Rouse Properties Reports Second Quarter 2015 Results

Company Release – 8/03/2015

– Total Portfolio Leasing Hits Record 1.5 Million SF, with Over 605,000 SF of Inline Leasing –

– Sales for Operating Portfolio Grow to $342 PSF, up 6.6% on Comparable TTM Basis –

– Same Property NOI Increased 2.7% and Average Rents Improved by 4.5% –

– Year to Date Initial Spreads of 10.6% for New and Renewal Leases, with increase of 8.4% in Q2 –

– Acquired Fig Garden Village for $106.1 Million –

– Increasing Full Year 2015 Guidance Range by $0.01 Per Share –

NEW YORK–(BUSINESS WIRE)– Rouse Properties, Inc. (the “Company” or “Rouse”) (NYSE:RSE) today announced consolidated results for the three months ended June 30, 2015.

“We continue to achieve great progress across our platform, producing record leasing levels and driving our operating portfolio to 91.6% leased. Further, sales per square foot continue to climb, rising $20 per square foot alone since the start of the year and we continue to raise our sales goals for the portfolio going forward,” stated Andrew Silberfein, President and Chief Executive Officer. “On the investment front, we acquired Fig Garden Village, a market-leading lifestyle center in Fresno,CA, which represents a natural step to expand our platform and provide additional avenues to grow through our comprehensive management and leasing approach. Our strategic capital programs at NewPark Mall, Gateway Mall and Southland Center have been extremely well received by a wide spectrum of retailers, restaurants and entertainment tenants, as we continue to create significant value for our shareholders.”

Operational and Financial Highlights Second Quarter 2015(1)

  • Initial rental rates for new and renewal leases on a same suite basis rose 8.4%, and average rental rates increased by 13.1%, for leases executed during the quarter.
  • Leased approximately 1.5 million square feet, including anchor and non-anchor leases.
  • Signed not yet open leases increased to 1.1 million square feet representing $15.6 million of annual incremental revenue.
  • For the Operating Portfolio, inline occupancy increased 160 basis points YoY to 89.2%, and leased percentage was unchanged at 91.6%. Including anchors, occupancy was 94.9% and leased percentage was 96.0%.
  • For the Operating Portfolio, tenant sales were $342 per square foot on a trailing twelve month basis. On a comparable basis, trailing twelve month tenant sales increased 6.6%.
  • Same Property Core NOI grew by 2.7% in the second quarter compared to the same period in the prior year.
  • Same Property average total rent for tenants less than 10,000 square feet increased 4.5%, YoY, to $40.75 from $38.98 per square foot.

(1) Operating Portfolio excludes properties undergoing substantial redevelopment and special consideration assets.

Financial Results for the Three Months Ended June 30, 2015

Core FFO was $22.4 million, or $0.39 per diluted share, as compared to $21.4 million, or $0.37 per diluted share in the prior year period. The year over year increase was the result of higher Same Property NOI and the impact of properties acquired in 2014 and 2015. This was partially offset by reduced NOI from special consideration assets and the sale of The Shoppes at Knollwood Mall in mid January.

Core NOI was $45.9 million, an increase of 3.4% from $44.4 million in the prior year period. Excluding lease termination income of approximately $0.2 million, quarterly Same Property Core NOI increased by 2.7% to $36.1 million from $35.2 million in the prior year.

Net loss attributable to Rouse Properties was $(0.7) million or $(0.01) per diluted share, as compared to a net loss of $(8.2) million or $(0.14) per diluted share in the prior year period. The change in net income was primarily due to a gain on extinguishment of debt of $4.1 million, along with an increase in income from the Same Property portfolio.

Transactions

In April 2015, the Company conveyed Collin Creek Mall located in Plano, TX, to its mortgage lender in full satisfaction of the debt. The loan had a net outstanding balance of approximately $57.6 million. The Company recognized a $4.1 million gain related to the extinguishment of debt.

In May 2015, the Company acquired Fig Garden Village located in Fresno, CA, for a total purchase price of $106.1 million. The Company placed 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.

Financial Activities

In June 2015, the Company exercised a portion of its “accordion” feature which increased the 2013 Senior Facility from $545.0 million to $595.0 million. The exercise increased 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.

Subsequent Events

On July 1, 2015, the Company repaid the outstanding balance on the $59.0 million mortgage loan secured by Grand Traverse Mall located in Traverse City, MI. On July 29, 2015, Grand Traverse Mall was added to the 2013 Corporate Credit Facility collateral pool.

Common Stock Dividend

On July 30, 2015, the Board of Directors declared a common stock dividend of $0.18 per share payable on October 30, 2015 to stockholders of record on October 15, 2015.

2015 Guidance

The Company is increasing its full year 2015 guidance range for Core FFO by $0.01 to $1.74 to $1.78 per diluted share, based on management’s expectations as of the date of this release. Full year guidance assumes the following: Same Property Core NOI growth of 2.5% to 3.75%, general and administrative expense of $25.3 million to $25.8 million, and interest expense of $67.2 million to $67.7 million. The guidance presented does not include the effects of property acquisitions, dispositions, or capital transaction activity completed subsequent to June 30, 2015, except for mortgage refinancings to be completed in the ordinary course of business.

For the year ending
December 31, 2015
Low High
GAAP expected net income per share $ 0.74 $ 0.77
Add: Depreciation and amortization 1.69 1.72
Less: Gain on sale of real estate assets (0.56) (0.56)
Less: Gain on extinguishment of debt (0.46) (0.46)
Expected Funds From Operations per share 1.41 1.47
Other Core Funds From Operations adjustments (1) 0.33 0.31
Core Funds From Operations (2) $1.74 $1.78

(1) Refer to the Supplemental Information package for additional details on the nature of the adjustments to reconcile to FFO and Core FFO. 2015 Guidance includes:

Low High
Straight-line rent and above / below market lease amortization $ 8,600 $ 8,200
Other expense 5,500 4,800
Amortization and write off of market rate adjustments 900 800
Amortization and write off of deferred financing costs 3,750 3,525
Income taxes 700 600

(2) Assumes 2015 annualized weighted average common shares outstanding – diluted of 58,150,000.

Supplemental Information

The Company released an informational supplemental packet, available at www.rouseproperties.com under the Investors section, with additional detail, including a description of non-GAAP financial measures and reconciliation to GAAP measures.

Investor Conference Webcast and Conference Call

The Company will host a webcast and conference call at 8:00 a.m. eastern standard time on August 4, 2015, to discuss second quarter 2015 results. The number to call is 877-705-6003 (domestic) and 1-201-493-6725 (international). The live webcast will be available atwww.rouseproperties.com under the Investors section. A replay of the conference call will be available through August 18, 2015, by dialing 877-870-5176 (domestic) and 1-858-384-5517 (international) and entering the passcode 13614355.

Forward-Looking Statements

Certain matters within this press release are discussed using forward-looking language as specified in the Private Securities Litigation Reform Act of 1995, and, as such, may involve known and unknown risks, uncertainties and other factors that may cause the actual results or performance to differ from those projected in the forward-looking statements. These forward-looking statements may include statements related to the Company’s ability to outperform the ongoing recovery of the retail and REIT industry and the markets in which the Company’s mall properties are located, the Company’s ability to generate internal and external growth, the Company’s ability to identify and complete the acquisition of properties in new markets, the Company’s ability to complete redevelopment projects, and the Company’s ability to increase margins, including net operating income. For a description of factors that may cause the Company’s actual results or performance to differ from its forward-looking statements, please review the information under the heading “Risk Factors” included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2014 and other documents filed by the Company with the Securities and Exchange Commission.

Non-GAAP Financial Measures

The Company makes reference to net operating income (“NOI”) and funds from operations (“FFO”). NOI is defined as operating revenues (minimum rents, including lease termination fees, tenant recoveries, overage rents, and other income) less property and related expenses (property operating expenses, real estate taxes, repairs and maintenance, marketing, and provision for doubtful accounts). We use FFO, as defined by the National Association of Real Estate Investment Trusts, as a supplemental measure of our operating performance. FFO is defined as net income (loss) attributable to common stockholders in accordance with GAAP, excluding impairment write-downs on depreciable real estate, gains (or losses) from cumulative effects of accounting changes, extraordinary items and sales of properties, and real estate related depreciation and amortization.

In order to present operations in a manner most relevant to its future operations, Core FFO and Core NOI have been presented to exclude certain non-cash and non-recurring revenue and expenses. A reconciliation of NOI to Core NOI and FFO to Core FFO has been included in the “Reconciliation of Core NOI and Core FFO” schedule attached to this release.

NOI, FFO and derivations thereof are not alternatives to GAAP operating income (loss) or net income (loss) available to common stockholders. For reference, as an aid in understanding management’s computation of NOI and FFO, a reconciliation of NOI to operating income and FFO to net income (loss) in accordance with GAAP has been included in the “Reconciliation of Non-GAAP to GAAP Financial Measures” schedule attached to this release.

About Rouse

Rouse Properties, Inc. (NYSE:RSE) is a publicly traded real estate investment trust headquartered in New York City and was founded on a legacy of innovation and creativity. Among the country’s largest publicly traded regional mall owners, the Company’s geographically diverse portfolio spans the United States from coast to coast, and includes 35 malls and retail centers in 21 states encompassing approximately 24.1 million square feet. For more information please visit: www.rouseproperties.com.

Consolidated Statements of Operations and Comprehensive Income (Loss)

Three Months Ended Six Months Ended

(In thousands, except per share amounts)

June 30, 2015
(Unaudited)

June 30, 2014
(Unaudited)

June 30, 2015
(Unaudited)

June 30, 2014
(Unaudited)

Revenues:
Minimum rents $ 50,770 $ 46,820 $ 102,304 $ 92,790
Tenant recoveries 18,892 18,729 38,842 37,912
Overage rents 732 474 2,322 1,938
Other 2,015 1,767 3,502 2,988
Total revenues 72,409 67,790 146,970 135,628
Expenses:
Property operating costs 17,053 17,159 33,965 33,895
Real estate taxes 6,881 6,073 14,355 12,266
Property maintenance costs 2,347 2,600 5,694 5,776
Marketing 549 540 938 1,081
Provision for doubtful accounts 61 194 558 388
General and administrative 6,889 6,541 13,359 12,481
Provision for impairment 2,900
Depreciation and amortization 23,877 23,419 49,863 44,463
Other 1,792 587 3,951 1,261
Total operating expenses 59,449 57,113 125,583 111,611
Operating income 12,960 10,677 21,387 24,017
Interest income 2 104 14 276
Interest expense (17,484 ) (18,833 ) (36,635 ) (36,647 )
Gain on extinguishment of debt 4,054 26,894
Provision for income taxes (191 ) (123 ) (427 ) (247 )
Income (loss) from continuing operations before gain (loss) on sale of real estate assets (659 ) (8,175 ) 11,233 (12,601 )
Gain (loss) on sale of real estate assets (14 ) 32,496
Income (loss) from continuing operations (673 ) (8,175 ) 43,729 (12,601 )
Discontinued operations
Net income (loss) $ (673 ) $ (8,175 ) $ 43,729 $ (12,601 )
Net income attributable to non-controlling interests (15 ) (9 )
Net income (loss) attributable to Rouse Properties Inc. $ (688 ) $ (8,175 ) $ 43,720 $ (12,601 )
Net income (loss) per share attributable to Rouse Properties Inc – Basic(1) $ (0.01 ) $ (0.14 ) $ 0.76 $ (0.22 )
Net income (loss) per share attributable to Rouse Properties Inc – Diluted (2) $ (0.01 ) $ (0.14 ) $ 0.75 $ (0.22 )
Dividends declared per share $ 0.18 $ 0.17 $ 0.36 $ 0.34
Other comprehensive income (loss):
Net income (loss) $ (673 ) $ (8,175 ) $ 43,729 $ (12,601 )
Other comprehensive loss:
Unrealized gain (loss) on financial instrument 171 (369 ) (235 ) (655 )
Comprehensive income (loss) $ (502 ) $ (8,544 ) $ 43,494 $ (13,256 )

(1) Calculated using weighted average number of shares of 57,726,603 and 57,519,079 for the three months ended June 30, 2015 and 2014, respectively, and 57,667,380 and 56,828,173 for the six months ended June 30, 2015 and 2014, respectively.

(2) Calculated using weighted average number of shares of 57,726,603 and 57,519,079 for the three months ended June 30, 2015 and 2014, respectively, and 58,101,849 and 56,828,173 for the six months ended June 30, 2015 and 2014, respectively.

Consolidated Balance Sheets

(In thousands)

June 30, 2015
(Unaudited)

December 31, 2014
Assets:
Investment in real estate:
Land $ 378,881 $ 371,363
Buildings and equipment 1,916,384 1,820,072
Less accumulated depreciation (203,450 ) (189,838 )
Net investment in real estate 2,091,815 2,001,597
Cash and cash equivalents 2,907 14,308
Restricted cash 44,810 48,055
Accounts receivable, net 32,599 35,492
Deferred expenses, net 51,215 52,611
Prepaid expenses and other assets, net 53,746 62,690
Assets of property held for sale 55,647
Total assets $ 2,277,092 $ 2,270,400
Liabilities:
Mortgages, notes and loans payable, net $ 1,603,118 $ 1,584,499
Accounts payable and accrued expenses, net 113,293 113,976
Liabilities of property held for sale 38,590
Total liabilities 1,716,411 1,737,065
Commitments and contingencies
Equity:
Preferred stock (1)
Common stock (2) 578 578
Additional paid-in capital 663,523 679,275
Accumulated deficit (119,161 ) (162,881 )
Accumulated other comprehensive loss (717 ) (482 )
Total stockholders’ equity 544,223 516,490
Non-controlling interest 16,458 16,845
Total equity 560,681 533,335
Total liabilities and equity $ 2,277,092 $ 2,270,400

(1) Preferred stock: $0.01 par value; 50,000,000 shares authorized, no shares issued and outstanding as of June 30, 2015 and December 31, 2014.

(2) Common stock: $0.01 par value; 500,000,000 shares authorized, 58,047,630 issued and 57,985,228 outstanding as of June 30, 2015 and 57,748,141 issued and 57,743,981 outstanding as of December 31, 2014.

Reconciliation of Core NOI and Core FFO – For the Three Month Period Ended

June 30, 2015 June 30, 2014

(In thousands, except per share amounts)

(Unaudited) (Unaudited)
Consolidated

Non-controlling
Interest (1)

Rouse
Total

Core
Adjustments

Core NOI /
FFO

Consolidated

Non-controlling
Interest (1)

Rouse
Total

Core
Adjustments

Core NOI /
FFO

Revenues:
Minimum rents(2) $ 50,770 $ (1,075 ) $ 49,695 $ 1,361 $ 51,056 $ 46,820 $ $ 46,820 $ 3,186 $ 50,006
Tenant recoveries 18,892 (335 ) 18,557 18,557 18,729 18,729 18,729
Overage rents 732 6 738 738 474 474 474
Other 2,015 (27 ) 1,988 1,988 1,767 1,767 1,767
Total revenues 72,409 (1,431 ) 70,978 1,361 72,339 67,790 67,790 3,186 70,976
Operating Expenses:
Property operating costs (3) 17,053 (250 ) 16,803 (39 ) 16,764 17,159 17,159 (36 ) 17,123
Real estate taxes 6,881 (176 ) 6,705 6,705 6,073 6,073 6,073
Property maintenance costs 2,347 (42 ) 2,305 2,305 2,600 2,600 2,600
Marketing 549 (19 ) 530 530 540 540 540
Provision for doubtful accounts 61 29 90 90 194 194 194
Total operating expenses 26,891 (458 ) 26,433 (39 ) 26,394 26,566 26,566 (36 ) 26,530
Net operating income 45,518 (973 ) 44,545 1,400 45,945 41,224 41,224 3,222 44,446
General and administrative(4)(5) 6,889 6,889 (5 ) 6,884 6,541 6,541 (16 ) 6,525
Other (6) 1,792 1,792 (1,792 ) 587 587 (587 )
Subtotal 36,837 (973 ) 35,864 3,197 39,061 34,096 34,096 3,825 37,921
Interest income 2 2 2 104 104 104
Interest expense
Amortization and write-off of market rate adjustments 293 293 (293 ) (1,313 ) (1,313 ) 1,313
Amortization and write-off of deferred financing costs (751 ) (751 ) 751 (880 ) (880 ) 880
Debt extinguishment costs
Interest on debt (17,026 ) 362 (16,664 ) (16,664 ) (16,640 ) (16,640 ) (16,640 )
Provision for income taxes (191 ) (191 ) 191 (123 ) (123 ) 123
Funds from operations $ 19,164 $ (611 ) $ 18,553 $ 3,846 $ 22,399 $ 15,244 $ $ 15,244 $ 6,141 $ 21,385
Funds from operations per share – basic(7) $ 0.39 $ 0.37
Funds from operations per share – diluted(8) $ 0.39 $ 0.37

(1) Represents our partner’s share of operations from consolidated properties.

(2) Core adjustments include the aggregate amounts for straight-line rent of $(377) and $(462), above / below market lease amortization of $1,728 and $3,639 and tenant inducement amortization of $10 and $9 for the three months ended June 30, 2015 and 2014, respectively.

(3) Core adjustments include above / below market ground lease amortization of $39 and $36 for the three months ended June 30, 2015 and 2014, respectively.

(4) General and administrative costs include $645 and $957 of non-cash stock compensation expense for the three months ended June 30, 2015 and 2014, respectively.

(5) Core adjustments include amounts for the corporate and regional office straight-line rent of $5 and $16 for the three months ended June 30, 2015 and 2014, respectively.

(6) Core adjustments include property acquisition costs and non-recurring costs related to the transition from Brookfield’s IT platform on to Rouse’s IT platform.

(7) Calculated using weighted average number of shares of common stock of 57,726,603 and 57,519,079 for the three months ended June 30, 2015 and 2014, respectively.

(8) Assumes 58,088,387 and $57,897,716 diluted shares of common stock for the three months ended June 30, 2015 and 2014, respectively.

Reconciliation of Core NOI and Core FFO – For the Six Month Period Ended

June 30, 2015 June 30, 2014

(In thousands, except per share amounts)

(Unaudited) (Unaudited)
Consolidated

Non-controlling
Interest (1)

Rouse
Total

Core
Adjustments

Core NOI /
FFO

Consolidated

Non-controlling
Interest (1)

Rouse
Total

Core
Adjustments

Core NOI /
FFO

Revenues:
Minimum rents(2) $ 102,304 $ (2,101 ) $ 100,203 $ 3,861 $ 104,064 $ 92,790 $ $ 92,790 $ 6,319 $ 99,109
Tenant recoveries 38,842 (663 ) 38,179 38,179 37,912 37,912 37,912
Overage rents 2,322 (44 ) 2,278 2,278 1,938 1,938 1,938
Other 3,502 (36 ) 3,466 3,466 2,988 2,988 2,988
Total revenues 146,970 (2,844 ) 144,126 3,861 147,987 135,628 135,628 6,319 141,947
Operating Expenses:
Property operating costs (3) 33,965 (532 ) 33,433 (78 ) 33,355 33,895 33,895 (67 ) 33,828
Real estate taxes 14,355 (353 ) 14,002 14,002 12,266 12,266 12,266
Property maintenance costs 5,694 (79 ) 5,615 5,615 5,776 5,776 5,776
Marketing 938 (19 ) 919 919 1,081 1,081 1,081
Provision for doubtful accounts 558 59 617 617 388 388 388
Total operating expenses 55,510 (924 ) 54,586 (78 ) 54,508 53,406 53,406 (67 ) 53,339
Net operating income 91,460 (1,920 ) 89,540 3,939 93,479 82,222 82,222 6,386 88,608
General and administrative(4)(5) 13,359 13,359 (9 ) 13,350 12,481 12,481 (22 ) 12,459
Other (6) 3,951 3,951 (3,951 ) 1,261 1,261 (1,261 )
Subtotal 74,150 (1,920 ) 72,230 7,899 80,129 68,480 68,480 7,669 76,149
Interest income 14 14 14 276 276 276
Interest expense
Amortization and write-off of market rate adjustments 243 243 (243 ) (1,887 ) (1,887 ) 1,887
Amortization and write-off of deferred financing costs (1,650 ) (1,650 ) 1,650 (2,153 ) (2,153 ) 2,153
Debt extinguishment costs
Interest on debt (35,228 ) 719 (34,509 ) (34,509 ) (32,607 ) (32,607 ) (32,607 )
Provision for income taxes (427 ) (427 ) 427 (247 ) (247 ) 247
Funds from operations $ 37,102 $ (1,201 ) $ 35,901 $ 9,733 $ 45,634 $ 31,862 $ $ 31,862 $ 11,956 $ 43,818
Funds from operations per share – basic(7) $ 0.79 $ 0.77
Funds from operations per share – diluted(8) $ 0.79 $ 0.76

(1) Represents our partner’s share of operations from consolidated properties.

(2) Core adjustments include the aggregate amounts for straight-line rent of $(349) and $(1,087), above / below market lease amortization of $4,192 and $7,396 and tenant inducement amortization of $18 and $10 for the six months ended June 30, 2015 and 2014, respectively.

(3) Core adjustments include above / below market ground lease amortization of $78 and $67 for the six months ended June 30, 2015 and 2014, respectively.

(4) General and administrative costs include $1,510 and $1,777 of non-cash stock compensation expense for the six months ended June 30, 2015 and 2014, respectively.

(5) Core adjustments include amounts for the corporate and regional office straight-line rent of $9 and $22 for the six months ended June 30, 2015 and 2014, respectively.

(6) Core adjustments include property acquisition costs and non-recurring costs related to the transition from Brookfield’s IT platform on to Rouse’s IT platform.

(7) Calculated using weighted average number of shares of common stock of 57,667,380 and 56,828,173 for the six months ended June 30, 2015 and 2014, respectively.

(8) Assumes 58,101,849 and 57,436,703 diluted shares of common stock for the six months ended June 30, 2015 and 2014, respectively.

Reconciliation of Non-GAAP to GAAP Financial Measures

Three Months Ended Six Months Ended

(In thousands)

June 30, 2015
(unaudited)

June 30, 2014
(unaudited)

June 30, 2015
(unaudited)

June 30, 2014
(unaudited)

Reconciliation of NOI to GAAP Operating Income
Rouse NOI: $ 44,545 $ 41,224 $ 89,540 $ 82,222
Non-controlling interest 973 1,920
General and administrative (6,889 ) (6,541 ) (13,359 ) (12,481 )
Other (1,792 ) (587 ) (3,951 ) (1,261 )
Depreciation and amortization (23,877 ) (23,419 ) (49,863 ) (44,463 )
Provision for impairment (2,900 )
Operating income $ 12,960 $ 10,677 $ 21,387 $ 24,017
Reconciliation of FFO to GAAP Net income (loss) attributable to Rouse Properties Inc.
FFO: $ 18,553 $ 15,244 $ 35,901 $ 31,862
Non-controlling interest – Depreciation and amortization 596 1,192
Depreciation and amortization (23,877 ) (23,419 ) (49,863 ) (44,463 )
Provision for impairment (2,900 )
Gain on extinguishment of debt 4,054 26,894
Gain (loss) on sale of real estate assets (14 ) 32,496
Net income (loss) attributable to Rouse Properties Inc. $ (688 ) $ (8,175 ) $ 43,720 $ (12,601 )
Weighted average number of shares outstanding – basic 57,726,603 57,519,079 57,667,380 56,828,173
Weighted average number of shares outstanding – diluted 57,726,603 57,519,079 58,101,849 56,828,173
Net income (loss) per share attributable to Rouse Properties Inc.- Basic $ (0.01 ) $ (0.14 ) $ 0.76 $ (0.22 )
Net income (loss) per share attributable to Rouse Properties Inc.- Diluted $ (0.01 ) $ (0.14 ) $ 0.75 $ (0.22 )

Rouse Properties, Inc.
Investor Relations, 212-608-5108
IR@rouseproperties.com

Source: Rouse Properties, Inc.