to procure the various applications and infrastructure of the Company. As of
December 31, 2014
, the Company had approximately
$8.3 million
of infrastructure costs which were capitalized in "Buildings and equipment" on the Company's Consolidated Balance Sheets. As of
March 31, 2016
, the Company had accelerated and written off any remaining infrastructure costs related to the Brookfield Platform.
The Company was also required to pay a monthly information technology services fee to BCO. Approximately
$0.01 million
and
$0.5 million
in costs were incurred for the
three months ended March 31, 2016
and
2015
, respectively. As of
March 31, 2016
, there were
$0.2 million
of costs outstanding and payable.
Financial Service Center
During 2013, the Company engaged BCO's financial service center to manage certain administrative services of Rouse, such as accounts payable and receivable, lease administration, and other similar types of services. The Company no longer engages BCO's financial service center to manage such administrative services. There were
no
costs incurred for the
three months ended March 31, 2016
. Approximately
$0.03 million
in costs were incurred for the
three months ended March 31, 2015
.
NOTE 16 PROPOSED ACQUISITION OF THE COMPANY BY BROOKFIELD
On January 16, 2016, the Company’s Board of Directors received a written, unsolicited, non-binding proposal from Brookfield Asset Management on behalf of a real estate fund managed by Brookfield Asset Management, to acquire all the outstanding shares of the Company’s common stock, other than those shares currently held by Brookfield, collectively the beneficial owners of approximately
33.5%
of the Company’s outstanding shares of common stock, for a purchase price of
$17.00
per share in cash. The Company’s Board of Directors established a special committee of the Board (the “Special Committee”), comprised of all of the directors of the Board, other than those directors who are also representatives of Brookfield, to, among other matters, evaluate and negotiate the Brookfield proposal, solicit other proposals and/or evaluate alternatives to the Brookfield proposal, as determined by the Special Committee in its sole discretion.
On February 25, 2016, the Company entered into a definitive merger agreement (and other related agreements) to be acquired by affiliates of Brookfield Asset Management for
$18.25
per share in an all-cash transaction, a portion of which may be paid out as a special dividend. Under the terms of the merger agreement, Brookfield will acquire all of the outstanding shares of the Company’s common stock, other than those shares currently held by Brookfield Property Partners L.P. ("BPY") and its affiliates, in a transaction valued at approximately
$2.8 billion
, including the Company’s indebtedness. The merger agreement prohibits the payment of any further dividends by the Company, other than as necessary to maintain the Company's REIT status and a closing dividend as part of the
$18.25
per share consideration payable in the transaction. The purchase price represents a premium of approximately
35%
over the Company’s closing stock price on January 15, 2016, the last trading day prior to Brookfield’s announcement of the proposal to acquire the Company. The Special Committee unanimously approved the merger agreement. Completion of the transaction is expected to occur by the third quarter of 2016, and is contingent upon customary closing conditions, including the approval of the holders of a majority of the outstanding shares of the Company’s common stock and a majority of the outstanding shares of the Company's common stock not currently held by BPY and its affiliates. The transaction is not subject to a financing contingency.
ROUSE PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
Retention Plan
In light of Brookfield’s unsolicited acquisition proposal, on January 29, 2016, the Special Committee approved a Retention Plan for the Company’s
four
named executive officers (Andrew Silberfein, Brian Harper, John Wain and Susan Elman) and certain other senior executives. The Retention Plan, which was developed with the advice of an independent compensation consultant, is intended to enhance retention of the Retention Plan participants. Under the terms of the Retention Plan, each participant will be eligible to receive an aggregate cash retention award based on a percentage of such participant’s 2015 base salary and 2015 target performance bonus. Awards under the Retention Plan are payable in
two
equal installments of
50%
of the aggregate award payable to each participant. The first installment is payable on the earlier of (i) a determination by the Special Committee that it has terminated the process of considering and responding to Brookfield’s unsolicited offer and any related process to explore strategic alternatives thereto in which the Special Committee may decide to engage (a “Process Termination”) and (ii) the closing date of any merger, business combination or other similar transaction in respect of the Company. The second installment is payable on the earlier of (i)
six months
after any Process Termination and (ii)
six months
after the closing date of any merger, business combination or other similar transaction in respect of the Company.
A participant in the Retention Plan must be employed by the Company on a payment date in order to receive his or her award, unless the participant’s employment is terminated by the Company without cause, by the participant for good reason or due to the participant’s death or disability (as each such term is defined in the Retention Plan). If a participant’s employment is terminated under
one
of the foregoing circumstances prior to payment of the first retention award payment, such participant’s first and second installment will be paid when the first retention award installment is paid to the other participants (but in no event later than two months after the end of the year in which such termination occurs). If a participant’s employment is terminated under
one
of the foregoing circumstances after payment of the first installment but prior to payment of the second installment, such participant’s second installment will be paid at the time of such termination of the participant’s employment. The total retention awards that participants are eligible to receive under the Retention Plan, in the aggregate, is
$7.5
million. As of March 31, 2016,
$7.3 million
is outstanding and payable and included in "Other" on the Company's Consolidated Statements of Operations and Comprehensive Income (Loss).
NOTE 17
SUBSEQUENT EVENTS
On April 5, 2016, the loan for Vista Ridge Mall matured and was not repaid. On April 19, 2016, the Company was notified by the lender of the default related to the maturity. The Company is working vigorously with the lender to convey the property in full satisfaction of the debt.
On April 11, 2016, certain Company stockholders filed a putative class action lawsuit in the Court of Chancery of the State of Delaware against the members of the Special Committee, Brookfield Asset Management, BPY and the Brookfield entities party to the merger agreement (Brookfield Asset Management, BPY and such other Brookfield entities being referred to as the “Brookfield Parties”), alleging that: (i) the Brookfield Parties, as purported controlling stockholders of the Company, breached their fiduciary duties to Company stockholders by causing the Company to agree to the merger transactions for inadequate consideration and pursuant to an unfair process; (ii) the Special Committee members breached their fiduciary duties to Company stockholders by agreeing to sell the Company for inadequate consideration and pursuant to an unreasonable process; and (iii) the Brookfield Parties, in the alternative, aided and abetted the Special Committee members’ alleged breaches. In particular, the plaintiffs allege, among other things, that the Brookfield Parties used their purported “control” of the Company to obtain a below-market price, that the Special Committee was “tainted by conflicts,” and that the Special Committee’s attempts to seek an alternative buyer were “perfunctory.” Among other relief, the plaintiffs are seeking injunctive relief preventing the parties from consummating the merger transactions, rescissionary damages in the event the merger transactions are consummated, and an award of attorneys’ fees and expenses.
The Company believes the claims asserted in the lawsuit are without merit and the Special Committee intends to vigorously defend the lawsuit.
It is possible that additional claims beyond the lawsuit described above will be brought by the current plaintiffs or by others in an effort to enjoin the proposed merger or seek monetary relief. We are not able to predict the outcome of this action, or others, nor can the Company predict the amount of time and expense that will be required to resolve the actions. An unfavorable resolution
ROUSE PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
of any such litigation surrounding the proposed merger could delay or prevent the consummation of the merger. In addition, the cost to the Company of defending the actions, even if resolved favorably, could be substantial. Such actions could also divert the attention of the Company's management and resources from day-to-day operations.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
All references to numbered Notes are to specific footnotes to our Consolidated Financial Statements included in this Quarterly Report and which descriptions are incorporated into the applicable response by reference. The following discussion should be read in conjunction with such Consolidated Financial Statements and related Notes. Capitalized terms used, but not defined, in this Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) have the same meanings as in such Notes.
Forward-looking information
We may make forward-looking statements in this Quarterly Report and in other reports that we file with the Securities and Exchange Commission (the "SEC"). In addition, our senior management may make forward-looking statements orally to analysts, investors, creditors, the media and others.
Forward-looking statements include:
|
|
•
|
Descriptions of plans or objectives for future operations
|
|
|
•
|
Projections of our revenues, net operating income (“NOI”), core net operating income (“Core NOI”), earnings per share, funds from operations (“FFO”), core funds from operations (“Core FFO”), capital expenditures, income tax and other contingent liabilities, dividends, leverage, capital structure or other financial items
|
|
|
•
|
Forecasts of our future economic performance
|
|
|
•
|
Descriptions of assumptions underlying or relating to any of the foregoing
|
Forward-looking statements discuss matters that are not historical facts. Because they discuss future events or conditions, forward-looking statements often include words such as “anticipate,” “believe,” “estimate,” “expect,” “intend,” “plan,” “project,” “target,” “can,” “could,” “may,” “should,” “would” or similar expressions. Forward-looking statements should not be unduly relied upon. They give our expectations about the future and are not guarantees. Forward-looking statements speak only as of the date they are made and we might not update them to reflect changes that occur after the date they are made.
There are several factors, many beyond our control, which could cause results to differ materially from our expectations, some of which are described in "Item 1A. Risk Factors" in our Annual Report, as supplemented by Part II, "Item IA. Risk Factors" in this Quarterly Report. These factors are incorporated herein by reference. Any factor could by itself, or together with one or more other factors, adversely affect our business, results of operations or financial condition.
Overview—Introduction
As of
March 31, 2016
, our portfolio consisted of 36 malls and retail centers in 21 states totaling over 24.9 million square feet of retail space which are
91.1%
leased and
86.9%
occupied. Including anchors, our properties were
95.7%
leased and
93.8%
occupied. We elected to be treated as a REIT beginning with the filing of our U.S. federal income tax return for the 2011 taxable year. As of
March 31, 2016
, we have met the requirements of a REIT and have filed our tax returns for the 2014 fiscal year accordingly. Subject to our ability to meet the requirements of a REIT, we intend to maintain this status in future periods.
The majority of the income from our properties is derived from rents received through long-term leases with retail tenants. These long-term leases generally require the tenants to pay base rent which is a fixed amount specified in the lease. The base rent is often subject to scheduled increases during the term of the lease. Our financial statements refer to this as "minimum rents." Certain of our leases also include a component which requires tenants to pay amounts related to all or substantially all of their share of real estate taxes and certain property operating expenses, including common area maintenance and insurance. The revenue earned attributable to real estate tax and operating expense recoveries are recorded as "tenant recoveries". Another component of income is overage rent. Overage rent is paid by a tenant when its sales exceed an agreed upon minimum amount. Overage rent is calculated by multiplying the tenant's sales in excess of the minimum amount by a percentage defined in the lease. Overage rent is typically earned in the fourth quarter.
Our objective is to achieve growth in NOI, Core NOI, FFO and Core FFO by leasing, operating and repositioning retail properties with locations that are either market dominant (the only mall within an extended distance) or trade area dominant (the premier mall serving the defined regional consumer). We seek to continue to control costs and to deliver an appropriate tenant mix, higher occupancy rates and increased sales productivity, resulting in higher minimum rents.
We believe that the most significant operating factor affecting incremental cash flow, NOI, Core NOI, FFO and Core FFO is increased aggregate rents collected from tenants at our properties. These rental revenue increases are primarily achieved by:
|
|
•
|
Increasing occupancy at the properties so that more space is generating rent;
|
|
|
•
|
Increasing tenant sales in which we participate through overage rent;
|
|
|
•
|
Re-leasing existing space and renewing expiring leases at rates higher than expiring or existing rates; and
|
|
|
•
|
Prudently investing capital into our properties to generate an increased overall return.
|
Overview—Basis of Presentation
We were formed in August 2011 for the purpose of holding certain assets and assuming certain liabilities of GGP. Following the distribution of these assets and liabilities to us on January 12, 2012, we began operating our business as a stand-alone owner and operator of regional malls. The financial information included in this Quarterly Report has been presented on a consolidated basis for the periods presented.
Recent Developments
During the three months ended March 31, 2016, the Company settled the repurchase of
105,000
shares of its outstanding common stock for
$1.6 million
, at an average cost of
$14.87
per share.
On February 25, 2016, the Company entered into a definitive merger agreement (and other related agreements) to be acquired by affiliates of Brookfield Asset Management for
$18.25
per share in an all-cash transaction, a portion of which may be paid out as a special dividend. Under the terms of the merger agreement, Brookfield will acquire all of the outstanding shares of the Company’s common stock, other than those shares currently held by BPY and its affiliates, in a transaction valued at approximately
$2.8 billion
, including the Company’s indebtedness. The merger agreement prohibits the payment of any further dividends by the Company, other than as necessary to maintain the Company's REIT status and a closing dividend as part of the
$18.25
per share consideration payable in the transaction. The purchase price represents a premium of approximately
35%
over the Company’s closing stock price on January 15, 2016, the last trading day prior to Brookfield’s announcement of the proposal to acquire the Company. The Special Committee unanimously approved the merger agreement. Completion of the transaction is expected to occur by the third quarter of 2016, and is contingent upon customary closing conditions, including the approval of the holders of a majority of the outstanding shares of the Company’s common stock and a majority of the outstanding shares of the Company's common stock not currently held by BPY and its affiliates. The transaction is not subject to a financing contingency.
In March 2016, the loan associated with The Centre at Salisbury was refinanced for
$105.0 million
, with an initial funding of
$97.5 million
. The loan provides for an additional subsequent funding of
$7.5 million
upon achieving certain conditions. The loans bears interest at a floating rate of LIBOR (30 day) plus
260 basis
points and has an initial maturity of March 2019 with a
1
year extension option.
Results of Operations
As of
March 31, 2016
, our total portfolio consisted of 36 properties. Properties that were in operation and owned as of January 1, 2015, excluding five properties that were undergoing redevelopment with significant disruption and one asset that has been reclassified as a special consideration asset
(1)
, are referred to as our Same Property portfolio. As of
March 31, 2016
, our Same Property portfolio consisted of 27 properties. The following table identifies which of our properties were excluded from our Same Property portfolio:
|
|
|
|
Property
|
|
Location
|
Acquisitions:
|
|
|
Fig Garden Village
|
|
Fresno, CA
|
Mt. Shasta Mall
|
|
Redding, CA
|
The Shoppes at Carlsbad
|
|
Carlsbad, CA
|
|
|
|
Redevelopments:
|
|
|
The Shoppes at Gateway
|
|
Springfield, OR
|
NewPark Mall
|
|
Newark, CA
|
Spring Hill Mall
|
|
West Dundee, IL
|
Grand Traverse Mall
|
|
Traverse City, MI
|
Bel Air Mall
|
|
Mobile, AL
|
|
|
|
Special Consideration Asset:
(1)
|
|
|
Vista Ridge Mall
|
|
Lewisville, TX
|
Explanatory Note:
(1)
A property is designated as a special consideration asset when it has a heightened probability of being conveyed to its lender absent substantive renegotiation.
Three Months Ended March 31, 2016
compared to the Three Months Ended
March 31, 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
2016
|
|
March 31,
2015
|
|
$ Change
|
|
% Change
|
|
(In thousands)
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
Minimum rents
|
|
$
|
56,265
|
|
|
$
|
51,534
|
|
|
$
|
4,731
|
|
|
9.2
|
%
|
Tenant recoveries
|
|
20,843
|
|
|
19,949
|
|
|
894
|
|
|
4.5
|
|
Overage rents
|
|
1,744
|
|
|
1,590
|
|
|
154
|
|
|
9.7
|
|
Other
|
|
1,780
|
|
|
1,488
|
|
|
292
|
|
|
19.6
|
|
Total revenues
|
|
80,632
|
|
|
74,561
|
|
|
6,071
|
|
|
8.1
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
Property operating costs
|
|
16,959
|
|
|
16,875
|
|
|
84
|
|
|
0.5
|
|
Real estate taxes
|
|
7,032
|
|
|
7,474
|
|
|
(442
|
)
|
|
(5.9
|
)
|
Property maintenance costs
|
|
2,899
|
|
|
3,385
|
|
|
(486
|
)
|
|
(14.4
|
)
|
Marketing
|
|
421
|
|
|
389
|
|
|
32
|
|
|
8.2
|
|
Provision for doubtful accounts
|
|
613
|
|
|
497
|
|
|
116
|
|
|
23.3
|
|
General and administrative
|
|
6,839
|
|
|
6,470
|
|
|
369
|
|
|
5.7
|
|
Provision for impairment
|
|
—
|
|
|
2,900
|
|
|
(2,900
|
)
|
|
(100.0
|
)
|
Depreciation and amortization
|
|
26,348
|
|
|
25,986
|
|
|
362
|
|
|
1.4
|
|
Other
|
|
11,361
|
|
|
2,159
|
|
|
9,202
|
|
|
426.2
|
|
Total operating expenses
|
|
72,472
|
|
|
66,135
|
|
|
6,337
|
|
|
9.6
|
|
Operating income
|
|
8,160
|
|
|
8,426
|
|
|
(266
|
)
|
|
(3.2
|
)
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
4
|
|
|
13
|
|
|
(9
|
)
|
|
(69.2
|
)
|
Interest expense
|
|
(17,953
|
)
|
|
(19,151
|
)
|
|
1,198
|
|
|
6.3
|
|
Gain on extinguishment of debt
|
|
—
|
|
|
22,840
|
|
|
(22,840
|
)
|
|
(100.0
|
)
|
(Loss) income before income taxes and gain on sale of real estate assets
|
|
(9,789
|
)
|
|
12,128
|
|
|
(21,917
|
)
|
|
(180.7
|
)
|
Provision for income taxes
|
|
(158
|
)
|
|
(236
|
)
|
|
78
|
|
|
33.1
|
|
(Loss) income before gain on sale of real estate assets
|
|
(9,947
|
)
|
|
11,892
|
|
|
(21,839
|
)
|
|
(183.6
|
)
|
Gain on sale of real estate assets
|
|
—
|
|
|
32,509
|
|
|
(32,509
|
)
|
|
(100.0
|
)
|
Net (loss) income
|
|
$
|
(9,947
|
)
|
|
$
|
44,401
|
|
|
$
|
(54,348
|
)
|
|
122.4
|
|
Revenues
Total revenues increased
$6.1 million
for the
three months ended March 31, 2016
compared to the three months ended
March 31, 2015
. The acquisitions of Mt. Shasta Mall, Fig Garden Village and The Shoppes at Carlsbad (the "Acquired Properties") during 2015 provided $8.0 million of the increase in revenues. These increases were offset by a revenue decrease of $3.5 million related to the dispositions of The Shoppes at Knollwood Mall, Steeplegate Mall and Collin Creek Mall (the "Asset Dispositions"). Our Same Property portfolio's revenue increased by $1.4 million year over year with the remaining increase related to New Park Mall, The Shoppes at Gateway, Spring Hill Mall, Grand Traverse Mall and The Shoppes at Bel Air (the "Redevelopment Properties").
Operating Expenses
Property operating expenses decreased $0.7 million for the
three months ended March 31, 2016
compared to the three months ended
March 31, 2015
. Property operating expenses include property operating costs, real estate taxes, property maintenance costs, marketing, and provision for doubtful accounts. Expenses related to the Acquired Properties increased property operating expenses by $2.1 million, which were offset by a $2.0 million decrease in expenses related to the Asset Dispositions. Our Redevelopment Properties and Vista Ridge's operating expenses decreased $0.8 million year over year primarily attributable to a reduction in property real estate taxes. The remaining decrease in expense is primarily the result of a reduction in expense at our Same Property portfolio.
General and administrative expenses increased by
$0.4 million
for the
three months ended March 31, 2016
compared to the three months ended
March 31, 2015
. Compensation costs and professional fees increased $0.5 million, which were offset by a reduction of $0.1 million in travel costs.
Provision for impairment decreased $2.9 million during the
three months ended March 31, 2016
compared to the three months ended
March 31, 2015
due to the impairment of Collin Creek Mall taken during the three months ended
March 31, 2015
. As our intended holding period changed for this asset, the undiscounted cash flows were less than the carrying amount of the assets. As a result, we recorded an impairment charge for the excess carrying amount over the estimated fair value of the property.
Depreciation and amortization expense increased
$0.4 million
for the
three months ended March 31, 2016
compared to the three months ended
March 31, 2015
. The Acquired Properties added $4.4 million in depreciation and amortization expense year over year, offset by $3.4 million in decreased expense as a result of the Asset Dispositions and Same Property portfolio.
Other Income and Expenses
Other expense increased $9.2 million for the
three months ended March 31, 2016
compared to the three months ended
March 31, 2015
, due to $11.0 million of costs related to the Brookfield proposed merger transaction, which includes $7.3 million related to retention bonuses and $3.7 million related to professional fees, described above under "— Recent Developments." This was offset by a decrease in technology expenses of $1.2 million due to the non-recurring costs we incurred for consulting associated with the development of our information technology platform.
Operating Metrics
Leasing Volume
The following table represents the leases signed during the
three months ended
March 31, 2016
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016 Leasing Activity
(1)(2)
|
|
Number of Leases
|
|
Square Feet
|
|
Term (in years)
|
|
Initial Inline Rent PSF
(4)(5)
|
|
Initial Freestanding Rent PSF
(4)(6)
|
|
Average Inline Rent PSF
(5)(7)
|
|
Average Freestanding Rent PSF
(6)(7)
|
New Leases
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Under 10,000 sq. ft.
|
|
52
|
|
|
167,620
|
|
|
8.7
|
|
|
$
|
35.57
|
|
|
$
|
41.66
|
|
|
$
|
39.10
|
|
|
$
|
45.47
|
|
Over 10,000 sq. ft.
|
|
6
|
|
|
135,344
|
|
|
11.7
|
|
|
16.61
|
|
|
—
|
|
|
18.04
|
|
|
—
|
|
Total New Leases
|
|
58
|
|
|
302,964
|
|
|
10
|
|
|
$
|
26.73
|
|
|
$
|
41.66
|
|
|
$
|
29.28
|
|
|
$
|
45.47
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Renewal Leases
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Under 10,000 sq. ft.
|
|
55
|
|
|
172,511
|
|
|
2.8
|
|
|
$
|
33.84
|
|
|
$
|
24.33
|
|
|
$
|
34.81
|
|
|
$
|
25.91
|
|
Over 10,000 sq. ft.
|
|
2
|
|
|
21,003
|
|
|
7.4
|
|
|
18.45
|
|
|
—
|
|
|
19.34
|
|
|
—
|
|
Total Renewal Leases
|
|
57
|
|
|
193,514
|
|
|
3.3
|
|
|
$
|
32.07
|
|
|
$
|
24.33
|
|
|
$
|
33.04
|
|
|
$
|
25.91
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sub-Total
|
|
115
|
|
|
496,478
|
|
|
7.4
|
|
|
$
|
28.80
|
|
|
$
|
33.89
|
|
|
$
|
30.73
|
|
|
$
|
36.70
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percent in Lieu
|
|
30
|
|
|
107,365
|
|
|
n.a.
|
|
|
n.a.
|
|
|
n.a
|
|
|
n.a.
|
|
|
n.a
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Q1 2016
(3)
|
|
145
|
|
|
603,843
|
|
|
7.4
|
|
|
$
|
28.80
|
|
|
$
|
33.89
|
|
|
$
|
30.73
|
|
|
$
|
36.70
|
|
Explanatory Notes:
(1)
Excludes anchors and specialty leasing. An anchor is defined as a department store or discount department store in traditional spaces whose merchandise appeals to a broad range of shoppers or spaces which are greater than 70,000 square feet.
(2)
Represents signed leases as of
March 31, 2016
.
(3)
The total leasing commissions were approximately $2.5 million for the three months ended
March 31, 2016
. There were no material tenant concessions with respect to the leases signed during the three months ended
March 31, 2016
.
(4)
Represents initial rent at time of rent commencement consisting of base minimum rent, common area costs, and real estate taxes.
(5)
Inline spaces are all mall shop locations excluding anchor and freestanding stores.
(6)
Freestanding spaces are outparcel retail locations (locations that are not attached to the primary complex of buildings that comprise a shopping center). Excludes anchor stores.
(7)
Represents average rent over the lease term consisting of base minimum rent, common area costs, and real estate taxes.
The following table represents our weighted average in-place rent for freestanding and mall space that is less than 10,000 square feet for the three months ended
March 31, 2016
and 2015 for our Same Property portfolio:
|
|
|
|
|
In-Place Rent < 10k SF
(1)
|
|
Three Months Ended March 31,
|
|
2016
|
2015
|
Freestanding
(2)
|
$21.40
|
$20.08
|
Mall
(3)
|
$42.20
|
$39.89
|
Total Same Property portfolio
|
$39.30
|
$37.39
|
Explanatory Notes:
(1)
Rent is presented on a cash basis and consists of base minimum rent, common area maintenance costs, and real estate taxes.
(2)
Freestanding spaces are outparcel retail locations (locations that are not attached to the primary complex of buildings that comprise a shopping center). Excludes anchor stores.
(3)
Mall shop locations excluding anchor and freestanding stores.
New and Renewal Lease Spread
The following table represents leasing and rent spread information for renewals and new leases that we signed during the
three months ended March 31, 2016
, as compared to the rents of the expiring leases on the same space:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
New and Renewal Lease Spread
(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Leases
|
Square Feet
|
Term (in years)
|
Initial Rent PSF
(2)
|
Average Rent PSF
(3)
|
|
Expiring Rent PSF
(4)
|
|
Initial Rent Spread
|
|
Average Rent Spread
|
Three Months Ended March 31, 2016
|
75
|
235,483
|
5.9
|
$35.80
|
$38.21
|
|
$30.06
|
|
$5.74
|
19.1%
|
|
$8.15
|
27.1%
|
Explanatory Notes:
(1)
Excludes anchors, percent in lieu, and specialty leasing.
(2)
Represents initial rent per square foot at time of rent commencement, with rent consisting of base minimum rent, common area costs, and real estate taxes.
(3)
Represents average rent per square foot over the lease term, with rent consisting of base minimum rent, common area costs, and real estate taxes.
(4)
Represents expiring rent per square foot at end of lease, with rent consisting of base minimum rent, common area costs, and real estate taxes.
Same Property Portfolio Trends
|
|
•
|
Same Property portfolio Core NOI was
$36.5 million
for the
three months ended March 31, 2016
compared to
$36.1 million
for the
three months ended March 31, 2015
. See "—Non-GAAP Financial Measures" for a discussion of Core NOI and a reconciliation of Same Property portfolio Core NOI and Core NOI from the consolidated net (loss) income as computed in accordance with GAAP.
|
|
|
•
|
Average total rent for mall spaces that are less than 10,000 square feet increased
5.8%
to
$42.20
as of
March 31, 2016
from
$39.89
per square foot as of
March 31, 2015
in our Same Property portfolio. The increase is attributable to higher rents on new and renewal leases as compared to existing rents of the Same Property portfolio.
|
Liquidity and Capital Resources
Our primary uses of cash include payment of operating expenses, working capital, capital expenditures, debt repayments, including principal and interest, reinvestment in properties, development and redevelopment of properties, acquisitions, tenant allowances, and dividends.
Our primary sources of cash are operating cash flow, refinancings of existing loans, equity offerings, and borrowings under our 2013 Revolver.
Our short-term (less than one year) liquidity requirements include scheduled debt maturities, recurring operating costs, capital expenditures, debt service requirements, and dividend requirements on our shares of common stock. We anticipate that these needs will be met with cash flows provided by operations and funds available under our 2013 Revolver.
Our long-term (greater than one year) liquidity requirements include scheduled debt maturities, capital expenditures to maintain, renovate and expand existing malls, property acquisitions, and development projects. Management anticipates that net cash
provided by operating activities, asset sales, the funds available under our 2013 Revolver, and funds received from subsequent equity offerings will provide sufficient capital resources to meet our long-term liquidity requirements.
As of
March 31, 2016
, our combined contractual debt, excluding non-cash debt market rate adjustments and unamortized deferred financing costs, was approximately
$1.75 billion
. The aggregate principal and interest payments due on our outstanding indebtedness as of
March 31, 2016
are approximately
$190.6 million
for the year ending December 31,
2016
and approximately
$177.9 million
for the year ending December 31,
2017
.
Mortgages, notes and loans payable and the weighted-average interest rates are summarized as follows as of
March 31, 2016
and December 31, 2015 (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2016
|
|
Weighted Average Interest Rate
|
|
December 31, 2015
|
|
Weighted Average Interest Rate
|
|
Fixed-rate debt:
|
|
|
|
|
|
|
|
|
|
Collateralized mortgages, notes and loans payable
|
|
$
|
1,255,373
|
|
(1
|
)
|
4.38
|
%
|
|
$
|
1,138,158
|
|
(1
|
)
|
4.75
|
%
|
|
Total Fixed-rate debt
|
|
1,255,373
|
|
|
4.38
|
%
|
|
1,138,158
|
|
|
4.75
|
%
|
|
|
|
|
|
|
|
|
|
|
|
Variable-rate debt:
|
|
|
|
|
|
|
|
|
|
Collateralized mortgages, notes and loans payable
|
|
$
|
382,500
|
|
|
2.85
|
%
|
|
$
|
509,695
|
|
(200.00
|
)%
|
2.72
|
%
|
|
2013 Revolver
|
|
111,000
|
|
|
2.79
|
%
|
|
59,000
|
|
|
2.76
|
%
|
|
Total Variable-rate debt
|
|
$
|
493,500
|
|
|
2.84
|
%
|
|
$
|
568,695
|
|
|
2.72
|
%
|
|
|
|
|
|
|
|
|
|
|
|
Total debt outstanding
|
|
$
|
1,748,873
|
|
|
3.94%
|
(3)
|
1,706,853
|
|
|
4.07
|
%
|
(3)
|
Market rate adjustments
|
|
(760
|
)
|
|
|
|
(340
|
)
|
|
|
|
Unamortized deferred financing costs
(4)
|
|
(12,187
|
)
|
|
|
|
(11,672
|
)
|
|
|
|
Total mortgages, notes & loans payable, net
|
|
$
|
1,735,926
|
|
|
|
|
$
|
1,694,841
|
|
|
|
|
Explanatory Notes:
(1)
As of March 31, 2016 and December 31, 2015, the amounts reflected in fixed rate debt include five and two, respectively, of interest rate swap transactions which fixed the interest rate on the loan for the property.
(2)
As of December 31, 2015, the amounts reflected in variable rate debt include two forward interest rate swap transactions which fixed the interest rate on the loan for this property beginning January 2016.
(3)
Total debt outstanding weighted average interest rate excludes market rate adjustments and unamortized deferred financing costs.
(4)
See Note 2 for information related to the adoption of new accounting pronouncements during the three months ended March 31, 2016 that have been retroactively applied, resulting in reclassification of certain debt issuance costs from "Deferred Expenses, net" to "Mortgages, notes and loan payable, net."