**UNITED STATES****SECURITIESAND EXCHANGE COMMISSION**

**Washington, D.C.  20549**

 

# **FORM10-K**

#  

| **ý** | ** ** | **ANNUAL  REPORT PURSUANT TO SECTION 13 OR 15 (d)  OF THE SECURITIES EXCHANGE ACT OF 1934**     |
|------------|------------|-------------------------------------------------------------------------------------------------|
|       |       | **For the Fiscal Year Ended December 31, 2004**                                                 |
|       |       | **Or**                                                                                          |
| **o**      | ** ** | **TRANSITION  REPORT PURSUANT TO SECTION 13 OR 15 (d)  OF THE SECURITIES EXCHANGE ACT OF 1934** |

 

**COMMISSION FILE NUMBER 001-11543**

 

# **THE ROUSE COMPANY LP**

(Exact name of registrant as specified in itscharter)

 

| **Maryland**                                                                       |   | **52-0735512**                        |
|------------------------------------------------------------------------------------|--------|---------------------------------------|
| (State or other jurisdiction of  incorporation or organization)                    |   | (I.R.S. Employer  Identification No.) |
|                                                                               |   |                                  |
| **10275 Little Patuxent Parkway  Columbia, Maryland**                              |   | **21044-3456**                        |
| (Address of principal executive offices)                                           |   | (Zip Code)                            |
|                                                                               |   |                                  |
| Registrant’s  telephone number, including area code:  **(410) 992-6000** |
|                                                                               |   |                                  |
| Securities registered  pursuant to Section 12(b) of the Act:                       |   |                                  |
|                                                                               |   |                                  |
| **NONE**                                                                           |   |                                  |
|                                                                               |   |                                  |
| Securities  registered pursuant to Section 12(g) of the Act:                       |   |                                  |
|                                                                               |   |                                  |
| **NONE**                                                                           |   |                                  |

 

Indicate by check mark whether the registrant (1) has filed all reportsrequired to be filed by Section 13 or 15 (d) of the Securities Exchange Act of1934 during the preceding 12 months (or for such shorter period that theregistrant was required to file such reports), and (2) has been subject to suchfiling requirements for the past 90 days.

Yes   ý   No   o

 

Indicateby check mark if disclosure of delinquent filers pursuant to Item 405 ofRegulation S-K is not contained herein, and will not be contained, to the bestof registrant’s knowledge, in definitive proxy or information statementsincorporated by reference in Part III of this Form 10-K or any amendment tothis Form 10-K.   ý

 

Indicate by check mark whether the registrant is an accelerated filer(as defined in Rule 12b-2 of the Act).

Yes     o    No     ý

 

As of June 30, 2004, the aggregate market value of the voting andnon-voting common equity held by nonaffiliates of the registrant (based on theclosing price as reported in The Wall Street Journal, Eastern Edition)was approximately $3,335,044,409.  

 

Documents Incorporated by Reference

 

None

 

 

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##### Part I

 

Item 1.    Business.

 

All references to numbered Notes are to specificfootnotes to the Consolidated Financial Statements of The Rouse Company LP asincluded in this Annual Report on Form 10-K (“Annual Report”) and thedescriptions included in such Notes are incorporated into the applicable Itemby reference. The following discussion should be read in conjunction with suchConsolidated Financial Statements and related Notes.

 

**General Development of Business**

 

The Rouse Company LP (“we,” “TRCLP,” “us,” orthe “Company”) is the successor company to The Rouse Company, which wasincorporated as a business corporation under the laws of the State of Marylandin 1956.  TRCLP succeeded to the businessof The Rouse Company by a merger with TRCLP (the “Merger”) completed onNovember 12, 2004. The Merger (see Note 1) resulted in TRCLP being a subsidiaryof General Growth Properties, Inc. (“GGP” or “General Growth”), the secondlargest publicly traded real estate investment trust (“REIT”) in the UnitedStates, incorporated in Delaware and headquartered in Chicago, Illinois. Prior to the Merger, The Rouse Companywas one of the largest publicly traded real estate companies in the UnitedStates.

 

General Growth is primarily engaged in theownership, management, leasing, acquisition, development and expansion ofregional mall and community shopping centers, primarily in the United States. General Growth engages in real estatebusiness through its subsidiaries and affiliates, including us. Our primarybusiness is the acquisition, development and management of retail centers,office buildings, mixed-use projects and other commercial properties across theUnited States. We are also the developer of master-planned communities in andaround Columbia, Maryland; Summerlin, Nevada and Houston, Texas.

 

Until theMerger, we had elected to be taxed as a REIT pursuant to the Internal RevenueCode of 1986, as amended, effective January 1, 1998.  In 2001, we elected to treat certainsubsidiaries as Taxable REIT Subsidiaries (“TRS”), which are subject to Federaland state income taxes. As a subsidiary of General Growth, which is also aREIT, we continue to conduct our community development activities in TRS.

 

We have fivebusiness segments: retail centers, office and other properties, community development,commercial development and corporate. The retail centers segment includes theoperation and management of regional shopping centers, downtown specialtymarketplaces, the retail components of mixed-use projects and community retailcenters. The office and other properties segment includes the operation andmanagement of office and industrial properties and the nonretail components ofthe mixed-use projects. The community development segment includes thedevelopment and sale of land, primarily in large-scale, long-term communitydevelopment projects in and around Columbia, Maryland; Summerlin, Nevada andHouston, Texas. The commercial development segment includes the evaluation ofall potential new development projects (including expansions of existingproperties) and acquisition opportunities and the management of them throughthe development or acquisition process. Prior to the Merger, the corporatesegment was responsible for shareholder and director services, financialmanagement, strategic planning and certain other general and support functions.Subsequent to the Merger, the majority of the activities relating to thecorporate segment are expected to be performed by other operating units withinGGP.

 

I-1

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We make allkey strategic decisions for our wholly-owned properties and, in connection withcertain properties owned through joint ventures (“Unconsolidated Real EstateAffiliates”), such strategic decisions are made with our venture partners.  We are also the asset manager for our wholly-ownedproperties and, through management contracts, most of our unconsolidated realestate affiliates.  As the asset manager,we execute the strategic decisions and directly oversee the day-to-dayactivities such as leasing, construction management, data processing,maintenance, accounting, marketing, promotional services and securityoversight.  We conduct the managementactivities relating to those unconsolidated real estate affiliates through oneof our taxable REIT subsidiaries.  As ofDecember 31, 2004, this taxable REIT subsidiary managed 19 properties with theremaining properties owned by unconsolidated real estate affiliates managed bythe applicable joint venture partners.

 

The majorityof the income from our properties is derived from rents received throughlong-term leases with tenants.  Theselong-term leases generally require the tenants to pay base rent which is afixed amount specified in the lease.  Thebase rent is often subject to scheduled increases during the term of thelease.  Another component of income fromour retail tenants is overage rent. Overage rent is paid by a tenant generally if their sales exceed anagreed upon minimum amount.  Overage rentis calculated by multiplying the sales in excess of the minimum amount by apercentage defined in the lease.  Inaddition, our long-term leases generally contain a provision for us to recovercertain expenses incurred in the day-to-day operations of the respectiveproperties including common area maintenance and real estate taxes.  The recovery amount is generally related tothe tenant’s pro-rata share of space in the property.

 

The shoppingcenter industry is continually evolving with competitive pressures requiringthe ongoing re-evaluation of approaches to shopping center management andleasing.  Management’s strategies toincrease equity value and cash flow include:

•      the integration of mass merchandise retailerswith traditional department stores;

•      specialty leasing;

•      the inclusion of entertainment-orientedtenants;

•      proactive property management and leasing(including revisions to the mix of tenants at a center);

•      operating cost reductions including thoseresulting from economies of scale;

•      strategic expansions;

•      redevelopments;

•      capital reinvestment and acquisitions; and

•      selective new shopping center developmentsand concepts.

Management believes that these approachesshould enable us to operate and grow successfully in today’s highly-competitiveenvironment.

 

I-2

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We use thefollowing terms in this Annual Report:

•      Anchor - a department store or other largeretail store;

•      GLA - gross leaseable retail space, includingAnchors and all other leaseable areas;

•      Freestanding GLA - gross leaseable area offreestanding retail stores in locations that are not attached to the primarycomplex of buildings that comprise a shopping center;

•      Mall GLA - gross leaseable retail space,excluding both Anchors and Freestanding GLA;

•      Mall Stores - stores (other than Anchors)that are typically specialty retailers who lease space in the structureincluding, or attached to, the primary complex of buildings that comprise ashopping center; and

•      Total Mall Stores sales - the gross revenuefrom product sales to customers generated by the Mall Stores.

 

Since December31, 2003, we have continued our strategy of selectively acquiring retailcenters. In addition, we have continued to realign our office and industrialportfolio by disposing of interests in buildings not located in ourmaster-planned communities of Columbia, Maryland and Summerlin, Nevada, or notpart of class “A” urban mixed-use projects. The following is a summary of themore significant acquisitions and dispositions since December 31, 2003:

 

•      On December 31, 2003 we acquired, forapproximately $185 million, certain office buildings and a 52.5% economicinterest in entities (which we refer to as the “Woodlands Entities”) that ownThe Woodlands, a master-planned community in the Houston, Texas metropolitanarea, from Crescent Real Estate Equities Limited Partnership.  In connection with this acquisition, weagreed to dispose of Hughes Center, a master-planned business park in LasVegas, Nevada, comprising eight office buildings totaling approximately 1.1million square feet, nine ground leases and approximately 13 acres ofdevelopable land.  The sales of two ofthe office buildings and two of the ground leases closed in December 2003.  The remaining properties in Hughes Centerwere classified as held for sale at December 31, 2003.  In January, February and April 2004, wedisposed of the remaining assets in Hughes Center for approximately $182million.

•      In January 2004, we acquired forapproximately $32 million our partners’ interests in the joint venture that isdeveloping Fairwood, a master-planned community in Prince George’s County,Maryland, increasing our ownership to 100%.

•      In February 2004, we agreed to purchaseProvidence Place, a regional retail center in Providence, Rhode Island, for$270 million in cash and the assumption by us of $306.9 million in propertydebt.  We closed this transaction inMarch 2004.

•      In March 2004, we sold our interests inWestdale Mall, a retail center in Cedar Rapids, Iowa for cash of $1.3 millionand the assumption by the buyer of $20 million of mortgage debt.

•      In April 2004, we sold most of our interestin Westin New York, a hotel in New York City.

•      In November 2004, we purchased Oxmoor Center,a regional retail center in Louisville, Kentucky, for approximately $63.5million in cash and the assumption by us of $66.5 million in mortgage debt.

 

**Financial Information about Industry Segments**

 

Informationregarding our segments is incorporated herein by reference to Note 9.

 

I-3

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**Narrative Description of the Business**

 

RetailCenters:

 

AtDecember 31, 2004, we owned, in whole or in part, and operated:

 

•      30regional retail centers encompassing 34.6 million square feet, including 21.7million square feet leased to or owned by department stores;

•      5downtown specialty marketplaces with 1.0 million square feet of leaseablespace;

•      Retailcomponents of 9 mixed-use projects aggregating 2.5 million square feet ofleaseable space; and

•      4community retail centers in Baltimore, Maryland and Summerlin, Nevada with 0.8million square feet of leaseable space.

 

The table below showsthe largest tenants by trade name as of December 31, 2004 based on consolidatedrents.

 
| **Tenant Name**             | ** ** | **Percentage of  Consolidated Rents** | ** ** |
|-----------------------------|------------|---------------------------------------|------------|
|                        |       |                                  |       |   |   |
| Victoria’s  Secret     |       | 1.59%                                 |       |
| The Gap (1)                 |       | 1.27%                                 |       |
| Foot Locker                 |       | 1.16%                                 |       |
| Abercrombie  & Fitch    |       | 1.16%                                 |       |
| New York  & Company     |       | 0.97%                                 |       |
| American  Eagle Outfitters  |       | 0.96%                                 |       |
| Children’s  Place, The |       | 0.94%                                 |       |
| Banana  Republic (1)        |       | 0.93%                                 |       |
| GapKids-BabyGap  (1)        |       | 0.85%                                 |       |
|                             |            |                                       |            |  |  |

 

----

(1)Under common ownership by The Gap, Inc.

 

Whilethe market share of traditional department store anchors have been declining,strong anchors continue to play an important role in maintaining customertraffic in our retail centers. Generally, higher levels of customer trafficwill result in higher tenant sales, a greater demand for space by other tenantsand more favorable leasing terms (including higher minimum rents) for ourspace.

 

Mostanchors at our retail centers own their buildings, the land under them and, insome cases, adjacent parking areas. Some anchors enter into long-term leaseagreements at rates that are generally lower than the rents charged to othertenants at the retail center. Accordingly, anchors do not provide a significantsource of revenues in our operating results. Anchors typically enter intoreciprocal easement and other agreements that cover items such as operationalmatters, initial construction and future expansion.

 

I-4

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Thefollowing table summarizes the Anchor sites within our portfolio (including ourunconsolidated real estate affiliates) as of December 31, 2004 and identifiesthe owners of the Anchors and the trade names on their stores:

 
| **Owner/Trade Name**                 | ** ** | **Locations** | ** ** |
|--------------------------------------|------------|---------------|------------|
| May Company                          |       |          |       |
| Filene’s                        |       | 1             |       |
| Foley’s                         |       | 5             |       |
| Hecht’s                         |       | 5             |       |
| Lord & Taylor                    |       | 12            |       |
| Marshall Field’s                |       | 3             |       |
| Marshall Field’s Men & Home |       | 2             |       |
| Marshall Field’s Women          |       | 2             |       |
| Robinson-May                         |       | 1             |       |
| Strawbridge’s                   |       | 1             |       |
|                                 |       | 32            |       |
| Federated Department Stores          |       |          |       |
| Bloomingdale’s                  |       | 3             |       |
| Bloomingdale’s Home             |       | 2             |       |
| Burdines-Macy’s                 |       | 2             |       |
| Lazarus                              |       | 1             |       |
| Macy’s                          |       | 9             |       |
| Macy’s Home                     |       | 1             |       |
| Rich’s-Macy’s              |       | 2             |       |
| Rich’s Furniture                |       | 1             |       |
|                                 |       | 21            |       |
|                                 |       |          |       |
| Sears                                |       | 18            |       |
| JCPenney                             |       | 17            |       |
| Dillard’s                       |       | 15            |       |
| Nordstrom                            |       | 12            |       |
| Mervyn’s                        |       | 4             |       |
| Saks Incorporated                    |       |          |       |
| Saks Fifth Avenue                    |       | 4             |       |
| AMC Theatres                         |       | 3             |       |
| Neiman Marcus                        |       | 3             |       |
| Dick's Sporting Goods                |       | 3             |       |
| Other sites                          |       | 6             |       |
| Unoccupied sites                     |       | 4             |       |
| Total Anchor sites                   |       | 142           |       |

 

MayDepartment Stores Company and Federated Department Stores, Inc. announced amerger agreement in February 2005 with a closing expected in the third quarterof 2005. We have 9 properties with both a May and Federated Anchor.

 

I-5

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Office and Other Properties:

 

At December 31, 2004, we owned, in whole or in part, and operated:

 

•      Officecomponents of 9 mixed-use projects with approximately 2.7 million square feetof leaseable space;

•      28office and industrial buildings with approximately 1.1 million square feet ofleaseable space and other properties in and around Las Vegas, Nevada;

•      17office and industrial buildings with approximately 1.4 million square feet ofleaseable space in Columbia, Maryland; and

•      56office and industrial buildings with approximately 3.8 million square feet ofleaseable space primarily in the Baltimore-Washington corridor or in theHouston, Texas metropolitan area.

 

Asof December 31, 2004, our largest tenants in terms of aggregate annualizedeffective rents in our office properties are as follows:

 
| **Tenant**                       | ** ** | **Percentage of  Annualized Rent** | ** ** |
|----------------------------------|------------|------------------------------------|------------|
|                             |       |                               |       |   |   |
| Pinnacle  West Capital Corp./APS |       | 7.03%                              |       |
| Carefirst of  Maryland           |       | 6.47%                              |       |
| Bechtel SAIC  Company, LLC       |       | 4.37%                              |       |
| Snell &  Wilmer, LLP         |       | 3.81%                              |       |
| Highmark,  Inc.                  |       | 2.32%                              |       |
| Bullivant  Houser Bailey         |       | 1.52%                              |       |
| Enterprise  Group, Inc.          |       | 1.17%                              |       |
| AON Service  Corporation         |       | 1.08%                              |       |
|                                  |            |                                    |            |  |  |

 

Development:

 

Werenovate, expand and redevelop existing retail centers and develop suburban andurban retail centers, mixed-use projects and office and industrial buildingsprimarily for ourselves or ventures in which we have invested.

 

Werecently completed the development of Fashion Show, in Las Vegas, Nevada.  The first phase of this redevelopment openedin November 2002, and the second phase opened in October 2003.  We are planning new retail centerdevelopments in San Antonio, Texas; Dade County, Florida; and Summerlin,Nevada.

 

Community Development

 

Weare the developer of the master-planned communities of Columbia, Maryland;Summerlin, Nevada; Bridgelands, Texas; The Woodlands, Texas; and Fairwood,Maryland as described below. We develop and sell land in these communities tobuilders and other developers for residential, commercial and other uses.  We may also develop some of this land for ourown purposes. Columbia is located in the Baltimore-Washington corridor andencompasses approximately 18,000 acres. We own approximately 700 saleable acres of land in and around Columbia,including the adjacent communities of Emerson and Stone Lake.

 

I-6

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Summerlinis located immediately north and west of Las Vegas and encompassesapproximately 22,500 acres.  We ownapproximately 6,900 saleable acres of land in Summerlin.

 

InMay 2003, we acquired approximately 8,060 acres of land, which we have namedBridgelands, to be developed and sold in the western Houston, Texasmetropolitan area. During the remainder of 2003 and in 2004, we purchasedadditional parcels and now own approximately 10,000 acres of contiguous land ofwhich approximately 7,300 acres are saleable. We began development activities onBridgelands in 2004 and expect to begin selling portions of this land in 2005.

 

OnDecember 31, 2003 we acquired certain office buildings and a 52.5% economicinterest in The Woodlands, a master-planned community in the Houston, Texasmetropolitan area, from Crescent Real Estate Equities Limited Partnership.  Assets owned by the Woodlands Entities at thetime of acquisition included approximately 7,600 acres of land, three golfcourse complexes, a resort conference center, a hotel, interests in seven officebuildings and other assets. Two of the office buildings were sold during 2004.

 

Weare developing Fairwood, a community in Prince George’s County, Maryland.  Fairwood contains over 1,000 acres ofunimproved land at December 31, 2004.

 

Wesell land in our community development projects for residential, commercial andother purposes.  Sales for residentialpurposes are generally to 5 to 10 builders in each community.  In Summerlin, the most active purchasers ofresidential land were Woodside Homes, William Lyon Homes and Ryland Homes.  In 2004, sales to these three homebuildersaccounted for 48% of all residential sales in Summerlin.  In and around Columbia (including Fairwood),the most active purchasers of residential land were Ryland Homes, PatriotHomes, Miller and Smith Homes and Goodier Builders.  In 2004, sales to these four homebuildersaccounted for 67% of all residential sales in our Maryland communitydevelopment projects.

 

**Competition**

 

Eachof our retail centers competes with other retail centers in their market areasto attract tenants.  The presence ofthese competitive properties could have a material adverse effect on ourability to lease space and the rents we charge. We believe that the attractiveness of a particular retail center toprospective tenants and, therefore, the ability to demand higher rents andmaintain high occupancy levels depends largely on the historical and potentialsales productivity of the center.  Webelieve that potential sales productivity depends on numerous factors includingthe location of the property, its access to transportation routes, the type andquality of its anchor and other tenants, and the demographics of the residentsin its primary trade area.  We believethat many of our retail centers have strong positions in their trade areasbecause of their locations, the quality of their anchor and other tenant mixesand high sales productivity.  Each of ourretail centers is also affected by retailers using alternative formats tomarket and/or distribute their merchandise, including discount retailers,e-commerce retailers and catalog retailers.

 

I-7

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Eachof our office and other properties competes for tenants in the markets in whichthey operate.  We believe that the officeand other properties we own in our master-planned communities are attractive inrelation to competing properties because they are concentrated in thecommercial centers of these communities. We believe the office components ofour major mixed-use properties are desirable to prospective tenants due totheir quality and downtown locations. There is significant competition for tenants among office propertiesbecause, among other things, the supply of office space is adequate to meettenant demand.  Given these conditions,we seek to concentrate our investments in office and other properties in ourmaster-planned communities.

 

Inour community development business, we compete with other landholders in theBaltimore-Washington, Las Vegas and Houston markets.  Significant factors affecting our competitionin this business include:

 

•      thesize and scope of our master-planned communities;

•      therecreational and cultural amenities available within the communities;

•      thecommercial centers in the communities; and

•      therelationships of the developer with homebuilders.

 

Webelieve our community development projects offer significant advantages whenviewed against these criteria.

 

**Environmental Matters**

 

Undervarious Federal, state and local laws and regulations, an owner of real estateis liable for the costs of removal or remediation of certain hazardous or toxicsubstances on such real estate.  Theselaws often impose such liability without regard to whether the owner knew of,or was responsible for, the presence of such hazardous or toxicsubstances.  The costs of remediation orremoval of such substances may be substantial, and the presence of suchsubstances, or the failure to promptly remediate such substances, may adverselyaffect the owner’s ability to sell such real estate or to borrow using suchreal estate as collateral.  In connectionwith its ownership and operation of our properties, we, or the relevantproperty venture through which the property is owned, may be potentially liablefor such costs.

 

Substantiallyall of our properties have been subject to environmental assessments, which areintended to discover information regarding, and to evaluate the environmentalcondition of, the surveyed and surrounding properties.  The Phase I environmental assessmentsincluded a historical review, a public records review, a preliminaryinvestigation of the site and surrounding properties, screening for thepresence of asbestos, polychlorinated biphenyls (“PCBs”) and undergroundstorage tanks and the preparation and issuance of a written report, but do notinclude soil sampling or subsurface investigations.  A Phase II assessment, when necessary, wasconducted to further investigate any issues raised by the Phase I assessment.  In each case where Phase I and/or Phase IIassessments resulted in specific recommendations for remedial actions requiredby law, management has either taken or scheduled the recommended action.

 

I-8

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Neitherthe Phase I nor the Phase II assessments have revealed any environmentalliability that we believe would have a material effect on our overall business,assets or results of operations, nor are we aware of the existence of any suchliability.  Nevertheless, it is possiblethat these assessments do not reveal all environmental liabilities or thatthere are material environmental liabilities of which we are unaware.  Moreover, no assurances can be given thatfuture laws, ordinances or regulations will not impose any materialenvironmental liability or the current environmental condition of ourproperties will not be adversely affected by tenants and occupants of theproperties, by the condition of properties in the vicinity of our properties(such as the presence on such properties of underground storage tanks) or bythird parties unrelated to us.

 

In2002, the President and Congress approved the Yucca Mountain site in Nevada fordevelopment of a repository site for highly radioactive materials.  Yucca Mountain is located approximately 100miles from Las Vegas.  For the project toproceed, other approvals are necessary, including a license from the U.S.Nuclear Regulatory Commission or NRC. The Department of Energy’s 2003 Strategic Plan, dated September 30,2003, listed the licensing, construction and operation of the repository siteat Yucca Mountain by 2010 as a major goal. In July 2004, the United States Court of Appeals for the D.C. Circuitrejected a number of challenges brought by the State of Nevada, localgovernmental units, environmental groups and trade associations with respect tothe proposed Yucca Mountain repository and invalidated a portion of the EPA’sand NRC’s regulations governing the proposed repository.

 

Futuredevelopment opportunities may require additional capital and other expendituresin order to comply with such statutes and regulations.  It is impossible at this time to predict withany certainty the magnitude of any such expenditures or the long-range effect,if any, on our operations.  Compliancewith such laws has had no material adverse effect on our operating results orcompetitive position in the past.

 

**Employees**

 

Asof March 1, 2005, we had no employees as all individuals working at ourproperties were employed by other subsidiaries of General Growth.

 

**Insurance**

 

Wehave comprehensive liability, fire, flood, earthquake, terrorist, extendedcoverage and rental loss insurance.  Ourmanagement believes that all of our properties are adequately covered byinsurance.

 

**Available Information**

 

Informationon the Company can be found on the Internet at www.generalgrowth.com.  The website contains information aboutGeneral Growth and the Company. As the Company is a subsidiary of GeneralGrowth, information with respect to our Corporate Governance Principles,charters of the Audit Committee, Compensation Committee, andNominating/Governance Committee of our Board of Directors and our BusinessConduct and Ethics Policy (including any subsequent amendments to, or waiversfrom, our Business Conduct and Ethics Policy) can be found by reference tothose applicable documents for GGP. Copies of each of GGP’s and our filings with the SEC on Form 10-K,Form 10-Q and Form 8-K and all amendments to those reports can be viewed anddownloaded free of charge from the website as soon as reasonably practicableafter the reports and amendments are electronically filed with or furnished tothe SEC.

 

I-9

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Anyof the above documents, and any of our reports on Form 10-K, Form 10-Q and Form8-K and all amendments to those reports, can also be obtained in print withoutcharge by any shareholder who requests them by writing David Lozano, InvestorRelations Coordinator, General Growth Properties, Inc. 110 N. Wacker Drive,Chicago, IL 60606, or by email at David.Lozano@generalgrowth.com.

 

Item 2. Properties.

 

Informationregarding our operating properties, including those owned by unconsolidatedreal estate affiliates as of December 31, 2004, is presented in the followingtables.  Anchorsinclude all stores with GLA greater than 30,000 square feet. To the extent aproperty does not have any anchor space, significant tenants have beenincluded.  The ownership of most of our properties issubject to mortgage financing. Some of our properties are subject to groundleases, all of which provide an option to purchase the underlying land andtypically provide us a right of first refusal in the event of a proposed saleof the land by the landlord. Information regarding encumbrances on theseproperties is included in Schedule III of this Annual Report.

 

I-10

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**OPERATING PROPERTIES**

** **
| **Consolidated Retail Centers  (Note 1)**        | ** ** | **Date of  Opening or  Acquisition  (Note 3)** | ** ** | **Anchors/Significant Tenants**                                                                                     | ** ** | **Retail Square Footage** | ** ** |
|--------------------------------------------------|------------|------------------------------------------------|------------|---------------------------------------------------------------------------------------------------------------------|------------|---------------------------|------------|
| **Mall Only**                                    | ** ** | **Total  Center**                              |
| Arizona Center,  Phoenix, AZ (Note 4)            |       | 11/90                                          |       | AMC Arizona  Center 24                                                                                              |       | 168,469                   |       | 168,469 |   |
| Augusta Mall, Augusta, GA (Note 4)               |       | 8/78                                           |       | Dillard’s;  JCPenney; Rich’s-Macy’s; Sears; Rich’s Furniture                                    |       | 317,195                   |       | 1,066,418 |   |
| Bayside Marketplace, Miami, FL (Note 4)          |       | 4/87                                           |       | The Disney  Store; Victoria’s Secret                                                                           |       | 223,821                   |       | 223,821 |   |
| Beachwood Place, Cleveland, OH                   |       | 8/78                                           |       | Dillard’s;  Nordstrom; Saks Fifth Avenue                                                                       |       | 348,594                   |       | 912,941 |   |
| Collin Creek, Plano, TX                          |       | 9/95                                           |       | Dillard’s;  Foley’s; JCPenney; Mervyn’s; Sears                                                       |       | 322,991                   |       | 1,113,074 |   |
| The Mall in Columbia, Columbia, MD               |       | 8/71                                           |       | Hecht’s;  JCPenney; Lord & Taylor; Nordstrom; Sears; L.L.Bean; AMC Columbia 14                             |       | 584,092                   |       | 1,384,260 |   |
| Faneuil Hall Marketplace, Boston, MA (Note  4)   |       | 8/76                                           |       | Ann Taylor;  Crate & Barrel                                                                                     |       | 197,946                   |       | 197,946 |   |
| Fashion Place, Salt Lake City, UT (Note 4)       |       | 10/98                                          |       | Dillard’s;  Nordstrom; Sears                                                                                   |       | 310,191                   |       | 876,164 |   |
| Fashion Show, Las Vegas, NV                      |       | 6/96                                           |       | Dillard’s;  Macy’s; Neiman Marcus; Nordstrom; Robinsons-May; Saks Fifth Avenue; Bloomingdale’s  Home |       | 530,766                   |       | 1,764,562 |   |
| The Gallery at Harborplace, Baltimore, MD        |       | 9/87                                           |       | Brooks  Brothers, Forever 21; Gap                                                                                   |       | 132,992                   |       | 132,992 |   |
| Governor’s Square, Tallahassee, FL (Note 4) |       | 8/79                                           |       | Burdines-Macy’s;  Dillard’s; JCPenney; Sears                                                              |       | 346,118                   |       | 1,037,723 |   |
| Harborplace, Baltimore, MD (Note 4)              |       | 7/80                                           |       | Ann Taylor;  J Crew                                                                                                 |       | 141,320                   |       | 141,320 |   |
| Hulen Mall, Ft. Worth, TX                        |       | 8/77                                           |       | Dillard’s;  Foley’s; Sears                                                                                |       | 344,557                   |       | 941,127 |   |
| Lakeside Mall, Sterling Heights, MI              |       | 5/02                                           |       | JCPenney;  Lord & Taylor; Marshall Field’s Men & Home; Marshall Field’s Women;  Sears             |       | 508,132                   |       | 1,458,432 |   |
| Mall St. Matthews, Louisville, KY (Note 4)       |       | 3/62                                           |       | Dillard’s  (two stores); JCPenney                                                                              |       | 376,979                   |       | 1,094,684 |   |
| Metro Plaza, Baltimore, MD                       |       | 10/56                                          |       | Dollar  Store; Social Services                                                                                      |       | 135,031                   |       | 135,031 |   |
| Mondawmin Mall, Baltimore, MD                    |       | 10/56                                          |       | New York  & Company; Stop, Shop & Save                                                                      |       | 319,277                   |       | 319,277 |   |
| North Star, San Antonio, TX                      |       | 9/60                                           |       | Dillard’s;  Foley’s; Macy’s; Mervyn’s; Saks Fifth Avenue                                        |       | 466,246                   |       | 1,259,073 |   |
| Oakwood Center, Gretna, LA                       |       | 10/82                                          |       | Dillard’s;  JCPenney; Mervyn’s; Sears; Marshalls                                                          |       | 353,873                   |       | 952,220 |   |
| Oviedo Marketplace, Orlando, FL                  |       | 3/98                                           |       | Burdines-Macy’s; Dillard’s; Sears; Regal Cinemas 22                                                       |       | 333,788                   |       | 951,672 |   |
| Owings Mills, Baltimore, MD                      |       | 7/86                                           |       | Hecht’s;  JCPenney; Macy’s; AMC Owings Mills 17                                                           |       | 436,410                   |       | 1,083,447 |   |
| Oxmoor Center, Louisville, KY                    |       | 11/04                                          |       | Dick's  Sporting Goods; Lazarus; Sears; Von Maur                                                                    |       | 282,979                   |       | 930,045 |   |
| Paramus Park, Paramus, NJ                        |       | 3/74                                           |       | Macy’s;  Sears; Fortunoff                                                                                      |       | 311,170                   |       | 770,227 |   |
| Pioneer Place, Portland, OR (Note 4)             |       | 3/90                                           |       | Saks Fifth  Avenue                                                                                                  |       | 308,134                   |       | 368,134 |   |
| Providence Place                                 |       | 3/04                                           |       | Filene’s;  Lord & Taylor; Nordstrom                                                                        |       | 748,439                   |       | 1,271,439 |   |
| Ridgedale Center, Minneapolis, MN (Note 4)       |       | 1/89                                           |       | JCPenney;  Marshall Field’s Men & Home; Marshall Field’s Women; Sears                                 |       | 332,162                   |       | 1,034,542 |   |
| Riverwalk, New Orleans, LA (Note 4)              |       | 8/86                                           |       | Abercrombie  & Fitch; Victoria’s Secret                                                                    |       | 187,649                   |       | 187,649 |   |
| South Street Seaport, New York, NY (Note 4)      |       | 7/83                                           |       | Ann Taylor;  Brookstone                                                                                             |       | 285,385                   |       | 285,385 |   |
| Southland Center, Taylor, MI                     |       | 1/89                                           |       | JCPenney;  Marshall Field’s; Mervyn’s                                                                     |       | 282,592                   |       | 865,629 |   |
| Staten Island Mall, Staten Island, NY            |       | 11/80                                          |       | JCPenney;  Macy’s; Sears; Macy’s Home                                                                     |       | 614,905                   |       | 1,272,268 |   |
| The Streets at South Point, Durham, NC           |       | 5/02                                           |       | Hecht’s; JCPenney;  Nordstrom; Sears; Belk                                                                     |       | 580,475                   |       | 1,327,396 |   |
| The Village of Cross Keys, Baltimore, MD         |       | 9/65                                           |       | Elizabeth  Arden Spa, Talbots, Williams Sonoma                                                                      |       | 73,982                    |       | 73,982 |   |
| Westlake Center, Seattle, WA                     |       | 10/88                                          |       | Express  Womens, PF Chang’s                                                                                    |       | 104,631                   |       | 104,631 |   |
| White Marsh, Baltimore, MD                       |       | 8/81                                           |       | Hecht’s;  JCPenney; Macy’s; Sears                                                                         |       | 366,451                   |       | 1,151,045 |   |
| Willowbrook, Wayne, NJ                           |       | 9/69                                           |       | Bloomingdale’s;  Lord & Taylor; Macy’s; Sears                                                         |       | 494,614                   |       | 1,522,614 |   |
| Woodbridge Center, Woodbridge, NJ                |       | 3/71                                           |       | JCPenney;  Lord & Taylor; Macy’s; Sears; Fortunoff; Dick's Sporting Goods                                  |       | 549,608                   |       | 1,634,643 |   |
|                                             |       |                                           |       | Total  Consolidated Centers in Operation                                                                            |       | 12,421,964                |       | 30,014,282 |   |

 

I-11

----

 
| Bridgewater Commons, Bridgewater, NJ                     |   | 12/98  |   | Bloomingdale’s;  Lord & Taylor; Macy’s                                                  |   | 377,971    |   | 880,847    |   |
|----------------------------------------------------------|--------|--------|--------|-------------------------------------------------------------------------------------------------------|--------|------------|--------|------------|--------|
| Christiana Mall, Newark, DE                              |   | 5/03   |   | JCPenney;  Lord & Taylor; Macy’s; Strawbridge’s                                         |   | 312,182    |   | 1,083,586  |   |
| Highland Mall, Austin, TX (Note 4)                       |   | 8/71   |   | Dillard’s  (two stores); Foley’s; JCPenney                                                  |   | 381,548    |   | 1,100,289  |   |
| Mizner Park, Boca Raton, FL (Note 4)                     |   | 12/03  |   | Robb &  Stucky                                                                                    |   | 156,715    |   | 236,537    |   |
| Oakbrook Center, Oak Brook, IL                           |   | 5/02   |   | Lord &  Taylor; Marshall Field’s; Neiman Marcus; Nordstrom; Sears; Bloomingdale’s  Home |   | 813,450    |   | 2,003,216  |   |
| Park Meadows, Littleton, CO                              |   | 7/98   |   | Dillard’s;  Foley’s; JCPenney; Nordstrom; Dick's Sporting Goods                             |   | 607,651    |   | 1,630,561  |   |
| Perimeter Mall, Atlanta, GA                              |   | 8/71   |   | Bloomingdale’s;  Nordstrom; Rich’s-Macy’s                                              |   | 499,064    |   | 1,284,880  |   |
| Towson Town Center, Baltimore, MD                        |   | 10/98  |   | Hecht’s;  Nordstrom; Nordstrom Rack                                                              |   | 515,158    |   | 965,287    |   |
| Village Centers in Summerlin, NV  Centerpointe           |   | 9/01   |   | —                                                                                                |   | 144,635    |   | 144,635    |   |
| Village Centers in Summerlin, NV Lake Meade              |   | 5/97   |   | —                                                                                                |   | 68,528     |   | 68,528     |   |
| Village Centers in Summerlin, NV Trails  Village Partnrs |   | 5/97   |   | —                                                                                                |   | 169,660    |   | 169,660    |   |
| Village of Merrick Park, Coral Gables, FL  (Note 4)      |   | 9/02   |   | Neiman  Marcus; Nordstrom                                                                             |   | 407,304    |   | 737,304    |   |
| Water Tower Place, Chicago, IL                           |   | 5/02   |   | Lord &  Taylor; Marshall Field’s                                                             |   | 285,718    |   | 712,761    |   |
|                                                     |   |   |   | Total  Proportionate Share Centers in Operation (Note 2)                                              |   | 4,739,584  |   | 11,018,091 |   |
|                                                     |   |   |   |                                                                                                  |   |       |   |       |   |
|                                                     |   |   |   | Total Retail  Centers in Operation                                                                    |   | 17,161,548 |   | 41,032,373 |   |

 

----

Note 1—Includes projects wholly owned by subsidiariesof the Company and projects in which the Company has a majority interest andcontrol.

 

Note 2—Includes projects owned by unconsolidated realestate affiliates or partnerships in which the Company’s interest is at least30%.

 

Note 3—Date of acquisition is the date the Company firstacquired an interest in the property.

 

Note 4—Property subject to ground lease.

 

I-12

----

 

**Office and Other Properties in Operation**

** **
| **Consolidated Office and Other  Properties (Note 1)** | ** ** | **Location**   |   | **Square Feet** |   |
|--------------------------------------------------------|------------|----------------|--------|-----------------|--------|
| Arizona Center (Note 3)                                |       | Phoenix, AZ    |   |            |   |
| Garden Office Pavilion                                 |       |           |   | 113,481         |   |
| One Arizona Center Office Tower                        |       |           |   | 321,682         |   |
| Two Arizona Center Office Tower                        |       |           |   | 452,713         |   |
| The Gallery at Harborplace                             |       | Baltimore,  MD |   |            |   |
| Office Tower                                           |       |           |   | 260,901         |   |
| Pioneer Place (Note 3)                                 |       | Portland, OR   |   |            |   |
| Office Tower                                           |       |           |   | 282,270         |   |
| Village of Cross Keys                                  |       | Baltimore,  MD |   |            |   |
| Village Square Offices                                 |       |           |   | 72,668          |   |
| Quadrangle Offices                                     |       |           |   | 109,317         |   |
| Westlake Center (Note 3)                               |       | Seattle, WA    |   |            |   |
| Office Tower                                           |       |           |   | 346,072         |   |
| Columbia Industrial (6 buildings)                      |       | Columbia, MD   |   |            |   |
| Riverspark I Building A                                |       |           |   | 75,786          |   |
| Riverspark I Building B                                |       |           |   | 46,740          |   |
| Riverspark I Building C                                |       |           |   | 37,633          |   |
| Riverspark II Building 1                               |       |           |   | 38,539          |   |
| Riverspark II Building 2                               |       |           |   | 62,336          |   |
| Riverspark II Building 3                               |       |           |   | 45,314          |   |
| Columbia Office (11 buildings)                         |       | Columbia, MD   |   |            |   |
| 10 Columbia Corporate Center                           |       |           |   | 86,789          |   |
| 20 Columbia Corporate Center                           |       |           |   | 102,912         |   |
| 30 Columbia Corporate Center                           |       |           |   | 128,576         |   |
| 40 Columbia Corporate Center                           |       |           |   | 139,416         |   |
| 50 Columbia Corporate Center                           |       |           |   | 111,877         |   |
| 60 Columbia Corporate Center                           |       |           |   | 101,982         |   |
| 70 Columbia Corporate Center                           |       |           |   | 169,898         |   |
| American City Building                                 |       |           |   | 116,182         |   |
| Exhibit Building                                       |       |           |   | 18,962          |   |
| Ridgely Building                                       |       |           |   | 39,111          |   |
| Teacher’s Building (CA Building)                  |       |           |   | 43,369          |   |
| Hunt Valley Business Center (17 buildings)             |       | Baltimore,  MD |   |            |   |
| Shawan Center – 201 International                 |       |           |   | 78,417          |   |
| Shawan Center - Centerpointe                           |       |           |   | 127,919         |   |
| Schilling North                                        |       |           |   | 98,786          |   |
| Schilling South                                        |       |           |   | 106,257         |   |
| Building 5                                             |       |           |   | 41,102          |   |
| Building 12                                            |       |           |   | 68,387          |   |
| Building 25                                            |       |           |   | 64,106          |   |

 

I-13

----

 
| Building 32                               |   |           |   | 46,851  |   |
|-------------------------------------------|--------|----------------|--------|---------|--------|
| Building 35                               |   |           |   | 29,790  |   |
| Building 36                               |   |           |   | 71,572  |   |
| Building 43                               |   |           |   | 55,249  |   |
| Building 44                               |   |           |   | 21,247  |   |
| Building 55                               |   |           |   | 67,312  |   |
| Building 55A                              |   |           |   | 67,953  |   |
| Building 72                               |   |           |   | 72,228  |   |
| Building 75                               |   |           |   | 210,638 |   |
| Loveton 9                                 |   |           |   | 52,452  |   |
| Owings Mills Town Center (4 buildings)    |   | Baltimore,  MD |   |    |   |
| One Owings Mills                          |   |           |   | 130,536 |   |
| Two Owings Mills                          |   |           |   | 193,577 |   |
| Three Owings Mills                        |   |           |   | 272,271 |   |
| Four Owings Mills                         |   |           |   | 117,658 |   |
| Rutherford Business Center (20 buildings) |   | Baltimore,  MD |   |    |   |
| Ambassador A                              |   |           |   | 7,453   |   |
| Ambassador B                              |   |           |   | 11,144  |   |
| Ambassador C                              |   |           |   | 10,945  |   |
| Ambassador D                              |   |           |   | 50,906  |   |
| Parkview 1                                |   |           |   | 29,457  |   |
| Parkview 2                                |   |           |   | 8,879   |   |
| Parkview 3                                |   |           |   | 9,001   |   |
| Parkview 4                                |   |           |   | 9,018   |   |
| Rutherford Building 4                     |   |           |   | 46,971  |   |
| Rutherford Building 5                     |   |           |   | 63,865  |   |
| Rutherford Building 6                     |   |           |   | 65,673  |   |
| Rutherford Building 10                    |   |           |   | 84,946  |   |
| Rutherford Building 12                    |   |           |   | 58,606  |   |
| Rutherford Building 29                    |   |           |   | 59,202  |   |
| Rutherford Building 30                    |   |           |   | 59,057  |   |
| Rutherford Building 46                    |   |           |   | 38,930  |   |
| Rutherford Building 60                    |   |           |   | 83,435  |   |
| 15 Governor’s Court                  |   |           |   | 14,568  |   |
| 17 Governor’s Court                  |   |           |   | 14,701  |   |
| 21 Governor’s Court                  |   |           |   | 56,098  |   |

 

I-14

----

 
| Summerlin Commercial (28 buildings)     |   | Summerlin,  NV                                  |   |      |   |
|-----------------------------------------|--------|-------------------------------------------------|--------|-----------|--------|
| 10190 Covington Cross Drive             |   |                                            |   | 74,723    |   |
| 10000 Covington Cross – WS         |   |                                            |   | 35,867    |   |
| 9950/80 Covington Cross (5 buildings)   |   |                                            |   | 81,712    |   |
| 1251/81 Town Center Drive (4 buildings) |   |                                            |   | 54,168    |   |
| 1201/41 Town Center Drive (1 building)  |   |                                            |   | 75,936    |   |
| 9901/21 Covington Cross (3 buildings)   |   |                                            |   | 57,110    |   |
| 1160/80 Town Center Drive (2 buildings) |   |                                            |   | 104,567   |   |
| 1120/40 Town Center Drive (2 buildings) |   |                                            |   | 103,852   |   |
| 1635 Village Center Circle              |   |                                            |   | 49,411    |   |
| 1645 Village Center Circle              |   |                                            |   | 38,539    |   |
| 1551 Hillshire Drive                    |   |                                            |   | 69,500    |   |
| 10000 West Charleston                   |   |                                            |   | 71,388    |   |
| Corporate Point Building 2              |   |                                            |   | 41,390    |   |
| Corporate Point Building 3              |   |                                            |   | 68,346    |   |
| 10450 West Charleston                   |   |                                            |   | 71,607    |   |
| Crossing Business Center #6             |   |                                            |   | 52,975    |   |
| Crossing Business Center #7             |   |                                            |   | 58,950    |   |
| Woodlands Office (4 buildings)          |   | Houston, TX                                     |   | 267,383   |   |
| Other Office Projects (6 buildings)     |   |                                            |   |      |   |
| Faneuil Hall Marketplace – Office  |   | Boston, MA                                      |   | 155,205   |   |
| Triangle I                              |   | Baltimore, MD                                   |   | 24,340    |   |
| Triangle II                             |   | Baltimore,  MD                                  |   | 17,605    |   |
| Triangle III                            |   | Baltimore,  MD                                  |   | 21,021    |   |
| Triangle IV                             |   | Baltimore,  MD                                  |   | 11,352    |   |
| Senate Plaza                            |   | Camp Hill,  PA                                  |   | 221,352   |   |
|                                    |   | Total  Consolidated Office and Other Properties |   | 7,929,988 |   |

 

I-15

----

 
| Mizner Park                               |   | Boca Raton,  FL                                                 |   |      |   |
|-------------------------------------------|--------|-----------------------------------------------------------------|--------|-----------|--------|
| Office Plaza                              |   |                                                            |   | 104,108   |   |
| Office Tower                              |   |                                                            |   | 163,821   |   |
| Oakbrook Center Office                    |   | Oak Brook,  IL                                                  |   |      |   |
| Professional Building                     |   |                                                            |   | 60,216    |   |
| East Building                             |   |                                                            |   | 76,029    |   |
| North Building                            |   |                                                            |   | 103,671   |   |
| Village of Merrick Park                   |   | Coral  Gables, FL                                               |   | 100,790   |   |
| Water Tower Place Office                  |   | Chicago, IL                                                     |   | 86,185    |   |
| Woodlands Office/Industrial (5 buildings) |   | Houston, TX                                                     |   | 347,599   |   |
|                                      |   | Total  Proportionate Share Office and Other Properties (Note 2) |   | 1,042,419 |   |
|                                      |   |                                                            |   |      |   |
|                                      |   | Total Office  and Other Properties in Operation                 |   | 8,972,407 |   |

 

----

Note 1—Includes projects wholly owned by subsidiariesof the Company and projects in which the Company has a majority interest andcontrol.

 

Note 2—Includes projects owned by unconsolidated realestate affiliates or partnerships in which the Company’s interest is at least30%.

 

Note 3—Property subject to ground lease.

 
| ** **                                         | ** ** | ** **                                              | ** ** | **Project Square Footage** | ** ** |
|----------------------------------------------------|------------|---------------------------------------------------------|------------|----------------------------|------------|
| **Projects Under Construction or  in Development** | ** ** | **Department Stores/Anchor Tenants**                    | ** ** | **Total**                  | ** ** | **Tenant Space** | ** ** |
| Bridgewater Commons Expansion, Bridgewater,  NJ    |       | Macy’s  Expansion                                  |       | 140,000                    |       | 90,000 |   |
| Kendall Town Center, Miami, FL                     |       | Dillard’s;  Muvico 20                              |       | 778,000                    |       | 140,000 |   |
| Perimeter Mall, Atlanta, GA                        |       | Dillard’s                                          |       | 200,000                    |       | — |   |
| The Shops at La Cantera, San Antonio, TX           |       | Dillard’s;  Foley’s; Neiman Marcus; Nordstrom |       | 1,300,000                  |       | 380,000 |   |
| Summerlin Centre, Summerlin, NV (Phase I)          |       | 2-3 anchors                                             |       | 850,000                    |       | 350,000 |   |
| The Crossing Business Center, Summerlin, NV        |       | Office/Industrial                                       |       | 55,000                     |       | 55,000 |   |
|                                               |       | Total  Projects Under Construction or in Development    |       | 3,323,000                  |       | 1,015,000 |   |

 

I-16

----

 

Item3. Legal Proceedings.

 

Weare not currently involved in any material litigation nor, to our knowledge, isany material litigation currently threatened against us, the properties or anyof the unconsolidated real estate affiliates. For information about certain environmental matters, see “Item 1 -Business - Environmental Matters.”

 

Item4. Submission of Matters to a Vote of Security Holders.

 

OnAugust 19, 2004, The Rouse Company executed a definitive Merger Agreement withGGP. The Merger required the approval of a majority of the holders of The RouseCompany common stock. A special meeting of stockholders was held for suchpurpose on November 9, 2004. A total of 103,687,720 shares were eligible tovote. The following votes of the stockholders were obtained:

 
| **Matter**                                                                            | ** ** | **Number of Shares for** | ** ** | **Opposed** | ** ** | **Abstained** | ** ** |
|---------------------------------------------------------------------------------------|------------|--------------------------|------------|-------------|------------|---------------|------------|
| ** **                                                                            | ** ** | ** **               | ** ** | ** **  | ** ** | ** **    | ** ** |
| Approval of  Merger Agreement between The Rouse Company and GGP dated August 19, 2004 |       | 75,477,476               |       | 230,629*    |       | 55,821        |       |

----

* Includes brokernon-votes.

 

I-17

----

Part II

 

Item5. Market for the Registrant’s Common Equity and Related Stockholder Matters.

 

TheRouse Company’s common stock was, until the Merger on November 12, 2004, listedon the New York Stock Exchange (“NYSE”) and was traded under the symbol “RSE.” Immediatelyfollowing the Merger, the common stock was delisted from the NYSE and through aseries of transactions, The Rouse Company was converted to a limitedpartnership with all of the partnership interests now held by GGP or itssubsidiaries.

 

Thefollowing table summarizes the high and low sales prices per share of The RouseCompany common stock as reported by the NYSE, and the distributions per shareof common stock declared for each such period prior to the Merger.

 
| **2004**          | ** ** | **Price** | ** ** | **Declared** | ** ** |
|-------------------|------------|-----------|------------|--------------|------------|
| **Quarter Ended** | ** ** | **High**  | ** ** | **Low**      | ** ** | **Distribution** | ** ** |
| March 31          |       | $         | 53.28      |         | $          | 46.00 |   | $ | 0.47 |   |
| June 30           |       | 53.91     |       | 40.11        |       | 0.47 |   |
| September 30      |       | 67.09     |       | 47.28        |       | 0.47 |   |
| December 31       |       | N/A       |       | N/A          |       | 2.59 |   |
|                   |            |           |            |              |            |  |  |  |  |  |

 
| **2003**          | ** ** | **Price** | ** ** | **Declared** | ** ** |
|-------------------|------------|-----------|------------|--------------|------------|
| **Quarter Ended** | ** ** | **High**  | ** ** | **Low**      | ** ** | **Distribution** | ** ** |
| March 31          |       | $         | 35.19      |         | $          | 30.45 |   | $ | 0.42 |   |
| June 30           |       | 39.40     |       | 34.33        |       | 0.42 |   |
| September 30      |       | 41.90     |       | 38.13        |       | 0.42 |   |
| December 31       |       | 47.22     |       | 41.90        |       | 0.42 |   |
|                   |            |           |            |              |            |  |  |  |  |  |

 

II-1

----

 

Item 6. SelectedFinancial Data.

 

The following table (in thousands)  sets forth selected financial data which isderived from, and should be read in conjunction with, the ConsolidatedFinancial Statements and the related Notes and Management’s Discussion andAnalysis of Financial Condition and Results of Operations contained in thisAnnual Report.  

 

| ** **                       | ** ** | **2004**  | ** ** | **2003**  | ** ** | **2002**  | ** ** | **2001**  | ** ** | **2000**  | ** ** |
|----------------------------------|------------|-----------|------------|-----------|------------|-----------|------------|-----------|------------|-----------|------------|
|                             |       |      |       |      |       |      |       |      |       |      |       |
| Segment Revenues:                |       |      |       |      |       |      |       |      |       |      |       |
| Retail Centers:                  |       |      |       |      |       |      |       |      |       |      |       |
| Minimum and percentage rents     |       | $         | 526,446    |      | $          | 497,946   |       | $         | 454,277    |      | $          | 367,756 |   | $ | 369,253 |   |
| Other rents and other revenues   |       | 363,196   |       | 345,295   |       | 321,236   |       | 269,455   |       | 262,450   |       |
|                             |       | 889,642   |       | 843,241   |       | 775,513   |       | 637,211   |       | 631,703   |       |
|                             |       |      |       |      |       |      |       |      |       |      |       |
| Office and other properties:     |       |      |       |      |       |      |       |      |       |      |       |
| Minimum and percentage rents     |       | 129,358   |       | 155,447   |       | 156,407   |       | 157,831   |       | 167,033   |       |
| Other rents and other revenues   |       | 109,861   |       | 45,547    |       | 48,784    |       | 45,885    |       | 49,198    |       |
|                             |       | 239,219   |       | 200,994   |       | 205,191   |       | 203,716   |       | 216,231   |       |
| Community development            |       | 494,344   |       | 291,439   |       | 240,992   |       | 218,322   |       | 215,459   |       |
|                             |       | 1,623,205 |       | 1,335,674 |       | 1,221,696 |       | 1,059,249 |       | 1,063,393 |       |
|                             |       |      |       |      |       |      |       |      |       |      |       |
| Segment operating expenses:      |       |      |       |      |       |      |       |      |       |      |       |
| Retail centers                   |       | 348,648   |       | 334,336   |       | 305,686   |       | 261,494   |       | 263,365   |       |
| Office and other properties      |       | 140,422   |       | 78,810    |       | 80,195    |       | 75,814    |       | 77,538    |       |
| Community development            |       | 324,456   |       | 167,549   |       | 154,827   |       | 140,317   |       | 145,594   |       |
| Commercial development           |       | 18,685    |       | 13,833    |       | 12,986    |       | 6,871     |       | 7,701     |       |
| Corporate                        |       | 27,174    |       | 26,951    |       | 29,874    |       | 13,138    |       | 9,357     |       |
|                             |       | 859,385   |       | 621,479   |       | 583,568   |       | 497,634   |       | 503,555   |       |
|                             |       |      |       |      |       |      |       |      |       |      |       |
| Net operating income by segment: |       |      |       |      |       |      |       |      |       |      |       |
| Retail Centers                   |       | 540,994   |       | 508,905   |       | 469,827   |       | 375,717   |       | 368,338   |       |
| Office and other properties      |       | 98,797    |       | 122,184   |       | 124,996   |       | 127,902   |       | 138,693   |       |
| Community development            |       | 169,888   |       | 123,890   |       | 86,165    |       | 78,005    |       | 69,865    |       |
| Commercial development           |       | (18,685   | )          | (13,833   | )          | (12,986   | )          | (6,871    | )          | (7,701    | )          |
| Corporate                        |       | (27,174   | )          | (26,951   | )          | (29,873   | )          | (13,138   | )          | (9,357    | )          |
|                             |       |      |       |      |       |      |       |      |       |      |       |
| Net Operating Income (Note 1)    |       | $         | 763,820    |      | $          | 714,195   |       | $         | 638,129    |      | $          | 561,615 |   | $ | 559,838 |   |

 

II-2

----

 

| ** **                                                                                                                                                                                                                                                                                             | ** ** | **2004** | ** ** | **2003** | ** ** | **2002** | ** ** | **2001** | ** ** | **2000** | ** ** |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|----------|------------|----------|------------|----------|------------|----------|------------|----------|------------|
|                                                                                                                                                                                                                                                                                                   |       |     |       |     |       |     |       |     |       |     |       |
| Reconciliation to net earnings (loss):                                                                                                                                                                                                                                                                 |       |     |       |     |       |     |       |     |       |     |       |
| Net Operating Income (Note 1)                                                                                                                                                                                                                                                                          |       | $        | 763,820    |     | $          | 714,195  |       | $        | 638,129    |     | $          | 561,615 |   | $ | 559,838 |   |
| Ground rent, interest and other financing expenses  (Note 2)                                                                                                                                                                                                                                           |       | (293,793 | )          | (295,908 | )          | (293,233 | )          | (274,786 | )          | (295,745 | )          |
| Depreciation and amortization                                                                                                                                                                                                                                                                          |       | (193,437 | )          | (171,183 | )          | (129,305 | )          | (100,182 | )          | (71,163  | )          |
| Income taxes, primarily deferred                                                                                                                                                                                                                                                                       |       | (39,505  | )          | (42,598  | )          | (29,151  | )          | (26,639  | )          | (92      | )          |
| Net gains on dispositions of interests in  operating properties                                                                                                                                                                                                                                        |       | 14,121   |       | 26,632   |       | 48,946   |       | (58      | )          | 42,601   |       |
| Impairment losses on operating properties                                                                                                                                                                                                                                                              |       | (69,538  | )          | —   |       | —   |       | (374     | )          | (8,858   | )          |
| Our share of depreciation and amortization,  impairment losses, gains (losses) on dispositions of interests in operating properties,  gains (losses) on early extinguishment of debt and income taxes, primarily  deferred, of unconsolidated real estate affiliates and discontinued  operations, net |       | 4,030    |       | 53,982   |       | (71,453  | )          | (47,643  | )          | (58,505  | )          |
| Other (provisions and losses) gains, net                                                                                                                                                                                                                                                               |       | (460,459 | )          | (24,531  | )          | (24,082  | )          | (816     | )          | 2,409    |       |
| Cumulative effect at January 1, 2001 of change  in accounting for derivative instruments and hedging activities                                                                                                                                                                                        |       | —   |       | —   |       | —   |       | (411     | )          | —   |       |
|                                                                                                                                                                                                                                                                                                   |       |     |       |     |       |     |       |     |       |     |       |
| Net earnings (loss)                                                                                                                                                                                                                                                                                    |       | $        | (274,761   | )        | $          | 260,589  |       | $        | 139,851    |     | $          | 110,706 |   | $ | 170,485 |   |

 

----

Note:

(1)                NetOperating Income (“NOI”) data included in this five-year summary is presentedby segment.  Consistent with therequirements of Statement of Financial Accounting Standards No. 131, “Disclosuresabout Segments of an Enterprise and Related Information,” segment data arereported using the performance measure and accounting policies used forinternal reporting to management.  Theperformance measure is NOI.  We defineNOI as net earnings (computed in accordance with U.S. generally acceptedaccounting principles), excluding cumulative effects of changes in accountingprinciples, net gains (losses) on dispositions of interests in operatingproperties not developed for sale, net of income taxes, impairment losses onoperating properties, other provisions and losses, real estate depreciation andamortization, current and deferred income taxes and interest and otherfinancing expenses.  Other financingexpenses are defined in Note 2 below. The accounting policies of the segments are the same as those of theCompany, except that we account for the majority financial interest ventures(prior to our 2001 acquisition of voting stock) on a consolidated basis ratherthan using the equity method; we account for real estate ventures in which wehave joint interest and control and certain other minority interest ventures (“proportionateshare ventures”) using the proportionate share method rather than the equitymethod; we include our share of NOI less interest and other financing expensesof other unconsolidated minority interest ventures (“other ventures”) inrevenues; and we include discontinued operations and minority interests in NOIrather than presenting them separately. These differences affect only the reported revenues and operatingexpenses of the segments and have no effect on our reported net earnings. NOIis not a measure of operating results or cash flows from operating activitiesas defined by U.S. generally accepted accounting principles.  Additionally, NOI is not indicative of cashavailable to fund cash needs and should not be considered an alternative tocash flows as a measure of liquidity.

 

(2)                Groundrent, interest and other financing expenses include interest expense,distributions on The Rouse Company-obligated mandatorily redeemable preferredsecurities and other subsidiary preferred stock, ground rent expense andcertain preference returns to partners, net of interest income earned oncorporate investments, and are determined using the segment accounting policiesdiscussed in Note 1 above.

 

II-3

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Item 7. Management’s Discussion and Analysis of Financial Condition andResults of Operations.

 

All references to numbered Notes are tospecific footnotes to our Consolidated Financial Statements included in thisAnnual Report and which descriptions are incorporated into the applicableresponse by reference.  The followingdiscussion should be read in conjunction with such Consolidated FinancialStatements and related Notes. Capitalized terms used, but not defined, in this Management’s Discussionand Analysis of Financial Condition and Results of Operations (“MD&A”) havethe same meanings as in such Notes.

 

***Merger with General Growth Properties, Inc.***

 

On August 19, 2004, The Rouse Companyexecuted a definitive merger agreement (the “Merger”) with General GrowthProperties, Inc. (“GGP”). On November 12, 2004, the Merger was completed, thecommon stock of The Rouse Company was canceled, The Rouse Company was mergedwith and into us, and a subsidiary of GGP was then merged with and into us. Weare now a subsidiary of GGP.

Typically, the effects of a mergertransaction are reflected in the financial statements of the acquired companyby adjusting its basis of assets and liabilities to their fair values in orderto reflect the purchase price paid in the acquisition. However, there arecertain exceptions (related to the presence of public debt that is qualitativelyor quantitatively significant) to this requirement that would allow a Companyto elect to not apply this general practice. As described above, the Mergertook place on November 12, 2004. Applying these purchase accounting adjustmentsin 2004 would require that the operations of the Company for 2004 be splitbetween pre- and post-Merger activity. This presentation in our financialstatements would not be comparable to the operations presented for previousyears. Accordingly, we have elected to not reflect these purchase accountingadjustments in our consolidated financial statements for 2004. As a result ofthis election, the post-Merger presentation retains our historical cost basis.Consequently, the presentation of our assets and liabilities and post-Mergeroperations will differ from the presentation of the same assets, liabilitiesand operations included in the financial statements of GGP as the consolidatedfinancial statements of GGP are required to be presented with such purchaseaccounting adjustments.

However, we intend to reflect theseadjustments in our financial statements for 2005. When these adjustments aremade, the applicable comparable periods for 2004 will be restated to alsoreflect these adjustments. In this way, comparable periods can be evaluatedwithin our financial statements and a single underlying set of information canbe used for both ours and GGP’s consolidated statements. These adjustments in2005 will result in the property assets of our operating properties and ourland held for development and sale assets being restated to their fair values.As a result, we expect significant increases in depreciation and amortizationexpense and cost of land sales.

Approximately $382 million in expenses are included in continuingoperations for 2004 relating to costs incurred in preparing for and completingthe Merger. These expenses include:

 

•                  Additional compensation and othercosts of merger with GGP ($336.3 million)

•                  Interest on extraordinary dividends($23.2 million)

•                  Interest and penalties for othertax-related matters ($22.4 million)

 

These amounts are included in otherprovisions and losses (gains), net.

 

II-4

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***General***

 

Through our subsidiaries and affiliates, weown, manage, lease and develop a diversified portfolio of operating propertieslocated throughout the United States and develop and sell land for residential,commercial and other uses, primarily in our master-planned communities.

We have three operating lines of business:

 

•                  retail center operations;

•                  mixed-use, office and industrialoperations; and

•                  community development and land sales.

 

Revenues from our retail center operationsand office, mixed-use and industrial operations are derived primarily fromtenant rents.  Tenant leases in ourretail centers generally provide for minimum rent, additional rent based ontenant sales in excess of stated levels and reimbursement of real estate taxesand other operating expenses.  Tenantleases in our office and other properties generally provide for minimum rentand reimbursement of real estate taxes and other operating expenses in excessof stated amounts.  The profitability ofour retail centers depends primarily on occupancy and rent levels which, inturn, are affected by the profitability of the tenants.  Tenant profitability depends on a number offactors, including consumer spending, business and consumer confidence,competition and general economic conditions in the markets in which they and weoperate.  The profitability of our officeand other properties also depends on occupancy and rent levels and is affectedby a number of factors, including tenants’ profitability and space needs due togrowth or contraction in employment levels, business confidence and competitionand general economic conditions in the markets in which they and we operate.

Revenues from our community development andland sales business are derived primarily from land sales to developers andparticipations with builders in their sales of finished homes to homebuyers.  The profitability of our communitydevelopment business is affected by demand for housing, mortgage interestrates, consumer confidence, and general economic conditions in theBaltimore-Washington, Las Vegas and Houston metropolitan areas.

 

*Operating Properties*

 

Our primary business strategies relating to operating propertiesinclude (1) owning and operating shopping centers and large-scale mixed-useprojects in major markets across the United States and (2) owning and operatinggeographically concentrated office and industrial buildings, principallycomplementing community development activities. To execute these strategies, we evaluate opportunities to acquire ordevelop properties and to redevelop, expand and/or renovate properties in ourportfolio.  We made and plan to makesubstantial investments to acquire, develop and expand and/or renovateproperties as follows:

 

•                  In May 2002, we acquired interests ineight high-quality operating properties from Rodamco North America N.V. (“Rodamco”).

•                  In November 2002, we acquired ourpartners’ interests in Ridgedale Center, a regional retail center inMinneapolis, Minnesota, and Southland Center, a regional retail center nearDetroit, Michigan.

•                  In November 2002, we opened the firstphase of the redevelopment of Fashion Show, a retail center on “the Strip” inLas Vegas, Nevada.  We opened the secondphase of this project in October 2003.

•                  In April 2003, we acquired ChristianaMall, a regional retail center in Newark, Delaware.  We subsequently conveyed a 50% interest inthis property in June 2003 pursuant to the terms of a participating mortgagethat we assumed in the acquisition.

•                  In August 2003, we acquired theremaining interest in Staten Island Mall, a regional retail center in StatenIsland, New York.

•                  In December 2003, we acquired a 50%interest in the retail component and certain office components of Mizner Park,a mixed-use property in Boca Raton, Florida. In January 2004, we acquired a 50%interest in the remaining office components of Mizner Park.

•                  In December 2003, we acquired certainoffice buildings and a 52.5% interest in entities (which we refer to as the “WoodlandsEntities”) that own The Woodlands, a master-planned community in the Houston,Texas metropolitan area. In addition to developable land, we acquired interestsin operating properties owned by the Woodlands Entities, including three golfcourse complexes, a resort conference center, a hotel, interests in sevenoffice buildings and other assets.

•                  In March 2004, we acquired ProvidencePlace, a regional retail center in Providence, Rhode Island.

•                  In November 2004, we acquired OxmoorCenter, a regional center in Louisville, Kentucky.

•                  We are the managing partner in ajoint venture that is developing The Shops at La Cantera, a regional retailcenter in San Antonio, Texas, expected to open in 2005.

•                  We are developing a regional retailcenter in Miami-Dade County, Florida.

•                  We plan to develop a regional retailcenter in Summerlin, Nevada.

 

II-5

----

 

We continually assess whether properties in which we own interests areconsistent with our business strategies. We have disposed of interests in morethan 50 retail centers and numerous other properties since 1993 (at times usingtax-deferred exchanges or joint ventures) and may continue to dispose ofselected properties that are not meeting or are not considered to have thepotential to continue to meet our investment criteria.  We may also dispose of interests inproperties for other reasons.  We disposedof interests in the following properties during 2003 and 2004:

 

•                  In April and May 2003, we sold sixretail centers in the Philadelphia metropolitan area (Cherry Hill Mall, EchelonMall, Exton Square, Gallery at Market East, Moorestown Mall and PlymouthMeeting).

•                  In May and June 2003, we sold eightoffice and industrial buildings in the Baltimore-Washington corridor.

•                  In August 2003, we sold TheJacksonville Landing, a retail center in Jacksonville, Florida.

•                  In December 2003, we sold ourinvestment in Kravco Investments, L.P.

•                  In December 2003, we disposed of twooffice properties and two leased restaurant pads, and in 2004, we disposed ofinterests in eight office properties and nine parcels subject to ground leases,all in Hughes Center, a master-planned business park in Las Vegas, Nevada,concurrent with our acquisition of a 52.5% economic interest in The Woodlands,a master-planned community in Houston, Texas.

•                  In March 2004, we sold our interestin Westdale Mall, a retail center in Cedar Rapids, Iowa.

•                  In April 2004, we sold most of ourinterest in Westin New York, a hotel in New York City.

•                  In October 2004, we sold two officebuildings in the Baltimore-Washington corridor.

 

Our 2004, 2003 and 2002acquisition, disposition and development activity is summarized as follows:

 

**Acquisitions**

 
| **Retail Centers**             | ** ** | **Interest  Acquired  (%)** | ** ** | **Interest After  Acquisition  (%)** | ** ** | **Acquisition  Date** | ** ** |
|--------------------------------|------------|-----------------------------|------------|--------------------------------------|------------|-----------------------|------------|
|                           |       |                        |       |                                 |       |                  |       |
| Collin Creek                   |       | 70                          |       | 100                                  |       | May 2002              |       |
| Lakeside Mall                  |       | 100                         |       | 100                                  |       | May 2002              |       |
| North Star                     |       | 96                          |       | 100                                  |       | May 2002              |       |
| Oakbrook Center (1)            |       | 47                          |       | 47                                   |       | May 2002              |       |
| Perimeter Mall (2)             |       | 50                          |       | 100                                  |       | May 2002              |       |
| The Streets at South Point (3) |       | 94                          |       | 94                                   |       | May 2002              |       |
| Water Tower Place (1)          |       | 52                          |       | 52                                   |       | May 2002              |       |
| Willowbrook                    |       | 62                          |       | 100                                  |       | May 2002              |       |
| Ridgedale Center               |       | 90                          |       | 100                                  |       | November  2002        |       |
| Southland Center               |       | 90                          |       | 100                                  |       | November  2002        |       |
| Christiana Mall (4)            |       | 50                          |       | 50                                   |       | April 2003            |       |
| Staten Island                  |       | 56                          |       | 100                                  |       | August 2003           |       |
| Mizner Park (5)                |       | 50                          |       | 50                                   |       | December  2003        |       |
| Providence Place               |       | 100                         |       | 100                                  |       | March 2004            |       |
| Oxmoor Center                  |       | 100                         |       | 100                                  |       | November  2004        |       |

 

----

Notes:

(1)          Propertyalso contains significant office space.

 

(2)          Wesubsequently disposed of this acquired interest in October 2002 and own a 50%interest in the retail center.

 

(3)          Propertybegan operations in March 2002.

 

(4)          Weacquired a 100% interest in April 2003 and subsequently conveyed a 50% interestin this property in June 2003 

pursuant to the terms of a participating mortgage thatwe assumed in the acquisition.

 

(5)          Propertyalso contains significant office space in which we acquired a 50% interest inJanuary 2004.

 

II-6

----

 

**Dispositions**

 
| **Retail Centers**                                 | ** ** | **Disposition  Date** | ** **         | **Office  and Other Properties**        | ** ** | **Disposition  Date** |
|----------------------------------------------------|------------|-----------------------|--------------------|-----------------------------------------|------------|-----------------------|
| ** **                                         | ** ** | ** **            | ** **         |                                    | ** ** |                  |
| 12 Community Retail Centers in Columbia,  Maryland |       | April 2002            |               | Inglewood Business Center               |       | May 2003              |
|                                               |       |                  | (7 buildings) |                                    |       |
| Franklin  Park                                     |       | April 2002            |               | Hunt Valley Business Center             |       | June 2003             |
| Tampa Bay  Center                                  |       | December 2002         |               | (1 building)                       |       |                  |
| Cherry Hill  Mall                                  |       | April 2003            |               | Hughes  Center                          |       | See Note below        |
| Exton Square                                       |       | April 2003            |               | Most of our interest in Westin New York |       | April 2004            |
| The Gallery  at Market East                        |       | April 2003            |               | Hunt Valley Business Center             |       | October 2004          |
| Moorestown  Mall                                   |       | April 2003            |               | (2 buildings)                           |       |                  |
| Echelon Mall                                       |       | May 2003              |               |                                    |       |                  |
| Plymouth  Meeting                                  |       | May 2003              |               |                                    |       |                  |
| The  Jacksonville Landing                          |       | August 2003           |               |                                    |       |                  |
| Westdale  Mall                                     |       | March 2004            |               |                                    |       |                  |

 

----

Note:

We transferredtwo office properties and two leased restaurant pads in Hughes Center, amaster-planned business park in Las Vegas, Nevada, concurrent with our acquisitionof 52.5% economic interest in The Woodlands. We disposed of most of ourremaining assets in Hughes Center during 2004.

 

Disposition decisions and relatedtransactions and changes in expected holding periods or use may cause us torecognize gains or losses that could have material effects on reported netearnings in future quarters or fiscal years, and, taken together with the useof sales proceeds, may have a material effect on our overall consolidatedfinancial position.

 

**Development Projects**

 
| **Retail Centers**                                     | ** ** | **Date Opened** | ** ** | **Office and Other Properties**      | ** ** | **Date Opened** |
|--------------------------------------------------------|------------|-----------------|------------|--------------------------------------|------------|-----------------|
|                                                   |       |            |       |                                 |       |            |
| Village of Merrick Park  (1)                           |       | September  2002 |       | Summerlin  Town Center               |       | June  2003      |
| Fashion Show Redevelopment  - Phase I                  |       | November  2002  |       | (1  building)                        |       |            |
| Canyon  Pointe - Summerlin Community Retail Center (2) |       | August  2002    |       | Summerlin  Town Center  (1 building) |       | November  2003  |
| Fashion Show Redevelopment  - Phase II                 |       | October  2003   |       |                                 |       |

 

----

Notes:

(1)                         Wehave a 40% interest in this project in Coral Gables, Florida.  Project also has office and parkingoperations.

 

(2)                         Wesold our interest in this project in December 2002.

 

*Community Development*

 

Our primary business strategies relating tocommunity development are to expand and diversify this line of business and todevelop and sell land in our planned communities in a manner that increases thevalue of the remaining land to be developed and sold and to provide currentcash flows.  Our major land developmentprojects include communities in and around Columbia in Howard County, Maryland;Summerlin, Nevada; and Houston, Texas. In addition, at December 31, 2003, we held a partial interest in anunconsolidated real estate venture that is developing Fairwood, a plannedcommunity in Prince George’s County, Maryland. In January 2004, we acquired our partners’ interests and now own a 100%interest in this venture. We consolidated this venture from the date ofacquisition.  To leverage our experienceand provide further growth and diversification, we seek and evaluate opportunitiesto acquire new and/or existing community development projects.  In May 2003, we purchased approximately 8,060acres of land to be held for development and sale in the Houston, Texasmetropolitan area. We purchased additional parcels adjacent to this land duringthe remainder of 2003 and in 2004 and now own approximately 10,000 acres ofcontiguous land of which approximately 7,300 acres are saleable. In 2004, webegan significant development activities on this land that we refer to as theBridgelands, and plan to begin selling this land in 2005.  In December 2003, we acquired a 52.5%economic interest in The Woodlands, a master-planned community in the Houston,Texas metropolitan area, which included at acquisition, among other assets,approximately 5,500 acres of saleable land.

 

II-7

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We acquired Summerlin, our master-planned community in suburban LasVegas, Nevada, in the acquisition of The Hughes Corporation (“Hughes”) in1996.  In connection with the acquisitionof Hughes, we entered into a Contingent Stock Agreement (“Agreement”) for thebenefit of the former Hughes owners or their successors (“beneficiaries”).  Under terms of the Agreement, shares ofcommon stock are issuable to the beneficiaries based on the appraised values ofdefined asset groups, including Summerlin, at specified termination dates to2009 and/or cash flows from the development and/or sale of those assets priorto the termination dates. Subsequent to the Merger, shares of GGP common stockwill be used to satisfy distribution requirements. We account for thebeneficiaries’ share of earnings from the assets as an operating expense. Weaccount for any distributions to the beneficiaries as of the termination datesrelated to assets we own as of the termination date as additional investmentsin the related assets (that is, contingent consideration).

 

***Operating Results***

 

The following discussion and analysis ofoperating results covers each of our business segments, as management believesthat a segment analysis provides the most effective means of understanding ourbusiness.  It also provides informationabout other elements of the consolidated statement of operations that are notincluded in the segment results.  Youshould refer to the consolidated statements of operations and Note 9.

Comparisons of Net Operating Income (“NOI”) and net earnings from oneyear to another are affected significantly by the property acquisition,disposition and development activity summarized above. As discussed in moredetail below, other factors that have contributed to our operating results in2004, 2003 and 2002 include the following:

 

Merger-related matters

 

•                  recognition of significantmerger-related expenses in 2004;

•                  subsequent to the Merger, an increasein mortgage debt secured by our properties; and

•                  different plans and intentionsbetween the management of The Rouse Company and the management of GGP withrespect to certain operating properties, arbitration and litigation anddisputed matters resulting in loss reserves and other provisions.

 

Business operations

 

•                  maintenance of high occupancy levelsin retail properties;

•                  higher rents on re-leased space;

•                  strong demand for land in and aroundColumbia, Summerlin and Houston; and

•                  cost reduction measures.

 

Other

 

•                  refinancings of project-related debtat lower interest rates;

•                  redemption of The RouseCompany-obligated mandatorily redeemable securities;

•                  repayments of debt;

•                  costs related to organizationalchanges;

•                  pension and post-retirement planscurtailment and settlement gains (losses);

•                  establishment of an irrevocable trustfor supplemental pension plan obligations; and

•                  costs associated with tax-relatedmatters.

 

The operating measure used to assessoperating results for the business segments is NOI.  We define NOI as segment revenues lesssegment operating expenses (including provision for bad debts, losses (gains)on marketable securities classified as trading, our partners’ share of NOI ofthe venture developing The Woodlands, and net gains on sales of propertiesdeveloped for sale, but excluding income taxes, ground rent expense,distributions on The Rouse Company-obligated mandatorily redeemable preferredsecurities and other subsidiary preferred stock and real estate depreciationand amortization).  Additionally,discontinued operations, equity in earnings of unconsolidated real estateaffiliates and minority interests are adjusted to reflect NOI on the samebasis.  Prior to April 1, 2004, weexcluded certain expenses related to organizational changes and earlyretirement costs from our definition of NOI. Effective April 1, 2004, werevised our definition to include these amounts in our corporate segment,except for such amounts that were incurred as a result of the Merger. We madethese reclassifications because these expenses are neither infrequent norunusual and are becoming a normal cost of doing business.  Amounts for prior periods have beenreclassified and conform to the current definition.

 

II-8

----

 

The accounting policies of the segments are the same as those used toprepare our consolidated financial statements, except that:

 

•                  we consolidate the venture developingthe community of The Woodlands and reflect the other partner’s share of NOI asan operating expense rather than using the equity method;

•                  we account for other real estateventures in which we have joint interest and control and certain other minorityinterest ventures (“proportionate share ventures”) using the proportionateshare method rather than the equity method;

•                  we include our share of NOI lessinterest expense and ground rent expense of other unconsolidated minorityinterest ventures (“other ventures”) in revenues; and

•                  we include discontinued operationsand minority interests in NOI rather than presenting them separately.

 

These differences affect only the reportedrevenues and operating expenses of the segments and have no effect on ourreported net earnings.

Operating results for the segments aresummarized as follows (in millions):

 
| ** **         | ** ** | **Retail  Centers** | ** ** | **Office and  Other  Properties** | ** ** | **Community  Development** | ** ** | **Commercial  Development** | ** ** | **Corporate** | ** ** | **Total**  | ** ** |
|--------------------|------------|---------------------|------------|-----------------------------------|------------|----------------------------|------------|-----------------------------|------------|---------------|------------|------------|------------|
| **2004**           |       |                |       |                              |       |                       |       |                        |       |          |       |       |       |
| Revenues           |       | $                   | 889.7      |                              | $          | 239.2                      |       | $                           | 494.3      |          | $          | —     |       | $ | — |   | $ | 1,623.2 |   |
| Operating Expenses |       | 348.7               |       | 140.4                             |       | 324.4                      |       | 18.7                        |       | 27.2          |       | 859.4      |       |
| NOI                |       | $                   | 541.0      |                              | $          | 98.8                       |       | $                           | 169.9      |          | $          | (18.7      | )          | $ | (27.2 | ) | $ | 763.8 |   |
|               |       |                |       |                              |       |                       |       |                        |       |          |       |       |       |
| **2003**           | ** ** | ** **          | ** ** | ** **                        | ** ** | ** **                 | ** ** | ** **                  | ** ** | ** **    | ** ** | ** ** | ** ** |
| Revenues           |       | $                   | 843.2      |                              | $          | 201.0                      |       | $                           | 291.5      |          | $          | —     |       | $ | — |   | $ | 1,335.7 |   |
| Operating Expenses |       | 334.3               |       | 78.8                              |       | 167.6                      |       | 13.8                        |       | 27.0          |       | 621.5      |       |
| NOI                |       | $                   | 508.9      |                              | $          | 122.2                      |       | $                           | 123.9      |          | $          | (13.8      | )          | $ | (27.0 | ) | $ | 714.2 |   |
|               |       |                |       |                              |       |                       |       |                        |       |          |       |       |       |
| **2002**           | ** ** | ** **          | ** ** | ** **                        | ** ** | ** **                 | ** ** | ** **                  | ** ** | ** **    | ** ** | ** ** | ** ** |
| Revenues           |       | $                   | 775.5      |                              | $          | 205.2                      |       | $                           | 241.0      |          | $          | —     |       | $ | — |   | $ | 1,221.7 |   |
| Operating Expenses |       | 305.7               |       | 80.2                              |       | 154.8                      |       | 13.0                        |       | 29.9          |       | 583.6      |       |
| NOI                |       | $                   | 469.8      |                              | $          | 125.0                      |       | $                           | 86.2       |          | $          | (13.0      | )          | $ | (29.9 | ) | $ | 638.1 |   |

 

Segment operating expenses include provisionfor bad debts, losses (gains) on marketable securities classified as trading,our net gains on sales of properties developed for sale and partner’s share ofNOI of the venture developing The Woodlands, and exclude income taxes, groundrent expense, distributions on The Rouse Company-obligated mandatorilyredeemable preferred securities and other subsidiary preferred stock and realestate depreciation and amortization.

 

II-9

----

 

Reconciliations of total revenues andoperating expenses reported above to the related amounts in the consolidatedfinancial statements and of NOI reported above to earnings (loss) before netgains on dispositions of interests in operating properties and discontinuedoperations in the consolidated financial statements are summarized as follows(in millions):

 
| ** **                                                                                                                                                                                                           | ** ** | **2004** | ** ** | **2003** | ** ** | **2002** | ** ** |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|----------|------------|----------|------------|----------|------------|
| Revenues:                                                                                                                                                                                                            |       |     |       |     |       |     |       |
| Total reported above                                                                                                                                                                                                 |       | $        | 1,623.2    |     | $          | 1,335.7  |       | $ | 1,221.7 |   |
| Our share of revenues of proportionate  share and other ventures and revenues of The Woodlands community development  venture                                                                                        |       | (349.0   | )          | (151.2   | )          | (117.1   | )          |
| Revenues of discontinued operations                                                                                                                                                                                  |       | (4.0     | )          | (88.5    | )          | (165.7   | )          |
| Other                                                                                                                                                                                                                |       | —   |       | 0.2      |       | 1.2      |       |
| Total in consolidated financial statements                                                                                                                                                                           |       | $        | 1,270.2    |     | $          | 1,096.2  |       | $ | 940.1 |   |
|                                                                                                                                                                                                                 |       |     |       |     |       |     |       |
| Operating expenses, exclusive of provision  for bad debts, depreciation and amortization:                                                                                                                            |       |     |       |     |       |     |       |
| Total reported above                                                                                                                                                                                                 |       | $        | 859.4      |     | $          | 621.5    |       | $ | 583.6 |   |
| Our share of operating expenses of proportionate  share ventures and operating expenses of The Woodlands community development venture  and partner's share of its NOI                                               |       | (241.0   | )          | (50.9    | )          | (36.9    | )          |
| Operating expenses of discontinued  operations                                                                                                                                                                       |       | (1.5     | )          | (39.4    | )          | (72.5    | )          |
| Other                                                                                                                                                                                                                |       | (1.4     | )          | 14.2     |       | 16.6     |       |
| Total in consolidated financial statements                                                                                                                                                                           |       | $        | 615.5      |     | $          | 545.4    |       | $ | 490.8 |   |
|                                                                                                                                                                                                                 |       |     |       |     |       |     |       |
| Operating results:                                                                                                                                                                                                   |       |     |       |     |       |     |       |
| NOI reported above                                                                                                                                                                                                   |       | $        | 763.8      |     | $          | 714.2    |       | $ | 638.1 |   |
| Interest expense                                                                                                                                                                                                     |       | (245.7   | )          | (221.6   | )          | (209.1   | )          |
| NOI of discontinued operations                                                                                                                                                                                       |       | (2.5     | )          | (49.1    | )          | (93.2    | )          |
| Depreciation and amortization                                                                                                                                                                                        |       | (193.4   | )          | (171.2   | )          | (129.3   | )          |
| Other provisions and losses, net                                                                                                                                                                                     |       | (460.5   | )          | (24.5    | )          | (24.1    | )          |
| Impairment losses on operating properties                                                                                                                                                                            |       | (69.5    | )          | —   |       | —   |       |
| Income taxes, primarily deferred                                                                                                                                                                                     |       | (39.5    | )          | (42.6    | )          | (29.2    | )          |
| Our share of interest expense, ground rent  expense, depreciation and amortization, other provisions and losses, net,  income taxes and gains on operating properties of unconsolidated real estate  affiliates, net |       | (81.5    | )          | (68.9    | )          | (46.9    | )          |
| Other                                                                                                                                                                                                                |       | (5.5     | )          | (15.9    | )          | (20.1    | )          |
| Earnings (loss) before net gains on  dispositions of interests in operating properties and discontinued operations  in consolidated financial statements                                                             |       | $        | (334.3     | )        | $          | 120.4    |       | $ | 86.2 |   |

 

The reasons for significant changes inrevenues and expenses comprising NOI are discussed in the following BusinessSegment Information section.

 

II-10

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**Business Segment Information**

 

Operating Properties:  We report the results of our operatingproperties in two segments:  (1) retailcenters and (2) office and other properties. Our tenant leases provide the foundation for the performance of ouroperating properties.  In addition tominimum rents, the majority of retail and office tenant leases provide forother rents which reimburse us for certain operating expenses.  Substantially all of our retail leases alsoprovide for additional rent (percentage rent) based on tenant sales in excessof stated levels.  As leases expire,space is re-leased, minimum rents are adjusted to market rates, expensereimbursement provisions are updated and new percentage rent levels areestablished for retail leases.  Expensereimbursement provisions in our retail leases have historically required tenantsto pay their variable shares of a property’s operating costs.  We have begun revising the expensereimbursement provisions so that tenants continue to pay their shares of aproperty’s real estate tax and utility expenses while paying stated reimbursementrates for all other operating expenses.

Some portions of our discussion and analysis focus on “comparable”properties.  Comparable propertiesexclude those that have been acquired or disposed of, newly developed orundergone significant expansion in either of the two years being compared and excludeSouth Street Seaport.  South StreetSeaport is a retail center in lower Manhattan that we own and operate. We donot consider South Street Seaport as a comparable property because, with itsclose proximity to the World Trade Center site, it continues to besignificantly affected by lower pedestrian and other traffic and othercommercial activity in the area as a result of the September 11, 2001 terroristattacks. Subsequent to the Merger, management changed its plans and intentionsas to the manner in which this property would be operated in the future andrevised estimates of the most likely holding period. As a result, we evaluatedthe recoverability of the carrying amount of the property, determined that thecarrying amount was not recoverable from its estimated future cash flows andrecognized an impairment loss of $66.6 million.

 

***Retail Centers:***

 

Operating results of retail centers aresummarized as follows (in millions):

 
| ** **         | ** ** | **2004** | ** ** | **2003** | ** ** | **2002** | ** ** |
|--------------------|------------|----------|------------|----------|------------|----------|------------|
|               |       |     |       |     |       |     |       |
| Revenues           |       | $        | 889.7      |     | $          | 843.2    |       | $ | 775.5 |   |
| Operating Expenses |       | 348.7    |       | 334.3    |       | 305.7    |       |
| NOI                |       | $        | 541.0      |     | $          | 508.9    |       | $ | 469.8 |   |

 

The $46.5 million increase in segment revenues in 2004 relative to 2003was attributable primarily to:

 

•                  the acquisitions of interests inproperties in 2004 and 2003 ($76.0 million);

•                  the opening of the second phase ofthe Fashion Show expansion and additional components of the Village of MerrickPark in 2003 ($16.3 million); and

•                  higher rents on re-leased space atcomparable properties.

 

These increases were partially offset by the effects of thedispositions of interests in properties in 2004 and 2003 ($50.8 million) andlower lease termination income at comparable properties ($3.7 million). Ourcomparable properties had average occupancy levels of approximately 93.0% in 2004and 93.5% in 2003.

 

The $67.7 million increase in segment revenues in 2003 relative to 2002was attributable primarily to:

 

•                  the acquisitions of interests inproperties in 2003 and 2002 ($111.9 million);

•                  the openings of Village of MerrickPark in 2002 and the first and second phases of the Fashion Show expansion in2003 and 2002 ($22.7 million); and

•                  higher rents on re-leased space atcomparable retail centers.

 

These increases were partially offset by the effects of thedispositions of interests in properties in 2003 and 2002 ($75.2 million) andlower management contract termination income as 2002 included a payment ($4.8million) that did not recur in 2003.

 

The $14.4 million increase in segment operating expenses in 2004 relativeto 2003 was attributable primarily to:

 

•                  the acquisitions of interests inproperties in 2004 and 2003 ($33.2 million); and

•                  the opening of the second half of theFashion Show expansion and additional components of the Village of Merrick Parkin 2003 ($ 6.8 million).

 

These increases were partially offset by the effects of thedispositions of interests in properties in 2004 and 2003 ($24.8 million).

 

II-11

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The $28.6 million increase in segment operating expenses in 2003 relativeto 2002 was attributable primarily to:

 

•                  the acquisitions of interests inproperties in 2003 and 2002 ($42.0 million) and

•                  the openings of Village of MerrickPark in 2002 and the first and second phases of the Fashion Show expansion in2003 and 2002 ($13.1 million).

 

These increases were partially offset by the effects of thedispositions of interests in properties in 2003 and 2002 ($30.4 million) andlower bad debt expenses at comparable retail centers ($1.5 million).

 

In summary, the $32.1 million increase in NOI in 2004 relative to 2003 wasattributable primarily to:

 

•                  interests in properties acquired($42.8 million); and

•                  the opening of the second phase ofFashion Show and components of the Village of Merrick Park ($9.5 million).

 

These increases in NOI were partially offset by the effects ofdispositions of interests in properties ($26.0 million).

 

In summary, the $39.1 million increase in NOI in 2003 relative to 2002 wasattributable primarily to:

 

•                  interests in properties acquired($69.9 million);

•                  the openings of Village of MerrickPark and the first and second phases of the Fashion Show expansion ($9.6million); and

•                  an increase in NOI at comparableproperties ($11.4 million) due primarily to higher rents on re-leased space.

 

These increases in NOI were partially offsetby the effects of dispositions of interests in properties ($44.8 million) andmanagement contract termination income in 2002 ($4.8 million) that did notrecur in 2003.

We anticipate continued growth in NOI fromretail centers in 2005, as we expect to benefit from the Merger with GGP, the2004 acquisitions of interests in Providence Place and Oxmoor Center and the expectedopening of LaCantera.  Additionally, weexpect to maintain high occupancy levels in our comparable retail propertiesand to achieve higher rents on re-leased space. We expect that these increases will be partially offset by the NOI ofWestdale Mall, which we disposed of in 2004.

 

***Office and Other Properties:***

 

Operating results of office and otherproperties are summarized as follows (in millions):

 
| ** **         | ** ** | **2004** | ** ** | **2003** | ** ** | **2002** | ** ** |
|--------------------|------------|----------|------------|----------|------------|----------|------------|
|               |       |     |       |     |       |     |       |
| Revenues           |       | $        | 239.2      |     | $          | 201.0    |       | $ | 205.2 |   |
| Operating Expenses |       | 140.4    |       | 78.8     |       | 80.2     |       |
| NOI                |       | $        | 98.8       |     | $          | 122.2    |       | $ | 125.0 |   |

 

Segment revenues increased $38.2 million in2004 and decreased $4.2 million in 2003. The increase in 2004 was attributableto the acquisitions of the Woodlands Entities in 2004 ($76.5 million),partially offset by the 2003 and 2004 dispositions ($37.2 million) and loweraverage occupancy levels at comparable properties (85.0% in 2004 and 87.4% in2003). The decrease in 2003 was attributable primarily to the sale of eightoffice and industrial buildings in the Baltimore-Washington corridor and loweraverage occupancy levels at comparable properties.  These decreases more than offset the effectsof the interests in properties acquired from Rodamco in 2002.

Segment operating expenses increased $61.6million in 2004 and decreased $1.4 million in 2003. The increase in 2004 wasattributable to the acquisitions of the Woodlands Entities in 2004 ($74.3million); partially offset by the 2003 and 2004 dispositions ($12.9 million).The decrease in 2003 was attributable primarily to the disposition of theoffice and industrial buildings described above and lower operating expenses atcomparable office properties.

Difficult general economic conditions andweakening office demand led to higher vacancy rates in our officeportfolio.  We expect NOI from our officeand other properties segment to decline in 2005 despite the 2004 acquisition, primarilydue to the disposal of properties in 2003 and 2004.

 

II-12

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***Community Development:***

 

Community development operations relate tothe communities of Summerlin, Nevada; Columbia, Emerson and Stone Lake inHoward County, Maryland; Fairwood in Prince George’s County, Maryland; and TheWoodlands in Houston, Texas.  We havealso acquired developable land in the Houston, Texas metropolitan area (whichwe refer to as “Bridgelands”), began significant development activities on thisland in 2004 and plan to begin selling this land in 2005.  We refer to the Maryland properties as ourColumbia-based operations.

Revenues and operating income from land salesare affected by such factors as the availability to purchasers of constructionand permanent mortgage financing at acceptable interest rates, consumer andbusiness confidence, regional economic conditions in the Baltimore, Las Vegasand Houston metropolitan areas, levels of homebuilder inventory, availabilityof saleable land for particular uses and our decisions to sell, develop orretain land.  We believe that land salesin each of the years benefited from low interest rates and availability ofmortgage financing, and in 2003 and 2004, growing consumer confidence.  Should interest rates increase significantlyor consumer confidence decline, land sales may be adversely affected.  Revenues for community development includeland sales to developers and participations with builders in their sales offinished homes to homebuyers.

Operating results of community developmentare summarized as follows (in millions):

 
| ** **                                    | ** ** | **2004** | ** ** | **2003** | ** ** | **2002** | ** ** |
|-----------------------------------------------|------------|----------|------------|----------|------------|----------|------------|
|                                          |       |     |       |     |       |     |       |
| Nevada-based Operations:                      |       |     |       |     |       |     |       |
| Revenues:                                     |       |     |       |     |       |     |       |
| Summerlin                                     |       | $        | 218.5      |     | $          | 220.6    |       | $ | 129.7 |   |
| Other                                         |       | 36.3     |       | 0.9      |       | 46.2     |       |
| Operating costs and expenses:                 |       |     |       |     |       |     |       |
| Summerlin                                     |       | 133.9    |       | 141.0    |       | 93.1     |       |
| Other                                         |       | 30.4     |       | 3.8      |       | 37.4     |       |
| NOI                                           |       | $        | 90.5       |     | $          | 76.7     |       | $ | 45.4 |   |
| Columbia-based Operations:                    |       |     |       |     |       |     |       |
| Revenues                                      |       | $        | 109.0      |     | $          | 70.0     |       | $ | 65.1 |   |
| Operating costs and expenses                  |       | 43.2     |       | 22.8     |       | 24.3     |       |
| NOI                                           |       | $        | 65.8       |     | $          | 47.2     |       | $ | 40.8 |   |
| Houston-based Operations:                     |       |     |       |     |       |     |       |
| Revenues                                      |       | $        | 130.5      |     | $          | —   |       | $ | — |   |
| Operating costs and expenses                  |       | 116.9    |       | —   |       | —   |       |
| NOI                                           |       | $        | 13.6       |     | $          | —   |       | $ | — |   |
| Total:                                        |       |     |       |     |       |     |       |
| Revenues                                      |       | $        | 494.3      |     | $          | 291.5    |       | $ | 241.0 |   |
| Operating costs and expenses                  |       | 324.4    |       | 167.6    |       | 154.8    |       |
| NOI                                           |       | $        | 169.9      |     | $          | 123.9    |       | $ | 86.2 |   |
| Operating Margins (NOI divided by  Revenues): |       |     |       |     |       |     |       |
| Summerlin                                     |       | 38.7     | %          | 36.1     | %          | 28.2     | %          |
| Columbia                                      |       | 60.4     |       | 67.4     |       | 62.7     |       |

 

Revenues from Summerlin operations decreased$2.1 million and NOI increased $5.0 million in 2004. The decrease in revenuesis primarily due to fewer acres sold; partially offset by higher pricing andparticipation in homebuilders’ sales of finished homes. The higherparticipation income and improved margins on land sales resulted in theincrease in NOI. In 2003, revenues increased $90.9 million and NOI increased$43.0 million.  These increases wereattributable to higher prices on land sold for residential and commercialpurposes.  The increase in operatingmargins in 2004 and 2003 was due primarily to the effects of higher pricingresulting from increased demand and the limited availability of land forsimilar uses in the area. Our revenues and NOI from other Nevada-basedoperations increased $35.4 million and $8.8 million, respectively, in2004. These changes were attributable primarily to the sale of substantiallyall remaining investment land at Hughes Center in Las Vegas and in California.In 2003, our revenues and NOI from other Nevada operations decreased$45.3 million and $11.7 million, respectively.  Our revenues and NOI relating to other Nevadaoperations land holdings in 2002 were attributable to sales of investment landand the recognition of deferred revenue upon the collection of a subordinatednote receivable from a 1997 sale of land in California.  There were no significant sales of investmentland in 2003.

 

II-13

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Revenues and NOI from Columbia-basedoperations increased $39.0 million and $18.6 million, respectively, in 2004.The increases were attributable primarily to higher land sales for commercialuses and the land sales occurring in Fairwood. We acquired our partners’interest in Fairwood in January 2004 and, as a result, we allocated our purchaseprice to the assets of this project based on their fair values. As a result ofthis recent acquisition, subsequent sales in Fairwood have lower averageoperating margins than those in other Columbia-based communities. Revenues andNOI from Columbia operations increased $4.9 million and $6.4 million,respectively, in 2003.  These increaseswere attributable to increased residential land sales in our Howard Countycommunities and a $4.3 million increase in our share of earnings atFairwood.  These increases were partiallyoffset by lower levels of sales for commercial uses.

Revenues and NOI from Houston-basedoperations relate to community development activities in The Woodlands, inwhich we acquired an interest on December 31, 2003. Most of the land sold inThe Woodlands was completely developed at the date we acquired our interest. Aswe allocated our purchase price to the assets of The Woodlands based on theirfair values, we recognized little profit on this land. We expect margins toimprove as land values appreciate and as additional land is developed and sold.

We expect to benefit from land sales beginning in the Bridgelandscommunity in 2005. Additionally, we expect that land sales of our Nevada-basedand Columbia-based operations and at The Woodlands will remain strong in 2005.

 

***Commercial Development:***

 

Commercial development expenses were $18.7million in 2004, $13.8 million in 2003 and $13.0 million in 2002.  These costs consist primarily ofpreconstruction expenses and new business costs, net of gains on sales ofproperties we developed for sale.

Preconstruction expenses relate to retail andoffice and other property development opportunities which may not go forward tocompletion.  Preconstruction expenseswere $8.6 million in 2004, $2.6 million in 2003 and $7.0 million in 2002.  The higher level of expenses in 2004 and 2002was primarily attributable to costs for retail project opportunities which wedecided not to pursue.

New business costs relate primarily to theevaluation of potential acquisition opportunities and compensation and otheremployee-related costs incurred in the closings of acquisitions, feasibilitystudies of development opportunities and disposition activities.  These costs were $10.1 million in 2004, $11.2million in 2003 and $10.3 million in 2002.

In 2002, we recognized a gain of $4.3 million (excluding relateddeferred income taxes) on the sale of a community retail center in Summerlinthat we developed with the intent of selling.

 

***Corporate:***

 

Corporate operating expenses were $27.2million in 2004, $27.0 million in 2003 and $29.9 million in 2002.  Corporate operating expenses consist of costsassociated with Company-wide activities, which include shareholder relationsand Board of Directors costs (prior to the Merger), financial management,strategic planning, charges for organizational changes, and equity in operatingresults of miscellaneous corporate investments.

 

II-14

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**Other Operating Information**

 

***Continuing operations***

 

***Interest:***  Interest expense increased $24.1 million and$12.6 million in 2004 and 2003, respectively. The increases were attributable primarily to interest costs on debtissued and debt assumed related to acquisitions.

 

***Depreciationand amortization:***  Depreciation and amortization expenseincreased $22.2 million and $41.9 million in 2004 and 2003, respectively. Theincreases were primarily attributable to property acquisitions and to theopening of the Fashion Show expansion.

 

***Otherprovisions and losses (gains), net:***  The other provisions and losses (gains), netare summarized as follows (in millions):

 
| ** **                                                | ** ** | **2004** | ** ** | **2003** | ** ** | **2002** | ** ** |
|-----------------------------------------------------------|------------|----------|------------|----------|------------|----------|------------|
|                                                      |       |     |       |     |       |     |       |
| Costs of Merger with GGP                                  |       | $        | 336.3      |     | $          | —   |       | $ | — |   |
| Arbitration and litigation loss reserves                  |       | 33.5     |       | —   |       | —   |       |
| Interest on extraordinary dividends                       |       | 23.2     |       | —   |       | —   |       |
| Interest and penalties for other  tax-related matters     |       | 22.4     |       | —   |       | —   |       |
| Pension and post-retirement plan  curtailment loss (gain) |       | (2.9     | )          | 10.2     |       | —   |       |
| Pension plan settlement loss                              |       | 34.9     |       | 10.8     |       | 8.3      |       |
| Losses on early extinguishment of debt                    |       | 8.0      |       | 7.2      |       | 2.3      |       |
| Impairment provision on other assets                      |       | 5.1      |       | —   |       | 11.6     |       |
| Gain on foreign exchange derivatives                      |       | —   |       | —   |       | (1.1     | )          |
| Net other                                                 |       | —   |       | (3.7     | )          | 3.0      |       |
|                                                      |       | $        | 460.5      |     | $          | 24.5     |       | $ | 24.1 |   |
|                                                           |            |          |            |          |            |          |            |  |  |  |  |  |

 

As a result of the Merger, we recognizedsignificant merger related costs. Approximately $283.8 million of the costs are attributable to additionalcompensation expense recognized due to the vesting of stock options andrestricted stock, change in control agreements for certain of our topexecutives, severance costs relating to a plan to involuntarily terminatecertain of our employees, and related payroll tax expenses.  We incurred approximately $32.5 million inprofessional service fees and other costs in connection with the Mergertransaction and $20 million for a contribution to The Rouse Company Foundation,a charitable organization that is neither owned nor controlled by us, that wasrequired under the Merger agreement.

We are involved in various arbitration andlitigation matters with third parties, some of which arose in the fourthquarter of 2004. Subsequent to the Merger, management evaluated these matters,and in certain cases, as a result of changing circumstances and different plansand intentions with respect to defending and resolving the matters, revised itsestimate of possible losses. We estimate that losses in these matters couldrange between $10 million and $64 million. However, we believe losses of $33.5 million are the best estimate withinthat range and, accordingly, have recognized expenses for that amount in thefourth quarter of 2004. We expect that the matters will be resolved prior toDecember 31, 2005.

We had a qualified defined benefit pensionplan (“funded plan”) that covered substantially all employees, and nonqualifiedunfunded defined benefit pension plans that primarily covered participants inthe funded plan whose defined benefits exceed the plan’s limits (“supplementalplan”).  In April 2003, we modified ourfunded plan and our supplemental plan so that covered employees would not earnadditional benefits for future services. The curtailment of the funded and supplemental plans required us toimmediately recognize substantially all unamortized prior service cost andunrecognized transition obligation and resulted in a curtailment loss of $10.2million in 2003.  In February 2004, weadopted a proposal to terminate our qualified and supplemental plans. OnOctober 4, 2004, we began distributing the plan’s assets to its beneficiaries.Concurrent with the first distributions from the qualified plan, we terminatedour supplemental plan by merger into our nonqualified supplemental definedcontribution plan. As of December 31, 2004 the distributions were completed. Weincurred settlement losses of $34.9 million, $10.8 million and $8.3 million in2004, 2003 and 2002, respectively, related to lump-sum distributions madeprimarily as a result of the plan termination in 2004 and retirements as aresult of organizational changes and early retirement programs offered in 2003and 2002.  The lump-sum distributionswere paid to participants primarily from assets of our funded plan, or withrespect to the supplemental plan, from contributions made by us.

We also have a retiree benefits plan that hashistorically paid postretirement medical and life insurance benefits tofull-time employees who met minimum age and service requirements.  We pay a portion of the cost of participants’life insurance coverage and make contributions to the cost of participants’medical coverage based on years of service, subject to a maximum annualcontribution. Effective December 31, 2004 modifications were made to the planso that employees’ retiring on or after January 1, 2005 would no longer beeligible for this benefit. The curtailment of this plan required us toimmediately recognize substantially all unamortized prior service credit andunrecognized transition obligation, resulting in a curtailment gain ofapproximately $3 million.

 

II-15

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One of the conditions for closing the Mergerwas that we deliver to GGP an opinion of tax counsel acceptable to GGP withrespect to our qualification as a REIT. In preparing for the Merger, we discovered that we may have had non-REITearnings and profits that we did not distribute to our shareholders.  These earnings and profits include non-REITearnings and profits we would have succeeded to in 2001 if a tax election wemade in 2001 with respect to one of our subsidiaries was determined to beinvalid. Such earnings and profits also included earnings and profits whichmight be attributed to certain intercompany transactions. Based on advice fromour outside legal counsel who assisted us with REIT tax matters and ourinternal analysis, we believed that paying additional distributions to ourshareholders (which we refer to as extraordinary dividends) and making paymentsof additional tax, interest and penalties were the most expedient courses ofaction to take.  On November 9, 2004, weentered into an agreement with the Internal Revenue Service (“IRS”) to settlethese matters and treat the payment of extraordinary dividends as satisfyingour distribution requirements.  Theamount of the extraordinary dividend paid was approximately $238 million($2.29474 per share).  Additionally, we paidapproximately $23.2 million of interest and a penalty of approximately $22.4million to the IRS under the terms of the closing agreement with the IRS.

We recognized net losses, primarilyprepayment penalties and unamortized issuance costs, of $8.0 million, $7.2million and $2.3 million in 2004, 2003 and 2002, respectively, related todebt not associated with discontinued operations prior to scheduled maturities.

Prior to the Merger, we were developing asoftware program to assist us in managing tenant lease activities. Upon theMerger, management of GGP reevaluated the program and decided to discontinueits development. We therefore recorded an impairment provision for the coststhat had been incurred and recognized a loss of $5.1 million.

MerchantWired was an unconsolidated jointventure with certain other real estate companies to provide broadbandtelecommunication services to tenants. In the second quarter of 2002, we and such other real estate companiesdecided to discontinue the operations of MerchantWired.  Accordingly, we recorded an impairmentprovision for the entire amount of our net investment in the venture.

A portion of the purchase price for theacquisition of assets from Rodamco was payable in euros.  In January 2002, we acquired options topurchase 601 million euros at a weighted average per euro price of$0.8819.  These transactions wereexecuted to reduce our exposure to movements in currency exchange rates betweenthe date of the purchase agreement and the closing date.  The contracts were scheduled to expire in May2002 and had an aggregate cost of $11.3 million.  In April 2002, we sold the contracts for netproceeds of $10.2 million and recognized a loss of $1.1 million.  We also executed and subsequently sold a euroforward contract and realized a gain of $2.2 million.  As of December 31, 2004, we owned no foreigncurrency or financial instruments that exposed us to risk of movements incurrency exchange rates.

In 2003, we earned a fee of $4.0 million onthe facilitation of a real estate transaction between two parties that wereunrelated to us.

In 2002, we agreed to pay $3.0 million of costs incurred by an entitythat sold us a portfolio of office and industrial buildings in 1998 to resolvecertain tax-related matters arising from the transaction.

 

***Impairmentlosses on operating properties reported in continuing operations:***  We recognized an impairment loss of $66.6million on South Street Seaport, a downtown specialty marketplace in New York,New York.  We also recognized impairmentlosses aggregating $2.9 million on two office properties in Hunt Valley,Maryland.  Subsequent to the Merger,management evaluated these properties and changed its plans and intentions asto the manner in which these properties would be operated in the future andrevised estimates of the most likely holding periods.  As a result, we evaluated the recoverabilityof the carrying amounts of the properties, determined that the carrying amountswere not recoverable from the future cash flows and, in the fourth quarter of2004, recognized the impairment losses to write down the assets to theirestimated fair values.

 

***Net gains ondispositions of interests in operating properties:***  Net gains on dispositions of interests inoperating properties included in earnings (loss) from continuing operations aresummarized as follows (in millions):

 
| ** **                  | ** ** | **2004** | ** ** | **2003** | ** ** | **2002** | ** ** |
|-----------------------------|------------|----------|------------|----------|------------|----------|------------|
|                        |       |     |       |     |       |     |       |
| Regional retail centers     |       | $        | —     |     | $          | 21.6     |       | $ | 42.6 |   |
| Community retail centers    |       | —   |       | —   |       | 4.3      |       |
| Office and other properties |       | 14.1     |       | —   |       | —   |       |
| Other                       |       | —   |       | 5.0      |       | 2.0      |       |
|                        |       | $        | 14.1       |     | $          | 26.6     |       | $ | 48.9 |   |

 

In 2000, we contributed our ownershipinterests in 37 buildings in two industrial parks to a joint venture inexchange for cash and a minority interest in the venture. We also guaranteed$44.0 million of indebtedness of the venture and, because of the nature of ourcontinuing involvement in the venture, deferred a portion of the gains from thetransaction. In June 2004, we redeemed our interest in the venture andterminated our guarantee of its indebtedness. Accordingly, we recognized thepreviously deferred gain of $12.7 million (net of deferred income taxes ofapproximately $1.7 million).

In April 2004, we sold most of our interestin Westin New York, a hotel in New York City, for net proceeds of $15.8 millionand recognized a gain of $1.4 million (net of deferred income taxes of $0.8million).

 

II-16

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In 2003, in a transaction related to the saleof retail centers in the Philadelphia metropolitan area, we acquired ChristianaMall from a party related to the purchaser of these retail centers and assumeda participating mortgage secured by Christiana Mall.  The participating mortgage had a fair valueof $160.9 million.  The holder of thismortgage had the right to receive $120 million in cash, participation in cashflows and the right to convert this participation feature into a 50% equityinterest in Christiana Mall.  The holderexercised this right in June 2003.  Werecorded a portion of the cost of Christiana Mall based on the historical costof the properties we exchanged to acquire this property because a portion ofthe transaction was considered nonmonetary under EITF Issue 01-2, “Interpretationsof APB Opinion No. 29.”  As a result,when we subsequently disposed of the 50% interest in the property to the holderof the mortgage, we recognized a gain of $21.6 million.

Also in 2003, we sold our share ofinvestments in Kravco Investments, L.P. for approximately $52 million.  We recorded a gain on this transaction of approximately$4.6 million, net of taxes of approximately $3.0 million.

In April 2002, we sold our interests in 12 community retail centers.Our interests in one of the community retail centers were reported inunconsolidated real estate affiliates and the gain on the sale of our interestsin this property ($4.3 million, net of deferred income taxes of $2.0 million)is included in continuing operations. The remaining gain on this transaction is classified as a component ofdiscontinued operations. In April 2002, we sold our interest in Franklin Park,a regional retail center in Toledo, Ohio, for $20.5 million and the buyerassumed our share of the center’s debt ($44.7 million).  Our interest in this property was reported inunconsolidated real estate affiliates and, accordingly, the gain of $42.6million that we recorded on this transaction is included in continuingoperations.

 

***Income taxes:***  Effective with the Merger, we became adisregarded entity for Federal income tax purposes and for tax purposes in moststates in which we operate. However, we continue to own and operate severaltaxable REIT subsidiaries (“TRS”) that are recognized for Federal and stateincome tax purposes.

Prior to the Merger, we had elected to betaxed as a real estate investment trust (“REIT”) pursuant to the InternalRevenue Code of 1986, as amended, effective January 1, 1998.  In general, a corporation that distributes atleast 90% of its REIT taxable income to shareholders in any taxable year andcomplies with certain other requirements (relating primarily to the nature ofits assets and the sources of its revenues) is not subject to Federal incometaxation to the extent of the income which it distributes.  We believe that we met the qualifications forREIT status as of the Merger date.

We and certain wholly-owned subsidiaries madea joint election to treat the subsidiaries as TRS, which allows us to engage incertain non-qualifying REIT activities. With respect to the TRS, we are liablefor income taxes at the Federal and state levels.  Except with respect to the TRS, we do notbelieve that we will be liable for significant income taxes at the Federallevel or in most of the states in which we operate in 2005 and future years.

Our current and deferred income taxprovisions relate primarily to the earnings of the TRS.  The income tax provisions from continuingoperations (excluding taxes related to gains on sales of operating properties)were $39.5 million, $42.6 million and $29.2 million in 2004, 2003 and2002, respectively.

Our net deferred tax assets and liabilitieswere $76.6 million and $94.5 million, respectively, at December 31, 2004 and$91.0 million and $86.4 million, respectively, at December 31, 2003.  We obtained an income tax benefit related tonon-qualified stock options exercised by employees. The amount that employeeshad to pay to acquire stock was equal to the quoted market price of the stockat the grant date. Under the intrinsic value-based method of accounting, we didnot recognize compensation expense with respect to the granting of theseoptions, but we did recognize a deferred tax asset and an increase inadditional paid-in capital of $14.9 million when the options were exercised.

In September 2003, we acquired a controllingfinancial interest in an entity (in which we previously held a minorityinterest acquired from Rodamco) whose assets include, among other things,approximately $400 million of temporary differences (primarily interestdeduction carryforwards).  We believe thatit is more likely than not that we will realize these assets and, accordingly,recorded a deferred tax asset of approximately $140 million.  We also recorded a deferred credit ofapproximately $122 million in accordance with EITF Issue 98-11, “Accounting forAcquired Temporary Differences in Certain Purchase Transactions That Are NotAccounted for as Business Combinations.” This deferred credit will reduce income tax expense when the deferredtax asset is realized.  Deferred taxliabilities will become payable as TRS net operating loss carryforwards areexhausted and temporary differences reverse (primarily due to completion ofland development projects).

We had previously recorded valuation allowances related to certaindeferred tax assets that we could not conclude were more likely than not to berealized.  A significant portion of theseassets related to temporary differences, primarily net operating losscarryforwards, attributed to a TRS that is an investor in the planned communityof Fairwood.  Land sales at Fairwoodbegan in the fourth quarter of 2001. Based on our experience through the third quarter of 2003 and ourprojections to completion of the project, we determined that it is more likelythan not that we will realize substantially all of these deferred taxassets.  Accordingly, in the thirdquarter of 2003, we eliminated $8.1 million of the valuation allowance relatedto these deferred tax assets.  Reversalsof other valuation allowances of $3.4 million in 2003 and $1.8 million in 2002related to certain tax credit carryforwards that we were previously unable toconclude were more likely than not to be realized.

 

II-17

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***Equity inearnings of unconsolidated real estate affiliates:***  Equity in earnings of unconsolidated realestate affiliates is summarized as follows (in millions):

 
| ** **                                                   | ** ** | **2004** | ** ** | **2003** | ** ** | **2002** | ** ** |
|--------------------------------------------------------------|------------|----------|------------|----------|------------|----------|------------|
|                                                         |       |     |       |     |       |     |       |
| Net operating income                                         |       | $        | 108.0      |     | $          | 100.3    |       | $ | 80.2 |   |
| Ground rent expense                                          |       | (2.5     | )          | (1.6     | )          | (1.3     | )          |
| Interest expense                                             |       | (39.3    | )          | (33.9    | )          | (25.9    | )          |
| Depreciation and amortization                                |       | (39.8    | )          | (33.2    | )          | (19.2    | )          |
| Losses on extinguishment of debt, net                        |       | —   |       | (0.2     | )          | (0.5     | )          |
| Equity in earnings of unconsolidated real  estate affiliates |       | $        | 26.4       |     | $          | 31.4     |       | $ | 33.3 |   |
|                                                              |            |          |            |          |            |          |            |  |  |  |  |  |  |

 

For segment reporting purposes, our share of the NOI of unconsolidatedreal estate affiliates is included in the operating results of retail centers,office and other properties, community development and commercial developmentas discussed above in this Management’s Discussion and Analysis.  The increases in NOI and depreciation andamortization expense in 2004 and 2003 were primarily attributable toacquisitions. On December 31, 2003, we acquired a 52.5% interest in theWoodlands Entities which owns a master-planned community in the Houston, Texasmetropolitan area and interests in office properties and other assets. InDecember 2003 and January 2004, we acquired interests in Mizner Park. In May2002, we acquired assets from Rodamco. In connection with this transaction, weacquired interests in several properties and other investments that are accountedfor as unconsolidated real estate affiliates (Oakbrook Center, Water TowerPlace, River Ridge, Kravco Investments, L.P. and Westin Hotel).  We also acquired from Rodamco the remaininginterests in properties (Collin Creek, North Star, Perimeter Mall andWillowbrook) in which we previously had a noncontrolling interest and accountedfor as unconsolidated real estate affiliates. Also, we disposed of a 50% interest in Franklin Park in April 2002,opened the Village of Merrick Park in September 2002, admitted a 50% jointventure partner in Perimeter Mall in October 2002, acquired the controllingfinancial interests in Ridgedale Center and Southland Center in November 2002and, in the second quarter of 2003, completed transactions that resulted in ourownership of a 50% interest in Christiana Mall.

 

***Discontinued operations:***The operating results ofproperties included in discontinued operations are summarized as follows (inmillions):

 
| ** **                                                       | ** ** | **2004** | ** ** | **2003** | ** ** | **2002** | ** ** |
|------------------------------------------------------------------|------------|----------|------------|----------|------------|----------|------------|
|                                                             |       |     |       |     |       |     |       |
| Revenues                                                         |       | $        | 4.0        |     | $          | 88.5     |       | $ | 165.7 |   |
| Operating expenses, exclusive of  depreciation and amortization  |       | (1.6     | )          | (41.3    | )          | (75.2    | )          |
| Interest expense                                                 |       | (0.7     | )          | (20.9    | )          | (38.4    | )          |
| Depreciation and amortization                                    |       | (1.0     | )          | (17.0    | )          | (33.6    | )          |
| Gains (losses) on extinguishment of debt,  net                   |       | —   |       | 26.9     |       | (5.4     | )          |
| Impairment losses on operating properties                        |       | (0.4     | )          | (7.9     | )          | (42.1    | )          |
| Gains on dispositions of interests in  operating properties, net |       | 45.1     |       | 85.5     |       | 33.0     |       |
| Income tax benefit (provision), primarily  deferred              |       | —   |       | (0.2     | )          | 0.7      |       |
| Discontinued operations                                          |       | $        | 45.4       |     | $          | 113.6    |       | $ | 4.7 |   |

 

We sell our interests in retail centers thatare not consistent with our long-term business strategies or are not meetingour investment criteria, and office and other properties that are not locatedin our master-planned communities or not part of urban mixed-useproperties.  We may also dispose ofproperties for other reasons. Discontinued operations include the operating results of properties soldduring 2004, 2003 and 2002 in which we do not have significant continuinginvolvement.  For segment reportingpurposes, our share of the NOI of the properties in discontinued operations isincluded in the operating results of retail centers, office and otherproperties or commercial development as discussed above in this Management’sDiscussion and Analysis.

In December 2003, as part of an agreement toacquire interests in entities developing The Woodlands, we agreed to dispose ofHughes Center, a master-planned business park in Las Vegas, Nevada, comprisingeight office buildings totaling approximately 1.1 million square feet,nine ground leases and approximately 13 acres of developable land.  The sale of two of the office buildings andtwo of the ground leases closed in December 2003 for cash of $29.0 million andthe assumption by the buyer of $9.6 million of mortgage debt.  We recorded net gains on these transactionsof approximately $10.1 million. The remaining sale of the properties in HughesCenter closed in 2004 for cash of $71.3 million and the assumption by the buyerof $110.8 million of mortgage debt. We recorded aggregate gains on thesetransactions of $42.2 million (net of deferred income taxes of $2.7 million).

In March 2004, we sold our interests inWestdale Mall, a retail center in Cedar Rapids, Iowa, for cash of $1.3 millionand the assumption by the buyer of $20.0 million of mortgage debt. Werecognized a gain of $0.8 million relating to this sale. We recorded animpairment loss of $6.5 million in 2003 related to this property.

In May 2004, we agreed to sell our interestsin two office buildings in Hunt Valley, Maryland. We recorded aggregateimpairment losses of $1.4 million in the fourth quarter of 2003 and $0.4million in 2004 related to these properties. These properties were sold inOctober 2004 for net proceeds of $8.4 million.

We also recorded in 2004, net gains of $2.0million (net of deferred income taxes of $0.4 million) related to theresolutions of certain contingencies related to disposals of properties in 2002and 2003.

 

II-18

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| — |
|--------|

III-2

 

In August 2003, we sold The JacksonvilleLanding, a retail center in Jacksonville, Florida, for net proceeds of $4.8million.  We recognized a gain of $2.8million relating to this sale.  Werecorded an impairment loss of $3.3 million in the fourth quarter of 2002related to this property. We also sold three small neighborhood retailproperties in Columbia, Maryland in the third quarter of 2003 for aggregateproceeds of $2.2 million and recognized aggregate gains of $0.9 million.

In May and June 2003, we sold eight officeand industrial buildings in the Baltimore-Washington corridor for net proceedsof $46.6 million.  We recognized gains onoperating properties of $4.4 million relating to the sales of these properties.

In April and May 2003, we sold six retailcenters in the Philadelphia metropolitan area and, in a related transaction,acquired Christiana Mall from a party related to the purchaser.  In connection with these transactions, wereceived net cash proceeds of $218.4 million, the purchaser assumed or repaidat settlement $276.6 million of property debt, and we assumed a participatingmortgage secured by Christiana Mall.  Werecognized aggregate gains of $65.4 million relating to the monetary portions ofthese transactions. We recorded an impairment loss of $38.8 million in thefourth quarter of 2002 related to one of the retail centers sold.

We also recorded a net gain of $26.9 millionrelated to the extinguishment of debt secured by two of the properties sold inthe Philadelphia metropolitan area when the lender released the mortgages for acash payment by us of less than the aggregate carrying amount of the debt.

In December 2002, we sold our interest inTampa Bay Center and our interest in a Summerlin community retail center fornet proceeds of $22.8 million and $25.1 million, respectively.  We recorded gains of $2.5 million and $2.8million (net of deferred income taxes of $1.5 million), respectively, on thesetransactions.

In April 2002, we sold our interests in 12 community retail centers inColumbia, Maryland for net proceeds of $111.1 million.  We recorded a gain on this transaction ofapproximately $32.0 million, net of deferred income taxes of $18.4million.  Our interests in one of thecommunity retail centers were reported in unconsolidated real estate affiliatesand the gain on the sale of our interests in this property ($4.3 million, netof deferred income taxes of $2.0 million) is included in continuingoperations.  The remaining gain on thistransaction ($27.7 million, net of deferred income taxes of $16.4 million) isclassified as a component of discontinued operations.  In anticipation of the sale of the communityretail centers, we repaid debt secured by these properties in March 2002 andincurred a loss on this repayment of $5.3 million, including prepaymentpenalties of $4.6 million.

 

***Net earnings(loss):*** The net loss for 2004 was $274.8 million and net earnings were $260.6million in 2003 and $139.9 million in 2002. The changes in net earnings (loss) were attributable to the factorsdiscussed above, including merger-related costs, gains on dispositions ofinterests in operating properties, impairment losses and gains (losses) onextinguishment of debt.

 

***Financialcondition, liquidity and capital resources:***  Our primary cash requirements are foroperating expenses, debt service, development of new properties, expansions andimprovements to existing properties and acquisitions.  We believe that our liquidity and capitalresources are adequate for our near-term and longer-term requirements. We mayalso obtain advances from GGP to meet operating, investing and financingrequirements. We had cash and cash equivalents and investments in marketablesecurities totaling $80.9 million and $139.5 million at December 31, 2004 and2003, respectively.

We rely primarily on fixed-rate, nonrecourseloans from private institutional lenders to finance most of our operatingproperties. We have also made use of the public equity and debt markets to meetour capital needs, principally to repay or refinance corporate andproject-secured debt and to provide funds for project development andacquisition costs and other corporate purposes. Selective dispositions ofproperties and interests in properties may provide capital resources in futureyears.

To fund the Merger, GGP incurred over $7billion of debt with due dates that range from six months to four years. GGPpledged its interest in TRCLP as security for this debt. To partially repaythese borrowings, we expect that GGP will increase the amount of mortgage debton properties within our portfolio. Certain of our existing debt, primarilyproperty debt that we guarantee and our public debt instruments, imposelimitations on us. These covenants limit the levels of debt service we mayincur, the total amount of debt we may have and may require us to maintainspecific minimum levels of debt service coverage and net worth. Generally, thecovenants of the property debt that we guarantee have not and, considering ourability to obtain advances from GGP and GGP’s borrowing capacity, are notexpected to limit our ability for normal business activities. The mostrestrictive of the public debt instrument covenants would limit the amount ofadditional debt that we could borrow to approximately $770 million.

Most of our debt consists of mortgagescollateralized by operating properties. Scheduled principal payments on property debt were $72.4 million, $74.3million and $76.1 million in 2004, 2003 and 2002, respectively.

 

II-19

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Our contractual cash obligations and constructioncost commitments are summarized as follows at December 31, 2004 (in millions):

 
| ** **                   | ** ** | **2005** | ** ** | **2006** | ** ** | **2007** | ** ** | **2008** | ** ** | **2009** | ** ** | **After 2009** | ** ** |
|------------------------------|------------|----------|------------|----------|------------|----------|------------|----------|------------|----------|------------|----------------|------------|
|                         |       |     |       |     |       |     |       |     |       |     |       |           |       |
| Debt:                        |       |     |       |     |       |     |       |     |       |     |       |           |       |
| Scheduled principal payments |       | $        | 104.3      |     | $          | 91.6     |       | $        | 81.7       |     | $          | 59.9           |       | $ | 42.6 |   | $ | 174.3 |   |
| Balloon payments             |       | 519.8    |       | 268.5    |       | 439.5    |       | 815.8    |       | 1,054.5  |       | 1,976.5        |       |
| Total debt                   |       | 624.1    |       | 360.1    |       | 521.2    |       | 875.7    |       | 1,097.1  |       | 2,150.8        |       |
| Capital lease obligations    |       | 3.4      |       | 2.6      |       | 2.1      |       | 0.6      |       | 0.5      |       | 13.3           |       |
| Operating leases             |       | 5.6      |       | 5.7      |       | 5.7      |       | 5.7      |       | 5.7      |       | 271.7          |       |
| Construction commitments:    |       |     |       |     |       |     |       |     |       |     |       |           |       |
| Properties in development    |       | 103.8    |       | 0.9      |       | 0.9      |       | —   |       | —   |       | —         |       |
| Land development             |       | 99.3     |       | —   |       | —   |       | —   |       | —   |       | —         |       |
| Total                        |       | $        | 836.2      |     | $          | 369.3    |       | $        | 529.9      |     | $          | 882.0          |       | $ | 1,103.3 |   | $ | 2,435.8 |   |

 

Other long-termliabilities related to interest expense on long-term debt or ongoing realestate taxes have not been included in the table as such amounts depend uponfuture amounts outstanding and future applicable real estate tax and interestrates. Interest cost in continuing operations was $283.9 million in 2004,$259.4 million in 2003 and $247.2 million in 2002. Real estate tax expense incontinuing operations was $85.4 million in 2004, $70.3 million in 2003 and$56.1 million in 2002.

The balloon payments due in 2005 consist of$449.7 million of mortgages and construction loans on five retail centers, aportfolio of office buildings and one community development project and $70.1million of corporate notes. The balloon payments due in 2006 consist of $268.5million of debt related primarily to retail centers. During the first quarterof 2005, we refinanced $240 million of the mortgage debt due in 2005 and $161.5million of the mortgage debt due in 2007 with mortgage loans of $686 millionsecured by the related properties. We advanced the net proceeds relating tothese transactions to GGP. We also refinanced a construction loan of $134.6million that was due in 2005 with a $255 million mortgage loan on the relatedproperty. The net proceeds from this transaction were also advanced to GGP. InJanuary 2005, we repaid a corporate note of $26.6 million using proceeds fromborrowings from GGP. We expect to repay the remaining mortgages and notes withproceeds from property refinancings or borrowings from GGP.

We expect to continue to make investments(including the construction commitments set forth above) for new developments,expansions and improvements to existing properties in 2005. It is expected thatmost of these costs will be financed by borrowings under existing property-specificconstruction loans and/or borrowings from GGP. In addition, we are an investor in several unconsolidated joint venturesthat are expanding and/or renovating existing properties, with the otherventurers funding a portion of development costs.  Our share of these development costs areexpected to be financed with borrowings from GGP.

Net cash used by operating activities was$17.6 million in 2004 and net cash provided by operating activities was $339.3million in 2003 and $337.1 million in 2002. The change in cash from operating activities from 2003 to 2004 isprimarily attributable to an increase in operating expenditures as a result ofthe Merger.  Net cash provided in 2003was consistent with 2002 as increases in proceeds from land sales and theoperating cash flows of the properties acquired in 2003 and 2002 were offset bythe effects of properties sold in 2003 and 2002 and the acquisition ofcommunity development land in the Houston, Texas metropolitan area in 2003.  The level of cash flows provided by operatingactivities is affected by the timing of receipts of rents, proceeds from landsales and other revenues and payment of operating and interest expenses andcommunity development costs.

Net cash used by investing activities was$332.2 million in 2004, $251.9 million in 2003 and $824.7 million in 2002.  The increase of $80.3 million in 2004 wasprimarily due to a decrease in proceeds from dispositions of interests inproperties, partially offset by higher distributions from unconsolidatedventures and lower expenditures for properties in development and acquisitionsof interests in properties.  The decreaseof $572.8 million in 2003 was due primarily to a decrease in purchases ofproperty interests and an increase in proceeds from dispositions of interestsin properties.

Cash used by investing activities includes expenditures for propertiesin development and improvements to existing properties.  These expenditures related to projectdevelopment activity, primarily retail property redevelopment/expansions.  A substantial portion of the costs ofproperties in development was financed with construction or similar loansand/or our credit facility borrowings. In some cases, long-term fixed-rate debt financing is arranged beforecompletion of construction.  Improvementsto existing properties consist primarily of costs of renovation andremerchandising programs and other tenant improvement costs.

 

Net cash used by investing activities in 2004 was attributableprimarily to:

 

•                  Acquisition of Providence Place($274.7 million);

•                  Acquisition of Oxmoor Center ($63.5million);

•                  Acquisition of interests in MiznerPark ($15.7 million); and

•                  Expenditures for properties indevelopment ($106.8 million, primarily The Shops at La Cantera, Kendall TownCenter, and the Fashion Show expansion).

 

II-20

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These expenditures were partially offset by proceeds from dispositionsof interests in properties, primarily the net proceeds of the sales ofproperties at Hughes Center ($69.9 million), most of our interest in Westin NewYork ($15.8 million), and two office buildings in the Baltimore-Washingtoncorridor ($8.4 million).  Theexpenditures were also partially offset by distributions from unconsolidatedreal estate affiliates ($131.6 million).

 

Net cash used by investing activities in 2003 was attributableprimarily to:

 

•                  Acquisition of an interest in TheWoodlands ($183.8 million);

•                  Acquisition of remaining interest inStaten Island Mall ($148.3 million);

•                  Acquisition of an interest in MiznerPark ($33.8 million); and

•                  Expenditures for properties indevelopment ($168.3 million, primarily the Fashion Show expansion, Kendall TownCenter and The Shops at La Cantera).

 

These expenditures were partially offset by proceeds from dispositionsof interests in properties, primarily the net proceeds from the sales of sixretail centers in the Philadelphia metropolitan area ($218.4 million, net ofthe acquisition of Christiana Mall), our interest in Kravco Investments, L.P.($51.8 million), eight office and industrial buildings in theBaltimore-Washington corridor ($46.6 million), two office buildings and twoground leased parcels at Hughes Center ($29.0 million) and The JacksonvilleLanding ($4.8 million). The expenditures were also partially offset bydistributions from unconsolidated real estate affiliates ($36.7 million).

 

Net cash used by investing activities in 2002 was attributableprimarily to:

 

•                  Acquisition of eight high-qualityoperating properties and other assets in May 2002 from Rodamco ($815.3million);

•                  Acquisition of our partners’controlling financial interests in Ridgedale Center and Southland Center ($63.1million); and

•                  Expenditures for properties indevelopment and investments in unconsolidated ventures ($208.4 million,primarily the Fashion Show expansion and Village of Merrick Park).

 

These expenditures were partially offset byproceeds from dispositions of all or parts of our interests in 12 communityretail centers in Columbia, Maryland ($111.1 million), Perimeter Mall ($67.1million), Tampa Bay Center ($22.8 million) and Franklin Park ($20.5million).  We also received proceeds of$25.1 million from the sale of a newly constructed community retail centerbuilt in Summerlin with the intention to sell and distributions fromunconsolidated real estate affiliates ($83.9 million).

Net cash provided by financing activities was $262.7 million and $497.1million in 2004 and 2002, respectively. Net cash used by financing activities was $11.8 million in 2003. Thechange of $274.5 million in 2004 over 2003 related primarily to an increase inthe issuance of property debt ($1.0 billion), an increase in the issuance ofcorporate debt ($112.8 million), a capital contribution from GGP to partiallyfund stock options settlements and other compensation costs ($272.8 million)and the net proceeds from the issuance of 4.6 million shares of common stock($221.9 million) in February 2004.  Theseamounts were partially offset by higher repayments of mortgage and other debt($406.3 million), higher dividends paid ($251.3 million primarily due to theextraordinary dividend), an interest-free advance to GGP in 2004 ($650.9million) and lower proceeds from the exercise of stock options ($78.1 million).The change of $508.9 million in 2003 related primarily to our issuance of 16.7million shares of common stock for net proceeds of $456.3 million under ourshelf registration statement in January and February 2002 and the issuance of7.20% Notes for net proceeds of $397 million in September 2002.  The change was also attributable to repaymentsof property debt in 2003, offset by proceeds from the exercise of stock optionsand the issuance of public debt.

 

Net cash provided by financing activities in 2004 was attributableprimarily to:

 

•                  Subsequent to the Merger, theissuance of $1.3 billion in debt secured by properties;

•                  Issuance of 3.625% Notes and 5.375%Notes ($502.7 million) in March 2004;

•                  Net proceeds from the issuance of 4.6million shares of common stock ($221.9 million) in February 2004;

•                  The receipt of a capital contributionfrom GGP ($272.8 million); and

•                  Proceeds from the exercise of stockoptions ($31.6 million).

 

These proceeds were partially offset by repayments of property andother debt ($919.9 million), an interest-free advance to GGP ($650.9 Million)repayments of The Rouse Company-obligated mandatorily redeemable preferredsecurities ($79.8 million), purchases of common stock ($31.1 million) and thepayment of dividends ($413.2 million, inclusive of an extraordinary dividend of$238 million).

 

Net cash used by financing activities in 2003 was attributableprimarily to:

 

•                  Repayment of property debt, primarilydebt secured by North Star ($155 million) and Christiana Mall ($120 million);

•                  Payment of dividends on common stockand preferred stock ($161.8 million);

•                  Purchases of common stock ($72.0million); and

•                  Repayments of The RouseCompany-obligated mandatorily redeemable preferred securities ($57.1 million).

 

II-21

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These payments were partially offset by proceeds from the exercise ofstock options ($109.8 million), proceeds from the issuance of the 5.375% Notes(approximately $347 million) and proceeds from the issuance of property debt(primarily debt secured by Christiana Mall, $120 million, and Staten IslandMall, $85 million).

 

Net cash provided by financing activities in 2002 was attributableprimarily to:

 

•                  Proceeds from issuance of 16.7million shares of common stock ($456.3 million) in January and February 2002;

•                  Proceeds from the issuance of the7.20% Notes in September 2002 ($397 million); and

•                  Proceeds from the issuance ofproperty debt ($195.2 million).

 

These proceeds were partially offset by repayments of property debt($285.5 million) and the payment of dividends on common stock and preferredstock ($147.2 million).

 

***Off-balancesheet arrangements and unconsolidated ventures:***  We own interests in unconsolidated realestate affiliates that own and/or develop properties, including master-plannedcommunities.  We use these ventures tolimit our risk associated with individual properties and to reduce our capitalrequirements.  We may also contribute ourinterests in properties to unconsolidated ventures for cash distributions andinterests in the ventures to provide liquidity as an alternative to outright propertysales.  These ventures own propertiesmanaged by us for a fee and are controlled jointly by our venture partners andus.  At December 31, 2004, these venturesalso included the joint venture that is developing the planned community of TheWoodlands.  These ventures are accountedfor using the equity or cost method, as appropriate. 

 

At December 31, 2004, we had other commitments and contingenciesrelated to unconsolidated ventures. These commitments and contingencies are summarized as follows (inmillions):

 
| ** **                                            | ** ** | **2004** | ** ** |
|-------------------------------------------------------|------------|----------|------------|
|                                                  |       |     |       |
| Guarantee of Village of Merrick Park debt             |       | $        | 100.0      |   |
| Construction contracts for properties in  development |       | 7.9      |       |
| Long-term ground lease obligations                    |       | 120.9    |       |
|                                                  |       | $        | 228.8      |   |

 

The Village of Merrick Park is encumbered with a mortgage loan.  We have guaranteed $100 million of themortgage loan.  The amount of theguarantee may be reduced or eliminated upon the achievement of certain lenderrequirements.  Additionally, venturepartners have provided guarantees to us for their share (60%) of the loanguarantee.

 

***Criticalaccounting policies:***  Critical accounting policies are those thatare both important to the presentation of our financial condition and resultsof operations and require management’s most difficult, complex or subjectivejudgments.  Our critical accounting policiesare those applicable to the evaluation of impairment of long-lived assets, theevaluation of the collectibility of accounts and notes receivable, profitrecognition on land sales and allocation of the purchase price of acquiredproperties.

 

*Impairment of long-lived assets:*  If events or changes in circumstancesindicate that the carrying values of operating properties, properties indevelopment or land held for development and sale may be impaired, a recoveryanalysis is performed based on the estimated undiscounted future cash flows tobe generated from the property.  If theanalysis indicates that the carrying value of the tested property is notrecoverable from estimated future cash flows, the property is written down toestimated fair value and an impairment loss is recognized.  Fair values are determined based on estimatedfuture cash flows using appropriate discount and capitalization rates.  The estimated cash flows used for theimpairment analyses and to determine estimated fair values are based on ourplans for the tested asset and our views of market and economicconditions.  The estimates considermatters such as current and historical rental rates, occupancies for the testedproperty and comparable properties and recent sales data for comparableproperties.  Changes in estimated futurecash flows due to changes in our plans or views of market and economicconditions could result in recognition of impairment losses which, under theapplicable accounting guidance, could be substantial.

Properties held for sale, including land held for sale, are carried atthe lower of their carrying values (i.e., cost less accumulated depreciationand any impairment loss recognized, where applicable) or estimated fair valuesless costs to sell.  Accordingly, decisionsby us to sell certain operating properties, properties in development or landheld for development and sale will result in impairment losses if carryingvalues of the specific properties exceed their estimated fair values less coststo sell.  The estimates of fair valueconsider matters such as recent sales data for comparable properties and, whereapplicable, contracts or the results of negotiations with prospectivepurchasers.  These estimates are subjectto revision as market conditions and our assessment of them change.

 

*Collectibility of accounts and notesreceivable:* The allowance for doubtful accounts and notes receivable is establishedbased on quarterly analysis of the risk of loss on specific accounts.  The analysis places particular emphasis onpast-due accounts and considers information such as the nature and age of thereceivables, the payment history of the tenants or other debtors, the financialcondition of the tenants and management’s assessment of their ability to meettheir lease obligations, the basis for any disputes and the status of relatednegotiations, among other things.  Ourestimate of the required allowance is subject to revision as these factorschange and is sensitive to the effects of economic and market conditions ontenants.

 

II-22

----

 

*Profit recognition on land sales:*  Cost of land sales is determined as aspecified percentage of land sales revenues recognized for each communitydevelopment project. The cost ratios used are based on actual costs incurredand estimates of development costs and sales revenues to completion of eachproject.  The ratios are reviewedregularly and revised for changes in sales and cost estimates or developmentplans.  Significant changes in theseestimates or development plans, whether due to changes in market conditions orother factors, could result in changes to the cost ratio used for a specificproject.  The specific identificationmethod is used to determine cost of sales for certain parcels of land, includingacquired parcels we do not intend to develop or for which development iscomplete at the date of acquisition.

 

*Allocation of the purchase price of acquiredproperties:* We allocate the purchase price of acquired properties to tangible andidentified intangible assets based on their fair values.  In making estimates of fair values forpurposes of allocating purchase price, we use a number of sources, includingindependent appraisals that may be obtained in connection with the acquisitionor financing of the respective property and other market data.  We also consider information obtained abouteach property as a result of our pre-acquisition due diligence, marketing andleasing activities in estimating the fair value of the tangible and intangibleassets acquired.

The fair values of tangible assets aredetermined on an “if-vacant” basis.  The “if-vacant”fair value is allocated to land, where applicable, buildings, tenantimprovements and equipment based on property tax assessments and other relevantinformation obtained in connection with the acquisition of the property.

The fair values of intangible assets includeleases with above- or below-market rents and, where applicable, other in-placeleases and customer relationship values and a real estate tax stabilizationagreement.

Above-market and below-market in-place leasevalues are recorded based on the present value (using an interest rate whichreflects the risks associated with the leases acquired) of the differencebetween (i) the contractual amounts to be received pursuant to the in-placeleases and (ii) our estimate of fair market lease rates for the correspondingspace, measured over a period equal to the remaining non-cancelable term of thelease (including those under bargain renewal options).  The capitalized above- and below-market leasevalues are amortized as adjustments to rental income over the remaining termsof the respective leases (including periods under bargain renewal options).

The aggregate fair values of other identified intangible assetsacquired is measured based on the difference between (i) the property valuedwith existing in-place leases adjusted to market rental rates and (ii) theproperty valued as if vacant.  This valueis allocated to in-place lease and customer relationship assets (both anchorstores and tenants).  The fair value ofin-place leases is based on our estimates of carrying costs during the expectedlease-up periods and costs to execute similar leases.  Our estimate of carrying costs includes realestate taxes, insurance and other operating expenses and lost rentals duringthe expected lease-up periods considering current market conditions.  Our estimate of costs to execute similarleases includes leasing commissions, legal and other related costs. The fair valueof anchor store agreements is determined based on our experience negotiatingsimilar relationships (not in connection with property acquisitions). The fairvalue of tenant relationships is based on our evaluation of the specificcharacteristics of each tenant’s lease and our overall relationship with thatrespective tenant.  Characteristics weconsider in determining these values include the nature and extent of ourexisting business relationships with the tenant, growth prospects fordeveloping new business with the tenant, the tenant’s credit quality andexpectations of lease renewals, among other factors.  The value of in-place leases is amortized toexpense over the initial term of the respective leases, primarily ranging fromtwo to ten years.  The value of anchorstore agreements is amortized to expense over the estimated term of the anchorstore’s occupancy in the property. Should an anchor store vacate the premises, the unamortized portion ofthe related intangible is charged to expense. The value of tenant relationship intangibles is amortized to expenseover the initial term and any renewal periods in the respective leases, but inno event does the amortization period exceed the remaining depreciable life ofthe building.  Should a tenant terminateits lease, the unamortized portion of the in-place lease value and customerrelationship intangibles is charged to expense. The value allocated to the taxstabilization agreement was determined based on the difference between thepresent value of estimated market real estate taxes and amounts due under theagreement and is amortized to operating expense over the term of the agreement.

 

***Impact ofinflation:*** The major portion of our operating properties, our retail centers, issubstantially protected from declines in the purchasing power of thedollar.  Retail leases generally providefor minimum rents plus percentage rents based on sales over a minimumbase.  In many cases, increases in tenantsales (whether due to increased unit sales or increased prices from demand orgeneral inflation) will result in increased rental revenue.  A substantial portion of the tenant leases(retail and office) also provide for other rents which reimburse us for certainoperating expenses; consequently, increases in these costs do not have asignificant impact on our operating results. We have a significant amount of fixed-rate debt which, in a period ofinflation, will result in a holding gain since debt will be paid off withdollars having less purchasing power.

 

***Forward-LookingInformation:***We may make forward-lookingstatements in this Annual Report.

 

Forward-looking statements include:

 

•                  Projections of our revenues, income,earnings per share, capital expenditures, dividends, capital structure or otherfinancial items;

•                  Descriptions of plans or objectives ofour management for future operations, including pending acquisitions;

•                  Forecasts of our future economicperformance; and

•                  Descriptions of assumptionsunderlying or relating to any of the foregoing.

 

II-23

----

 

In this Annual Report, for example, we make forward-looking statementsdiscussing our expectations about:

 

•                  Future repayment of debt

•                  Future interest rates

•                  Benefits of the Merger with GGP

 

Forward-looking statements discuss mattersthat are not historical facts.  Becausethey discuss future events or conditions, forward-looking statements ofteninclude words such as “anticipate”, “believe,” “estimate,” “expect,” “intend,” “plan,”“project,” “target,” “can,” “could,” “may,” “should,” “will,” “would” orsimilar expressions.  Forward-lookingstatements should not be unduly relied upon. They give our expectations about the future and are not guarantees.  Forward-looking statements speak only as ofthe date they are made and we might not update them to reflect changes thatoccur after the date they are made.

There are several factors, many beyond ourcontrol, which could cause results to differ significantly from ourexpectations.  Some of these factors aredescribed below.  Other factors, such ascredit, market, operational, liquidity, interest rate and other risks, aredescribed elsewhere in this Annual Report. Any factor described in this Annual Report could by itself, or togetherwith one or more other factors, adversely affect our business, results ofoperations or financial condition. There are also other factors that we havenot described in this Annual Report that could cause results to differ from ourexpectations.

 

Item 7A.  Quantitative andQualitative Disclosures about Market Risk.

 

***Market riskinformation:***  The market risk associated with financialinstruments and derivative financial and commodity instruments is the risk ofloss from adverse changes in market prices or rates.  Our market risk arises primarily frominterest rate risk relating to variable-rate borrowings used to finance projectdevelopment costs (e.g., construction loan advances).  Our interest rate risk management objectiveis to limit the impact of interest rate changes on earnings and cashflows.  In order to achieve thisobjective, we rely on long-term, fixed-rate debt.  We may also use interest rate exchangeagreements, including interest rate swaps and caps, to mitigate our interestrate risk on variable-rate debt. We had an interest rate swap agreement with anotional value of $16.9 million and a fair value liability of $0.4 million atDecember 31, 2004. The effect of this interest rate swap agreement isinsignificant to our consolidated interest expense. We do not enter intointerest rate exchange agreements for speculative purposes. 

Our interestrate risk is monitored closely by management. The table below presents the annual maturities, weighted averageinterest rates on outstanding debt at the end of each year (based on a LIBORrate of 1.1%) and fair values required to evaluate our expected cash flowsunder debt agreements and our sensitivity to interest rate changes at December31, 2004.  Information relating to debtmaturities is based on expected maturity dates and is summarized as follows (inmillions):

 
| ** **               | ** ** | **2005** | ** ** | **2006** | ** ** | **2007** | ** ** | **2008** | ** ** | **2009** | ** ** | **Thereafter** | ** ** | **Total** | ** ** | **Fair Value** | ** ** |
|--------------------------|------------|----------|------------|----------|------------|----------|------------|----------|------------|----------|------------|----------------|------------|-----------|------------|----------------|------------|
|                     |       |     |       |     |       |     |       |     |       |     |       |           |       |      |       |           |       |
| Fixed-rate debt          |       | $        | 169        |     | $          | 319      |       | $        | 261        |     | $          | 874            |       | $         | 1,095      |           | $          | 2,148 |   | $ | 4,866 |   | $ | 5,047 |   |
| Average interest rate    |       | 5.9      | %          | 5.8      | %          | 5.7      | %          | 5.7      | %          | 6.0      | %          | 6.0            | %          | 5.9       | %          |           |       |
|                     |       |     |       |     |       |     |       |     |       |     |       |           |       |      |       |           |       |
| Variable-rate LIBOR debt |       | $        | 455        |     | $          | 41       |       | $        | 260        |     | $          | 2              |       | $         | 2          |           | $          | 3 |   | $ | 763 |   | $ | 763 |   |
| Average interest rate    |       | 3.7      | %          | 3.6      | %          | 4.7      | %          | 4.9      | %          | 5.2      | %          | 5.2            | %          | 4.0       | %          |           |       |

 

At December 31, 2004, approximately $161.6million of our variable-rate LIBOR debt relates to borrowings under twoconstruction loans. We refinanced a $134.6 million construction loan that wasdue in 2005 with a mortgage loan on the related property. The commitment forthe new mortgage loan is for $255 million. We expect to repay the otherconstruction loan with proceeds of long-term, fixed-rate debt in 2006 when weexpect to complete construction of the related project.

Based on our outstanding variable-rate LIBORdebt and the interest rate swap in effect at December 31, 2004, a hypotheticalLIBOR increase of 1% would cause annual interest expense to increase $7.5million.

Our investments in marketable securities closely match our liabilitiesrelated to certain deferred compensation plans. As a result, changes in the market values of these investments do nothave a significant effect on our earnings.

 

Item 8.  Financial Statements andSupplementary Data.

 

Financial Statements required by Item 8 are set forth in the Index toFinancial Statements and Schedules on page F-1.

 

Item 9.  Changes in andDisagreements with Accountants on Accounting and Financial Disclosure.

 

None.

 

Item 9A.  Controls andProcedures.

 

**Disclosure Controls and Procedures**  As of the end of the period covered by thisreport, we carried out an evaluation, under the supervision and with theparticipation of our management, including the Chief Executive Officer("CEO") and Chief Financial Officer ("CFO") of GGP, of theeffectiveness of the design and operation of our disclosure controls andprocedures (as defined in Rules 13a-15(e) and 15(d)-15(e) under the SecuritiesExchange Act of 1934, as amended, (the "Exchange Act")).  Based on that evaluation, the CEO and CFOhave concluded that our disclosure controls and procedures are effective toensure that information we are required to disclose in the reports we file orsubmit under the Exchange Act, is recorded, processed, summarized and reportedwithin the time periods specified in the Securities and Exchange Commissionrules and forms.

 

**Internal Controls over Financing Reporting**  There have been no changes in our internalcontrols during our most recently completed fiscal quarter that have materiallyaffected or are reasonably likely to materially affect our internal controlover financial reporting or in other factors that could significantly affectinternal controls subsequent to the end of the period covered by this report.

 

**Reports onInternal Controls over Financial Reporting**  The Company has determined, afterconsultation with the SEC staff, that the Company is not required to filereports under the Securities and Exchange Act of 1934, as amended (the"Exchange Act") as an accelerated filer, as defined in Rule 12-band under the Exchange Act because the Company's reporting obligations withrespect to equity securities ceased December 31, 2004.

 

II-24

----

 

Item 9B.  Other Information

 

None.

 

II-25

----

 

Part III

 

Item 10. Directors and Executive Officers of the Registrant.

 

There are no directors or officers of TRCLPand no directors of the general partner of TRCLP (Rouse LLC).

 

The executive officers of Rouse LLC as ofMarch 1, 2005 are:

 
| **Executive Officer** | ** ** | **Present office and  position with Rouse LLC** | ** ** | **Date of election  or appointment to  present office** | ** ** | **Age** | ** ** | **Office and position with  GGP and date effective**        |
|-----------------------|------------|-------------------------------------------------|------------|---------------------------------------------------------|------------|---------|------------|-------------------------------------------------------------|
|                  |       |                                            |       |                                                    |       |    |       |                                                        |
| John  Bucksbaum       |       | Chief  Executive Officer                        |       | 11/12/04                                                |       | 48      |       | CEO, 1999                                                   |
|                  |       |                                            |       |                                                    |       |    |       |                                                        |
| Robert  Michaels      |       | President                                       |       | 11/12/04                                                |       | 61      |       | President,  1995                                            |
|                  |       |                                            |       |                                                    |       |    |       |                                                        |
| Bernard  Freibaum     |       | Executive  Vice President                       |       | 11/12/04                                                |       | 52      |       | Executive  Vice President and Chief Financial Officer, 1993 |
|                  |       |                                            |       |                                                    |       |    |       |                                                        |
| Ron Gern              |       | Senior Vice  President                          |       | 11/12/04                                                |       | 46      |       | Senior Vice  President, 1997                                |
|                  |       |                                            |       |                                                    |       |    |       |                                                        |
| Jean  Schlemmer       |       | Vice  President                                 |       | 11/12/04                                                |       | 58      |       | Executive  Vice President, 2000                             |

 

The term of office of each officer is untilelection of a successor or otherwise at the discretion of the Board ofDirectors of GGP.

 

There is no arrangement or understandingbetween any of the above-listed officers and any other person pursuant to whichany such officer was elected as an officer.

 

None of the above-listed has any family relationship with any directoror other executive officer of Rouse LLC or GGP, except John Bucksbaum, whosefather is Chairman of the Board of GGP.

 

None of the above listed are directors of anypublic company except for John Bucksbaum who is a Director of LaSalle Bank andthe Hyatt Corporation.

 

Item 11. Executive Compensation.

 

The executive officers of the general partnerof TRCLP are officers of GGP. They receive no separate or additional remunerationfrom TRCLP.

 

Item 12. Security Ownership of CertainBeneficial Owners and Management and Related Stockholders Matters.

 

All the partnership interests in the Companyare held directly or indirectly by GGP or its subsidiaries.

 

Item 13. Certain Relationships and RelatedTransactions.

 

None.

 

Item 14. Principal Accountant Fees andServices.

 

The audit committee of the Board of The RouseCompany selected KPMG LLP as its independent registered public accounting firmfor fiscal year 2004. Subsequent to the Merger, the audit committee of theBoard of Directors of GGP engaged KPMG LLP as its independent registered publicaccounting firm for The Rouse Company LP (the successor to The Rouse Company).The audit services rendered by KPMG LLP for the fiscal year ended December 31,2004 included the audit of our consolidated financial statements andsubsidiaries, and separate audits of certain subsidiaries and affiliates,reviews of unaudited quarterly financial information, and audit servicesprovided in connection with registration statements filed with the SEC andother statutory and regulatory filings or engagements.

 

III-1

----

 

The following table presents fees for professional audit servicesrendered by KPMG LLP for the audit of the Company’s annual financial statementsfor fiscal years 2004 and 2003, and fees billed for audit related services, taxservices, and all other services in fiscal years 2004 and 2003 (in thousands):

 
| ** **                   | ** ** | **In Thousands** | ** ** |
|------------------------------|------------|------------------|------------|
| ** **                   | ** ** | **2003**         | ** ** | **2004** | ** ** |
| Audit fees                   |       | $                | 3,829      |   | $ | 4,573 |   |
| Audit-related fees (1)       |       | 326              |       | 188 |   |
| Audit and audit-related fees |       | 4,155            |       | 4,761 |   |
| Tax compliance fees          |       | 160              |       | 441 |   |
| Other tax fees               |       | 30               |       | 117 |   |
| Tax fees                     |       | 190              |       | 558 |   |
| Total fees (2)               |       | $                | 4,345      |   | $ | 5,319 |   |

 

----

(1)                            Auditrelated fees in 2003 consist principally of fees for assistance in documentinginternal control policies and procedures over financial reporting, duediligence pertaining to a property acquisition, technical accounting researchfor proposed transactions and audits of certain employee benefit plans. Auditrelated fees in 2004 consist principally of technical accounting research andconsultation and audits of certain employee benefit plans.

 

(2)                            Totalfees for 2003 exclude $150,000 paid to KPMG for audits of merchants’associations not consolidated by the Company. These fees are paid by themerchants’ associations. The Company maintains the financial records of themerchants’ associations.

 

We have considered whether the provision byKPMG LLP of the services described above was compatible with maintainingKPMG LLP’s independence in the conduct of its auditing functions anddetermined that it was.

Each year at its February meeting, the Audit Committeeof The Rouse Company had reviewed and discussed the fees of KPMG LLP for theprior year and its proposed fees for the upcoming year and pre-approved allaudit and permissible non-audit services for the year. Throughout the year theAudit Committee of The Rouse Company reviewed the fees actually earned andrevised budgets. All audit services, audit related services, tax services, andother services provided by KPMG LLP for 2004 were pre-approved by the AuditCommittee of TRC and, subsequent to the Merger and to the extent arising afterthe Merger, ratified by the audit committee of General Growth.

 

III-2

----

 

The Rouse Company LP

*A Subsidiary of General Growth Properties,Inc.*

Index to Financial Statements and Schedules

 
|                                                                                                                         | Page   |
|------------------------------------------------------------------------------------------------------------------------------|--------|
| Report of Independent Registered Public  Accounting Firm                                                                     | F-2    |
|                                                                                                                         |   |
| Financial Statements:                                                                                                        |   |
| Consolidated Balance Sheets at December 31, 2004 and 2003                                                                    | F-3    |
| Consolidated Statements of Operations and  Comprehensive Income (Loss) for the Years Ended December 31, 2004, 2003 and  2002 | F-4    |
| Consolidated Statements of Changes in  Equity for the Years Ended December 31, 2004, 2003 and 2002                           | F-5    |
| Consolidated Statements of Cash Flows for  the Years Ended December 31, 2004, 2003 and 2002                                  | F-6    |
| Notes to Consolidated Financial Statements                                                                                   | F-8    |
|                                                                                                                         |   |
| Schedules:                                                                                                                   |   |
|                                                                                                                         |   |
| Schedule II Valuation and Qualifying  Accounts                                                                               | F-37   |
| Schedule III Real Estate and Accumulated  Depreciation                                                                       | F-38   |

 

All other schedules have been omitted as not applicable or notrequired, or because the required information is included in the relatedfinancial statements or Notes thereto.

 

F-1

----

 

REPORT OF INDEPENDENT REGISTERED PUBLICACCOUNTING FIRM

 

The Partners

The Rouse Company LP:

 

We have audited the consolidated financial statements of The RouseCompany LP and subsidiaries as of December 31, 2004 and 2003 and the relatedconsolidated statements of operations and comprehensive income (loss), changesin equity, and cash flows for each of the years in the three-year period endedDecember 31, 2004.  In connection withour audits of the consolidated financial statements, we have also audited thefinancial statement schedules of Valuation and Qualifying Accounts and RealEstate and Accumulated Depreciation. These consolidated financial statements and financial statement schedulesare the responsibility of the Company’s management.  Our responsibility is to express an opinionon these consolidated financial statements and financial statement schedulesbased on our audits.

 

We conducted our audits in accordance with standards of the Public CompanyAccounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtainreasonable assurance about whether the financial statements are free ofmaterial misstatement.  An audit includesexamining, on a test basis, evidence supporting the amounts and disclosures inthe financial statements.  An audit alsoincludes assessing the accounting principles used and significant estimatesmade by management, as well as evaluating the overall financial statementpresentation.  We believe that our auditsprovide a reasonable basis for our opinion.

 

In our opinion, the consolidated financial statements referred to abovepresent fairly, in all material respects, the financial position of The RouseCompany LP and subsidiaries as of December 31, 2004 and 2003, and the resultsof their operations and their cash flows for each of the years in thethree-year period ended December 31, 2004, in conformity with U.S. generallyaccepted accounting principles.  Also inour opinion, the related financial statement schedules referred to above, whenconsidered in relation to the basic consolidated financial statements taken asa whole, present fairly, in all material respects, the information set forththerein.

 

 
|   | /s/ KPMG LLP |   |
|--------|--------------|--------|

 

 

Baltimore, Maryland

March 31, 2005

 

F-2

----

 

* The Rouse Company LP and Subsidiaries*

*A Subsidiary of GeneralGrowth Properties, Inc.*

CONSOLIDATED BALANCE SHEETS

*December 31, 2004 and2003*

*(in thousands, exceptshare data)*

 
| ** **                                                                                                                                         | ** ** | **2004**  | ** ** | **2003**  | ** ** |
|----------------------------------------------------------------------------------------------------------------------------------------------------|------------|-----------|------------|-----------|------------|
| **Assets:**                                                                                                                                        |       |      |       |      |       |
| Property and property-related deferred  costs:                                                                                                     |       |      |       |      |       |
| Operating properties:                                                                                                                              |       |      |       |      |       |
| Property                                                                                                                                           |       | $         | 5,885,155  |      | $          | 5,351,748 |   |
| Less accumulated depreciation                                                                                                                      |       | 1,005,502 |       | 897,277   |       |
|                                                                                                                                               |       | 4,879,653 |       | 4,454,471 |       |
| Deferred costs                                                                                                                                     |       | 216,526   |       | 238,122   |       |
| Less accumulated amortization                                                                                                                      |       | 68,025    |       | 94,424    |       |
|                                                                                                                                               |       | 148,501   |       | 143,698   |       |
| Net operating properties                                                                                                                           |       | 5,028,154 |       | 4,598,169 |       |
| Properties in development                                                                                                                          |       | 255,597   |       | 167,073   |       |
| Properties held for sale                                                                                                                           |       | —    |       | 138,823   |       |
| Investment land and land held for  development and sale                                                                                            |       | 512,450   |       | 414,666   |       |
| Total property and property-related  deferred costs                                                                                                |       | 5,796,201 |       | 5,318,731 |       |
| Investments in unconsolidated real estate  affiliates                                                                                              |       | 518,177   |       | 628,305   |       |
| Advances to unconsolidated real estate  affiliates                                                                                                 |       | 10,722    |       | 19,562    |       |
| Advances to General Growth Properties, Inc.                                                                                                        |       | 650,876   |       | —    |       |
| Prepaid expenses, receivables under finance  leases and other assets                                                                               |       | 517,671   |       | 479,409   |       |
| Accounts and notes receivable                                                                                                                      |       | 49,648    |       | 53,694    |       |
| Investments in marketable securities                                                                                                               |       | 50,724    |       | 22,313    |       |
| Cash and cash equivalents                                                                                                                          |       | 30,196    |       | 117,230   |       |
| **Total assets**                                                                                                                                   |       | $         | 7,624,215  |      | $          | 6,639,244 |   |
|                                                                                                                                               |       |      |       |      |       |
| **Liabilities:**                                                                                                                                   |       |      |       |      |       |
| Debt:                                                                                                                                              |       |      |       |      |       |
| Property debt not carrying a Rouse Company  LP guarantee of repayment                                                                              |       | $         | 3,874,928  |      | $          | 2,768,288 |   |
| Debt secured by properties held for sale                                                                                                           |       | —    |       | 110,935   |       |
| Rouse Company LP debt and debt carrying a  Rouse Company LP guarantee of repayment:                                                                |       |      |       |      |       |
| Property debt                                                                                                                                      |       | 178,835   |       | 179,150   |       |
| Other debt                                                                                                                                         |       | 1,575,247 |       | 1,386,119 |       |
|                                                                                                                                               |       | 1,754,082 |       | 1,565,269 |       |
| Total debt                                                                                                                                         |       | 5,629,010 |       | 4,444,492 |       |
| Accounts payable and accrued expenses                                                                                                              |       | 177,036   |       | 179,530   |       |
| Other liabilities                                                                                                                                  |       | 605,215   |       | 611,042   |       |
| The Rouse Company-obligated mandatorily  redeemable preferred securities of a trust holding solely The Rouse Company  subordinated debt securities |       | —    |       | 79,216    |       |
|                                                                                                                                               |       |      |       |      |       |
| **Equity:**                                                                                                                                        |       |      |       |      |       |
| Series B Convertible Preferred stock with a  liquidation preference of $202,500                                                                    |       | —    |       | 41        |       |
| Common stock of 1¢ par value per share;  250,000,000 shares authorized; issued and outstanding 91,759,723 shares in  2003                     |       | —    |       | 918       |       |
| Additional paid-in capital                                                                                                                         |       | —    |       | 1,346,890 |       |
| Accumulated deficit                                                                                                                                |       | —    |       | (10,991   | )          |
| Partners’ capital                                                                                                                             |       | 1,217,244 |       | —    |       |
| Accumulated other comprehensive income  (loss):                                                                                                    |       |      |       |      |       |
| Minimum pension liability adjustment                                                                                                               |       | (312      | )          | (4,628    | )          |
| Unrealized net losses on available-for-sale  securities                                                                                            |       | (126      | )          | —    |       |
| Unrealized net losses on derivatives  designated as cash flow hedges                                                                               |       | (3,852    | )          | (7,266    | )          |
| Total equity                                                                                                                                       |       | 1,212,954 |       | 1,324,964 |       |
| **Total liabilities and equity**                                                                                                                   |       | $         | 7,624,215  |      | $          | 6,639,244 |   |

 

The accompanying notes are an integral partof these statements.

 

F-3

----

 

*The Rouse Company LP andSubsidiaries*

*A Subsidiary of GeneralGrowth Properties, Inc.*

CONSOLIDATED STATEMENTS OF OPERATIONS

AND COMPREHENSIVE INCOME (LOSS)

*Years ended December 31,2004, 2003 and 2002*

*(in thousands, except pershare data)*

 
| ** **                                                                                                                                                                                         | ** ** | **2004**  | ** ** | **2003**  | ** ** | **2002** | ** ** |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-----------|------------|-----------|------------|----------|------------|
| Revenues:                                                                                                                                                                                          |       |      |       |      |       |     |       |
| Rents from tenants                                                                                                                                                                                 |       | $         | 849,714    |      | $          | 757,332  |       | $ | 647,394 |   |
| Land sales                                                                                                                                                                                         |       | 361,965   |       | 284,840   |       | 238,341  |       |
| Other                                                                                                                                                                                              |       | 58,554    |       | 53,980    |       | 54,411   |       |
| Total revenues                                                                                                                                                                                     |       | 1,270,233 |       | 1,096,152 |       | 940,146  |       |
| Operating expenses, exclusive of provision  for bad debts, depreciation and amortization                                                                                                           |       |      |       |      |       |     |       |
| Operating properties                                                                                                                                                                               |       | (355,341  | )          | (317,307  | )          | (277,708 | )          |
| Land sales operations                                                                                                                                                                              |       | (207,324  | )          | (167,538  | )          | (154,809 | )          |
| Other                                                                                                                                                                                              |       | (52,786   | )          | (60,509   | )          | (58,311  | )          |
| Total operating expenses, exclusive of  provision for bad debts, depreciation and amortization                                                                                                     |       | (615,451  | )          | (545,354  | )          | (490,828 | )          |
| Interest expense                                                                                                                                                                                   |       | (245,698  | )          | (221,619  | )          | (209,064 | )          |
| Provision for bad debts                                                                                                                                                                            |       | (14,338   | )          | (11,257   | )          | (6,935   | )          |
| Depreciation and amortization                                                                                                                                                                      |       | (193,437  | )          | (171,183  | )          | (129,305 | )          |
| Other income, net                                                                                                                                                                                  |       | 7,503     |       | 9,339     |       | 2,137    |       |
| Other provisions and losses, net                                                                                                                                                                   |       | (460,459  | )          | (24,531   | )          | (24,082  | )          |
| Impairment losses on operating properties                                                                                                                                                          |       | (69,538   | )          | —    |       | —   |       |
| **Earnings (loss) before income taxes, equity  in earnings of unconsolidated real estate affiliates, net gains on dispositions  of interests in operating properties and discontinued operations** |       | (321,185  | )          | 131,547   |       | 82,069   |       |
| Income taxes, primarily deferred                                                                                                                                                                   |       | (39,505   | )          | (42,598   | )          | (29,151  | )          |
| Equity in earnings of unconsolidated real  estate affiliates                                                                                                                                       |       | 26,409    |       | 31,421    |       | 33,259   |       |
| **Earnings (loss) before net gains on  dispositions of interests in operating properties and discontinued operations**                                                                             |       | (334,281  | )          | 120,370   |       | 86,177   |       |
| Net gains on dispositions of interests in  operating properties                                                                                                                                    |       | 14,121    |       | 26,632    |       | 48,946   |       |
| **Earnings (loss) from continuing operations**                                                                                                                                                     |       | (320,160  | )          | 147,002   |       | 135,123  |       |
| Discontinued operations                                                                                                                                                                            |       | 45,399    |       | 113,587   |       | 4,728    |       |
| **Net earnings (loss)**                                                                                                                                                                            |       | (274,761  | )          | 260,589   |       | 139,851  |       |
| Other items of comprehensive income (loss):                                                                                                                                                        |       |      |       |      |       |     |       |
| Minimum pension liability adjustment                                                                                                                                                               |       | 4,316     |       | (963      | )          | (750     | )          |
| Unrealized losses on available-for-sale  securities                                                                                                                                                |       | (126      | )          | —    |       | —   |       |
| Unrealized gains (losses) on derivatives  designated as cash flow hedges                                                                                                                           |       | 3,414     |       | 3,003     |       | (6,883   | )          |
| **Comprehensive income (loss)**                                                                                                                                                                    |       | $         | (267,157   | )         | $          | 262,629  |       | $ | 132,218 |   |
| **Net earnings applicable to common  shareholders**                                                                                                                                                |       | $         | N/A        |      | $          | 248,439  |       | $ | 127,701 |   |
| **Earnings per share of common stock**                                                                                                                                                             |       |      |       |      |       |     |       |
| Basic:                                                                                                                                                                                             |       |      |       |      |       |     |       |
| Continuing operations                                                                                                                                                                              |       | N/A       |       | $         | 1.52       |     | $          | 1.44 |   |
| Discontinued operations                                                                                                                                                                            |       | N/A       |       | 1.28      |       | .05      |       |
| Total                                                                                                                                                                                              |       | N/A       |       | $         | 2.80       |     | $          | 1.49 |   |
| Diluted:                                                                                                                                                                                           |       |      |       |      |       |     |       |
| Continuing operations                                                                                                                                                                              |       | N/A       |       | $         | 1.48       |     | $          | 1.42 |   |
| Discontinued operations                                                                                                                                                                            |       | N/A       |       | 1.25      |       | .05      |       |
| Total                                                                                                                                                                                              |       | N/A       |       | $         | 2.73       |     | $          | 1.47 |   |

 

Theaccompanying notes are an integral part of these statements.

 

F-4

----

 

*The Rouse Company LP andSubsidiaries*

*A Subsidiary of GeneralGrowth Properties, Inc.*

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

*Years ended December 31,2004, 2003 and 2002*

*(in thousands, except pershare data)*

 
| *** ***                                                     | *** *** | **Series B  Preferred  stock** | ** ** | **Common  stock** | ** ** | **Additional  paid-in  capital** | ** ** | **Accumulated  deficit/  Partners’  Capital** | ** ** | **Accumulated  other  comprehensive  income (loss)** | ** ** | **Total** | *** *** |
|------------------------------------------------------------------|--------------|--------------------------------|------------|-------------------|------------|----------------------------------|------------|----------------------------------------------------|------------|------------------------------------------------------|------------|-----------|--------------|
|                                                             |         |                           |       |              |       |                             |       |                                               |       |                                                 |       |      |         |
| **Balance at December 31, 2001**                                 |         | $                              | 41         |              | $          | 694                              |       | $                                                  | 763,351    |                                                 | $          | (102,425  | )            | $ | (6,301 | ) | $ | 655,360 |   |
| Net earnings                                                     |         | —                         |       | —            |       | —                           |       | 139,851                                            |       | —                                               |       | 139,851   |         |
| Other comprehensive income (loss)                                |         | —                         |       | —            |       | —                           |       | —                                             |       | (7,633                                               | )          | (7,633    | )            |
| Dividends declared:                                              |         |                           |       |              |       |                             |       |                                               |       |                                                 |       |      |         |
| Common stock–$1.56 per share                                |         | —                         |       | —            |       | —                           |       | (135,016                                           | )          | —                                               |       | (135,016  | )            |
| Preferred stock–$3.00 per share                             |         | —                         |       | —            |       | —                           |       | (12,150                                            | )          | —                                               |       | (12,150   | )            |
| Purchases of common stock                                        |         | —                         |       | (7                | )          | (21,181                          | )          | —                                             |       | —                                               |       | (21,188   | )            |
| Common stock issued pursuant to Contingent  Stock Agreement      |         | —                         |       | 6                 |       | 19,350                           |       | —                                             |       | —                                               |       | 19,356    |         |
| Proceeds from exercise of stock options                          |         | —                         |       | 9                 |       | 14,339                           |       | —                                             |       | —                                               |       | 14,348    |         |
| Other common stock issuances                                     |         | —                         |       | 167               |       | 456,180                          |       | —                                             |       | —                                               |       | 456,347   |         |
| Lapses of restrictions on common stock awards                    |         | —                         |       | —            |       | 2,809                            |       | —                                             |       | —                                               |       | 2,809     |         |
| **Balance at December 31, 2002**                                 |         | 41                             |       | 869               |       | 1,234,848                        |       | (109,740                                           | )          | (13,934                                              | )          | 1,112,084 |         |
|                                                             |         |                           |       |              |       |                             |       |                                               |       |                                                 |       |      |         |
| Net earnings                                                     |         | —                         |       | —            |       | —                           |       | 260,589                                            |       | —                                               |       | 260,589   |         |
| Other comprehensive income (loss)                                |         | —                         |       | —            |       | —                           |       | —                                             |       | 2,040                                                |       | 2,040     |         |
| Dividends declared:                                              |         |                           |       |              |       |                             |       |                                               |       |                                                 |       |      |         |
| Common stock–$1.68 per share                                |         | —                         |       | —            |       | —                           |       | (149,690                                           | )          | —                                               |       | (149,690  | )            |
| Preferred stock–$3.00 per share                             |         | —                         |       | —            |       | —                           |       | (12,150                                            | )          | —                                               |       | (12,150   | )            |
| Purchases of common stock                                        |         | —                         |       | (19               | )          | (71,945                          | )          | —                                             |       | —                                               |       | (71,964   | )            |
| Common stock issued pursuant to Contingent  Stock Agreement      |         | —                         |       | 19                |       | 66,766                           |       | —                                             |       | —                                               |       | 66,785    |         |
| Proceeds from exercise of stock options                          |         | —                         |       | 49                |       | 109,706                          |       | —                                             |       | —                                               |       | 109,755   |         |
| Lapses of restrictions on common stock awards                    |         | —                         |       | —            |       | 7,515                            |       | —                                             |       | —                                               |       | 7,515     |         |
| **Balance at December 31, 2003**                                 |         | 41                             |       | 918               |       | 1,346,890                        |       | (10,991                                            | )          | (11,894                                              | )          | 1,324,964 |         |
|                                                             |         |                           |       |              |       |                             |       |                                               |       |                                                 |       |      |         |
| Net loss                                                         |         | —                         |       | —            |       | —                           |       | (274,761                                           | )          | —                                               |       | (274,761  | )            |
| Other comprehensive income (loss)                                |         | —                         |       | —            |       | —                           |       | —                                             |       | 7,604                                                |       | 7,604     |         |
| Dividends declared:                                              |         |                           |       |              |       |                             |       |                                               |       |                                                 |       |      |         |
| Common stock - $4.00 per share                                   |         | —                         |       | —            |       | —                           |       | (413,175                                           | )          | —                                               |       | (413,175  | )            |
| Conversion of preferred stock                                    |         | (41                            | )          | 53                |       | (12                              | )          | —                                             |       | —                                               |       | —    |         |
| TRS tax benefit related to nonqualified stock  options exercised |         | —                         |       | —            |       | 14,928                           |       | —                                             |       | —                                               |       | 14,928    |         |
| Purchases of common stock                                        |         | —                         |       | (7                | )          | (31,110                          | )          | —                                             |       | —                                               |       | (31,117   | )            |
| Common stock issued pursuant to Contingent  Stock Agreement      |         | —                         |       | 12                |       | 51,806                           |       | —                                             |       | —                                               |       | 51,818    |         |
| Proceeds from exercise of stock options                          |         | —                         |       | 14                |       | 31,630                           |       | —                                             |       | —                                               |       | 31,644    |         |
| Other common stock issuances                                     |         | —                         |       | 46                |       | 221,871                          |       | —                                             |       | —                                               |       | 221,917   |         |
| Lapses of restrictions on common stock awards  and other         |         | —                         |       | 1                 |       | 6,340                            |       | —                                             |       | —                                               |       | 6,341     |         |
| Cancellation of common stock                                     |         | —                         |       | (1,037            | )          | (1,642,343                       | )          | 1,643,380                                          |       | —                                               |       | —    |         |
| Capital contribution from General Growth  Properties, Inc.       |         | —                         |       | —            |       | —                           |       | 272,791                                            |       | —                                               |       | 272,791   |         |
| **Balance at December 31, 2004**                                 |         | $                              | —     |              | $          | —                           |       | $                                                  | —     |                                                 | $          | 1,217,244 |         | $ | (4,290 | ) | $ | 1,212,954 |   |

 

Theaccompanying notes are an integral part of these statements.

 

F-5

----

 

*The Rouse Company LP andSubsidiaries*

*A Subsidiary of GeneralGrowth Properties, Inc.*

CONSOLIDATED STATEMENTS OF CASH FLOWS

*Years ended December 31,2004, 2003 and 2002*

*(in thousands)*

 
| ** **                                                                                         | ** ** | **2004** | ** ** | **2003** | ** ** | **2002** | ** ** |
|----------------------------------------------------------------------------------------------------|------------|----------|------------|----------|------------|----------|------------|
| **Cash flows from operating activities:**                                                          |       |     |       |     |       |     |       |
| Net earnings (loss)                                                                                |       | $        | (274,761   | )        | $          | 260,589  |       | $ | 139,851 |   |
| Adjustments to reconcile net earnings  (loss) to net cash provided (used) by operating activities: |       |     |       |     |       |     |       |
| Depreciation and amortization                                                                      |       | 194,417  |       | 188,171  |       | 162,922  |       |
| Equity in earnings of unconsolidated real  estate affiliates                                       |       | (26,409  | )          | (31,421  | )          | (33,259  | )          |
| Net gains on dispositions of interests in  operating properties                                    |       | (59,211  | )          | (112,155 | )          | (81,958  | )          |
| Impairment losses on operating properties  and other assets                                        |       | 75,103   |       | 7,900    |       | 53,746   |       |
| Losses (gains) on extinguishment of debt                                                           |       | 8,026    |       | (19,654  | )          | 7,679    |       |
| Participation expense pursuant to  Contingent Stock Agreement                                      |       | 85,390   |       | 64,293   |       | 52,870   |       |
| Land development expenditures in excess of  cost of land sales                                     |       | (70,385  | )          | (37,782  | )          | (33,668  | )          |
| Provision for bad debts                                                                            |       | 14,281   |       | 11,964   |       | 9,059    |       |
| Debt assumed by purchasers of land                                                                 |       | (6,852   | )          | (19,595  | )          | (16,186  | )          |
| Deferred income taxes                                                                              |       | 31,813   |       | 41,214   |       | 26,919   |       |
| Decrease (increase) in accounts and notes  receivable                                              |       | (9,592   | )          | (14,038  | )          | 24,049   |       |
| Decrease in other assets                                                                           |       | 54,675   |       | 6,877    |       | 3,450    |       |
| Increase (decrease) in accounts payable,  accrued expenses and other liabilities                   |       | (46,301  | )          | (7,351   | )          | 7,155    |       |
| Other, net                                                                                         |       | 12,228   |       | 287      |       | 14,493   |       |
| Net cash provided (used) by operating  activities                                                  |       | $        | (17,578    | )        | $          | 339,299  |       | $ | 337,122 |   |
|                                                                                               |       |     |       |     |       |     |       |
| **Cash flows from investing activities:**                                                          |       |     |       |     |       |     |       |
| Expenditures for properties in development                                                         |       | (106,817 | )          | (168,341 | )          | (172,718 | )          |
| Expenditures for improvements to existing  properties                                              |       | (68,710  | )          | (71,456  | )          | (53,751  | )          |
| Expenditures for acquisitions of interests  in properties and other assets                         |       | (356,449 | )          | (396,891 | )          | (889,776 | )          |
| Proceeds from dispositions of interests in  properties                                             |       | 106,347  |       | 355,572  |       | 252,036  |       |
| Distributions from unconsolidated real  estate affiliates                                          |       | 131,613  |       | 36,667   |       | 83,875   |       |
| Expenditures for investments in  unconsolidated real estate affiliates                             |       | (14,927  | )          | (27,051  | )          | (35,715  | )          |
| Other                                                                                              |       | (23,211  | )          | 19,562   |       | (8,640   | )          |
| Net cash used by investing activities                                                              |       | $        | (332,154   | )        | $          | (251,938 | )          | $ | (824,689 | ) |

 

Theaccompanying notes are an integral part of these statements.

 

F-6

----

 

*The Rouse Company LP andSubsidiaries*

*A Subsidiary of GeneralGrowth Properties, Inc.*

CONSOLIDATEDSTATEMENTS OF CASH FLOWS

*Years ended December 31,2004, 2003 and 2002*

*(in thousands)*

 
| ** **                                                                                                                                                                                 | ** ** | **2004**  | ** ** | **2003** | ** ** | **2002** | ** ** |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-----------|------------|----------|------------|----------|------------|
| **Cash flows from financing activities:**                                                                                                                                                  |       |      |       |     |       |     |       |
| Proceeds from issuance of property debt                                                                                                                                                    |       | 1,349,546 |       | 315,967  |       | 195,164  |       |
| Repayments of property debt:                                                                                                                                                               |       |      |       |     |       |     |       |
| Scheduled principal payments                                                                                                                                                               |       | (72,394   | )          | (74,272  | )          | (76,058  | )          |
| Other payments                                                                                                                                                                             |       | (545,727  | )          | (436,314 | )          | (209,453 | )          |
| Proceeds from issuance of other debt                                                                                                                                                       |       | 502,736   |       | 389,919  |       | 812,691  |       |
| Repayments of other debt                                                                                                                                                                   |       | (301,750  | )          | (3,000   | )          | (509,689 | )          |
| Advance to General Growth Properties, Inc.                                                                                                                                                 |       | (650,876  | )          | —   |       | —   |       |
| Purchases of The Rouse Company-obligated  mandatorily redeemable preferred securities                                                                                                      |       | (79,751   | )          | (57,124  | )          | (625     | )          |
| Purchases of common stock                                                                                                                                                                  |       | (31,117   | )          | (71,964  | )          | (21,188  | )          |
| Proceeds from issuance of common stock                                                                                                                                                     |       | 221,917   |       | —   |       | 456,347  |       |
| Proceeds from exercise of stock options                                                                                                                                                    |       | 31,644    |       | 109,755  |       | 14,348   |       |
| Dividends paid                                                                                                                                                                             |       | (413,175  | )          | (161,840 | )          | (147,166 | )          |
| Capital contribution from General Growth  Properties, Inc.                                                                                                                                 |       | 272,791   |       | —   |       | —   |       |
| Other                                                                                                                                                                                      |       | (21,146   | )          | (22,891  | )          | (17,294  | )          |
| Net cash provided (used) by financing  activities                                                                                                                                          |       | 262,698   |       | (11,764  | )          | 497,077  |       |
| Net increase (decrease) in cash and cash  equivalents                                                                                                                                      |       | (87,034   | )          | 75,597   |       | 9,510    |       |
| Cash and cash equivalents at beginning of  year                                                                                                                                            |       | 117,230   |       | 41,633   |       | 32,123   |       |
| Cash and cash equivalents at end of year                                                                                                                                                   |       | $         | 30,196     |     | $          | 117,230  |       | $ | 41,633 |   |
|                                                                                                                                                                                       |       |      |       |     |       |     |       |
| **Supplemental Disclosure of Cash Flow  Information:**                                                                                                                                     |       |      |       |     |       |     |       |
| Interest paid                                                                                                                                                                              |       | $         | 234,143    |     | $          | 231,135  |       | $ | 233,403 |   |
| Interest capitalized                                                                                                                                                                       |       | 38,218    |       | 37,875   |       | 38,204   |       |
|                                                                                                                                                                                       |       |      |       |     |       |     |       |
| **Schedule of Noncash Investing and Financing  Activities:**                                                                                                                               |       |      |       |     |       |     |       |
| Common stock issued pursuant to Contingent  Stock Agreement                                                                                                                                |       | $         | 51,818     |     | $          | 66,785   |       | $ | 19,356 |   |
| Capital lease obligations incurred                                                                                                                                                         |       | 7,059     |       | 7,504    |       | 12,720   |       |
| Tax benefit related to nonqualified stock  options exercised                                                                                                                               |       | 14,928    |       | —   |       | —   |       |
| Lapses of restrictions on common stock  awards and other                                                                                                                                   |       | 6,341     |       | 7,515    |       | 2,809    |       |
| Debt assumed by purchasers of land and  other assets                                                                                                                                       |       | 6,852     |       | 19,595   |       | 16,656   |       |
| Debt assumed by purchasers of operating  properties                                                                                                                                        |       | 130,787   |       | 286,186  |       | —   |       |
| Debt and other liabilities assumed or  issued in other acquisitions of assets                                                                                                              |       | 400,744   |       | 289,208  |       | —   |       |
| Debt and other liabilities assumed and  consolidated in acquisition of assets from Rodamco North America N.V. and  other partners’ interests in unconsolidated real estate affiliates |       | —    |       | 95,770   |       | 915,976  |       |
| Property and other assets contributed to  unconsolidated real estate affiliates                                                                                                            |       | —    |       | 164,306  |       | 196,920  |       |
| Debt and other liabilities related to  property and other assets contributed to unconsolidated real estate affiliates                                                                      |       | —    |       | 163,406  |       | 129,801  |       |

 

Theaccompanying notes are an integral part of these statements.

 

F-7

----

 

*The Rouse Company LP and Subsidiaries*

*A Subsidiary of General Growth Properties, Inc.*

NOTES TO CONSOLIDATEDFINANCIAL STATEMENTS

*December 31, 2004, 2003 and 2002*

 

***(1)***         Summary of significantaccounting policies

 

***(a)***         Basis of presentation

The consolidated financial statements include the accounts of The RouseCompany LP (the successor to The Rouse Company), our subsidiaries and ventures(“we,” “TRCLP” or “us”) in which we have a majority voting interest andcontrol.  We also consolidate theaccounts of variable interest entities that are considered special purposeentities and where we are the primary beneficiary.  We account for investments in other venturesusing the equity or cost methods as appropriate in the circumstances.  Significant intercompany balances andtransactions are eliminated in consolidation.

The preparation of financial statements in conformity with U.S.generally accepted accounting principles requires management to make estimatesand judgments that affect the reported amounts of assets and liabilities anddisclosures of contingencies at the date of the financial statements andrevenues and expenses recognized during the reporting period.  Significant estimates are inherent in thepreparation of our financial statements in a number of areas, including thecost ratios and completion percentages used for land sales, evaluation ofimpairment of long-lived assets (including operating properties and propertiesheld for development or sale), evaluation of collectibility of accounts andnotes receivable and allocation of the purchase price of acquiredproperties.  Actual results could differfrom these and other estimates.

Certain amountsfor prior years have been reclassified to conform to the presentation methodsused for 2004.

 

***(b)***         Merger with GeneralGrowth Properties, Inc.

On August 19, 2004, The Rouse Company executed a definitive mergeragreement, which was approved by The Rouse Company’s Board of Directors, withGeneral Growth Properties, Inc. (“GGP”). On November 9, 2004, The RouseCompany’s shareholders approved the merger (the “Merger”). On November 12,2004, the Merger was completed and The Rouse Company was merged with and intous. A subsidiary of GGP was then merged with and into us and through a seriesof transactions, we were converted to a limited partnership and a subsidiary ofGGP.

Under terms of the Merger, The Rouse Company shareholders were toreceive consideration of $67.50 per share reduced by the payment of anyextraordinary dividends. We declared and paid an extraordinary dividend in November 2004of $2.29474 per share. This reduced the merger consideration to $65.20526 pershare.

Effective with the Merger, each of our outstanding stock options andrestricted stock grants became fully vested. Each option holder received a cashpayment equal to the excess of the merger consideration over the exercise priceper share of the stock option. Each holder of restricted stock received a cashpayment equal to the per share merger consideration. These payments resulted inthe recognition of additional compensation expense (see Note 11).

At the time of the Merger, the common stock of The Rouse Company wascanceled and retired. Additionally, all stock-based employee compensation plans(stock option plans and stock bonus plans) were terminated. As a result, ourconsolidated financial statements do not contain common stock relateddisclosures, such as earnings per share amounts or information regardingstock-based compensation, for the year ended December 31, 2004.

Typically, the effects of a merger transaction are reflected in thefinancial statements of the acquired company by adjusting its basis of assetsand liabilities to their fair values in order to reflect the purchase pricepaid in the acquisition. However, there are certain exceptions (related to thepresence of public debt that is qualitatively or quantitatively significant) tothis requirement that would allow a Company to elect to not apply this generalpractice. As described above, the Merger took place on November 12, 2004.Applying these purchase accounting adjustments in 2004 would require that theoperations of the Company for 2004 be split between pre and post-mergeractivity. This presentation in our financial statements would not be comparableto the operations presented for previous years. Accordingly, we have elected tonot reflect these purchase accounting adjustments in our consolidated financialstatements for 2004. As a result of this election, the post-Merger presentationretains our historical cost basis. Consequently, the presentation of our assetsand liabilities and post-Merger operations will differ from the presentation ofthe same assets, liabilities and operations included in the financialstatements of GGP as the consolidated financial statements of GGP are requiredto be presented with such purchase accounting adjustments.

However, we intend to reflect these adjustments in our financialstatements in 2005. When these adjustments are made, the applicable comparableperiods for 2004 will be restated to also reflect these adjustments. In thisway, comparable periods can be evaluated within our financial statements and asingle underlying set of information can be used for both ours and GGP’sconsolidated statements.

 

F-8

----

 

***(c)***          Description of business

Through oursubsidiaries and affiliates, we acquire, develop and manage operatingproperties located throughout the United States and develop and sell land forresidential, commercial and other uses primarily in master-plannedcommunities.  The operating propertiesconsist of retail centers, office and industrial buildings and mixed-use andother properties.  The retail centers areprimarily regional shopping centers in suburban market areas, but also includespecialty marketplaces in certain downtown areas and several community retailcenters.  The office and industrialproperties are located primarily in the Baltimore-Washington and Las Vegasmarkets or are components of large-scale mixed-use properties (which includeretail, parking and other uses) located in other urban markets.  Land development and sales operations arepredominantly related to large scale, long-term community development projectsin and around Columbia, Maryland, Summerlin, Nevada and Houston, Texas.

*** ***

***(d)***         Property andproperty-related deferred costs

Properties to be developed or held and used in operations are carriedat cost reduced for impairment losses, where appropriate.  Acquisition, development and constructioncosts of properties in development are capitalized including, where applicable,salaries and related costs, real estate taxes, interest and preconstructioncosts directly related to the project. The preconstruction stage of developmentof an operating property (or an expansion of an existing property) includesefforts and related costs to secure land control and zoning, evaluatefeasibility and complete other initial tasks which are essential todevelopment. Provisions are made for costs of potentially unsuccessfulpreconstruction efforts by charges to operations.  Development and construction costs and costsof significant improvements and replacements and renovations at operatingproperties are capitalized, while costs of maintenance and repairs are expensedas incurred.

Direct costs associated with leasing of operating properties arecapitalized as deferred costs and amortized using the straight-line method overthe terms of the related leases.

Depreciation of each operating property is computed using thestraight-line method.  The annual rate ofdepreciation for each retail center (with limited exceptions) is based on a55-year composite life and a salvage value of approximately 10%.  Office buildings and other properties aredepreciated using composite lives of 40 years. Furniture and fixtures and certain common area improvements aredepreciated using estimated useful lives ranging from 2 to 10 years.

If events or circumstances indicate that the carrying value of anoperating property to be held and used may be impaired, a recoverability analysisis performed based on estimated undiscounted future cash flows to be generatedfrom the property.  If the analysisindicates that the carrying value is not recoverable from future cash flows,the property is written down to estimated fair value and an impairment loss isrecognized.  Fair values are determinedbased on appraisals and/or estimated future cash flows using appropriatediscount and capitalization rates.

Properties held for sale are carried at the lower of their carryingvalues (i.e. cost less accumulated depreciation and any impairment lossrecognized, where applicable) or estimated fair values less costs to sell.  The net carrying values of operatingproperties are classified as properties held for sale when the properties areactively marketed, their sale is considered probable within one year andvarious other criteria relating to their disposition are met.  Depreciation of these properties isdiscontinued at that time, but operating revenues, interest and other operatingexpenses continue to be recognized until the date of sale. Revenues andexpenses of properties that are classified as held for sale are presented asdiscontinued operations for all periods presented in the statements ofoperations if the properties will be or have been sold on terms where we havelimited or no continuing involvement with them after the sale.  If active marketing ceases or the propertiesno longer meet the criteria to be classified as held for sale, the propertiesare reclassified as operating, depreciation is resumed, depreciation for theperiod the properties were classified as held for sale is recognized anddeferred selling costs, if any, are charged to expense. Additionally, wepresent other assets and liabilities of properties classified as held for saleseparately in the balance sheet, if material.

Gains from dispositions of interests in operating properties arerecognized using the full accrual method provided that various criteriarelating to the terms of the transactions and any subsequent involvement by uswith the properties sold are met.  Gainsrelating to transactions that do not meet the established criteria are deferredand recognized when the criteria are met or using the installment or costrecovery methods, as appropriate inthe circumstances.

 

***(e)***          Acquisitions ofoperating properties

We allocate the purchase price of acquired properties to tangible andidentified intangible assets based on their fair values.  In making estimates of fair values forpurposes of allocating purchase price, we use a number of sources, includingindependent appraisals that may be obtained in connection with the acquisitionor financing of the respective property and other market data.  We also consider information obtained abouteach property as a result of our pre-acquisition due diligence, marketing andleasing activities in estimating the fair value of the tangible and intangibleassets acquired.

The fair values of tangible assets are determined on an “if-vacant”basis.  The “if-vacant” fair value isallocated to land, where applicable, buildings, tenant improvements andequipment based on property tax assessments and other relevant informationobtained in connection with the acquisition of the property.

Our intangible assets arise primarily from contractual rights andinclude leases with above- or below-market rents (including ground leases wherewe are lessee), in-place leases and customer relationship values and a realestate tax stabilization agreement.

 

F-9

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Above-market and below-market in-place lease values are recorded basedon the present value (using an interest rate which reflects the risksassociated with the leases acquired) of the difference between (i) thecontractual amounts to be received pursuant to the in-place leases and (ii) ourestimate of fair market lease rates for the corresponding space, measured overa period equal to the remaining non-cancelable term of the lease (includingthose under bargain renewal options). The capitalized above- and below-market lease values are amortized asadjustments to rental income over the remaining terms of the respective leases(including periods under bargain renewal options).

The aggregate fair values of in-place leases and customer relationshipassets acquired are measured based on the difference between (i) the propertyvalued with existing in-place leases adjusted to market rental rates and (ii)the property valued as if vacant.  Thisvalue is allocated to in-place lease and customer relationship assets (both anchorstores and tenants).  The fair value ofin-place leases is based on our estimates of carrying costs during the expectedlease-up periods and costs to execute similar leases.  Our estimate of carrying costs includes realestate taxes, insurance and other operating expenses and lost rentals duringthe expected lease-up periods considering current market conditions.  Our estimate of costs to execute similarleases includes leasing commissions, legal and other related costs. The fairvalue of anchor store agreements is determined based on our experiencenegotiating similar relationships (not in connection with propertyacquisitions). The fair value of tenant relationships is based on ourevaluation of the specific characteristics of each tenant’s lease and ouroverall relationship with that respective tenant.  Characteristics we consider in determiningthese values include the nature and extent of our existing businessrelationships with the tenant, growth prospects for developing new businesswith the tenant, the tenant’s credit quality and expectations of leaserenewals, among other factors.  The valueof in-place leases is amortized to expense over the initial term of therespective leases, primarily ranging from two to ten years.  The value of anchor store agreements isamortized to expense over the estimated term of the anchor store’s occupancy inthe property.  Should an anchor storevacate the premises, the unamortized portion of the related intangible ischarged to expense.  The value of tenantrelationship intangibles is amortized to expense over the initial term and anyrenewal periods in the respective leases, but in no event does the amortizationperiod exceed the remaining depreciable life of the building.  Should a tenant terminate its lease, theunamortized portion of the in-place lease value and customer relationshipintangibles is charged to expense. The value allocated to the tax stabilizationagreement was determined based on the difference between the present value ofestimated market real estate taxes and amounts due under the agreement and isamortized to operating expense over the term of the agreement, which isapproximately 24 years.

The aggregate purchase price of properties acquired in 2004 and 2003was allocated to intangible assets and liabilities as follows (in millions):

 

| ** **                              | ** ** | **2004** | ** ** | **2003** | ** ** |
|-----------------------------------------|------------|----------|------------|----------|------------|
|                                    |       |     |       |     |       |
| Above-market leases                     |       | $        | 4.4        |     | $          | 1.1 |   |
| In-place lease assets                   |       | 3.3      |       | 2.0      |       |
| Tenant relationships                    |       | 7.1      |       | 0.6      |       |
| Below-market leases                     |       | 6.5      |       | 4.7      |       |
| Anchor store agreements                 |       | 7.5      |       | 2.5      |       |
| Below-market ground lease               |       | 14.5     |       | —   |       |
| Real estate tax stabalization agreement |       | 94.2     |       | —   |       |
|                                         |            |          |            |          |            |  |  |

 

***(f)***            Leases

Leases whichtransfer substantially all the risks and benefits of ownership to tenants areconsidered finance leases and the present values of the minimum lease paymentsand the estimated residual values of the leased properties, if any, areaccounted for as receivables.  Leaseswhich transfer substantially all the risks and benefits of ownership to us areconsidered capital leases and the present values of the minimum lease paymentsare accounted for as assets and liabilities.

 

***(g)***         Income taxes

Effective with the Merger, we became a disregarded entity for Federalincome tax purposes and for tax purposes in most states in which we operate.However, we continued to own and operate several taxable REIT subsidiaries (“TRS”)that are recognized for Federal and state income tax purposes.

Prior to the Merger, we had elected to be taxed as a REIT pursuant tothe Internal Revenue Code of 1986, as amended, effective January 1,1998.  In general, a corporation thatdistributes at least 90% of its REIT taxable income to shareholders in anytaxable year and complies with certain other requirements (relating primarilyto the nature of its assets and the sources of its revenues) is not subject toFederal income taxation to the extent of the income which it distributes.  We believe that we met the qualifications forREIT status as of the Merger date.

We and certain wholly-owned subsidiaries made a joint election to treatthe subsidiaries as TRS, which allows us to engage in certain non-qualifyingREIT activities. With respect to the TRS, we are liable for income taxes at theFederal and state levels.  Except withrespect to the TRS, we do not believe that we will be liable for significantincome taxes at the Federal level or in most of the states in which we operatein 2005 and future years.

 

F-10

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Deferred incometaxes relate primarily to the TRS and are accounted for using the asset andliability method.  Under this method,deferred income taxes are recognized for temporary differences between thefinancial reporting bases of assets and liabilities of the TRS and theirrespective tax bases and for their interest, operating loss and tax creditcarryforwards based on enacted tax rates expected to be in effect when suchamounts are realized or settled. However, deferred tax assets are recognized only to the extent that itis more likely than not that they will be realized based on consideration ofavailable evidence, including tax planning strategies and other factors.

 

***(h)***         Investments in marketablesecurities and cash and cash equivalents

Our investment policy defines authorized investments and establishesvarious limitations on the maturities, credit quality and amounts ofinvestments held.  Authorized investmentsinclude U.S. government and agency obligations, certificates of deposit,bankers acceptances, repurchase agreements, commercial paper, money marketmutual funds and corporate debt and equity securities.  We may also invest in mutual funds to closelymatch the investment selections of participants in nonqualified deferredcompensation plans.

Debt security investments with maturities at dates of purchase inexcess of three months are classified as marketable securities and carried atamortized cost as it is our intention to hold these investments untilmaturity.  Short-term investments withmaturities at dates of purchase of three months or less are classified as cashequivalents. Most investments in marketable equity securities are held in anirrevocable trust for participants in our nonqualified defined contributionplans, are classified as trading securities and are carried at market valuewith changes in values recognized in earnings. Other investments in marketableequity securities subject to significant restrictions on sale or transfer areclassified as available-for-sale and are carried at market value withunrealized changes in values recognized in other comprehensive income.

Other income, net in 2004, 2003 and 2002 is summarized as follows (inthousands):

 
| ** **                                   | ** ** | **2004** | ** ** | **2003** | ** ** | **2002** | ** ** |
|----------------------------------------------|------------|----------|------------|----------|------------|----------|------------|
|                                         |       |     |       |     |       |     |       |
| Interest income                              |       | $        | 2,402      |     | $          | 2,324    |       | $ | 4,326 |   |
| Dividends                                    |       | 1,411    |       | 232      |       | 271      |       |
| Gains (losses) on marketable securities, net |       | 3,690    |       | 6,783    |       | (2,460   | )          |
|                                         |       | $        | 7,503      |     | $          | 9,339    |       | $ | 2,137 |   |

 

***(i)***            Revenue recognitionand related matters

Minimum rent revenues are recognized on a straight-line basis over theterms of the leases.  Rents based ontenant sales are recognized when tenant sales exceed contractual thresholds.

Revenues related to variable recoveries from tenants of real estatetaxes, utilities, maintenance, insurance and other expenses pursuant to leasesare recognized in the period in which the related expenses are incurred. Fixedcontributions from tenants related to these expenses are recognized when due.Lease termination fees are recognized when the related agreements are executed.Management fee revenues are calculated as a fixed percentage of revenues of themanaged properties and are recognized as the managed properties’ revenues areearned.

Revenues from land sales are recognized using the full accrual methodprovided that various criteria relating to the terms of the transactions andany subsequent involvement by us with the land sold are met.  Revenues relating to transactions that do notmeet the established criteria are deferred and recognized when the criteria aremet or using the installment or cost recovery methods, as appropriate in thecircumstances.  For land saletransactions under the terms of which we are required to perform additionalservices and incur significant costs after title has passed, revenues and costof sales are recognized on a percentage of completion basis.

Cost of land salesis determined as a specified percentage of land sales revenues recognized foreach community development project.  Thecost ratios used are based on actual costs incurred and estimates ofdevelopment costs and sales revenues to completion of each project.  The ratios are reviewed regularly and revisedfor changes in sales and cost estimates or development plans.  Significant changes in these estimates ordevelopment plans, whether due to changes in market conditions or otherfactors, could result in changes to the cost ratio used for a specificproject.  The specific identificationmethod is used to determine cost of sales for certain parcels of land,including acquired parcels we do not intend to develop or for which developmentis complete at the date of acquisition.

 

***(j)***            Derivative financialinstruments

We may use derivative financial instruments to reduce risk associatedwith movements in interest rates.  We maychoose to reduce cash flow and earnings volatility associated with interestrate risk exposure on variable-rate borrowings and/or forecasted fixed-rateborrowings.  In some instances, lendersmay require us to do so.  In order tolimit interest rate risk on variable-rate borrowings, we may enter into pay-fixed,receive-variable interest rate swaps or interest rate caps to hedge specificrisks.  In order to limit interest raterisk on forecasted borrowings, we may enter into forward-rate agreements,forward starting swaps, interest rate locks and interest rate collars. We mayalso enter into pay-variable, receive-fixed rate swaps to hedge the fair valuesof fixed-rate borrowings. In addition, we may use derivative financialinstruments to reduce risk associated with movements in currency exchange ratesif and when we are exposed to such risk. We do not use derivative financial instruments for speculative purposes.

 

F-11

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Under interest rate cap agreements, we make initial premium payments tothe counterparties in exchange for the right to receive payments from them ifinterest rates exceed specified levels during the agreement period. Underinterest rate swap agreements, we and the counterparties agree to exchange thedifference between fixed-rate and variable-rate interest amounts calculated byreference to specified notional principal amounts during the agreementperiod.  Notional principal amounts areused to express the volume of these transactions, but the cash requirements andamounts subject to credit risk are substantially less.

Parties to interest rate exchange agreements are subject to market riskfor changes in interest rates and risk of credit loss in the event ofnonperformance by the counterparty.  Wedo not require any collateral under these agreements but deal only with highlyrated financial institution counterparties (which, in certain cases, are alsothe lenders on the related debt) and expect that all counterparties will meettheir obligations.

All of the pay-fixed, receive-variable interest rate swap and otherderivative financial instruments we used in 2004, 2003 and 2002 qualified ascash flow hedges and hedged our exposure to forecasted interest payments onvariable-rate LIBOR-based debt or the forecasted issuance of fixed-ratedebt.  Accordingly, the effective portionof the instruments’ gains or losses is reported as a component of othercomprehensive income and reclassified into earnings when the related forecastedtransactions affect earnings.  If wediscontinue a cash flow hedge because it is probable that the original forecastedtransaction will not occur, the net gain or loss in accumulated othercomprehensive income is immediately reclassified into earnings. Any subsequentchanges in the fair value of the derivative are immediately recognized inearnings. If we discontinue a cash flow hedge, the net gain or loss inaccumulated other comprehensive income is reclassified to earnings over theterm during which the hedged forecasted transaction affects earnings.

All of the pay-variable, receive-fixed interest rate swaps we used in2004 qualified as fair value hedges and hedged our exposure to changes in thefair value of the hedged instruments. Accordingly, the hedges and the hedgedinstruments are carried at their fair values with changes in their fair valuesrecorded in earnings. Because the hedges are highly effective, the changes in thevalues of the hedge and the hedged instrument are substantially equal andoffsetting.

We have not recognized any gains or losses in our consolidatedstatements of operations as a result of hedge discontinuance, and the expensethat we recognized related to changes in the time value of interest rate capagreements was insignificant for 2004, 2003 and 2002.

Amounts receivableor payable under interest rate cap and swap agreements are accounted for asadjustments to interest expense on the related debt.

 

***(k)***         Other information aboutfinancial instruments

Fair values offinancial instruments approximate their carrying values in the financialstatements except for debt and The Rouse Company LP-obligated mandatorilyredeemable preferred securities, for which fair value information is providedin Notes 7 and 8. In addition, we determined that several of our consolidatedpartnerships are limited-life entities. The fair values of minority interests in these partnerships at December 31,2004 and 2003 aggregated approximately $62.0 million and $56.5 million,respectively.  The aggregate carryingvalues of the minority interests in these partnerships were approximately $29.8million and $28.5 million at December 31, 2004 and 2003, respectively.

 

***(l)***            Earnings per share ofcommon stock

Earnings per sharewere not computed in 2004 as there were no outstanding shares of common stockat December 31, 2004. In 2003 and 2002, basic earnings per share (“EPS”)was computed by dividing net earnings applicable to common shareholders by theweighted-average number of common shares outstanding.  Diluted EPS was computed after adjusting thenumerator and denominator of the basic EPS computation for the effects of alldilutive potential common shares during the period.  The dilutive effects of convertiblesecurities are computed using the “if-converted” method and the dilutiveeffects of options, warrants and their equivalents (including fixed awards andnonvested stock issued under stock-based compensation plans) were computedusing the “treasury stock” method.

 

F-12

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***(m)***      Stock-based compensation

We applied the intrinsic value-based method of accounting prescribed byAccounting Principles Board (“APB”) Opinion No. 25, “Accounting for StockIssued to Employees,” and related interpretations to account for stock-basedemployee compensation plans.  Under thismethod, compensation cost was recognized for awards of shares of common stockor stock options to our officers and employees only if the quoted market priceof the stock at the grant date (or other measurement date, if later) wasgreater than the amount the grantee must pay to acquire the stock.  The following table summarizes the pro formaeffects on net earnings (loss) (in thousands) and earnings per share of commonstock (for 2003 and 2002) of using an optional fair value-based method, ratherthan the intrinsic value-based method, to account for stock-based compensationawards made since 1995. Subsequent to the Merger, there were no outstandingshares of common stock, all outstanding stock options became fully vested,settled and expensed, and stock-based compensation plans were terminated as ofthe date of the Merger.

 

| ** **                                                                                                                                        | ** ** | **2004** | ** ** | **2003** | ** ** | **2002** | ** ** |
|---------------------------------------------------------------------------------------------------------------------------------------------------|------------|----------|------------|----------|------------|----------|------------|
|                                                                                                                                              |       |     |       |     |       |     |       |
| Net earnings (loss), as reported                                                                                                                  |       | $        | (274,761   | )        | $          | 260,589  |       | $ | 139,851 |   |
| Add: Stock-based employee compensation expense  included in determined reported net earnings, net of related tax effects and  amounts capitalized |       | 200,405  |       | 4,585    |       | 3,235    |       |
| Deduct: Total stock-based employee compensation  expense under fair value-based method, net of related tax effects and amounts  capitalized       |       | (20,911  | )          | (13,653  | )          | (10,237  | )          |
| Pro forma net earnings (loss)                                                                                                                     |       | $        | (95,267    | )        | $          | 251,521  |       | $ | 132,849 |   |
|                                                                                                                                              |       |     |       |     |       |     |       |
| Earnings per share of common stock:                                                                                                               |       |     |       |     |       |     |       |
| Basic:                                                                                                                                            |       |     |       |     |       |     |       |
| As reported                                                                                                                                       |       | N/A      |       | $        | 2.80       |     | $          | 1.49 |   |
| Pro forma                                                                                                                                         |       | N/A      |       | $        | 2.70       |     | $          | 1.41 |   |
| Diluted:                                                                                                                                          |       |     |       |     |       |     |       |
| As reported                                                                                                                                       |       | N/A      |       | $        | 2.73       |     | $          | 1.47 |   |
| Pro forma                                                                                                                                         |       | N/A      |       | $        | 2.65       |     | $          | 1.39 |   |

 

The per share weighted-average estimated fair values of options grantedduring 2004, 2003 and 2002 were $6.83, $4.06 and $3.48, respectively.  These fair values were estimated on the datesof each grant using the Black-Scholes option-pricing model with the followingassumptions:

 

| ** **              | ** ** | **2004** | ** ** | **2003** | ** ** | **2002** | ** ** |
|-------------------------|------------|----------|------------|----------|------------|----------|------------|
|                    |       |     |       |     |       |     |       |
| Risk-free interest rate |       | 3.5      | %          | 3.2      | %          | 4.4      | %          |
| Dividend yield          |       | 4.0      | %          | 5.0      | %          | 5.5      | %          |
| Volatility factor       |       | 20.0     | %          | 20.0     | %          | 20.0     | %          |
| Expected life in years  |       | 6.4      |       | 6.1      |       | 6.7      |       |

 

***(n)***         Deferred financing costs

We defer directcosts associated with borrowings and amortize them using the interest method(or other methods which approximate the interest method) over the terms of therelated financings.

 

***(2)***         Discontinued operations

We sell interests in retail centers that are not consistent with ourlong-term business strategies or not meeting our investment criteria and officeand other properties that are not located in our master-planned communities ornot part of urban mixed-use properties. We may also dispose of properties for other reasons.

In December 2003, as part of an agreement to acquire interests inentities developing The Woodlands (see Note 3), we agreed to dispose of HughesCenter, a master-planned business park in Las Vegas, Nevada, comprising eightoffice buildings totaling approximately 1.1 million square feet, nine groundleases and approximately 13 acres of developable land.  The sales of two of the office buildings andtwo of the ground leases closed in December 2003 for cash of $29.0 millionand the assumption by the buyer of $9.6 million of mortgage debt.  We recorded aggregate gains on these sales ofapproximately $10.1 million.  Theremaining sale of the properties in Hughes Center closed in 2004 for cash of$71.3 million and the assumption by the buyer of $110.8 million of mortgagedebt. We recorded aggregate gains on these sales of approximately $42.2 million(net of deferred income taxes of $2.7 million).

 

F-13

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In May 2004, we agreed to sell our interests in two office buildings inHunt Valley, Maryland. We recorded aggregate impairment losses of $1.4 millionin the fourth quarter of 2003 and $0.4 million in 2004 related to theseproperties. These properties were sold in October 2004 for net proceeds of$8.4 million.

In March 2004, we sold our interests in Westdale Mall, a retailcenter in Cedar Rapids, Iowa, for cash of $1.3 million and the assumption bythe buyer of $20.0 million of mortgage debt. We recognized a gain of $0.8million relating to this sale. We recorded an impairment loss of $6.5 millionin 2003 related to this property.

We also recorded in 2004 net gains of $2.0 million (net of deferredincome taxes of $0.4 million) related to the resolutions of certaincontingencies related to disposals of properties in 2002 and 2003.

In August 2003, we sold The Jacksonville Landing, a retail centerin Jacksonville, Florida, for net proceeds of $4.8 million.  We recognized a gain of $2.8 million relatingto this sale.  We recorded an impairmentloss of $3.3 million in the fourth quarter of 2002 related to this property. Wealso sold three small neighborhood retail properties in Columbia, Maryland inthe third quarter of 2003 for aggregate proceeds of $2.2 million and recognizedaggregate gains of $0.9 million.  In Mayand June 2003, we sold eight office and industrial buildings in theBaltimore-Washington corridor for net proceeds of $46.6 million.  We recognized aggregate gains of $4.4 millionrelating to the sales of these properties.

In April and May 2003, we sold six retail centers in thePhiladelphia metropolitan area and, in a related transaction, acquiredChristiana Mall from a party related to the purchaser.  In connection with these transactions, wereceived net cash proceeds of $218.4 million, the purchaser assumed $276.6million of property debt, and we assumed a participating mortgage secured byChristiana Mall.  We recognized aggregategains of $65.4 million relating to the monetary portions of these transactions.We recorded an impairment loss of $38.8 million in the fourth quarter of 2002related to one of the retail centers sold.

We also recorded a net gain of $26.9 million related to theextinguishment of debt secured by two of the properties sold in thePhiladelphia metropolitan area when the lender released the mortgages for acash payment by us of less than the aggregate carrying amount of the debt.

In December 2002, we sold our interest in Tampa Bay Center and ourinterest in a Summerlin community retail center for net proceeds of $22.8million and $25.1 million, respectively. We recorded gains of $2.5 million and $2.8 million (net of deferredincome taxes of $1.5 million), respectively, on these transactions.

In April 2002, we sold our interests in 12 community retailcenters in Columbia, Maryland for net proceeds of $111.1 million.  We recorded a gain on this transaction ofapproximately $32.0 million, net of deferred income taxes of $18.4million.  Our interests in one of thecommunity retail centers were reported in unconsolidated real estate affiliatesand the gain on the sale of our interests in this property ($4.3 million, netof deferred income taxes of $2.0 million) is included in continuing operations(see Note 13).  The remaining gain onthis transaction ($27.7 million, net of deferred income taxes of $16.4 million)is classified as a component of discontinued operations.  In anticipation of the sale of the communityretail centers, we repaid debt secured by these properties in March 2002and incurred a loss on this repayment of $5.3 million, including prepaymentpenalties of $4.6 million.

The operating results of the properties included in discontinuedoperations are summarized as follows (in thousands):

 
| ** **                                                      | ** ** | **2004** | ** ** | **2003** | ** ** | **2002** | ** ** |
|-----------------------------------------------------------------|------------|----------|------------|----------|------------|----------|------------|
|                                                            |       |     |       |     |       |     |       |
| Revenues                                                        |       | $        | 3,992      |     | $          | 88,469   |       | $ | 165,700 |   |
| Operating expenses, exclusive of depreciation and  amortization |       | (1,604   | )          | (41,302  | )          | (75,194  | )          |
| Interest expense                                                |       | (730     | )          | (20,920  | )          | (38,440  | )          |
| Depreciation and amortization                                   |       | (980     | )          | (16,988  | )          | (33,617  | )          |
| Gains (losses) on extinguishment of debt, net                   |       | —   |       | 26,896   |       | (5,346   | )          |
| Impairment losses on operating properties                       |       | (432     | )          | (7,900   | )          | (42,123  | )          |
| Gains on dispositions of operating properties, net              |       | 45,090   |       | 85,523   |       | 33,012   |       |
| Income tax benefit (provision), primarily deferred              |       | 63       |       | (191     | )          | 736      |       |
| Discontinued operations                                         |       | $        | 45,399     |     | $          | 113,587  |       | $ | 4,728 |   |

 

***(3)***         Unconsolidated real estateaffiliates

Investments in and advances to unconsolidated real estate affiliates atDecember 31, 2004 and 2003 were $528.9 million and $647.9 million,respectively.  Our equity in earnings of unconsolidatedreal estate affiliates was $26.4 million, $31.4 million and $33.3 million forthe years ended December 31, 2004, 2003 and 2002, respectively.

We own interests in unconsolidated real estate affiliates that ownand/or develop properties, including master-planned communities.  We use these ventures to limit our riskassociated with individual properties and to reduce our capital requirements.We may also contribute interests in properties we own to unconsolidatedventures for cash distributions and interests in the ventures to provideliquidity as an alternative to outright property sales.  We account for the majority of these venturesusing the equity method because the ventures do not meet the definition of a variableinterest entity and we have joint interest and control of these properties withour venture partners.  For those ventureswhere we own less than a 5% interest and have virtually no influence on theventure’s operating and financial policies, we account for our investmentsusing the cost method.

 

F-14

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At December 31, 2004, these ventures were primarily partnershipsand corporations which own retail centers (most of which we manage) and aventure developing the master-planned community known as The Woodlands, nearHouston, Texas. In January 2004, we acquired our partners’ interests inthe joint venture that is developing the master-planned community known asFairwood, in Prince George’s County, Maryland, increasing our ownership to100%. Prior to this transaction, we held a noncontrolling interest in thisventure and accounted for our investment as an investment in unconsolidated realestate affiliates. We consolidated the venture in our financial statements fromthe date of the acquisition.

In April 2004, we sold most of our interest in Westin New York, ahotel in New York City, for net proceeds of $15.8 million and recognized a gainof approximately $1.4 million (net of deferred income taxes of $0.8 million).

In December 2003, we acquired a 50% interest in the retailcomponent and certain office components of Mizner Park, a mixed-use property inBoca Raton, Florida, for approximately $34 million.  In January 2004, we acquired a 50%interest in the remaining office components of Mizner Park for approximately$18 million.

On December 31, 2003 we acquired, for approximately $185 million,certain office buildings and a 52.5% economic interest in entities (which werefer to as the “Woodlands Entities”) that own The Woodlands, a master-plannedcommunity in the Houston, Texas metropolitan area.  Assets owned by the Woodlands Entities at thetime of acquisition included approximately 5,500 acres of land, three golfcourse complexes, a resort conference center, a hotel, interests in sevenoffice buildings and other assets. Two of the office buildings were sold during2004.

In December 2003, we sold our investment in Kravco Investments,L.P. for approximately $52 million.

In August 2003, we acquired the remaining interest in StatenIsland Mall, a regional retail center in Staten Island, New York, for approximately$148 million cash and assumption of the other venture’s share of debt(approximately $53 million) encumbering the property.  We consolidated this property from the dateof acquisition.

In April 2003, we acquired Christiana Mall subject to a participatingmortgage.  We subsequently conveyed a 50%interest in the property to the holder of the participating mortgage (which werepaid from proceeds of a new mortgage loan) and report our remaining 50%interest in unconsolidated real estate affiliates.

In November 2002, we acquired our partners’ controlling financialinterests in entities that own Ridgedale Center, a regional retail center insuburban Minneapolis, Minnesota, and Southland Center, a regional retail centerin suburban Detroit, Michigan, for an aggregate purchase price of $215.8million (cash of $63.1 million and assumption of our partners’ share of debt of$152.7 million).  We owned 10%noncontrolling interests in these entities prior to this transaction. Weconsolidated these properties from the date of acquisition.

In October 2002, we contributed our ownership interest inPerimeter Mall to a joint venture in exchange for a 50% interest in the ventureand a distribution of $67.1 million.  Asa result, we report our interest in this property in unconsolidated real estateaffiliates from the date of contribution.

In May 2002, we acquired partial, noncontrolling ownership interests inOakbrook Center, Water Tower Place and certain other assets from Rodamco NorthAmerica N.V. (“Rodamco”) (see Note 18). Additionally, we acquired from Rodamco the remaining interests inproperties (Collin Creek, North Star, Perimeter Mall and Willowbrook) in whichwe previously owned noncontrolling interests. As a result, we consolidated these properties in our financialstatements from the date of the acquisition.

In April 2002, we sold our interest in Franklin Park, a regionalretail center in Toledo, Ohio, for net proceeds of $20.5 million and the buyerassumed our share of the center’s debt ($44.7 million). We recorded a gain of$42.6 million on this transaction.

We received $77.3 million of distributions of financing proceeds from unconsolidatedreal estate affiliates in 2004.  We didnot receive similar distributions in 2003.

As a result of these transactions and the ongoing operations of theventures, the net decrease in investments in and advances to unconsolidated realestate affiliates was $119.0 million in 2004. As a result of acquiring TheWoodlands in 2003, the net increase was $205.5 million.  Cumulative distributions, primarily fromfinancing proceeds, from certain of these ventures exceed our investments inthem.  At December 31, 2004 and2003, these balances aggregated $29.3 million and $26.7 million, respectively,and were included in other liabilities.

The condensed, combined balance sheets of ventures accounted for usingthe equity method as of December 31, 2004 and 2003 and the condensed,combined statements of operations of these ventures and others during periodsthat they were accounted for using the equity method during 2004, 2003 and 2002are summarized as follows (in thousands):

 
| ** **                                           | ** ** | **2004** | ** ** | **2003**  | ** ** |
|------------------------------------------------------|------------|----------|------------|-----------|------------|
|                                                 |       |     |       |      |       |
| Net property and property-related deferred costs     |       | $        | 2,717,442  |      | $          | 2,776,448 |   |
| Investments in unconsolidated real estate affiliates |       | —   |       | 50,570    |       |
| Accounts and notes receivable                        |       | 37,251   |       | 75,059    |       |
| Prepaid expenses and other assets                    |       | 140,977  |       | 246,034   |       |
| Cash and cash equivalents                            |       | 56,589   |       | 61,333    |       |
| Total assets                                         |       | $        | 2,952,259  |      | $          | 3,209,444 |   |
|                                                 |       |     |       |      |       |
| Nonrecourse property debt                            |       | $        | 1,810,399  |      | $          | 1,681,252 |   |
| Property debt guaranteed by us                       |       | 100,000  |       | 100,000   |       |
| Accounts payable and other liabilities               |       | 178,764  |       | 384,503   |       |
| Venturers’ equity                               |       | 863,096  |       | 1,043,689 |       |
| Total liabilities and venturers’ equity         |       | $        | 2,952,259  |      | $          | 3,209,444 |   |

 

F-15

----

 
| ** **                                       | ** ** | **2004** | ** ** | **2003** | ** ** | **2002** | ** ** |
|--------------------------------------------------|------------|----------|------------|----------|------------|----------|------------|
|                                             |       |     |       |     |       |     |       |
| Revenue                                          |       | $        | 532,302    |     | $          | 335,855  |       | $ | 307,486 |   |
| Equity in earnings of unconsolidated investments |       | 553      |       | 15,990   |       | 9,651    |       |
| Operating and interest expenses                  |       | (360,370 | )          | (220,297 | )          | (207,263 | )          |
| Depreciation and amortization                    |       | (84,781  | )          | (67,069  | )          | (49,020  | )          |
| Loss on early extinguishment of debt             |       | —   |       | (269     | )          | (260     | )          |
| Net earnings                                     |       | $        | 87,704     |     | $          | 64,210   |       | $ | 60,594 |   |
|                                                  |            |          |            |          |            |          |            |  |  |  |  |

 

We previously guaranteed the repayment of a construction loan of theunconsolidated real estate venture that owns the Village of Merrick Park.  In October 2003, the venture repaid thisloan with proceeds from a $194 million mortgage loan.  We have guaranteed $100 million of themortgage loan.  The amount of theguarantee may be reduced or eliminated upon the achievement of certain lenderrequirements.  Additionally, venturepartners have provided indemnifications to us for their share (60%) of the loanguarantee.

 

***(4)***         Property

Operating properties at December 31, 2004 and 2003 are summarizedas follows (in thousands):

 
| ** **                 | ** ** | **2004** | ** ** | **2003** | ** ** |
|----------------------------|------------|----------|------------|----------|------------|
|                       |       |     |       |     |       |
| Buildings and improvements |       | $        | 5,202,435  |     | $          | 4,679,036 |   |
| Land                       |       | 641,688  |       | 637,409  |       |
| Furniture and equipment    |       | 41,032   |       | 35,303   |       |
| Total                      |       | $        | 5,885,155  |     | $          | 5,351,748 |   |

 

Depreciation expense for 2004, 2003 and 2002 was $172.3 million, $149.7million and $115.9 million, respectively. Amortization expense for 2004, 2003 and 2002 was $21.1 million, $21.5million and $13.4 million, respectively.

Properties in development include construction and development in progressand preconstruction costs.  Constructionand development in progress includes land and land improvements of $120.7million and $86.6 million at December 31, 2004 and 2003, respectively.

Investment land and land held for development and sale at December 31,2004 and 2003 are summarized as follows (in thousands):

 
| ** **              | ** ** | **2004** | ** ** | **2003** | ** ** |
|-------------------------|------------|----------|------------|----------|------------|
|                    |       |     |       |     |       |
| Land under development  |       | $        | 430,386    |     | $          | 300,553 |   |
| Finished land           |       | 65,012   |       | 68,956   |       |
| Investment and raw land |       | 17,052   |       | 45,157   |       |
| Total                   |       | $        | 512,450    |     | $          | 414,666 |   |

 

***(5)***         Accounts and notesreceivable

Accounts and notes receivable at December 31, 2004 and 2003 aresummarized as follows (in thousands):

 
| ** **                                                | ** ** | **2004** | ** ** | **2003** | ** ** |
|-----------------------------------------------------------|------------|----------|------------|----------|------------|
|                                                      |       |     |       |     |       |
| Accounts receivable, primarily rents under tenant  leases |       | $        | 62,590     |     | $          | 65,295 |   |
| Notes receivable from sales of operating properties       |       | —   |       | 281      |       |
| Notes receivable from sales of land                       |       | 17,531   |       | 18,978   |       |
|                                                      |       | 80,121   |       | 84,554   |       |
| Less: allowance for doubtful receivables                  |       | 30,473   |       | 30,860   |       |
| Total                                                     |       | $        | 49,648     |     | $          | 53,694 |   |
|                                                           |            |          |            |          |            |  |  |  |  |

 

Accounts and notes receivable due after one year were $2.6 million and$1.5 million at December 31, 2004 and 2003, respectively.

Credit risk withrespect to receivables from tenants is not highly concentrated due to the largenumber of tenants and the geographic diversification of our operating properties.  We perform credit evaluations of prospectivenew tenants and require security deposits or bank letters of credit in certaincircumstances.  Tenants’ compliance withthe terms of their leases is monitored closely, and the allowance for doubtfulreceivables is established based on analyses of the risk of loss on specifictenant accounts, historical trends and other relevant information.  Notes receivable from sales of land areprimarily attributable to land sales in Las Vegas and Summerlin, Nevada.  We perform credit evaluations of the buildersand generally require substantial down payments (at least 20%) on all landsales that we finance.  These notes andnotes from sales of operating properties are generally secured by first lienson the related properties.

 

F-16

----

 

***(6)***         Pension, post-retirementand deferred compensation plans

We had a qualified defined benefit pension plan (“funded plan”) thatcovered substantially all employees, and nonqualified unfunded defined benefitpension plans that primarily covered participants in the funded plan whosedefined benefits exceed the plan’s limits (“supplemental plan”).  In April 2003, we modified our fundedplan and our supplemental plan so that covered employees would not earnadditional benefits for future services. The curtailment of the funded and supplemental plans required us toimmediately recognize substantially all unamortized prior service cost andunrecognized transition obligation and resulted in a curtailment loss of $10.2million in 2003.  In February 2004,we adopted a proposal to terminate our qualified and supplemental plans. On October 4,2004, we began distributing the plan’s assets to its beneficiaries. Concurrentwith the first distributions from the qualified plan, we terminated oursupplemental plan by merger into our nonqualified supplemental definedcontribution plan. As of December 31, 2004 the distributions werecompleted. We incurred settlement losses of $34.9 million, $10.8 million and$8.3 million in 2004, 2003 and 2002, respectively, related to lump-sumdistributions made primarily as a result of the plan termination in 2004 andretirements as a result of organizational changes and early retirement programsoffered in 2003 and 2002.  The lump-sumdistributions were paid to participants primarily from assets of our fundedplan, or with respect to the supplemental plan, from contributions made by us.

The remaining nonqualified plan benefit obligations relate to The RouseCompany Board of Director’s plan which has been curtailed as a result of the Mergerand resulted in a curtailment loss of $0.1 million.

We had a qualified defined contribution plan and a nonqualifiedsupplemental defined contribution plan available to substantially all employees.  In 2004 and 2003, we matched 100% ofparticipating employees’ pre-tax contributions up to a maximum of 3% ofeligible compensation and 50% of participating employees’ pre-tax contributionsup to an additional maximum of 2% of eligible compensation.  In 2002, we matched 50% of participatingemployees’ pre-tax contributions up to a maximum of 6% of eligiblecompensation. In an action related to the curtailment of the funded andsupplemental plans, we added new components to the defined contribution plans underwhich we either made or accrued discretionary contributions to the plans forall employees.  Expenses related to theseplans were $5.9 million, $6.1 million and $2.6 million in 2004, 2003 and2002, respectively. Our defined contribution plans will be merged effective April 1,2005 with those defined contribution plans offered by General GrowthProperties, Inc.

The supplemental plan obligations were $17.3 million at October 4,2004. On August 20, 2004, we funded an irrevocable trust for theparticipants in our supplemental plan and our nonqualified supplemental definedcontribution plan with cash of approximately $27.2 million and the transfer ofmarketable securities valued at approximately $25.2 million.

We also have a retiree benefits plan that provides postretirementmedical and life insurance benefits to full-time employees who meet minimum ageand service requirements.  We pay aportion of the cost of participants’ life insurance coverage and makecontributions to the cost of participants’ medical coverage based on years ofservice, subject to a maximum annual contribution. Effective December 31,2004 modifications were made to the plan so that employees’ retiring on orafter January 1, 2005 would no longer be eligible for this benefit. Thecurtailment of this plan required us to immediately recognize all unamortizedprior service credit and unrecognized transition obligation and resulted in acurtailment gain of approximately $3 million in 2004.

 

F-17

----

 

The normal date for measurement of our pension plan obligations is December 31of each year, unless more recent measurements of both plan assets andobligations are available, or if a significant event occurs, such as a planamendment or curtailment, that would ordinarily call for suchmeasurements.  Information relating tothe obligations, assets and funded status of the plans at December 31,2004 and 2003 and for the years then ended is summarized as follows (dollars inthousands):

 
| ** **                                                                             | ** ** | **Pension Plans** | ** ** | **Postretirement**         | ** ** |
|----------------------------------------------------------------------------------------|------------|-------------------|------------|----------------------------|------------|
| ** **                                                                             | ** ** | **Funded**        | ** ** | **Supplemental and Other** | ** ** | **Plan** | ** ** |
| ** **                                                                             | ** ** | **2004**          | ** ** | **2003**                   | ** ** | **2004** | ** ** | **2003** | ** ** | **2004** | ** ** | **2003** | ** ** |
|                                                                                   |       |              |       |                       |       |   |   |   |   |   |   |   |   |
| Projected benefit obligation at end of year                                            |       | $                 | —     |                       | $          | 56,228 |   | $ | 624 |   | $ | 17,855 |   | $ | — |   | $ | — |   |
| Accumulated benefit obligation at end of year                                          |       | —            |       | 56,228                     |       | 624 |   | 17,846 |   | 12,804 |   | 17,555 |   |
|                                                                                   |       |              |       |                       |       |   |   |   |   |   |   |   |   |
| Change in benefit obligations:                                                         |       |              |       |                       |       |   |   |   |   |   |   |   |   |
| Benefit obligations at beginning of year                                               |       | $                 | 56,228     |                       | $          | 70,491 |   | $ | 17,855 |   | $ | 19,799 |   | $ | 17,555 |   | $ | 16,732 |   |
| Service cost                                                                           |       | —            |       | —                     |       | — |   | 1 |   | 360 |   | 395 |   |
| Interest cost                                                                          |       | 2,438             |       | 3,620                      |       | 729 |   | 1,134 |   | 1,015 |   | 1,031 |   |
| Plan amendment                                                                         |       | —            |       | —                     |       | — |   | 9 |   | — |   | — |   |
| Actuarial loss                                                                         |       | 9,401             |       | 6,173                      |       | 2,254 |   | 1,873 |   | 462 |   | 403 |   |
| Benefits paid                                                                          |       | (219              | )          | (235                       | )          | (149 | ) | (129 | ) | (1,328 | ) | (1,006 | ) |
| Benefit obligations before special events                                              |       | 67,848            |       | 80,049                     |       | 20,689 |   | 22,687 |   | 18,064 |   | 17,555 |   |
| Special events—                                                                   |       |              |       |                       |       |   |   |   |   |   |   |   |   |
| Settlements                                                                            |       | (67,800           | )          | (15,087                    | )          | (20,065 | ) | (3,746 | ) | — |   | — |   |
| Curtailments                                                                           |       | —            |       | (8,734                     | )          | — |   | (1,086 | ) | (5,260 | ) | — |   |
| Transfer to Retirement Savings Plan                                                    |       | (48               | )          | —                     |       | — |   | — |   | — |   | — |   |
| Benefit obligations at end of year                                                     |       | —            |       | 56,228                     |       | 624 |   | 17,855 |   | 12,804 |   | 17,555 |   |
|                                                                                   |       |              |       |                       |       |   |   |   |   |   |   |   |   |
| Change in plan assets:                                                                 |       |              |       |                       |       |   |   |   |   |   |   |   |   |
| Fair value of plan assets at beginning of year                                         |       | 65,339            |       | 63,625                     |       | — |   | — |   | — |   | — |   |
| Actual return on plan assets                                                           |       | 2,481             |       | 12,469                     |       | — |   | — |   | — |   | — |   |
| Employer contribution                                                                  |       | 82                |       | 6,475                      |       | 20,214 |   | 4,622 |   | 1,328 |   | 1,006 |   |
| Employee contribution                                                                  |       | 165               |       | —                     |       | — |   | — |   | — |   | — |   |
| Benefits paid                                                                          |       | (219              | )          | (235                       | )          | (149 | ) | (129 | ) | (1,328 | ) | (1,006 | ) |
| Settlements                                                                            |       | (67,800           | )          | (16,995                    | )          | (20,065 | ) | (4,493 | ) | — |   | — |   |
| Transfer to Retirement Savings Plan                                                    |       | (48               | )          | —                     |       | — |   | — |   | — |   | — |   |
| Fair value of plan assets at end of year                                               |       | —            |       | 65,339                     |       | — |   | — |   | — |   | — |   |
|                                                                                   |       |              |       |                       |       |   |   |   |   |   |   |   |   |
| Funded status                                                                          |       | —            |       | 9,111                      |       | (624 | ) | (17,855 | ) | 12,804 |   | (17,555 | ) |
| Unrecognized net actuarial loss                                                        |       | —            |       | 19,825                     |       | 312 |   | 4,637 |   | — |   | 4,019 |   |
| Unamortized prior service cost                                                         |       | —            |       | —                     |       | — |   | 166 |   | — |   | (2,450 | ) |
| Net amount recognized                                                                  |       | $                 | —     |                       | $          | 28,936 |   | $ | (312 | ) | $ | (13,052 | ) | $ | 12,804 |   | $ | (15,986 | ) |
|                                                                                   |       |              |       |                       |       |   |   |   |   |   |   |   |   |
| Amounts recognized in the balance sheets consist of:                                   |       |              |       |                       |       |   |   |   |   |   |   |   |   |
| Prepaid benefit cost                                                                   |       | $                 | —     |                       | $          | 28,936 |   | $ | — |   | $ | — |   | $ | — |   | $ | — |   |
| Accrued benefit liability                                                              |       | —            |       | —                     |       | (624 | ) | (17,846 | ) | 12,804 |   | (15,986 | ) |
| Intangible asset                                                                       |       | —            |       | —                     |       | — |   | 166 |   | — |   | — |   |
| Accumulated other comprehensive income item—minimum  pension liability adjustment |       | —            |       | —                     |       | 312 |   | 4,628 |   | — |   | — |   |
| Net amount recognized                                                                  |       | $                 | —     |                       | $          | 28,936 |   | $ | (312 | ) | $ | (13,052 | ) | $ | 12,804 |   | $ | (15,986 | ) |
|                                                                                   |       |              |       |                       |       |   |   |   |   |   |   |   |   |
| Weighted-average assumptions at year end:                                              |       |              |       |                       |       |   |   |   |   |   |   |   |   |
| Discount rate                                                                          |       | 5.12              | %          | 6.00                       | %          | 5.12 | % | 6.00 | % | 5.75 | % | 6.00 | % |
| Lump sum rate                                                                          |       | 5.12              |       | 6.00                       |       | 5.12 |   | 6.00 |   | — |   | — |   |
| Expected rate of return on plan assets                                                 |       | N/A               |       | 8.00                       |       | N/A |   | — |   | — |   | — |   |
| Rate of compensation increase                                                          |       | N/A               |       | N/A                        |       | N/A |   | N/A |   | N/A |   | N/A |   |
|                                                                                   |       |              |       |                       |       |   |   |   |   |   |   |   |   |
| Weighted-average assumptions used to determine net  periodic benefit cost:             |       |              |       |                       |       |   |   |   |   |   |   |   |   |
| Discount rate                                                                          |       | 6.00              | %          | 6.50                       | %          | 6.00 | % | 6.50 | % | 6.00 | % | 6.50 | % |
| Lump sum rate                                                                          |       | 6.00              |       | 6.00                       |       | 6.00 |   | 6.00 |   | — |   | — |   |
| Expected rate of return on plan assets                                                 |       | 8.00              |       | 8.00                       |       | — |   | — |   | — |   | — |   |
| Rate of compensation increase                                                          |       | N/A               |       | 4.50                       |       | N/A |   | 4.50 |   | N/A |   | N/A |   |

 

F-18

----

 

 

The net pension cost includes the following components (in thousands):

 

| ** **                                     | ** ** | **2004** | ** ** | **2003** | ** ** | **2002** | ** ** |
|------------------------------------------------|------------|----------|------------|----------|------------|----------|------------|
|                                           |       |     |       |     |       |     |       |
| Service cost                                   |       | $        | —     |     | $          | 1        |       | $ | 5,813 |   |
| Interest cost on projected benefit obligations |       | 3,167    |       | 4,754    |       | 6,255    |       |
| Expected return on funded plan assets          |       | (2,906   | )          | (4,701   | )          | (4,690   | )          |
| Prior service cost recognized                  |       | 30       |       | 403      |       | 1,538    |       |
| Net actuarial loss recognized                  |       | 1,184    |       | 2,494    |       | 2,525    |       |
| Amortization of transition obligation          |       | —   |       | 17       |       | 68       |       |
| Net pension cost before special events         |       | 1,475    |       | 2,968    |       | 11,509   |       |
|                                           |       |     |       |     |       |     |       |
| Special events:                                |       |     |       |     |       |     |       |
| Settlement losses                              |       | 34,881   |       | 10,889   |       | 8,324    |       |
| Curtailment loss                               |       | 136      |       | 10,212   |       | —   |       |
| Net pension cost after special events          |       | $        | 36,492     |     | $          | 24,069   |       | $ | 19,833 |   |

 

The curtailment loss in 2003 and settlement losses in 2004, 2003 and2002 are included in other provisions and losses, net, in the consolidatedstatements of operations (see Note 11).

The net postretirement benefit cost includes the following components(in thousands):

 

| ** **                                             | ** ** | **2004** | ** ** | **2003** | ** ** | **2002** | ** ** |
|--------------------------------------------------------|------------|----------|------------|----------|------------|----------|------------|
|                                                   |       |     |       |     |       |     |       |
| Service cost                                           |       | $        | 360        |     | $          | 395      |       | $ | 342 |   |
| Interest cost on accumulated benefit obligations       |       | 1,015    |       | 1,031    |       | 1,070    |       |
| Net actuarial loss recognized                          |       | 143      |       | 112      |       | 85       |       |
| Amortization of prior service cost                     |       | (241     | )          | (241     | )          | (241     | )          |
| Net postretirement benefit cost before special  events |       | $        | 1,277      |     | $          | 1,297    |       | $ | 1,256 |   |
|                                                   |       |     |       |     |       |     |       |
| Special Events:                                        |       |     |       |     |       |     |       |
| Curtailment gain                                       |       | (3,132   | )          | —   |       | —   |       |
| Net postretirement benefit cost (gain)                 |       | $        | (1,855     | )        | $          | 1,297    |       | $ | 1,256 |   |

 

Assumed health care cost trend rates have an effect on the amountsreported for the postretirement plan. Actuarial assumptions used to determine amounts reported for thepostretirement plan included health care costs increasing at 5% per year,representing the ultimate trend rate. A one-percentage-point change in assumedhealth care cost trend rates would have the following effects (in thousands):

 
| ** **                                               | ** ** | **1% Increase** | ** ** | **1% Decrease** | ** ** |
|----------------------------------------------------------|------------|-----------------|------------|-----------------|------------|
|                                                     |       |            |       |            |       |
| Effect on total of service and interest cost  components |       | $               | (11        | )               | $          | 13 |   |
|                                                     |       |            |       |            |       |
| Effect on postretirement benefit obligation              |       | $               | (173       | )               | $          | 190 |   |

 

We also had adeferred compensation program which permitted directors and certain managementemployees to defer portions of their compensation on a pre-tax basis.  The effect of this program on net earningswas insignificant in 2004, 2003 and 2002. Future contributions into the programwere terminated on December 31, 2004 as a result of the Merger.

 

***(7)***         Debt

Debt is classified as follows:

(a)          “Property debt notcarrying a Rouse Company LP guarantee of repayment” which is subsidiary companydebt having no express written obligation which would require The Rouse CompanyLP to repay the principal amount of such debt during the full term of the loan(“nonrecourse loans”); and

(b)         “Rouse Company LP debtand debt carrying a Rouse Company LP guarantee of repayment” which is our debtand subsidiary company debt with an express written obligation from the RouseCompany LP to repay the principal amount of such debt during the full term ofthe loan.

 

F-19

----

 

With respect to nonrecourse loans, we have in the past and may in thefuture, under some circumstances, support those subsidiary companies whoseannual expenditures, including debt service, exceed their operatingrevenues.  At December 31, 2004 and2003, nonrecourse loans include $90.5 million and $240.7 million, respectively,of subsidiary companies’ mortgages and bonds which are subject to agreementswith lenders requiring us to provide support for operating and debt servicecosts, where necessary, for defined periods or until specified conditionsrelating to the operating results of the related properties are met.  At December 31, 2004, approximately $798million of the total debt was payable to one lender.

On November 12, 2004 (the day of the Merger), we issued $1.2billion in mortgage debt. The proceeds from the financings were used primarilyto repay and terminate our credit facility, which had an outstanding balance of$687.5 million, and to make a non-interest bearing advance to GGP. The advancewas used by GGP to partially fund the acquisition of Rouse.

During the first quarter of 2004, we repaid $443 million of mortgageloans with proceeds from borrowings under our credit facility. We then issued$400 million of 3.625% Notes due March 2009 and $100 million of 5.375%Notes due in November 2013 for net proceeds of approximately $503 million.The proceeds were primarily used to repay credit facility borrowings.

Debt at December 31, 2004 and 2003 is summarized as follows (inthousands):

 
| ** **                          | ** ** | **2004** | ** ** | **2003** | ** ** |
|-------------------------------------|------------|----------|------------|----------|------------|
|                                |       |     |       |     |       |
| Mortgage and bonds                  |       | $        | 3,992,601  |     | $          | 3,025,802 |   |
| Medium-term notes                   |       | 45,500   |       | 45,500   |       |
| Credit facility borrowings          |       | —   |       | 271,000  |       |
| 3.625% Notes due March 2009    |       | 388,269  |       | —   |       |
| 8% Notes due April 2009        |       | 200,000  |       | 200,000  |       |
| 7.2% Notes due September 2012  |       | 399,604  |       | 399,553  |       |
| 5.375% Notes due November 2013 |       | 453,658  |       | 350,000  |       |
| Other loans                         |       | 149,378  |       | 152,637  |       |
| Total                               |       | $        | 5,629,010  |     | $          | 4,444,492 |   |

 

Mortgages and bonds are secured by deeds of trust or mortgages onproperties and general assignments of rents. This debt matures at various dates through 2031 and, at December 31,2004, bears interest at a weighted-average effective rate of 5.4%. At December 31,2004 and December 31, 2003, approximately $16 million and $82 million,respectively of our debt provided for payments of additional interest based onoperating results of the related properties in excess of stated levels.  The participating debt at December 31,2003 primarily related to a retail center where the lender received a fixedinterest rate of 7.625% and a 5% participation in cash flows.  The lender also received a payment atmaturity (November 2004) equal to the greater of 5% of the value of theproperty in excess of the debt balance or the amount required to provide aninternal rate of return of 8.375% over the term of the loan.  The internal rate of return of the lender waslimited to 12.5%.  We recognized interestexpense on this debt at a rate required to provide the lender the requiredminimum internal rate of return (8.375%) and, based on this rate, our accruedliability approximated the payment made at maturity.

We have issued unsecured, medium-term notes.  The notes bear interest at fixed interestrates.  The notes outstanding at December 31,2004 mature at various dates from 2005 to 2007, bear interest at aweighted-average effective rate of 8.3% and have a weighted-average maturity of0.4 years.

We had a credit facility with a group of lenders that was guaranteed bysome of our subsidiaries. The facility was terminated concurrent with theMerger and we recognized a loss of $4.3 million related to the write-off ofunamortized debt issuance costs.

Other loans include various property acquisition loans and certainother borrowings.  These loans includeaggregate unsecured borrowings of $115.9 million and $120.2 million at December 31,2004 and 2003, respectively, and at December 31, 2004, bear interest at aweighted-average effective rate of 6.53%.

The agreements relating to various loans impose limitations on us.  The most restrictive of these limit thelevels and types of debt we and our affiliates may incur and require us and ouraffiliates to maintain specified minimum levels of debt service coverage andnet worth.  The agreements also imposerestrictions on sale, lease and certain other transactions, subject to variousexclusions and limitations.  These restrictionshave not limited our normal business activities as we expect to be able toaccess additional funds as necessary from GGP.

 

F-20

----

 

The annual maturities of debt at December 31, 2004 are summarizedas follows (in thousands):

 
| ** **         | ** ** | **Nonrecourse  Loans** | ** ** | **The Rouse  Company LP  and Recourse  Loans** | ** ** | **Total** | ** ** |
|--------------------|------------|------------------------|------------|------------------------------------------------|------------|-----------|------------|
|               |       |                   |       |                                           |       |      |       |
| 2005               |       | $                      | 441,131    |                                           | $          | 183,008   |       | $ | 624,139 |   |
| 2006               |       | 335,473                |       | 24,606                                         |       | 360,079   |       |
| 2007               |       | 503,841                |       | 17,351                                         |       | 521,192   |       |
| 2008               |       | 805,651                |       | 70,068                                         |       | 875,719   |       |
| 2009               |       | 493,639                |       | 603,424                                        |       | 1,097,063 |       |
| Subsequent to 2009 |       | 1,295,968              |       | 854,850                                        |       | 2,150,818 |       |
| Total              |       | $                      | 3,875,703  |                                           | $          | 1,753,307 |       | $ | 5,629,010 |   |
|                    |            |                        |            |                                                |            |           |            |  |  |  |  |

 

The debt due in 2005 consists of $70.1 million of corporate notes, $449.7million of balloon payments on mortgages and construction loans on five retailcenters, a portfolio of office buildings and one community development projectand $104.3 million of regularly scheduled principal payments. In 2005, werefinanced $240 million of the mortgage debt due in 2005 and $161.5 million ofthe mortgage debt due in 2007 with mortgage loans of $686 million secured bythe related properties. We advanced the net proceeds relating to thesetransactions to GGP. We also  refinanceda construction loan of $134.6 million that was due in 2005 with a $255 millionmortgage loan on the related property. The net proceeds from this transaction werealso advanced to GGP. In January 2005, we repaid a corporate note of $26.6million using proceeds from borrowings from GGP.  We expect to make the additional balloonpayments at or before the scheduled maturity dates of the related loans fromproceeds of property refinancings (including refinancings of the maturingmortgages) or borrowings from GGP. The regularly scheduled principal paymentswill be paid from operating cash flows.

As discussed above, we issued $400 million of 3.625% Notes in March 2004.We simultaneously entered into fair value hedges to effectively convert thisfixed-rate debt to variable-rate debt for the term of these notes. Inconnection with the Merger, we terminated these agreements and paid thecounterparties approximately $11 million. In accordance with SFAS 133, the fairvalue basis adjustment to the 3.625% Notes will be amortized over the remainingterm of the debt. There were no outstanding pay-variable, receive-fixedinterest rate swap agreements at December 31, 2004.

In accordance with SFAS 133, the net unrealized gains (losses) onpay-fixed, receive-variable interest rate swap agreements and interest rate capagreements (including our share of unrealized gains (losses) on agreements heldby unconsolidated real estate affiliates accounted for using the equity method)of $3.4 million and $3.0 million for 2004 and 2003, respectively, have beenrecognized as other comprehensive income (loss). In connection with the Merger,we terminated several of these interest rate swap agreements with aggregatenotional amounts of $411.5 million and received net proceeds of $0.9 million.The amounts that had previously been recognized into other comprehensive incomerelating to these terminated agreements will be amortized over the remaining termsof the agreements. This amortization will not materially affect ourconsolidated interest expense. The fair value of the remaining outstandingpay-fixed, receive-variable interest rate swap and interest rate cap agreementswas immaterial at December 31, 2004.

Interest rate exchange agreements did not have a material effect on theweighted-average effective interest rates on debt at December 31, 2004,2003 and 2002 or interest expense for 2004, 2003 and 2002.

Total interest costs included in continuing operations were $283.9million in 2004, $259.4 million in 2003 and $247.2 million in 2002 of which$38.2 million, $37.9 million and $38.2 million were capitalized, respectively.

We recognized net losses on the early extinguishment of debt of $5.8million in 2004 (including $4.3 million relating to the termination of ourcredit facility) and $7.7 million in 2002, including losses of discontinuedoperations of $5.3 million in 2002.  Thesources of funds used to pay the debt and fund the prepayment penalties, whereapplicable, were refinancings of properties, proceeds from the sale ofproperties secured by extinguished debt and the issuance of the 7.20% Notes. Werecognized net gains on the early extinguishment of debt of $21.3 million in2003, including gains of discontinued operations of $26.9 million.

We estimated fair values of debt instruments based on quoted marketprices for publicly-traded debt and on the discounted estimated future cashpayments to be made for other debt.  Thediscount rates used approximate current market rates for loans or groups ofloans with similar maturities and credit quality. The estimated future paymentsinclude scheduled principal and interest payments and lenders’ participationsin operating results, where applicable. The carrying amount and estimated fairvalue of our debt at December 31, 2004 and 2003 are summarized as follows(in thousands):

 
| ** **         | ** ** | **2004**             | ** ** | **2003**                  | ** ** |
|--------------------|------------|----------------------|------------|---------------------------|------------|
| ** **         | ** ** | **Carrying  Amount** | ** ** | **Estimated  Fair Value** | ** ** | **Carrying  Amount** | ** ** | **Estimated  Fair Value** | ** ** |
|               |       |                 |       |                      |       |   |   |   |   |
| Fixed-rate debt    |       | $                    | 4,866,089  |                      | $          | 5,047,009 |   | $ | 3,336,678 |   | $ | 3,623,390 |   |
| Variable-rate debt |       | 762,921              |       | 762,921                   |       | 1,107,814 |   | 1,107,814 |   |
| Total              |       | $                    | 5,629,010  |                      | $          | 5,809,930 |   | $ | 4,444,492 |   | $ | 4,731,204 |   |
|                    |            |                      |            |                           |            |  |  |  |  |  |  |  |  |  |

 

F-21

----

 

***(8)***         The Rouse Company-obligatedmandatorily redeemable preferred securities

The redeemable preferred securities consisted of Cumulative QuarterlyIncome Preferred Securities (“preferred securities”) at December 31, 2003with a liquidation amount of $25 per security, which were issued in November 1995by a statutory business trust.  The trustused the proceeds of the preferred securities and other assets to purchase atpar $141.8 million of our junior subordinated debentures (“debentures”) due in November 2025,which are the sole assets of the trust. The terms of the preferred securities match the terms of the debentures.

Payments made by the trust on the preferred securities were dependenton payments that we had undertaken to make, particularly the payments made byus on the debentures.  Our compliancewith our undertakings, taken together, had the effect of providing a full, irrevocableand unconditional guarantee of the trust’s obligations under the preferredsecurities.

Distributions on the preferred securities were payable from interestpayments received on the debentures and were due quarterly at an annual rate of9.25% of the liquidation amount, subject to deferral for up to five years undercertain conditions.  Distributionspayable were included in operating expenses. Redemptions of the preferred securities were payable at the liquidationamount from redemption payments received on the debentures.

We were able to redeem the debentures at par at any time, butredemptions at or prior to maturity were payable only from the proceeds ofissuance of our capital stock or of securities substantially comparable ineconomic effect to the preferred securities. During 2004 and 2003, we redeemed approximately $79.2 million and $57.1million, respectively, of the securities using proceeds from the exercise ofstock options. The 2004 redemptions were primarily funded from the proceeds ofstock option exercises in 2003. We recognized losses of $2.2 million and $1.7million in 2004 and 2003, respectively, related to the write-off of unamortizedissuance costs.

The estimated fairvalue of the outstanding redeemable preferred securities was $116.1 million at December 31,2003.

 

***(9)***         Segment information

We have five business segments: retail centers, office and other properties, community development,commercial development and corporate. The retail centers segment includes the operation and management ofregional shopping centers, downtown specialty marketplaces, the retailcomponents of mixed-use projects and community retail centers.  The office and other properties segmentincludes the operation and management of office and industrial properties andthe nonretail components of the mixed-use projects.  The community development segment includesthe development and sale of land, primarily in large-scale, long-term communitydevelopment projects in and around Columbia, Maryland, Summerlin, Nevada andHouston, Texas.  The commercial developmentsegment includes the evaluation of all potential new development projects(including expansions of existing properties) and acquisition opportunities andthe management of them through the development or acquisition process.  Prior to the Merger, the corporate segmentwas responsible for shareholder and director services, financial management,strategic planning and certain other general and support functions. Subsequentto the Merger, the majority of corporate related functions will be incurred by GGP.Our business segments offer different products or services and are managedseparately because each requires different operating strategies or managementexpertise.

The operating measure used to assess operating results for the businesssegments is Net Operating Income (“NOI”). Prior to April 1, 2004, weexcluded certain expenses related to organizational changes and earlyretirement costs from our definition of NOI. Effective April 1, 2004, werevised our definition to include these amounts in our corporate segment,except for such amounts that were incurred as a result of the Merger (see Note11). We made these reclassifications because these expenses are neitherinfrequent nor unusual and are becoming a normal cost of doing business.Amounts for prior periods have been reclassified to conform to the currentdefinition.

The accountingpolicies of the segments are the same as those used to prepare our consolidatedfinancial statements, except that:

 

•                  we consolidatethe venture developing the community of The Woodlands and reflect the otherpartner’s share of NOI as an operating expense rather than using the equitymethod;

•                  we account forother real estate ventures in which we have joint interest and control andcertain other minority interest ventures (“proportionate share ventures”) usingthe proportionate share method rather than the equity method;

•                  we include ourshare of NOI less interest expense and ground rent expense of otherunconsolidated minority interest ventures (“other ventures”) in revenues; and

•                  we includediscontinued operations and minority interests in NOI rather than presentingthem separately.

 

These differences affect only the reported revenues and operatingexpenses of the segments and have no effect on our reported net earnings (loss).

 

F-22

----

 

Operating results for the segments are summarized as follows (inthousands):

 

| ** **         | ** ** | **Retail  Centers** | ** ** | **Office and  Other  Properties** | ** ** | **Community  Development** | ** ** | **Commercial  Development** | ** ** | **Corporate** | ** ** | **Total** | ** ** |
|--------------------|------------|---------------------|------------|-----------------------------------|------------|----------------------------|------------|-----------------------------|------------|---------------|------------|-----------|------------|
| **2004**           |       |                |       |                              |       |                       |       |                        |       |          |       |      |       |
| Revenues           |       | $                   | 889,642    |                              | $          | 239,219                    |       | $                           | 494,344    |          | $          | —    |       | $ | — |   | $ | 1,623,205 |   |
| Operating Expenses |       | 348,648             |       | 140,422                           |       | 324,456                    |       | 18,685                      |       | 27,174        |       | 859,385   |       |
| NOI                |       | $                   | 540,994    |                              | $          | 98,797                     |       | $                           | 169,888    |          | $          | (18,685   | )          | $ | (27,174 | ) | $ | 763,820 |   |
|               |       |                |       |                              |       |                       |       |                        |       |          |       |      |       |
| **2003**           |       |                |       |                              |       |                       |       |                        |       |          |       |      |       |
| Revenues           |       | $                   | 843,241    |                              | $          | 200,994                    |       | $                           | 291,439    |          | $          | —    |       | $ | — |   | $ | 1,335,674 |   |
| Operating Expenses |       | 334,336             |       | 78,810                            |       | 167,549                    |       | 13,833                      |       | 26,951        |       | 621,479   |       |
| NOI                |       | $                   | 508,905    |                              | $          | 122,184                    |       | $                           | 123,890    |          | $          | (13,833   | )          | $ | (26,951 | ) | $ | 714,195 |   |
|               |       |                |       |                              |       |                       |       |                        |       |          |       |      |       |
| **2002**           |       |                |       |                              |       |                       |       |                        |       |          |       |      |       |
| Revenues           |       | $                   | 775,513    |                              | $          | 205,191                    |       | $                           | 240,992    |          | $          | —    |       | $ | — |   | $ | 1,221,696 |   |
| Operating Expenses |       | 305,686             |       | 80,195                            |       | 154,827                    |       | 12,986                      |       | 29,873        |       | 583,567   |       |
| NOI                |       | $                   | 469,827    |                              | $          | 124,996                    |       | $                           | 86,165     |          | $          | (12,986   | )          | $ | (29,873 | ) | $ | 638,129 |   |
|                    |            |                     |            |                                   |            |                            |            |                             |            |               |            |           |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

Segment operating expenses include provision for bad debts, losses(gains) on marketable securities classified as trading, net gains on sales ofproperties developed for sale and our partner’s share of NOI of the venturedeveloping The Woodlands and exclude income taxes, ground rent expense,distributions on The Rouse Company-obligated mandatorily redeemable preferredsecurities and other subsidiary preferred stock and real estate depreciationand amortization.

 

F-23

----

 

Reconciliations of total revenues and operating expenses reported aboveto the related amounts in the consolidated financial statements and of NOIreported above to earnings (loss) before net gains on dispositions of interestsin operating properties and discontinued operations in the consolidatedfinancial statements are summarized as follows (in thousands):

 

| ** **                                                                                                                                                                                                           | ** ** | **2004** | ** ** | **2003** | ** ** | **2002**  | ** ** |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|----------|------------|----------|------------|-----------|------------|
| Revenues:                                                                                                                                                                                                            |       |     |       |     |       |      |       |
| Total reported above                                                                                                                                                                                                 |       | $        | 1,623,205  |     | $          | 1,335,674 |       | $ | 1,221,696 |   |
| Our share of revenues of proportionate share and  other ventures and revenues of The Woodlands community development venture                                                                                         |       | (348,980 | )          | (151,229 | )          | (117,123  | )          |
| Revenues of discontinued operations                                                                                                                                                                                  |       | (3,992   | )          | (88,469  | )          | (165,700  | )          |
| Other                                                                                                                                                                                                                |       | —   |       | 176      |       | 1,273     |       |
| Total in consolidated financial statements                                                                                                                                                                           |       | $        | 1,270,233  |     | $          | 1,096,152 |       | $ | 940,146 |   |
|                                                                                                                                                                                                                 |       |     |       |     |       |      |       |
| Operating expenses, exclusive of provision for bad  debts, depreciation and amortization:                                                                                                                            |       |     |       |     |       |      |       |
| Total reported above                                                                                                                                                                                                 |       | $        | 859,385    |     | $          | 621,479   |       | $ | 583,567 |   |
| Our share of operating expenses of proportionate  share ventures and operating expenses of The Woodlands community development  venture and partner’s share of its NOI                                          |       | (241,047 | )          | (50,914  | )          | (36,907   | )          |
| Operating expenses of discontinued operations                                                                                                                                                                        |       | (1,486   | )          | (39,425  | )          | (72,542   | )          |
| Other                                                                                                                                                                                                                |       | (1,401   | )          | 14,214   |       | 16,710    |       |
| Total in consolidated financial statements                                                                                                                                                                           |       | $        | 615,451    |     | $          | 545,354   |       | $ | 490,828 |   |
|                                                                                                                                                                                                                 |       |     |       |     |       |      |       |
| Operating results:                                                                                                                                                                                                   |       |     |       |     |       |      |       |
| NOI reported above                                                                                                                                                                                                   |       | $        | 763,820    |     | $          | 714,195   |       | $ | 638,129 |   |
| Interest expense                                                                                                                                                                                                     |       | (245,698 | )          | (221,619 | )          | (209,064  | )          |
| NOI of discontinued operations                                                                                                                                                                                       |       | (2,506   | )          | (49,044  | )          | (93,158   | )          |
| Depreciation and amortization                                                                                                                                                                                        |       | (193,437 | )          | (171,183 | )          | (129,305  | )          |
| Other provisions and losses, net                                                                                                                                                                                     |       | (460,459 | )          | (24,531  | )          | (24,082   | )          |
| Impairment losses on operating properties                                                                                                                                                                            |       | (69,538  | )          | —   |       | —    |       |
| Income taxes, primarily deferred                                                                                                                                                                                     |       | (39,505  | )          | (42,598  | )          | (29,151   | )          |
| Our share of interest expense, ground rent expense,  depreciation and amortization, other provisions and losses, net, income taxes  and gains on operating properties of unconsolidated real estate affiliates,  net |       | (81,524  | )          | (68,894  | )          | (46,957   | )          |
| Other                                                                                                                                                                                                                |       | (5,434   | )          | (15,956  | )          | (20,235   | )          |
|                                                                                                                                                                                                                 |       |     |       |     |       |      |       |
| Earnings (loss) before net gains on dispositions of  interests in operating properties and discontinued operations in consolidated  financial statements                                                             |       | $        | (334,281   | )        | $          | 120,370   |       | $ | 86,177 |   |

 

F-24

----

 

The assets by segment and the reconciliation of total segment assets tothe total assets in the consolidated financial statements at December 31,2004, 2003 and 2002 are summarized as follows (in thousands):

 
| ** **                                                                   | ** ** | **2004**   | ** ** | **2003**   | ** ** | **2002**  | ** ** |
|------------------------------------------------------------------------------|------------|------------|------------|------------|------------|-----------|------------|
|                                                                         |       |       |       |       |       |      |       |
| Retail centers                                                               |       | $          | 5,640,644  |       | $          | 5,069,644 |       | $ | 5,183,442 |   |
| Office and other properties                                                  |       | 1,081,711  |       | 1,165,599  |       | 1,105,636 |       |
| Community development                                                        |       | 809,828    |       | 835,525    |       | 461,403   |       |
| Commercial development                                                       |       | 211,596    |       | 114,439    |       | 67,228    |       |
| Corporate                                                                    |       | 830,349    |       | 327,294    |       | 153,836   |       |
| Total segment assets                                                         |       | 8,574,128  |       | 7,512,501  |       | 6,971,545 |       |
| Our share of assets of unconsolidated proportionate  share affiliates        |       | (1,463,705 | )          | (1,464,329 | )          | (923,372  | )          |
| Investment in and advances to unconsolidated  proportionate share affiliates |       | 513,792    |       | 591,072    |       | 345,978   |       |
| Total assets in consolidated financial statements                            |       | $          | 7,624,215  |       | $          | 6,639,244 |       | $ | 6,394,151 |   |

 

Investments in and advances to unconsolidated real estate affiliates,by segment, are summarized as follows (in thousands):

 
| ** **                  | ** ** | **2004** | ** ** | **2003** | ** ** | **2002** | ** ** |
|-----------------------------|------------|----------|------------|----------|------------|----------|------------|
|                        |       |     |       |     |       |     |       |
| Retail centers              |       | $        | 329,675    |     | $          | 345,486  |       | $ | 320,849 |   |
| Office and other properties |       | 153,641  |       | 158,360  |       | 98,005   |       |
| Community development       |       | 45,583   |       | 144,021  |       | 23,551   |       |
| Total                       |       | $        | 528,899    |     | $          | 647,867  |       | $ | 442,405 |   |

 

Additions to long-lived assets of the segments are summarized asfollows (in thousands):

 
| ** **                                      | ** ** | **2004** | ** ** | **2003** | ** ** | **2002**  | ** ** |
|-------------------------------------------------|------------|----------|------------|----------|------------|-----------|------------|
| Retail centers:                                 |       |     |       |     |       |      |       |
| Redevelopment, expansions and renovations       |       | $        | 35,638     |     | $          | 98,940    |       | $ | 128,660 |   |
| Improvements for tenants and other              |       | 64,939   |       | 54,895   |       | 36,813    |       |
| Acquisitions                                    |       | 340,715  |       | 382,775  |       | 864,776   |       |
|                                            |       | 441,292  |       | 536,610  |       | 1,030,249 |       |
| Office and other properties:                    |       |     |       |     |       |      |       |
| Improvements for tenants and other              |       | 19,386   |       | 19,652   |       | 19,381    |       |
| Acquisitions                                    |       | 15,734   |       | 122,534  |       | 25,000    |       |
|                                            |       | 35,120   |       | 142,186  |       | 44,381    |       |
| Community development:                          |       |     |       |     |       |      |       |
| Land development expenditures                   |       | 151,398  |       | 103,651  |       | 109,139   |       |
| Acquisitions                                    |       | 52,545   |       | 320,398  |       | —    |       |
|                                            |       | 203,943  |       | 424,049  |       | 109,139   |       |
| Commercial development - costs for new projects |       | 86,658   |       | 79,196   |       | 98,873    |       |
| Total                                           |       | $        | 767,013    |     | $          | 1,182,041 |       | $ | 1,282,642 |   |

 

Approximately $43.2 million, $36.5 million and $75.0 million of theadditions (exclusive of acquisitions) in 2004, 2003 and 2002, respectively,relate to properties owned by unconsolidated real estate affiliates.

 

F-25

----

***10)***                              Incometaxes

Prior to the Merger, The Rouse Company was a REIT and generally was notsubject to corporate level Federal income tax on taxable income we distributedcurrently to our stockholders, but were liable for Federal and state incometaxes with respect to our TRS.

Subsequent to the Merger, we are an entity disregarded for Federalincome tax purposes and we are not liable for Federal income taxes, except withrespect to our TRS. In addition, we are no longer subject to REIT qualificationtests.

One of the conditions for closing the Merger was that we deliver to GGPan opinion of tax counsel acceptable to GGP with respect to our qualificationas a REIT.  In preparing for the Merger,we discovered that we may have had non-REIT earnings and profits that we didnot distribute to our shareholders. These earnings and profits included non-REIT earnings and profits wewould have succeeded to in 2001 if a tax election we made in 2001 with respectto one of our subsidiaries was determined to be invalid. Such earnings andprofits also included earnings and profits which might be attributed to certainintercompany transactions. Based on advice from our outside legal counsel whoassisted us with REIT tax matters and our internal analysis, we believed thatpaying additional distributions to our shareholders (which we refer to asextraordinary dividends) and making payments of additional tax, interest andpenalties were the most expedient courses of action to take.  On November 9, 2004, we entered into anagreement with the Internal Revenue Service (“IRS”) to settle these matters andtreat the payment of extraordinary dividends as satisfying our distributionrequirements.  The amount of theextraordinary dividend paid was $238 million ($2.29474 per share).  Additionally, we paid approximately $23.2million of interest and a penalty of approximately $22.4 million to the IRSunder the terms of the closing agreement with the IRS. As a result of thesepayments, we were able to deliver to GGP an acceptable opinion of tax counselwith respect to our REIT status.

A REIT is permitted to own securities of TRS in an amount up to 20% ofthe fair value of its assets.  TRS aretaxable corporations that are used by REITs generally to engage innonqualifying REIT activities or perform nonqualifying services.  We own and operate several TRS that areprincipally engaged in the development and sale of land for residential,commercial and other uses, primarily in and around Columbia, Maryland;Summerlin, Nevada and Houston, Texas. The TRS also operate and/or own several retail centers and office andother properties.  Except with respect tothe TRS, management does not believe that we will be liable for significantincome taxes at the Federal level or in most of the states in which we operatein 2005 and future years. Current Federal income taxes of the TRS are likely toincrease in future years as we exhaust the net loss carryforwards of certainTRS and complete certain land development projects.  These increases could be significant.

The income tax provisions (benefits) for the years ended December 31,2004, 2003 and 2002 are summarized as follows (in thousands):

 
| ** **                       | ** ** | **2004**    | ** ** | **2003**     | ** ** | **2002**  | ** ** |
|----------------------------------|------------|-------------|------------|--------------|------------|-----------|------------|
| ** **                       | ** ** | **Current** | ** ** | **Deferred** | ** ** | **Total** | ** ** | **Current** | ** ** | **Deferred** | ** ** | **Total** | ** ** | **Current** | ** ** | **Deferred** | ** ** | **Total** | ** ** |
| Continuing operations:           |       |        |       |         |       |      |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Operating income                 |       | $           | 7,657      |         | $          | 31,848    |       | $ | 39,505 |   | $ | 1,286 |   | $ | 41,312 |   | $ | 42,598 |   | $ | 1,496 |   | $ | 27,655 |   | $ | 29,151 |   |
| Gains on dispositions            |       | —      |       | 2,494        |       | 2,494     |       | 934 |   | 2,091 |   | 3,025 |   | — |   | 2,010 |   | 2,010 |   |
| Subtotal continuing operations   |       | 7,657       |       | 34,342       |       | 41,999    |       | 2,220 |   | 43,403 |   | 45,623 |   | 1,496 |   | 29,665 |   | 31,161 |   |
|                             |       |        |       |         |       |      |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Discontinued operations:         |       |        |       |         |       |      |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Operating income                 |       | (28         | )          | (35          | )          | (63       | )          | 289 |   | (98 | ) | 191 |   | — |   | (736 | ) | (736 | ) |
| Gains on dispositions            |       | —      |       | 3,134        |       | 3,134     |       | — |   | 618 |   | 618 |   | — |   | 17,938 |   | 17,938 |   |
| Subtotal discontinued operations |       | (28         | )          | 3,099        |       | 3,071     |       | 289 |   | 520 |   | 809 |   | — |   | 17,202 |   | 17,202 |   |
|                             |       |        |       |         |       |      |       |   |   |   |   |   |   |   |   |   |   |   |   |
|                             |       | $           | 7,629      |         | $          | 37,441    |       | $ | 45,070 |   | $ | 2,509 |   | $ | 43,923 |   | $ | 46,432 |   | $ | 1,496 |   | $ | 46,867 |   | $ | 48,363 |   |

 

Income tax expense attributable to continuing operations is reconciledto the amount computed by applying the Federal corporate tax rate as follows(in thousands):

 
| ** **                                                                               | ** ** | **2004** | ** ** | **2003** | ** ** | **2002** | ** ** |
|------------------------------------------------------------------------------------------|------------|----------|------------|----------|------------|----------|------------|
|                                                                                     |       |     |       |     |       |     |       |
| Tax at statutory rate on earnings (loss) from  continuing operations before income taxes |       | $        | (97,356    | )        | $          | 67,419   |       | $ | 58,199 |   |
| Increase (decrease) in valuations allowance, net                                         |       | 23,396   |       | (10,304  | )          | 1,284    |       |
| State income taxes, net of Federal income tax  benefit                                   |       | (1,563   | )          | 1,218    |       | 1,056    |       |
| Tax at statutory rate on earnings (loss) not subject  to Federal income taxes and other  |       | 117,522  |       | (12,710  | )          | (29,378  | )          |
| Income tax expense                                                                       |       | $        | 41,999     |     | $          | 45,623   |       | $ | 31,161 |   |
|                                                                                          |            |          |            |          |            |          |            |  |  |  |  |  |

 

F-26

----

 

Each TRS is a tax paying component for purposes of classifying deferredtax assets and liabilities.  At December 31,2004 and 2003, our net deferred tax assets were $76.6 million and $91.0million, respectively, and our net deferred tax liabilities were $94.5 millionand $86.4 million, respectively.  Theamounts are summarized as follows (in thousands):

 
| ** **                            | ** ** | **2004** | ** ** | **2003** | ** ** |
|---------------------------------------|------------|----------|------------|----------|------------|
|                                  |       |     |       |     |       |
| Total deferred tax assets             |       | $        | 247,292    |     | $          | 184,060 |   |
| Total deferred tax liabilities        |       | (239,610 | )          | (177,261 | )          |
| Valuation allowance                   |       | (25,626  | )          | (2,230   | )          |
| Net deferred tax assets (liabilities) |       | $        | (17,944    | )        | $          | 4,569 |   |

 

The tax effects of temporary differences and loss carryforwardsincluded in the net deferred tax assets (liabilities) at December 31, 2004and 2003 are summarized as follows (in thousands):

 
| ** **                                                                                                                                         | ** ** | **2004** | ** ** | **2003** | ** ** |
|----------------------------------------------------------------------------------------------------------------------------------------------------|------------|----------|------------|----------|------------|
|                                                                                                                                               |       |     |       |     |       |
| Property, primarily differences in depreciation and  amortization, the tax basis of land assets and treatment of interest and  certain other costs |       | $        | (225,582   | )        | $          | (164,292 | ) |
| Interest deduction carryforwards                                                                                                                   |       | 154,523  |       | 162,569  |       |
| Operating loss and tax credit carryforwards                                                                                                        |       | 52,013   |       | 12,319   |       |
| Other                                                                                                                                              |       | 1,102    |       | (6,027   | )          |
| Total                                                                                                                                              |       | $        | (17,944    | )        | $          | 4,569 |   |
|                                                                                                                                                    |            |          |            |          |            |  |  |  |  |

 

We obtained a TRS income tax benefit related to non-qualified stockoptions exercised by employees. The amount that employees had to pay to acquirestock was equal to the quoted market price of the stock at the grant date. UnderAPB 25, we did not recognize compensation expense with respect to the grantingof these options, but we did recognize a deferred tax asset and an increase inadditional paid-in capital of $14.9 million when the options were exercised.

In September 2003, we acquired a controlling financial interest inan entity (in which we previously held a minority interest acquired fromRodamco) whose assets include, among other things, approximately $400 millionof temporary differences (primarily interest deduction carryforwards).  We believe that it is more likely than notthat we will realize these assets and, accordingly, recorded a deferred taxasset of approximately $140 million.  Wealso recorded a deferred credit of approximately $122 million in accordancewith Emerging Issues Task Force (“EITF”) Issue 98-11, “Accounting for AcquiredTemporary Differences in Certain Purchase Transactions That Are Not Accountedfor as Business Combinations.”  Thisdeferred credit will reduce income tax expense when the deferred tax asset isrealized.

Several of our subsidiaries or partnerships in which we have aninterest are currently under examination by the IRS.  Although we believe our tax returns arecorrect, the final determination of tax audits and any related litigation couldbe different than that which was reported on the returns.  In the opinion of management, we have madeadequate tax provisions for years subject to examination.

As indicated above, the deferred tax assets relate primarily todifferences in the book and tax bases of property (particularly land assets)and to operating loss and interest deduction carryforwards for Federal incometax purposes.  A valuation allowance hasbeen established due to the uncertainty of realizing operating loss andinterest deduction carryforwards of certain TRS.  Prior to the third quarter of 2003, we hadrecorded valuation allowances related to certain deferred tax assets that wecould not conclude were more likely than not to be realized.  A significant portion of these assets relatedto temporary differences, primarily net operating loss carryforwards,attributed to a TRS that is an investor in the planned community ofFairwood.  Land sales at Fairwood beganin the fourth quarter of 2001.  Based onour experience through the third quarter of 2003 and our projections tocompletion of the project, we determined that it is more likely than not thatwe will realize substantially all of these deferred tax assets.  Accordingly, in the third quarter of 2003, weeliminated $8.1 million of the valuation allowance related to these deferredtax assets.  Reversals of other valuationallowances of $3.4 million in 2003 and $1.8 million in 2002 related to certaintax credit carryforwards that we were previously unable to conclude were morelikely than not to be realized.  Based onprojections of future taxable income, management believes that it is morelikely than not that the deferred tax assets at December 31, 2004, net ofthe valuation allowance, will be realized. The amount of the deferred tax assets considered realizable could bereduced in the near term, however, if estimates of future taxable income arereduced.  Deferred income taxes willbecome payable as temporary differences reverse (primarily due to thecompletion of land development projects) and TRS net operating losscarryforwards are exhausted.

The TRS net operating and capital loss carryforwards at December 31,2004 for Federal income tax purposes aggregated approximately $76.7 million andwill begin to expire in 2007.  The TRSinterest deduction carryforwards at December 31, 2004 for Federal incometax purposes aggregated approximately $443.5 million and do not expire.

 

F-27

----

 

***(11)***                          Otherprovisions and losses, net

Other provisions and losses, net are summarized as follows (inthousands):

 

| ** **                                                             | ** ** | **2004** | ** ** | **2003** | ** ** | **2002** | ** ** |
|------------------------------------------------------------------------|------------|----------|------------|----------|------------|----------|------------|
|                                                                   |       |     |       |     |       |     |       |
| Costs of Merger with GGP                                               |       | $        | 336,331    |     | $          | —   |       | $ | — |   |
| Arbitration and litigation loss reserves                               |       | 33,500   |       | —   |       | —   |       |
| Interest on extraordinary dividend (see Note 10)                       |       | 23,167   |       | —   |       | —   |       |
| Interest and penalties for other tax related matters  (see Note 10)    |       | 22,404   |       | —   |       | —   |       |
| Pension and post-retirement plan curtailment loss  (gain) (see Note 6) |       | (2,996   | )          | 10,212   |       | —   |       |
| Pension plan settlement losses (see Note 6)                            |       | 34,894   |       | 10,827   |       | 8,267    |       |
| Losses on early extinguishment of debt                                 |       | 8,026    |       | 7,242    |       | 2,333    |       |
| Impairment provision on other assets                                   |       | 5,133    |       | —   |       | 11,623   |       |
| Gain on foreign exchange derivatives                                   |       | —   |       | —   |       | (1,134   | )          |
| Other                                                                  |       | —   |       | (3,750   | )          | 2,993    |       |
| Total                                                                  |       | $        | 460,459    |     | $          | 24,531   |       | $ | 24,082 |   |

 

As a result of the Merger, we recognized significant Merger-relatedcosts.  Approximately $283.8 million ofthe costs are attributable to additional compensation expense recognized due tothe vesting of stock options and restricted stock, change in control agreementsfor several of our top executives, severance costs relating to a plan toinvoluntarily terminate certain of our employees, and related payroll taxexpenses.  We incurred approximately $32.5million in professional service fees and other costs in connection with the Mergertransaction and $20 million for a contribution to The Rouse Company Foundation,a charitable organization that is neither owned nor controlled by us, that wasrequired under the Merger agreement.

We are involved in various arbitration and litigation matters withthird parties, some of which arose in the fourth quarter of 2004. Subsequent tothe Merger, management evaluated these matters and, in certain cases, as aresult of changing circumstances and different plans and intentions withrespect to defending and resolving these matters, revised its estimate ofpossible losses. We estimate that losses could range between $10 million and $64million.  However, we believe losses of $33.5million are the best estimate within that range and, accordingly, haverecognized expenses for that amount in the fourth quarter of 2004. We expectthat the matters will be resolved prior to December 31, 2005.

We recognized net losses, primarily prepayment penalties andunamortized issuance costs, of $8.0 million, $7.2 million and $2.3 million in2004, 2003 and 2002, respectively, related to the extinguishment of debt notassociated with discontinued operations prior to scheduled maturity.

Prior to the Merger, we were developing a software program to assist usin managing tenant lease activities. Upon the Merger, management reevaluatedthe program and decided to discontinue its development. We therefore recordedan impairment provision for the costs that had been incurred and recognized aloss of $5.1 million.

MerchantWired was an unconsolidated joint venture with other realestate companies to provide broadband telecommunication services totenants.  In the second quarter of 2002,we and the other real estate companies decided to discontinue the operations ofMerchantWired.  Accordingly, we recordedan impairment provision for the entire amount of our net investment in theventure.

A portion of the purchase price for the acquisition of assets fromRodamco (see Note 18) was payable in euros. In January 2002, we acquired options to purchase 601 million eurosat a weighted-average per euro price of $0.8819.  These transactions were executed to reduceour exposure to movements in currency exchange rates between the date of thepurchase agreement and the closing date. The contracts were scheduled to expire in May 2002 and had an aggregatecost of $11.3 million.  In April 2002,we sold the contracts for net proceeds of $10.2 million and recognized a lossof $1.1 million.  We also executed andsubsequently sold a euro forward contract and realized a gain of $2.2million.  Subsequently, we owned noforeign currency or financial instruments that exposed us to risk of movementsin currency exchange rates.

In 2003, we earned a fee of $4.0 million on the facilitation of a realestate transaction between two parties that are unrelated to us.

In 2002, we agreedto pay $3.0 million of costs incurred by an entity that sold us a portfolio ofoffice and industrial buildings in 1998 to resolve certain tax-related mattersarising from the transaction.

 

***(12)***                          Impairmentlosses on operating properties reported in continuing operations

We recognized animpairment loss of $66.6 million in 2004 on South Street Seaport, a downtownspecialty marketplace in New York, New York. We also recognized impairmentlosses in 2004 aggregating $2.9 million on two office properties in HuntValley, Maryland.  Subsequent to theMerger, management evaluated these properties and changed our plans andintentions as to the manner in which these properties would be operated in thefuture and revised estimates of the most likely holding periods.  As a result, we evaluated the recoverabilityof the carrying amounts of the properties, determined that the carrying amountswere not recoverable from the future cash flows and, in the fourth quarter of2004, recognized the impairment losses to write down the assets to theirestimated fair values.

 

F-28

----

 

***(13)***                          Netgains on dispositions of interests in operating properties

Net gains ondispositions of interests in operating properties included in earnings (loss)from continuing operations are summarized as follows (in thousands):

 
| ** **                  | ** ** | **2004** | ** ** | **2003** | ** ** | **2002** | ** ** |
|-----------------------------|------------|----------|------------|----------|------------|----------|------------|
|                        |       |     |       |     |       |     |       |
| Regional retail centers     |       | $        | —     |     | $          | 21,561   |       | $ | 42,582 |   |
| Community retail center     |       | —   |       | —   |       | 4,316    |       |
| Office and other properties |       | 14,093   |       | —   |       | —   |       |
| Other                       |       | 28       |       | 5,071    |       | 2,048    |       |
| Total                       |       | $        | 14,121     |     | $          | 26,632   |       | $ | 48,946 |   |
|                             |            |          |            |          |            |          |            |  |  |  |  |

 

In 2000, we contributed our ownership interests in 37 buildings in twoindustrial parks to a joint venture in exchange for cash and a minorityinterest in the venture. We also guaranteed $44.0 million of indebtedness ofthe venture and, because of the nature of our continuing involvement in theventure, deferred a portion of the gains from the transaction. In June 2004,we redeemed our interest in the venture and terminated our guarantee of itsindebtedness. Accordingly, we recognized the previously deferred gain of $12.7million (net of deferred income taxes of approximately $1.7 million).

In April 2004, we sold most of our interest in Westin New York, ahotel in New York City, for net proceeds of $15.8 million and recognized a gainof $1.4 million (net of deferred income taxes of $0.8 million).

In 2003, in a transaction related to the sale of retail centers in thePhiladelphia metropolitan area (see note 2), we acquired Christiana Mall from aparty related to the purchaser of these retail centers and assumed a participatingmortgage secured by Christiana Mall.  Theparticipating mortgage had a fair value of $160.9 million.  The holder of this mortgage had the right toreceive $120 million in cash, participation in cash flows and the right toconvert this participation feature into a 50% equity interest in ChristianaMall.  The holder exercised this right inJune 2003.  We recorded a portion ofthe cost of Christiana Mall based on the historical cost of the properties weexchanged to acquire this property because a portion of the transaction wasconsidered nonmonetary under EITF Issue 01-2, “Interpretations of APB OpinionNo. 29.”  As a consequence, when wesubsequently disposed of the 50% interest in the property, we recognized a gainof $21.6 million.

Also in 2003, we sold our investment in Kravco Investments, L.P. forapproximately $52 million.  We recorded again on this transaction of approximately $4.6 million, net of taxes ofapproximately $3.0 million.

In April 2002,we sold our interests in 12 community retail centers (see Note 2). Ourinterests in one of the community retail centers were reported in unconsolidatedreal estate affiliates and the gain on the sale of our interests in thisproperty ($4.3 million, net of deferred income taxes of $2.0 million) isincluded in continuing operations.  Theremaining gain on this transaction is classified as a component of discontinuedoperations. In April 2002, we sold our interest in Franklin Park, aregional retail center in Toledo, Ohio, for $20.5 million and the buyer assumedour share of the center’s debt ($44.7 million). Our interest in this property was reported in unconsolidated real estateaffiliates and, accordingly, the gain of $42.6 million that we recorded on thistransaction is included in continuing operations.

 

***(14)***                          Preferredstock

We had authorized 50,000,000 shares of Preferred stock of 1¢ par valueper share of which, at December 31, 2003 (a) 4,505,168 shares wereclassified as Series A Convertible Preferred; (b) 4,600,000 shares wereclassified as Series B Convertible Preferred; (c) 10,000,000 shares wereclassified as Increasing Rate Cumulative Preferred; and (d) 37,362 shares wereclassified as 10.25% Junior Preferred, Series 1996.

The shares ofSeries B Convertible Preferred stock had a liquidation preference of $50 pershare and earned dividends at an annual rate of 6% of the liquidationpreference.  At the option of theholders, each share of the Series B Convertible Preferred stock was convertibleinto shares of our common stock at a conversion price of $38.125 per share(equivalent to a conversion rate of approximately 1.311 shares of common stockfor each share of Preferred stock). There were 4,047,555 shares of Preferred stock issued and outstanding atDecember 31, 2003. On January 7, 2004, we called for the redemptionof all outstanding shares of the Series B Convertible Preferred stock pursuantto the terms of its issuance and established February 10, 2004 as theredemption date. In the first quarter of 2004, we issued 5,308,199 shares ofcommon stock upon conversion or redemption of all of the outstanding shares ofSeries B Convertible Preferred stock. All authorized shares of Preferred stockhave been canceled and retired.

 

F-29

----

 

***(15)***                          Commonstock

Effective with the Merger, all of the common stock of The Rouse Companywas canceled and retired. There are no authorized or issued shares of commonstock at December 31, 2004.

In connection with the acquisition of The Hughes Corporation (“Hughes”)in 1996, we entered into a Contingent Stock Agreement (“Agreement”) for thebenefit of the former Hughes owners or their successors (“beneficiaries”).  Under terms of the Agreement, additionalshares of common stock (or in certain circumstances, Increasing Rate CumulativePreferred stock) are issuable to the beneficiaries based on the appraisedvalues of four defined groups of acquired assets at specified termination datesto 2009 and/or cash flows generated from the development and/or sale of thoseassets prior to the termination dates (“earnout periods”). Subsequent to the Merger,shares of GGP common stock will be used to satisfy distribution requirements.The distributions of additional shares, based on cash flows, are determined andpayable semiannually as of June 30 and December 31.  At December 31, 2004, approximately 519,135of GGP shares of common stock ($18.1 million) were issuable to thebeneficiaries, representing their share of cash flows for the semiannual periodended December 31, 2004.

The Agreement is, in substance, an arrangement under which we and thebeneficiaries will share in cash flows from development and/or sale of thedefined assets during their respective earnout periods, and we will issueadditional shares of common stock to the beneficiaries based on the value, ifany, of the defined asset groups at specified termination dates.  We account for the beneficiaries’ shares ofearnings from the assets subject to the agreement as an operating expense. Weaccount for any distributions to the beneficiaries as of the termination datesrelated to assets we own as of the termination dates as additional investmentsin the related assets (i.e., contingent consideration).  All shares of common stock repurchased in2004, 2003 and 2002 were subsequently issued pursuant to the Contingent StockAgreement.

In February 2004, we issued 4.6 million shares of common stock fornet proceeds of $221.9 million under our effective shelf registrationstatement. We used the proceeds primarily to fund our acquisition of ProvidencePlace. In January and February 2002, we issued 16.7 million shares ofcommon stock for net proceeds of $456.3 million under our effective shelfregistration statement.  We used theproceeds of the stock issuance to repay property and other debt and to fund aportion of the purchase price of the acquisition of the assets of Rodamco (see Note18).

We had stock option plans that awarded options to purchase shares ofcommon stock to our directors, officers and employees.  Stock options were generally granted with anexercise price equal to the market price of the common stock on the date ofgrant, typically vested over a three- to five-year period, subject to certainconditions, and had a maximum term of ten years.  These stock option plans were terminated followingthe Merger. Changes in options outstanding under the plans in 2003 and 2002 aresummarized as follows:

 
| ** **                   | ** ** | **2003**   | ** ** | **2002**                                | ** ** |
|------------------------------|------------|------------|------------|-----------------------------------------|------------|
| ** **                   | ** ** | **Shares** | ** ** | **Weighted-  average  Exercise  Price** | ** ** | **Shares** | ** ** | **Weighted-  average  Exercise  Price** | ** ** |
|                         |       |       |       |                                    |       |   |   |   |   |
| Balance at beginning of year |       | 10,124,004 |       | $                                       | 26.72      |   | 8,813,085 |   | $ | 25.58 |   |
| Options granted              |       | 2,941,137  |       | 32.53                                   |       | 2,769,932 |   | 29.14 |   |
| Options exercised            |       | (6,191,184 | )          | 27.32                                   |       | (1,307,854 | ) | 24.06 |   |
| Options expired or cancelled |       | (55,861    | )          | 27.40                                   |       | (151,159 | ) | 27.32 |   |
| Balance at end of year       |       | 6,818,096  |       | $                                       | 30.10      |   | 10,124,004 |   | $ | 26.72 |   |

 

As a result of the Merger, there were no options outstanding as of November 12,2004. At December 31, 2003 and 2002, options to purchase 2,636,639 and4,767,166 shares, respectively, were exercisable at per share weighted-averageprices of $33.07 and $27.68, respectively.

The option prices were greater than or equal to the market prices atthe date of grant for all of the options granted in 2004, 2003 and 2002 and,because we use the intrinsic value-based method of accounting for stockoptions, no compensation cost has been recognized for stock options granted toour directors, officers and employees. Expense recognized for stock options granted to employees of ourunconsolidated ventures was insignificant.

Under our stock bonus plans, shares of common stock were awarded to ourdirectors, officers and employees. Shares awarded under the plans were typically subject to forfeiturerestrictions which lapse at defined annual rates. Awards granted in 2004, 2003and 2002 aggregated 109,350 shares, 145,800 shares and 146,950 shares,respectively, with a weighted-average market value per share of $48.64, $32.64and $28.14, respectively.  We recognizedamortization of the fair value of the stock awarded as compensation costs on astraight line basis over the terms of the awards.  Such costs amounted to $4.1 million in 2004(prior to the Merger), $6.3 million in 2003 and $5.5 million in 2002. Uponcompletion of the Merger, the remaining unrecognized amortization of $11.2million was recognized as expense. These stock bonus plans were terminatedfollowing the Merger.

 

F-30

----

 

The tax status of dividends per share of common stock was as follows:

 
| ** **                             | ** ** | **2004** | ** ** | **2003** | ** ** | **2002** | ** ** |
|----------------------------------------|------------|----------|------------|----------|------------|----------|------------|
|                                   |       |     |       |     |       |     |       |
| Ordinary income                        |       | $        | 2.34       |     | $          | 0.50     |       | $ | 1.56 |   |
| Qualified dividend income-15% tax rate |       | 0.29     |       | 0.64     |       | —   |       |
| Return of capital                      |       | 1.37     |       | 0.54     |       | —   |       |
| Total                                  |       | $        | 4.00       |     | $          | 1.68     |       | $ | 1.56 |   |

 

***(16)***                          Earningsper share

Earnings per share (“EPS”) amounts are not presented for 2004 as therewere no outstanding shares of common stock at December 31, 2004 due to theMerger. Information relating to the calculations of earnings per share ofcommon stock for the years 2003 and 2002 is summarized as follows (inthousands):

 
| ** **                                                | ** ** | **2003**  | ** ** | **2002**    | ** ** |
|-----------------------------------------------------------|------------|-----------|------------|-------------|------------|
|                                                      |       | **Basic** | ** ** | **Diluted** | ** ** | **Basic** | ** ** | **Diluted** |   |
|                                                      |       |      |       |        |       |   |   |   |   |
| Earnings from continuing operations                       |       | $         | 147,002    |        | $          | 147,002 |   | $ | 135,123 |   | $ | 135,123 |   |
| Dividends on unvested common stock awards and other       |       | (660      | )          | (660        | )          | (860 | ) | (860 | ) |
| Dividends on Series B Convertible Preferred stock         |       | (12,150   | )          | (12,150     | )          | (12,150 | ) | (12,150 | ) |
| Adjusted earnings from continuing operations              |       | $         | 134,192    |        | $          | 134,192 |   | $ | 122,113 |   | $ | 122,113 |   |
|                                                      |       |      |       |        |       |   |   |   |   |
| Weighted-average shares outstanding                       |       | 88,453    |       | 88,453      |       | 84,954 |   | 84,954 |   |
| Dilutive securities:                                      |       |      |       |        |       |   |   |   |   |
| Options, unvested common stock awards and other           |       | —    |       | 2,155       |       | — |   | 1,492 |   |
| Adjusted weighted-average shares used in EPS  computation |       | 88,453    |       | 90,608      |       | 84,954 |   | 86,446 |   |

 

***(17)***                          Leases

We, as lessee, have entered into operating leases, primarily for landat operating properties, expiring at various dates through 2076.  Rents under such leases at propertiesincluded in continuing operations and discontinued operations aggregated $6.1million in 2004, $7.5 million in 2003 and $8.6 million in 2002, includingcontingent rents, based on the operating performance of the related properties,of $1.3 million, $1.5 million and $2.2 million, respectively.  In addition, we are responsible for real estatetaxes, insurance and maintenance expenses. Minimum rent payments due under operating leases in effect at propertiesincluded in continuing operations at December 31, 2004 are summarized asfollows (in thousands):

 

| 2005               |   | $       | 5,632   |   |
|--------------------|--------|---------|---------|--------|
| 2006               |   | 5,653   |    |
| 2007               |   | 5,674   |    |
| 2008               |   | 5,696   |    |
| 2009               |   | 5,718   |    |
| Subsequent to 2009 |   | 271,707 |    |
| Total              |   | $       | 300,080 |   |

 

F-31

----

 

We lease space in our operating properties to tenants primarily underoperating leases.  In addition to minimumrents, the majority of the retail center leases provide for percentage rentswhen the tenants’ sales volumes exceed stated amounts, and the majority of theretail center and office leases provide for other rents which reimburse us forcertain of our operating expenses.  Rentsfrom tenants at properties included in earnings from continuing operations aresummarized as follows (in thousands):

 
| ** **                                                   | ** ** | **2004** | ** ** | **2003** | ** ** | **2002** | ** ** |
|--------------------------------------------------------------|------------|----------|------------|----------|------------|----------|------------|
|                                                         |       |     |       |     |       |     |       |
| Minimum rents                                                |       | $        | 546,569    |     | $          | 497,491  |       | $ | 431,280 |   |
| Percentage rents                                             |       | 12,217   |       | 9,219    |       | 9,457    |       |
| Other rents, primarily reimbursements of operating  expenses |       | 290,928  |       | 250,622  |       | 206,657  |       |
| Total                                                        |       | $        | 849,714    |     | $          | 757,332  |       | $ | 647,394 |   |
|                                                              |            |          |            |          |            |          |            |  |  |  |  |  |

 

Minimum rents to be received from tenants under operating leases ineffect at properties included in continuing operations at December 31,2004 are summarized as follows (in thousands):

 
| 2005               |   | $       | 512,190   |   |
|--------------------|--------|---------|-----------|--------|
| 2006               |   | 453,539 |      |
| 2007               |   | 398,770 |      |
| 2008               |   | 342,453 |      |
| 2009               |   | 285,745 |      |
| Subsequent to 2009 |   | 804,666 |      |
| Total              |   | $       | 2,797,363 |   |

 

Rents under finance leases aggregated $8.9 million in 2004 and $8.7million in each of 2003 and 2002.  Thenet investment in finance leases at December 31, 2004 and 2003 issummarized as follows (in thousands):

 
| ** **                                                   | ** ** | **2004** | ** ** | **2003** | ** ** |
|--------------------------------------------------------------|------------|----------|------------|----------|------------|
|                                                         |       |     |       |     |       |
| Total minimum rent payments to be received over  lease terms |       | $        | 85,448     |     | $          | 94,378 |   |
| Estimated residual values of leased properties               |       | 788      |       | 788      |       |
| Unearned income                                              |       | (28,592  | )          | (33,557  | )          |
| Net investment in finance leases                             |       | $        | 57,644     |     | $          | 61,609 |   |

 

Minimum rent payments to be received from tenants under finance leasesin effect at December 31, 2004 are summarized as follows (in thousands):

 
| 2005               |   | $      | 8,970  |   |
|--------------------|--------|--------|--------|--------|
| 2006               |   | 8,472  |   |
| 2007               |   | 8,444  |   |
| 2008               |   | 8,444  |   |
| 2009               |   | 7,426  |   |
| Subsequent to 2009 |   | 43,692 |   |
| Total              |   | $      | 85,448 |   |

 

F-32

----

 

***(18)***                          Acquisition of assets from Rodamco

In January 2002, we, Simon Property Group, Inc. (“Simon”) andWestfield America Trust (“Westfield”) announced that affiliates of each(collectively, the “Purchasers”) entered into a Purchase Agreement with RodamcoNorth America N.V. (“Rodamco”) to purchase substantially all of the assets ofRodamco for an aggregate purchase price of approximately 2.48 billion euros andthe assumption of substantially all of Rodamco’s liabilities.  In connection with the Purchase Agreement,affiliates of the Purchasers entered into a Joint Purchase Agreement thatspecified the assets each would acquire and set forth the basis upon which theportion of the aggregate purchase price to be paid to Rodamco by each Purchaserwould be determined.  On May 3, 2002, thepurchase closed.

The primary assets we acquired include direct or indirect ownershipinterests in eight regional retail centers, leased primarily to nationalretailers, which we intend to continue to operate, and are described below:

 
| **Property**                   | ** ** | **Interest  Acquired  (%)** | ** ** | **Leaseable  Mall  Square Feet** | ** ** | **Department  Store  Square Feet** | ** ** | **Location**          | ** ** |
|--------------------------------|------------|-----------------------------|------------|----------------------------------|------------|------------------------------------|------------|-----------------------|------------|
|                           |       |                        |       |                             |       |                               |       |                  |       |
| Collin Creek (1)               |       | 70                          |       | 331,000                          |       | 790,000                            |       | Plano, TX             |       |
| Lakeside Mall                  |       | 100                         |       | 516,000                          |       | 961,000                            |       | Sterling  Heights, MI |       |
| North Star (2)                 |       | 96                          |       | 435,000                          |       | 816,000                            |       | San Antonio, TX       |       |
| Oakbrook Center (4)            |       | 47                          |       | 842,000                          |       | 1,425,000                          |       | Oakbrook, IL          |       |
| Perimeter Mall (1), (5)        |       | 50                          |       | 502,000                          |       | 779,000                            |       | Atlanta, GA           |       |
| The Streets at South Point (3) |       | 94                          |       | 590,000                          |       | 730,000                            |       | Durham, NC            |       |
| Water Tower Place (4)          |       | 52                          |       | 310,000                          |       | 510,000                            |       | Chicago, IL           |       |
| Willowbrook (1)                |       | 62                          |       | 500,000                          |       | 1,028,000                          |       | Wayne, NJ             |       |

 

----

Notes:

(1)          Properties were owned byexisting joint ventures or through tenancies in common between Rodamco andus.  As a result, we owned 100% interestsin these properties upon acquisition.

 

(2)          In 2000, we transferreda 33.95% ownership interest in North Star to our joint venture partner (anaffiliate of Rodamco) and retained a 3.55% ownership interest in theproperty.  We also relinquished ourrights to jointly control the operation of the property and terminated ourproperty management agreement.  Wereceived a cash distribution of approximately $82.5 million in thistransaction.  We accounted for this transactionas a partial sale of real estate. Accordingly, we realized a gain for the difference between the salesvalues and the proportionate cost (90.5%) of the partial interest sold.  We deferred recognition of this gain due toour continuing involvement with the venture related to our guarantee of up to$25 million of its debt obligations.  Weallocated the cost of the acquisition of Rodamco to the acquired assets(including acquired interests in North Star) and liabilities assumed based ontheir estimated fair values at the time of acquisition.  As a result, the $25 million deferred gainwas recorded as a reduction in our investment in North Star.

 

(3)          Property beganoperations in March 2002.

 

(4)          Property also containssignificant office space.

 

(5)          In October 2002, wecontributed our ownership interest in Perimeter Mall to a joint venture inexchange for a 50% interest in that joint venture and a cash distribution of$67.1 million.

 

Other primary assets we acquired include a 100% interest in a parcel ofland and building at Collin Creek that is leased to Dillard’s department storeand a 99% noncontrolling limited partnership interest in an entity that leasedland from us to redevelop a portion of Fashion Show (a retail center in LasVegas, Nevada).  The first phase of theredevelopment project opened in November 2002.  A subsidiary of a trust, of which certainemployees are beneficiaries (an entity that we neither own nor control), ownedthe controlling interest in the limited partnership.  Prior to opening, we acquired the controllinginterest for $0.1 million.  In connectionwith the acquisition, we consolidated the accounts of the limited partnership,including $100.8 million of property debt.

 

F-33

----

 

The Purchasers also jointly acquired interests in several otherassets.  Our share of these jointly heldassets is 27.285%.  These assetsincluded:

 

•                  A 40% interestin River Ridge, a retail center in Lynchburg, VA, that the purchasers disposedof in July 2003;

•                  Sawmill PlacePlaza, a retail center in Columbus, OH, that was sold by the Purchasers on November 15,2002;

•                  A 50% interestin Durham Associates, a partnership that owned and operated South Square Mall,a regional shopping center in Durham, NC that was subject to a contract of saleat the closing date and was sold by the Purchasers on August 2, 2002;

•                  A 59.17%interest in Kravco Investments, L.P., a limited partnership that ownsinvestments in retail centers, primarily in the greater Philadelphia area.  We sold our share of the interest in KravcoInvestments, L.P. to Simon in December 2003;

•                  Urban RetailProperties Co., a property management company that manages properties owned byothers;

•                  Purchase moneynotes receivable that arose from the sales of other assets by Rodamco; and

•                  A 50% interestin Westin New York, a hotel in New York City that began operations in October 2002.We sold most of our interests in this property in April 2004.

 

The allocation of the purchase cost is summarized as follows (inthousands):

 

| Property and property-related deferred costs                          |   | $         | 1,156,129 |   |
|-----------------------------------------------------------------------|--------|-----------|-----------|--------|
| Properties in development                                             |   | 2,059     |      |
| Investments in and advances to unconsolidated real  estate affiliates |   | 248,928   |      |
| Prepaid expenses, receivables under finance leases  and other assets  |   | 79,078    |      |
| Accounts and notes receivable                                         |   | 1,998     |      |
| Total assets                                                          |   | 1,488,192 |      |
| Less-Debt and other liabilities                                       |   | 672,903   |      |
| Cash required                                                         |   | $         | 815,289   |   |

 

We paid approximately 605 million euros (approximately $546 millionbased on exchange rates then in effect) to Rodamco at closing.  We also paid approximately $269 million toretire some of the obligations of Rodamco and to pay our share of transactioncosts.  Our share of the purchase pricewas based on the allocated prices of the properties that we acquired, directlyor indirectly, our share of the jointly held assets and our share of Rodamco’sobligations retired and the transaction expenses.  The aggregate purchase price was determinedas a result of negotiations between Rodamco and the Purchasers; our portion ofthe aggregate purchase price was determined as a result of negotiations amongthe Purchasers.

Funds for payment of our portion of the purchase price were provided asfollows (in thousands):

 

| Sale of Columbia community retail centers                       |   | $       | 111,120 |   |
|-----------------------------------------------------------------|--------|---------|---------|--------|
| Sale of interest in Franklin Park                               |   | 20,500  |    |
| Issuance of common stock in January and February 2002 |   | 279,347 |    |
| Borrowings under bridge loan facility                           |   | 392,500 |    |
| Cash on hand                                                    |   | 11,822  |    |
| Cash required                                                   |   | $       | 815,289 |   |

 

In connection with the purchase, we borrowed $392.5 million under abridge loan facility provided by Banc of America Securities LLC and Banc ofAmerica Mortgage Capital Corporation. The facility provided for no additional availability and had an initialmaturity of November 2002 which was extended to May 2003.  We repaid approximately $220.4 million of thebridge loan facility with a portion of the proceeds from the issuance of the7.20% Notes in September 2002 (see Note 7).  Additionally, in October 2002, we repaid$111.2 million of the facility with the distribution proceeds from two unconsolidatedreal estate affiliates (see Note 3).  In November andDecember 2002, we repaid the remaining borrowings under the facility usingproceeds from borrowings under our revolving credit facility.

 

F-34

----

 

The consolidated statement of operations for the year ended December 31,2002 includes revenues and costs and expenses of the assets acquired fromRodamco from the date of acquisition.  Weprepared pro forma consolidated results of operations for the years ended December 31,2002, assuming the acquisition of assets from Rodamco and the sales of assetsused to fund a portion of the cash requirement of the acquisition occurredprior to January 1, 2002.  The netgains related to these sales of assets are excluded from the pro forma results.  The unaudited pro forma results aresummarized as follows (in thousands, except per share data):

 

| ** **                                                                                                  | ** ** | **2002** | ** ** |
|-------------------------------------------------------------------------------------------------------------|------------|----------|------------|
|                                                                                                        |       |     |       |
| Revenues                                                                                                    |       | $        | 1,005,534  |   |
| Equity in earnings of Unconsolidated Real Estate  Affiliates                                                |       | 32,995   |       |
| Earnings before net gains on dispositions of  interests in operating properties and discontinued operations |       | 96,310   |       |
| Net earnings                                                                                                |       | $        | 77,438     |   |
|                                                                                                        |       |     |       |
| Earnings per share of common stock                                                                          |       |     |       |
| Basic:                                                                                                      |       |     |       |
| Continuing operations                                                                                       |       | $        | 1.00       |   |
| Discontinued operations                                                                                     |       | (0.25    | )          |
| Net earnings                                                                                                |       | $        | 0.75       |   |
|                                                                                                        |       |     |       |
| Diluted:                                                                                                    |       |     |       |
| Continuing operations                                                                                       |       | $        | 0.99       |   |
| Discontinued operations                                                                                     |       | (0.25    | )          |
| Net earnings                                                                                                |       | $        | 0.74       |   |

 

The pro forma revenues, equity in earnings of unconsolidated real estateaffiliates and net earnings summarized above are not necessarily indicative ofthe results that would have occurred if the acquisition and sales had beenconsummated prior to January 1, 2002 or of future results of operations.

 

***(19)***                          Othercommitments and contingencies

Other commitments and contingencies (that are not reflected in theconsolidated balance sheet) at December 31, 2004 are summarized as follows(in millions):

 

| Guarantee of debt of unconsolidated real estate  affiliates:                              |   |   |   |
|-------------------------------------------------------------------------------------------|--------|--------|--------|
| Village of Merrick Park                                                                   |   | $      | 100.0  |   |
| Construction contracts for properties in  development:                                    |   |   |   |
| Consolidated subsidiaries, primarily related to The  Shops at La Cantera                  |   | 105.6  |   |
| Our share of unconsolidated real estate affiliates                                        |   | 7.9    |   |
| Construction and purchase contracts for land  development                                 |   | 99.3   |   |
| Our share of long-term ground lease obligations of  unconsolidated real estate affiliates |   | 120.9  |   |
| Bank letters of credit and other                                                          |   | 27.3   |   |
|                                                                                      |   | $      | 461.0  |   |

 

The Village of Merrick Park is encumbered with a mortgage loan.  We have guaranteed $100 million of themortgage loan.  The amount of theguarantee may be reduced or eliminated upon the achievement of certain lenderrequirements.  The fair value of theguarantee is not material.  Additionally,venture partners have provided guarantees to us for their share (60%) of theloan guarantee.

We and certain of our subsidiaries are defendants in various litigationmatters arising in the ordinary course of business, some of which involveclaims for damages that are substantial in amount.  Some of these litigation matters are coveredby insurance.  We are also aware ofclaims arising from disputes in the ordinary course of business.  We record provisions for litigation mattersand other claims when we believe a loss is probable and can be reasonablyestimated.  At December 31, 2004,recorded aggregate liabilities related to these claims were approximately $35million.  We further believe that anylosses we may suffer for litigation and other claims in excess of the recordedaggregate liabilities are not material. Accordingly, in our opinion, adequate provision has been made for losseswith respect to litigation matters and other claims, and the ultimateresolution of these matters is not likely to have a material effect on ourconsolidated financial position or results of operations.  Our assessment of the potential outcomes ofthese matters involves significant judgment and is subject to change based onfuture developments.

 

F-35

----

 

***(20)***                          InterimFinancial Information (Unaudited)

Interim consolidated results of operations are summarized as follows(in thousands, except per share data):

 
|                                       |   | **Quarter Ended**    |       |
|--------------------------------------------|--------|----------------------|------------|
|                                       |   | **2004**             | ** ** | **2003** |   |
|                                       |   | **December 31** | ** ** | **September 30** | ** ** | **June 30** | ** ** | **March 31** | ** ** | **December 31** | ** ** | **September 30** | ** ** | **June 30** | ** ** | **March 31** |   |
|                                       |   |                 |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Revenues                                   |   | $                    | 346,471    |   | $ | 283,418 |   | $ | 319,296 |   | $ | 321,048 |   | $ | 288,062 |   | $ | 263,367 |   | $ | 283,220 |   | $ | 261,503 |   |
| Operating income (loss)                    |   | (378,861             | )          | (24,958 | ) | 38,980 |   | 30,558 |   | 41,178 |   | 41,977 |   | 17,961 |   | 19,254 |   |
| Earnings (loss) from continuing operations |   | (378,794             | )          | (24,792 | ) | 53,076 |   | 30,350 |   | 45,734 |   | 42,249 |   | 39,534 |   | 19,485 |   |
| Net earnings (loss)                        |   | $                    | (378,924   | ) | $ | (24,190 | ) | $ | 61,239 |   | $ | 67,114 |   | $ | 57,865 |   | $ | 40,492 |   | $ | 138,092 |   | $ | 24,140 |   |
|                                       |   |                 |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Earnings (loss) per common share           |   |                 |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Basic:                                     |   |                 |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Continuing operations                      |   | N/A                  |       | $ | (0.24 | ) | $ | 0.52 |   | $ | 0.31 |   | $ | 0.47 |   | $ | 0.44 |   | $ | 0.41 |   | $ | 0.19 |   |
| Discontinued operations                    |   | N/A                  |       | 0.01 |   | 0.08 |   | 0.37 |   | 0.14 |   | (0.02 | ) | 1.13 |   | 0.05 |   |
| Total                                      |   | N/A                  |       | $ | (0.23 | ) | $ | 0.60 |   | $ | 0.68 |   | $ | 0.61 |   | $ | 0.42 |   | $ | 1.54 |   | $ | 0.24 |   |
|                                       |   |                 |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Diluted:                                   |   |                 |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Continuing operations                      |   | N/A                  |       | $ | (0.24 | ) | $ | 0.50 |   | $ | 0.30 |   | $ | 0.46 |   | $ | 0.43 |   | $ | 0.40 |   | $ | 0.19 |   |
| Discontinued operations                    |   | N/A                  |       | 0.01 |   | 0.08 |   | 0.36 |   | 0.13 |   | (0.02 | ) | 1.10 |   | 0.05 |   |
| Total                                      |   | N/A                  |       | $ | (0.23 | ) | $ | 0.58 |   | $ | 0.66 |   | $ | 0.59 |   | $ | 0.41 |   | $ | 1.50 |   | $ | 0.24 |   |

 

**Note:** Quarterly amounts havebeen restated for the effects of changes in discontinued operations to reflectconsolidated properties that we sold in 2004 and where we did not have acontinuing involvement. Net earnings for the first quarter of 2004 includegains on the sales of properties in Hughes Center of approximately $35.3million ($0.36 per share basic and $0.35 per share diluted).  Net earnings for the second quarter of 2004 includegains of $12.7 million ($0.12 per share basic and diluted) from the redemptionof our interest in a venture in which we guaranteed indebtedness and the gainon the sale of an office building in Hughes Center of $5.5 million ($0.05 pershare basic and diluted).  Net earningsfor the third quarter of 2004 include losses relating to interest and penaltiesof $44.6 million paid to the IRS to maintain our REIT status ($0.43 per sharebasic and diluted).  Net earnings for thefourth quarter of 2004 include the effect of Merger-related expenses of $336.3million, arbitration and litigation loss reserves of $33.5 million, and pensionplan settlement losses of $31.3 million. Net earnings for the second quarter of2003 include gains on the sales of retail properties of approximately $65.4million ($0.75 per share basic and $0.73 per share diluted), a gain on thedisposal of an interest in retail property of $21.6 million ($0.25 per sharebasic and $0.24 per share diluted) and a gain on the extinguishment of debt of$26.9 million ($0.31 per share basic and $0.30 per share diluted).  Net earnings for the third quarter of 2003include an impairment loss on a retail center of $6.5 million ($0.07 pershare basic and diluted). Net earnings for the fourth quarter of 2003 includeimpairment losses on two office properties of $1.4 million ($0.02 per sharebasic and diluted) and a gain on sale of office and related properties of $10.1million ($0.11 per share basic and diluted).

 

F-36

----

 

Schedule II

 

THE ROUSE COMPANY LP AND SUBSIDIARIES

*A Subsidiary of General Growth Properties,Inc.*

Valuation and Qualifying Accounts

Years ended December 31, 2004, 2003 and2002

(in thousands)

 
| ** **                             | ** ** | ** **                         | ** ** | **Additions**                       | ** ** | ** **                      | ** ** | ** **     | ** ** |
|----------------------------------------|------------|------------------------------------|------------|-------------------------------------|------------|---------------------------------|------------|----------------|------------|
| **Descriptions**                       | ** ** | **Balance at  beginning  of year** | ** ** | **Charged to  costs and  expenses** | ** ** | **Charged to  other  accounts** | ** ** | **Deductions** | ** ** | **Balance at  end of year** | ** ** |
|                                   |       |                               |       |                                |       |                            |       |           |       |   |   |
| Year ended December 31, 2004:     |       |                               |       |                                |       |                            |       |           |       |   |   |
| Allowance for doubtful receivables     |       | $                                  | 30,860     |                                | $          | 14,281                          |       | $              | —     |   | $ | 14,668 | (1) | $ | 30,473 |   |
| Deferred tax asset valuation allowance |       | $                                  | 2,230      |                                | $          | 23,396                          |       | $              | —     |   | $ | — |   | $ | 25,626 |   |
| Preconstruction                        |       | $                                  | 8,464      |                                | $          | 8,624                           |       | $              | —     |   | $ | 14,416 | (3) | $ | 2,672 |   |
|                                   |       |                               |       |                                |       |                            |       |           |       |   |   |
| Year ended December 31, 2003:     |       |                               |       |                                |       |                            |       |           |       |   |   |
| Allowance for doubtful receivables     |       | $                                  | 27,197     |                                | $          | 11,964                          |       | $              | —     |   | $ | 8,301 | (1) | $ | 30,860 |   |
| Deferred tax asset valuation allowance |       | $                                  | 12,534     |                                | $          | 1,257                           |       | $              | —     |   | $ | 11,561 | (2) | $ | 2,230 |   |
| Preconstruction                        |       | $                                  | 8,554      |                                | $          | 2,637                           |       | $              | —     |   | $ | 2,727 | (3) | $ | 8,464 |   |
|                                   |       |                               |       |                                |       |                            |       |           |       |   |   |
| Year ended December 31, 2002:     |       |                               |       |                                |       |                            |       |           |       |   |   |
| Allowance for doubtful receivables     |       | $                                  | 27,206     |                                | $          | 9,059                           |       | $              | —     |   | $ | 9,068 |  (1) | $ | 27,197 |   |
| Deferred tax asset valuation allowance |       | $                                  | 11,250     |                                | $          | 3,039                           |       | $              | —     |   | $ | 1,755 | (2) | $ | 12,534 |   |
| Preconstruction                        |       | $                                  | 7,528      |                                | $          | 6,967                           |       | $              | —     |   | $ | 5,941 | (3) | $ | 8,554 |   |

 

----

Notes:

(1)                    Balanceswritten off as uncollectible.

 

(2)                    A portion ofthe valuation allowance was reversed due to our determination that it was morelikely than not that we would realize these deferred tax assets.

 

(3)                    Costs ofunsuccessful projects written off and other deductions.

 

F-37

----

128%Schedule III

 

THE ROUSE COMPANY LP AND SUBSIDIARIES

*A Subsidiary of General GrowthProperties, Inc.*

RealEstate and Accumulated Depreciation (Note 1)

December 31, 2004

(in thousands)

 
| ** **                                            | ** ** | ** **       | ** ** | **Initial cost to Company** | ** ** | **Costs capitalized subsequent  to acquisition** | ** ** | **Gross amount at which carried****at close of period** | ** ** | ** **         | ** ** | **Life on which** | ** ** |
|-------------------------------------------------------|------------|------------------|------------|-----------------------------|------------|--------------------------------------------------|------------|---------------------------------------------------------|------------|--------------------|------------|-------------------|------------|
| ** **                                            | ** ** | ** **       | ** ** | ** **                  | ** ** | ** **                                       | ** ** | ** **                                              | ** ** | ** **         | ** ** | ** **        | ** ** | **Accumulated** | ** ** | **Date** | ** ** | ** ** | ** ** | **depreciation in** |   |
| ** **                                            | ** ** | ** **       | ** ** | ** **                  | ** ** | ** **                                       | ** ** | ** **                                              | ** ** | ** **         | ** ** | ** **        | ** ** | **depreciation** | ** ** | **completion** | ** ** | ** ** | ** ** | **latest income** |   |
| ** **                                            | ** ** | ** **       | ** ** | ** **                  | ** ** | **Buildings and**                                | ** ** | ** **                                              | ** ** | **Carrying costs** | ** ** | ** **        | ** ** | **Buildings and** | ** ** | ** ** | ** ** | **and** | ** ** | **of** | ** ** | **Date** | ** ** | **statement is** |   |
| **Description**                                       | ** ** | **Encumbrances** | ** ** | **Land**                    | ** ** | **improvements**                                 | ** ** | **Improvements**                                        | ** ** | **(Note 2)**       | ** ** | **Land**          | ** ** | **improvements** | ** ** | **Total** | ** ** | **amortization** | ** ** | **construction** | ** ** | **acquired** | ** ** | **computed** |   |
|                                                  |       |             |       |                        |       |                                             |       |                                                    |       |               |       |              |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Operating Properties:                                 |       |             |       |                        |       |                                             |       |                                                    |       |               |       |              |       |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                  |       |             |       |                        |       |                                             |       |                                                    |       |               |       |              |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Fashion Show  Retail Center  Las Vegas, NV            |       | $                | 380,000    |                        | $          | 87,544                                           |       | $                                                       | 120,347    |               | $          | 385,285           |       | $ | — |   | $ | 87,544 |   | $ | 505,632 |   | $ | 593,176 |   | $ | 64,336 |   | 03/81 |   | 06/96 |   | Note 6 |   |
|                                                  |       |             |       |                        |       |                                             |       |                                                    |       |               |       |              |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Providence Place  Retail Center  Providence, RI       |       | 302,524          |       | —                      |       | 463,568                                          |       | —                                                  |       | —             |       | —            |       | 463,568 |   | 463,568 |   | 6,225 |   | 08/99 |   | 03/04 |   | Note 6 |   |
|                                                  |       |             |       |                        |       |                                             |       |                                                    |       |               |       |              |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Staten Island Mall  Retail Center  Staten Island, NY  |       | 169,602          |       | 37,867                      |       | 197,274                                          |       | 5,417                                                   |       | —             |       | 37,867            |       | 202,691 |   | 240,558 |   | 10,102 |   | 08/73 |   | 08/03 |   | Note 6 |   |
|                                                  |       |             |       |                        |       |                                             |       |                                                    |       |               |       |              |       |   |   |   |   |   |   |   |   |   |   |   |   |
| North Star  Retail Center  San Antonio, TX            |       | 251,000          |       | 54,000                      |       | 173,343                                          |       | 8,367                                                   |       | —             |       | 54,000            |       | 181,710 |   | 235,710 |   | 19,267 |   | 09/60 |   | 05/02 |   | Note 6 |   |
|                                                  |       |             |       |                        |       |                                             |       |                                                    |       |               |       |              |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Lakeside Mall  Retail Center  Sterling Heights, MI    |       | 195,000          |       | 51,300                      |       | 175,161                                          |       | 4,793                                                   |       | —             |       | 51,300            |       | 179,954 |   | 231,254 |   | 15,988 |   | 03/76 |   | 05/02 |   | Note 6 |   |
|                                                  |       |             |       |                        |       |                                             |       |                                                    |       |               |       |              |       |   |   |   |   |   |   |   |   |   |   |   |   |
| The Mall in Columbia  Retail Center  Columbia, MD     |       | 160,657          |       | 7,179                       |       | —                                           |       | 203,347                                                 |       | —             |       | 7,179             |       | 203,347 |   | 210,526 |   | 47,509 |   | 08/71 |   | N/A |   | Note 6 |   |
|                                                  |       |             |       |                        |       |                                             |       |                                                    |       |               |       |              |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Willowbrook  Retail Center  Wayne, NJ                 |       | 172,288          |       | 56,819                      |       | 114,629                                          |       | 15,702                                                  |       | —             |       | 56,819            |       | 130,331 |   | 187,150 |   | 12,101 |   | 09/69 |   | 05/02 |   | Note 6 |   |
|                                                  |       |             |       |                        |       |                                             |       |                                                    |       |               |       |              |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Pioneer Place  Mixed-Use Project  Portland, OR        |       | 127,058          |       | 2,813                       |       | —                                           |       | 178,319                                                 |       | —             |       | 2,813             |       | 178,319 |   | 181,132 |   | 44,307 |   | 03/90 |   | N/A |   | Note 6 |   |
|                                                  |       |             |       |                        |       |                                             |       |                                                    |       |               |       |              |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Woodbridge Center  Retail Center  Woodbridge, NJ      |       | 225,000          |       | 27,032                      |       | —                                           |       | 135,731                                                 |       | —             |       | 27,032            |       | 135,731 |   | 162,763 |   | 51,827 |   | 03/71 |   | N/A |   | Note 6 |   |
|                                                  |       |             |       |                        |       |                                             |       |                                                    |       |               |       |              |       |   |   |   |   |   |   |   |   |   |   |   |   |
| The Streets at South Point  Retail Center  Durham, NC |       | 134,592          |       | 18,266                      |       | 143,474                                          |       | 658                                                     |       | —             |       | 18,266            |       | 144,132 |   | 162,398 |   | 13,804 |   | 03/02 |   | 05/02 |   | Note 6 |   |
|                                                       |            |                  |            |                             |            |                                                  |            |                                                         |            |                    |            |                   |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

F-38

----

 

THE ROUSE COMPANY LP AND SUBSIDIARIES

*A Subsidiary of General GrowthProperties, Inc.*

Real Estate and AccumulatedDepreciation (Note 1)

December 31, 2004

(in thousands)

 
| ** **                                                   | ** ** | ** **       | ** ** | **Initial cost to Company** | ** ** | **Costs capitalized subsequent  to acquisition** | ** ** | **Gross amount at which carried****at close of period** | ** ** | ** **         | ** ** | **Life on which** | ** ** |
|--------------------------------------------------------------|------------|------------------|------------|-----------------------------|------------|--------------------------------------------------|------------|---------------------------------------------------------|------------|--------------------|------------|-------------------|------------|
| ** **                                                   | ** ** | ** **       | ** ** | ** **                  | ** ** | ** **                                       | ** ** | ** **                                              | ** ** | ** **         | ** ** | ** **        | ** ** | **Accumulated** | ** ** | **Date** | ** ** | ** ** | ** ** | **depreciation in** |   |
| ** **                                                   | ** ** | ** **       | ** ** | ** **                  | ** ** | ** **                                       | ** ** | ** **                                              | ** ** | ** **         | ** ** | ** **        | ** ** | **depreciation** | ** ** | **completion** | ** ** | ** ** | ** ** | **latest income** |   |
| ** **                                                   | ** ** | ** **       | ** ** | ** **                  | ** ** | **Buildings and**                                | ** ** | ** **                                              | ** ** | **Carrying costs** | ** ** | ** **        | ** ** | **Buildings and** | ** ** | ** ** | ** ** | **and** | ** ** | **of** | ** ** | **Date** | ** ** | **statement is** |   |
| **Description**                                              | ** ** | **Encumbrances** | ** ** | **Land**                    | ** ** | **improvements**                                 | ** ** | **Improvements**                                        | ** ** | **(Note 2)**       | ** ** | **Land**          | ** ** | **improvements** | ** ** | **Total** | ** ** | **amortization** | ** ** | **construction** | ** ** | **acquired** | ** ** | **computed** |   |
|                                                         |       |             |       |                        |       |                                             |       |                                                    |       |               |       |              |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Ridgedale Center  Retail Center  Minneapolis, MN             |       | $                | 105,000    |                        | $          | 20,216                                           |       | $                                                       | 129,171    |               | $          | 2,563             |       | $ | — |   | $ | 20,216 |   | $ | 131,734 |   | $ | 151,950 |   | $ | 11,333 |   | 01/74 |   | 11/02 |   | Note 6 |   |
|                                                         |       |             |       |                        |       |                                             |       |                                                    |       |               |       |              |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Arizona Center  Mixed-Use Project  Phoenix, AZ               |       | 29,345           |       | 96                          |       | —                                           |       | 151,151                                                 |       | —             |       | 96                |       | 151,151 |   | 151,247 |   | 48,852 |   | 11/90 |   | N/A |   | Note 6 |   |
|                                                         |       |             |       |                        |       |                                             |       |                                                    |       |               |       |              |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Paramus Park  Retail Center  Paramus, NJ                     |       | 98,349           |       | 13,476                      |       | —                                           |       | 131,906                                                 |       | —             |       | 13,476            |       | 131,906 |   | 145,382 |   | 32,278 |   | 03/74 |   | N/A |   | Note 6 |   |
|                                                         |       |             |       |                        |       |                                             |       |                                                    |       |               |       |              |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Fashion Place  Retail Center  Salt Lake City, UT             |       | 65,229           |       | 19,379                      |       | 119,715                                          |       | 4,062                                                   |       | —             |       | 19,379            |       | 123,777 |   | 143,156 |   | 13,355 |   | 03/72 |   | 10/98 |   | Note 6 |   |
|                                                         |       |             |       |                        |       |                                             |       |                                                    |       |               |       |              |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Beachwood Place  Retail Center  Cleveland, OH                |       | 108,633          |       | 10,673                      |       | —                                           |       | 129,461                                                 |       | —             |       | 10,673            |       | 129,461 |   | 140,134 |   | 26,656 |   | 08/78 |   | N/A |   | Note 6 |   |
|                                                         |       |             |       |                        |       |                                             |       |                                                    |       |               |       |              |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Owings Mills  Retail Center  Baltimore, MD                   |       | —           |       | 25,170                      |       | —                                           |       | 112,933                                                 |       | —             |       | 25,170            |       | 112,933 |   | 138,103 |   | 24,538 |   | 07/86 |   | N/A |   | Note 6 |   |
|                                                         |       |             |       |                        |       |                                             |       |                                                    |       |               |       |              |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Oviedo Marketplace  Retail Center  Orlando, FL               |       | 53,656           |       | 9,389                       |       | —                                           |       | 122,350                                                 |       | —             |       | 9,389             |       | 122,350 |   | 131,739 |   | 14,986 |   | 03/98 |   | N/A |   | Note 6 |   |
|                                                         |       |             |       |                        |       |                                             |       |                                                    |       |               |       |              |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Collin Creek  Retail Center  Plano, TX                       |       | 72,972           |       | 26,419                      |       | 102,037                                          |       | 1,994                                                   |       | —             |       | 26,419            |       | 104,031 |   | 130,450 |   | 9,385 |   | 07/81 |   | 05/02 |   | Note 6 |   |
|                                                         |       |             |       |                        |       |                                             |       |                                                    |       |               |       |              |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Oxmoor  Retail Center  Louisville, KY                        |       | 66,364           |       | —                      |       | 124,487                                          |       | —                                                  |       | —             |       | —            |       | 124,487 |   | 124,487 |   | 623 |   | 07/71 |   | 11/04 |   | Note 6 |   |
|                                                         |       |             |       |                        |       |                                             |       |                                                    |       |               |       |              |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Westlake Center  Mixed-Use Project  Seattle, WA              |       | 68,680           |       | 10,582                      |       | —                                           |       | 105,553                                                 |       | —             |       | 10,582            |       | 105,553 |   | 116,135 |   | 38,356 |   | 10/88 |   | N/A |   | Note 6 |   |
|                                                         |       |             |       |                        |       |                                             |       |                                                    |       |               |       |              |       |   |   |   |   |   |   |   |   |   |   |   |   |
| The Gallery at Harborplace  Mixed-Use Project  Baltimore, MD |       | 89,256           |       | 6,648                       |       | —                                           |       | 107,267                                                 |       | —             |       | 6,648             |       | 107,267 |   | 113,915 |   | 38,541 |   | 09/87 |   | N/A |   | Note 6 |   |
|                                                              |            |                  |            |                             |            |                                                  |            |                                                         |            |                    |            |                   |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

F-39

----

 

THE ROUSE COMPANY LP AND SUBSIDIARIES

*A Subsidiary of General GrowthProperties, Inc.*

Real Estate and AccumulatedDepreciation (Note 1)

December 31, 2004

(in thousands)

 
| ** **                                             | ** ** | ** **       | ** ** | **Initial cost to Company** | ** ** | **Costs capitalized subsequent  to acquisition** | ** ** | **Gross amount at which carried****at close of period** | ** ** | ** **         | ** ** | **Life on which** | ** ** |
|--------------------------------------------------------|------------|------------------|------------|-----------------------------|------------|--------------------------------------------------|------------|---------------------------------------------------------|------------|--------------------|------------|-------------------|------------|
| ** **                                             | ** ** | ** **       | ** ** | ** **                  | ** ** | ** **                                       | ** ** | ** **                                              | ** ** | ** **         | ** ** | ** **        | ** ** | **Accumulated** | ** ** | **Date** | ** ** | ** ** | ** ** | **depreciation in** |   |
| ** **                                             | ** ** | ** **       | ** ** | ** **                  | ** ** | ** **                                       | ** ** | ** **                                              | ** ** | ** **         | ** ** | ** **        | ** ** | **depreciation** | ** ** | **completion** | ** ** | ** ** | ** ** | **latest income** |   |
| ** **                                             | ** ** | ** **       | ** ** | ** **                  | ** ** | **Buildings and**                                | ** ** | ** **                                              | ** ** | **Carrying costs** | ** ** | ** **        | ** ** | **Buildings and** | ** ** | ** ** | ** ** | **and** | ** ** | **of** | ** ** | **Date** | ** ** | **statement is** |   |
| **Description**                                        | ** ** | **Encumbrances** | ** ** | **Land**                    | ** ** | **improvements**                                 | ** ** | **Improvements**                                        | ** ** | **(Note 2)**       | ** ** | **Land**          | ** ** | **improvements** | ** ** | **Total** | ** ** | **amortization** | ** ** | **construction** | ** ** | **acquired** | ** ** | **computed** |   |
|                                                   |       |             |       |                        |       |                                             |       |                                                    |       |               |       |              |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Bayside Marketplace  Retail Center  Miami, FL          |       | $                | 67,744     |                        | $          | —                                           |       | $                                                       | —     |               | $          | 109,311           |       | $ | — |   | $ | — |   | $ | 109,311 |   | $ | 109,311 |   | $ | 31,279 |   | 04/87 |   | N/A |   | Note 6 |   |
|                                                   |       |             |       |                        |       |                                             |       |                                                    |       |               |       |              |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Mall St. Matthews  Retail Center  Louisville, KY       |       | 155,896          |       | —                      |       | —                                           |       | 107,800                                                 |       | —             |       | —            |       | 107,800 |   | 107,800 |   | 32,895 |   | 03/62 |   | N/A |   | Note 6 |   |
|                                                   |       |             |       |                        |       |                                             |       |                                                    |       |               |       |              |       |   |   |   |   |   |   |   |   |   |   |   |   |
| White Marsh  Retail Center  Baltimore, MD              |       | 73,545           |       | 10,783                      |       | —                                           |       | 92,371                                                  |       | —             |       | 10,783            |       | 92,371 |   | 103,154 |   | 30,394 |   | 08/81 |   | N/A |   | Note 6 |   |
|                                                   |       |             |       |                        |       |                                             |       |                                                    |       |               |       |              |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Faneuil Hall Marketplace  Retail Center  Boston, MA    |       | —           |       | —                      |       | —                                           |       | 100,956                                                 |       | —             |       | —            |       | 100,956 |   | 100,956 |   | 25,250 |   | 08/76 |   | N/A |   | Note 6 |   |
|                                                   |       |             |       |                        |       |                                             |       |                                                    |       |               |       |              |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Governor’s Square  Retail Center  Tallahassee, FL |       | 64,336           |       | —                      |       | —                                           |       | 88,931                                                  |       | —             |       | —            |       | 88,931 |   | 88,931 |   | 27,534 |   | 08/79 |   | N/A |   | Note 6 |   |
|                                                   |       |             |       |                        |       |                                             |       |                                                    |       |               |       |              |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Oakwood Center  Retail Center  Gretna, LA              |       | 49,615           |       | 15,938                      |       | —                                           |       | 69,777                                                  |       | —             |       | 15,938            |       | 69,777 |   | 85,715 |   | 22,706 |   | 10/66 |   | N/A |   | Note 6 |   |
|                                                   |       |             |       |                        |       |                                             |       |                                                    |       |               |       |              |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Augusta Mall  Retail Center  Augusta, GA               |       | 50,006           |       | 4,697                       |       | —                                           |       | 76,654                                                  |       | —             |       | 4,697             |       | 76,654 |   | 81,351 |   | 12,583 |   | 08/78 |   | N/A |   | Note 6 |   |
|                                                   |       |             |       |                        |       |                                             |       |                                                    |       |               |       |              |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Riverwalk  Retail Center  New Orleans, LA              |       | 12,399           |       | —                      |       | —                                           |       | 75,035                                                  |       | —             |       | —            |       | 75,035 |   | 75,035 |   | 21,319 |   | 08/86 |   | N/A |   | Note 6 |   |
|                                                   |       |             |       |                        |       |                                             |       |                                                    |       |               |       |              |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Hulen Mall  Retail Center  Ft. Worth, TX               |       | 121,000          |       | 7,575                       |       | —                                           |       | 67,426                                                  |       | —             |       | 7,575             |       | 67,426 |   | 75,001 |   | 19,699 |   | 08/77 |   | N/A |   | Note 6 |   |
|                                                   |       |             |       |                        |       |                                             |       |                                                    |       |               |       |              |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Southland Center  Retail Center  Taylor, MI            |       | 56,500           |       | 6,581                       |       | 62,362                                           |       | 669                                                     |       | —             |       | 6,581             |       | 63,031 |   | 69,612 |   | 5,635 |   | 07/70 |   | 11/02 |   | Note 6 |   |
|                                                   |       |             |       |                        |       |                                             |       |                                                    |       |               |       |              |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Harborplace  Retail Center  Baltimore, MD              |       | 30,545           |       | —                      |       | —                                           |       | 63,447                                                  |       | —             |       | —            |       | 63,447 |   | 63,447 |   | 17,470 |   | 07/80 |   | N/A |   | Note 6 |   |
|                                                        |            |                  |            |                             |            |                                                  |            |                                                         |            |                    |            |                   |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

F-40

----

 

THE ROUSE COMPANY LP AND SUBSIDIARIES

*A Subsidiary of General GrowthProperties, Inc.*

Real Estate and AccumulatedDepreciation (Note 1)

December 31, 2004

(in thousands)

 
| ** **                                                                | ** ** | ** **       | ** ** | **Initial cost to Company** | ** ** | **Costs capitalized subsequent  to acquisition** | ** ** | **Gross amount at which carried****at close of period** | ** ** | ** **         | ** ** | **Life on which** | ** ** |
|---------------------------------------------------------------------------|------------|------------------|------------|-----------------------------|------------|--------------------------------------------------|------------|---------------------------------------------------------|------------|--------------------|------------|-------------------|------------|
| ** **                                                                | ** ** | ** **       | ** ** | ** **                  | ** ** | ** **                                       | ** ** | ** **                                              | ** ** | ** **         | ** ** | ** **        | ** ** | **Accumulated** | ** ** | **Date** | ** ** | ** ** | ** ** | **depreciation in** |   |
| ** **                                                                | ** ** | ** **       | ** ** | ** **                  | ** ** | ** **                                       | ** ** | ** **                                              | ** ** | ** **         | ** ** | ** **        | ** ** | **depreciation** | ** ** | **completion** | ** ** | ** ** | ** ** | **latest income** |   |
| ** **                                                                | ** ** | ** **       | ** ** | ** **                  | ** ** | **Buildings and**                                | ** ** | ** **                                              | ** ** | **Carrying costs** | ** ** | ** **        | ** ** | **Buildings and** | ** ** | ** ** | ** ** | **and** | ** ** | **of** | ** ** | **Date** | ** ** | **statement is** |   |
| **Description**                                                           | ** ** | **Encumbrances** | ** ** | **Land**                    | ** ** | **improvements**                                 | ** ** | **Improvements**                                        | ** ** | **(Note 2)**       | ** ** | **Land**          | ** ** | **improvements** | ** ** | **Total** | ** ** | **amortization** | ** ** | **construction** | ** ** | **acquired** | ** ** | **computed** |   |
|                                                                      |       |             |       |                        |       |                                             |       |                                                    |       |               |       |              |       |   |   |   |   |   |   |   |   |   |   |   |   |
| South Street Seaport  Retail Center  New York, NY                         |       | $                | 16,050     |                        | $          | —                                           |       | $                                                       | —     |               | $          | 46,100            |       | $ | — |   | $ | — |   | $ | 46,100 |   | $ | 46,100 |   | $ | — |   | 07/83 |   | N/A |   | Note 6 |   |
|                                                                      |       |             |       |                        |       |                                             |       |                                                    |       |               |       |              |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Blue Cross & Blue Shield  Building I  Office Building  Baltimore, MD  |       | 16,128           |       | 1,000                       |       | —                                           |       | 44,139                                                  |       | —             |       | 1,000             |       | 44,139 |   | 45,139 |   | 16,504 |   | 07/89 |   | N/A |   | Note 6 |   |
|                                                                      |       |             |       |                        |       |                                             |       |                                                    |       |               |       |              |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Village of Cross Keys  Mixed-Use Project  Baltimore, MD                   |       | 12,782           |       | 925                         |       | —                                           |       | 41,147                                                  |       | —             |       | 925               |       | 41,147 |   | 42,072 |   | 15,192 |   | 09/65 |   | N/A |   | Note 6 |   |
|                                                                      |       |             |       |                        |       |                                             |       |                                                    |       |               |       |              |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Mondawmin Mall  Retail Center  Baltimore, MD                              |       | 16,835           |       | 2,251                       |       | —                                           |       | 25,964                                                  |       | —             |       | 2,251             |       | 25,964 |   | 28,215 |   | 12,935 |   | 10/56 |   | N/A |   | Note 6 |   |
|                                                                      |       |             |       |                        |       |                                             |       |                                                    |       |               |       |              |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Aon  Building II  Office Building  Baltimore, MD                          |       | 14,902           |       | 1,000                       |       | —                                           |       | 26,072                                                  |       | —             |       | 1,000             |       | 26,072 |   | 27,072 |   | 11,150 |   | 09/87 |   | N/A |   | Note 6 |   |
|                                                                      |       |             |       |                        |       |                                             |       |                                                    |       |               |       |              |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Hunt Valley 75  Office Building  Hunt Valley, MD                          |       | 14,538           |       | 8,136                       |       | 14,187                                           |       | 4,455                                                   |       | —             |       | 8,136             |       | 18,642 |   | 26,778 |   | 3,865 |   | 07/84 |   | 12/98 |   | Note 6 |   |
|                                                                      |       |             |       |                        |       |                                             |       |                                                    |       |               |       |              |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Seventy Columbia Corp Ctr  Office Building  Columbia, MD                  |       | 20,429           |       | 857                         |       | —                                           |       | 24,504                                                  |       | —             |       | 857               |       | 24,504 |   | 25,361 |   | 8,611 |   | 06/92 |   | N/A |   | Note 6 |   |
|                                                                      |       |             |       |                        |       |                                             |       |                                                    |       |               |       |              |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Senate Plaza  Office Building  Camp Hill, PA                              |       | 12,778           |       | 2,284                       |       | 13,319                                           |       | 3,944                                                   |       | —             |       | 2,284             |       | 17,263 |   | 19,547 |   | 7,278 |   | 07/72 |   | 12/98 |   | Note 6 |   |
|                                                                      |       |             |       |                        |       |                                             |       |                                                    |       |               |       |              |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Woodlands  Office Building  Houston, TX                                   |       | 1,715            |       | 4,527                       |       | 15,043                                           |       | (938                                                    | )          | —             |       | 4,527             |       | 14,105 |   | 18,632 |   | 589 |   | 01/96 |   | 12/03 |   | Note 6 |   |
|                                                                      |       |             |       |                        |       |                                             |       |                                                    |       |               |       |              |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Blue Cross & Blue Shield  Building II  Office Building  Baltimore, MD |       | 5,858            |       | 1,000                       |       | —                                           |       | 16,196                                                  |       | —             |       | 1,000             |       | 16,196 |   | 17,196 |   | 5,714 |   | 08/90 |   | N/A |   | Note 6 |   |
|                                                                           |            |                  |            |                             |            |                                                  |            |                                                         |            |                    |            |                   |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

F-41

----

 

THE ROUSE COMPANY LP AND SUBSIDIARIES

*A Subsidiary of General GrowthProperties, Inc.*

Real Estate and AccumulatedDepreciation (Note 1)

December 31, 2004

(in thousands)

 
| ** **                                                       | ** ** | ** **       | ** ** | **Initial cost to Company** | ** ** | **Costs capitalized subsequent  to acquisition** | ** ** | **Gross amount at which carried****at close of period** | ** ** | ** **         | ** ** | **Life on which** | ** ** |
|------------------------------------------------------------------|------------|------------------|------------|-----------------------------|------------|--------------------------------------------------|------------|---------------------------------------------------------|------------|--------------------|------------|-------------------|------------|
| ** **                                                       | ** ** | ** **       | ** ** | ** **                  | ** ** | ** **                                       | ** ** | ** **                                              | ** ** | ** **         | ** ** | ** **        | ** ** | **Accumulated** | ** ** | **Date** | ** ** | ** ** | ** ** | **depreciation in** |   |
| ** **                                                       | ** ** | ** **       | ** ** | ** **                  | ** ** | ** **                                       | ** ** | ** **                                              | ** ** | ** **         | ** ** | ** **        | ** ** | **depreciation** | ** ** | **completion** | ** ** | ** ** | ** ** | **latest income** |   |
| ** **                                                       | ** ** | ** **       | ** ** | ** **                  | ** ** | **Buildings and**                                | ** ** | ** **                                              | ** ** | **Carrying costs** | ** ** | ** **        | ** ** | **Buildings and** | ** ** | ** ** | ** ** | **and** | ** ** | **of** | ** ** | **Date** | ** ** | **statement is** |   |
| **Description**                                                  | ** ** | **Encumbrances** | ** ** | **Land**                    | ** ** | **improvements**                                 | ** ** | **Improvements**                                        | ** ** | **(Note 2)**       | ** ** | **Land**          | ** ** | **improvements** | ** ** | **Total** | ** ** | **amortization** | ** ** | **construction** | ** ** | **acquired** | ** ** | **computed** |   |
|                                                             |       |             |       |                        |       |                                             |       |                                                    |       |               |       |              |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Fifty Columbia Corp Ctr  Office Building  Columbia, MD           |       | $                | 10,842     |                        | $          | 463                                              |       | $                                                       | —     |               | $          | 15,740            |       | $ | — |   | $ | 463 |   | $ | 15,740 |   | $ | 16,203 |   | $ | 6,696 |   | 11/89 |   | N/A |   | Note 6 |   |
|                                                             |       |             |       |                        |       |                                             |       |                                                    |       |               |       |              |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Centerpointe  Office Building  Baltimore, MD                     |       | 5,901            |       | 3,855                       |       | 11,302                                           |       | 883                                                     |       | —             |       | 3,855             |       | 12,185 |   | 16,040 |   | 2,447 |   | 07/87 |   | 12/98 |   | Note 6 |   |
|                                                             |       |             |       |                        |       |                                             |       |                                                    |       |               |       |              |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Aon  Building I  Office Building  Baltimore, MD                  |       | 7,656            |       | 650                         |       | —                                           |       | 15,326                                                  |       | —             |       | 650               |       | 15,326 |   | 15,976 |   | 6,956 |   | 11/88 |   | N/A |   | Note 6 |   |
|                                                             |       |             |       |                        |       |                                             |       |                                                    |       |               |       |              |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Forty Columbia Corp Ctr  Office Building  Columbia, MD           |       | 10,468           |       | 636                         |       | —                                           |       | 15,147                                                  |       | —             |       | 636               |       | 15,147 |   | 15,783 |   | 7,085 |   | 06/87 |   | N/A |   | Note 6 |   |
|                                                             |       |             |       |                        |       |                                             |       |                                                    |       |               |       |              |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Sixty Columbia Corp Ctr  Office Building  Columbia, MD           |       | 13,468           |       | 1,050                       |       | —                                           |       | 14,594                                                  |       | —             |       | 1,050             |       | 14,594 |   | 15,644 |   | 2,256 |   | 02/99 |   | N/A |   | Note 6 |   |
|                                                             |       |             |       |                        |       |                                             |       |                                                    |       |               |       |              |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Schilling Plaza North  Office Building  Baltimore, MD            |       | 5,225            |       | 4,470                       |       | 8,059                                            |       | 2,305                                                   |       | —             |       | 4,470             |       | 10,364 |   | 14,834 |   | 2,398 |   | 07/80 |   | 12/98 |   | Note 6 |   |
|                                                             |       |             |       |                        |       |                                             |       |                                                    |       |               |       |              |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Canyon Center  Office Building  Las Vegas, NV                    |       | 10,797           |       | 2,081                       |       | 7,161                                            |       | 5,589                                                   |       | —             |       | 2,081             |       | 12,750 |   | 14,831 |   | 3,538 |   | 03/98 |   | N/A |   | Note 6 |   |
|                                                             |       |             |       |                        |       |                                             |       |                                                    |       |               |       |              |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Schilling Plaza South  Office Building  Baltimore, MD            |       | —           |       | 5,000                       |       | 7,402                                            |       | 1,688                                                   |       | —             |       | 5,000             |       | 9,090 |   | 14,090 |   | 2,567 |   | 07/87 |   | 12/98 |   | Note 6 |   |
|                                                             |       |             |       |                        |       |                                             |       |                                                    |       |               |       |              |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Canyon Center C&D  Office Building/Industrial  Las Vegas, NV |       | 92               |       | 1,722                       |       | —                                           |       | 12,101                                                  |       | —             |       | 1,722             |       | 12,101 |   | 13,823 |   | 3,217 |   | 06/98 |   | N/A |   | Note 6 |   |
|                                                             |       |             |       |                        |       |                                             |       |                                                    |       |               |       |              |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Thirty Columbia Corp Ctr  Office Building  Columbia, MD          |       | 7,852            |       | 1,160                       |       | —                                           |       | 12,172                                                  |       | —             |       | 1,160             |       | 12,172 |   | 13,332 |   | 6,500 |   | 04/86 |   | N/A |   | Note 6 |   |
|                                                                  |            |                  |            |                             |            |                                                  |            |                                                         |            |                    |            |                   |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

F-42

----

 

THE ROUSE COMPANY LP AND SUBSIDIARIES

*A Subsidiary of General GrowthProperties, Inc.*

Real Estate and AccumulatedDepreciation (Note 1)

December 31, 2004

(in thousands)

 
| ** **                                                          | ** ** | ** **       | ** ** | **Initial cost to Company** | ** ** | **Costs capitalized subsequent  to acquisition** | ** ** | **Gross amount at which carried****at close of period** | ** ** | ** **         | ** ** | **Life on which** | ** ** |
|---------------------------------------------------------------------|------------|------------------|------------|-----------------------------|------------|--------------------------------------------------|------------|---------------------------------------------------------|------------|--------------------|------------|-------------------|------------|
| ** **                                                          | ** ** | ** **       | ** ** | ** **                  | ** ** | ** **                                       | ** ** | ** **                                              | ** ** | ** **         | ** ** | ** **        | ** ** | **Accumulated** | ** ** | **Date** | ** ** | ** ** | ** ** | **depreciation in** |   |
| ** **                                                          | ** ** | ** **       | ** ** | ** **                  | ** ** | ** **                                       | ** ** | ** **                                              | ** ** | ** **         | ** ** | ** **        | ** ** | **depreciation** | ** ** | **completion** | ** ** | ** ** | ** ** | **latest income** |   |
| ** **                                                          | ** ** | ** **       | ** ** | ** **                  | ** ** | **Buildings and**                                | ** ** | ** **                                              | ** ** | **Carrying costs** | ** ** | ** **        | ** ** | **Buildings and** | ** ** | ** ** | ** ** | **and** | ** ** | **of** | ** ** | **Date** | ** ** | **statement is** |   |
| **Description**                                                     | ** ** | **Encumbrances** | ** ** | **Land**                    | ** ** | **improvements**                                 | ** ** | **Improvements**                                        | ** ** | **(Note 2)**       | ** ** | **Land**          | ** ** | **improvements** | ** ** | **Total** | ** ** | **amortization** | ** ** | **construction** | ** ** | **acquired** | ** ** | **computed** |   |
|                                                                |       |             |       |                        |       |                                             |       |                                                    |       |               |       |              |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Crossing Business Center  Phase III  Office Building  Las Vegas, NV |       | $                | 7,318      |                        | $          | 2,842                                            |       | $                                                       | 1,416      |               | $          | 8,216             |       | $ | — |   | $ | 2,842 |   | $ | 9,632 |   | $ | 12,474 |   | $ | 2,630 |   | 09/96 |   | N/A |   | Note 6 |   |
|                                                                |       |             |       |                        |       |                                             |       |                                                    |       |               |       |              |       |   |   |   |   |   |   |   |   |   |   |   |   |
| American City Building  Office Building  Columbia, MD               |       | —           |       | —                      |       | —                                           |       | 12,288                                                  |       | —             |       | —            |       | 12,288 |   | 12,288 |   | 9,979 |   | 03/69 |   | N/A |   | Note 6 |   |
|                                                                |       |             |       |                        |       |                                             |       |                                                    |       |               |       |              |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Twenty Columbia Corp Ctr  Office Building  Columbia, MD             |       | 3,512            |       | 927                         |       | —                                           |       | 10,039                                                  |       | —             |       | 927               |       | 10,039 |   | 10,966 |   | 5,857 |   | 06/81 |   | N/A |   | Note 6 |   |
|                                                                |       |             |       |                        |       |                                             |       |                                                    |       |               |       |              |       |   |   |   |   |   |   |   |   |   |   |   |   |
| 10000 W. Charleston Arbors  Office Building  Summerlin, NV          |       | 23,254           |       | 695                         |       | —                                           |       | 9,665                                                   |       | —             |       | 695               |       | 9,665 |   | 10,360 |   | 2,929 |   | 05/99 |   | N/A |   | Note 6 |   |
|                                                                |       |             |       |                        |       |                                             |       |                                                    |       |               |       |              |       |   |   |   |   |   |   |   |   |   |   |   |   |
| 201 International Circle  Office Building  Baltimore, MD            |       | 3,420            |       | 5,464                       |       | 3,763                                            |       | 906                                                     |       | —             |       | 5,464             |       | 4,669 |   | 10,133 |   | 1,324 |   | 07/82 |   | 12/98 |   | Note 6 |   |
|                                                                |       |             |       |                        |       |                                             |       |                                                    |       |               |       |              |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Metro Plaza  Retail Center  Baltimore, MD                           |       | —           |       | 205                         |       | —                                           |       | 9,834                                                   |       | —             |       | 205               |       | 9,834 |   | 10,039 |   | 5,911 |   | N/A |   | 12/82 |   | Note 6 |   |
|                                                                |       |             |       |                        |       |                                             |       |                                                    |       |               |       |              |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Crossing Business Center  Phase I  Office Building  Las Vegas, NV   |       | 6,528            |       | 1,326                       |       | 7,951                                            |       | 659                                                     |       | —             |       | 1,326             |       | 8,610 |   | 9,936 |   | 2,206 |   | 12/94 |   | 06/96 |   | Note 6 |   |
|                                                                |       |             |       |                        |       |                                             |       |                                                    |       |               |       |              |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Riverspark/Building 2  Office Building/Industrial  Columbia, MD     |       | 1,266            |       | 2,783                       |       | 6,594                                            |       | 286                                                     |       | —             |       | 2,783             |       | 6,880 |   | 9,663 |   | 1,274 |   | 07/87 |   | 12/98 |   | Note 6 |   |
|                                                                |       |             |       |                        |       |                                             |       |                                                    |       |               |       |              |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Ten Columbia Corp Ctr  Office Building  Columbia, MD                |       | —           |       | 733                         |       | —                                           |       | 8,281                                                   |       | —             |       | 733               |       | 8,281 |   | 9,014 |   | 4,826 |   | 09/81 |   | N/A |   | Note 6 |   |
|                                                                |       |             |       |                        |       |                                             |       |                                                    |       |               |       |              |       |   |   |   |   |   |   |   |   |   |   |   |   |
| 10190 Covington Cross  Office Building  Las Vegas, NV               |       | 6,157            |       | 1,257                       |       | 398                                              |       | 7,061                                                   |       | —             |       | 1,257             |       | 7,459 |   | 8,716 |   | 1,735 |   | 12/97 |   | N/A |   | Note 6 |   |
|                                                                |       |             |       |                        |       |                                             |       |                                                    |       |               |       |              |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Riverspark Building B  Industrial Building  Columbia, MD            |       | —           |       | 2,117                       |       | 2,545                                            |       | 3,366                                                   |       | —             |       | 2,117             |       | 5,911 |   | 8,028 |   | 1,067 |   | 07/85 |   | 12/98 |   | Note 6 |   |
|                                                                     |            |                  |            |                             |            |                                                  |            |                                                         |            |                    |            |                   |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

F-43

----

 

THE ROUSE COMPANY LP AND SUBSIDIARIES

*A Subsidiary of General GrowthProperties, Inc.*

Real Estate and AccumulatedDepreciation (Note 1)

December 31, 2004

(in thousands)

 
| ** **                                                                  | ** ** | ** **       | ** ** | **Initial cost to Company** | ** ** | **Costs capitalized subsequent  to acquisition** | ** ** | **Gross amount at which carried****at close of period** | ** ** | ** **         | ** ** | **Life on which** | ** ** |
|-----------------------------------------------------------------------------|------------|------------------|------------|-----------------------------|------------|--------------------------------------------------|------------|---------------------------------------------------------|------------|--------------------|------------|-------------------|------------|
| ** **                                                                  | ** ** | ** **       | ** ** | ** **                  | ** ** | ** **                                       | ** ** | ** **                                              | ** ** | ** **         | ** ** | ** **        | ** ** | **Accumulated** | ** ** | **Date** | ** ** | ** ** | ** ** | **depreciation in** |   |
| ** **                                                                  | ** ** | ** **       | ** ** | ** **                  | ** ** | ** **                                       | ** ** | ** **                                              | ** ** | ** **         | ** ** | ** **        | ** ** | **depreciation** | ** ** | **completion** | ** ** | ** ** | ** ** | **latest income** |   |
| ** **                                                                  | ** ** | ** **       | ** ** | ** **                  | ** ** | **Buildings and**                                | ** ** | ** **                                              | ** ** | **Carrying costs** | ** ** | ** **        | ** ** | **Buildings and** | ** ** | ** ** | ** ** | **and** | ** ** | **of** | ** ** | **Date** | ** ** | **statement is** |   |
| **Description**                                                             | ** ** | **Encumbrances** | ** ** | **Land**                    | ** ** | **improvements**                                 | ** ** | **Improvements**                                        | ** ** | **(Note 2)**       | ** ** | **Land**          | ** ** | **improvements** | ** ** | **Total** | ** ** | **amortization** | ** ** | **construction** | ** ** | **acquired** | ** ** | **computed** |   |
|                                                                        |       |             |       |                        |       |                                             |       |                                                    |       |               |       |              |       |   |   |   |   |   |   |   |   |   |   |   |   |
| USA Group  Office Building/Industrial  Las Vegas, NV                        |       | $                | 6,006      |                        | $          | 1,197                                            |       | $                                                       | 4,880      |               | $          | 1,557             |       | $ | — |   | $ | 1,197 |   | $ | 6,437 |   | $ | 7,634 |   | $ | 1,317 |   | 11/98 |   | N/A |   | Note 6 |   |
|                                                                        |       |             |       |                        |       |                                             |       |                                                    |       |               |       |              |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Other properties and related investments                                    |       | 98,804           |       | 48,633                      |       | 90,692                                           |       | 64,665                                                  |       | —             |       | 48,633            |       | 155,357 |   | 203,990 |   | 47,816 |   |   |   |   |   |   |   |
|                                                                        |       |             |       |                        |       |                                             |       |                                                    |       |               |       |              |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Total Operating Properties                                                  |       | $                | 3,917,372  |                        | $          | 641,688                                          |       | $                                                       | 2,120,280  |               | $          | 3,123,187         |       | $ | — |   | $ | 641,688 |   | $ | 5,243,467 |   | $ | 5,885,155 |   | $ | 1,005,502 |   |   |   |   |   |   |   |
|                                                                        |       |             |       |                        |       |                                             |       |                                                    |       |               |       |              |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Properties in Development:                                                  |       |             |       |                        |       |                                             |       |                                                    |       |               |       |              |       |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                        |       |             |       |                        |       |                                             |       |                                                    |       |               |       |              |       |   |   |   |   |   |   |   |   |   |   |   |   |
| The Shops at La Cantera  New Retail Center  San Antonio, TX                 |       | $                | 27,007     |                        | $          | 17,371                                           |       | $                                                       | —     |               | $          | 80,606            |       | $ | — |   | $ | 17,371 |   | $ | 80,606 |   | $ | 97,977 |   | N/A |   | N/A |   | N/A |   | N/A |   |
|                                                                        |       |             |       |                        |       |                                             |       |                                                    |       |               |       |              |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Kendall Town Center  New Retail Center  Dade County, FL                     |       | —           |       | 31,860                      |       | —                                           |       | 28,283                                                  |       | —             |       | 31,860            |       | 28,283 |   | 60,143 |   | N/A |   | N/A |   | N/A |   | N/A |   |
|                                                                        |       |             |       |                        |       |                                             |       |                                                    |       |               |       |              |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Princeton  Developable Land  Princeton, NJ                                  |       | 27,226           |       | 34,271                      |       | —                                           |       | 3,322                                                   |       | —             |       | 34,271            |       | 3,322 |   | 37,593 |   | N/A |   | N/A |   | N/A |   | N/A |   |
|                                                                        |       |             |       |                        |       |                                             |       |                                                    |       |               |       |              |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Summerlin Center  New Retail Center  Summerlin, NV                          |       | 6,094            |       | 14,970                      |       | —                                           |       | 8,092                                                   |       | —             |       | 14,970            |       | 8,092 |   | 23,062 |   | N/A |   | N/A |   | N/A |   | N/A |   |
|                                                                        |       |             |       |                        |       |                                             |       |                                                    |       |               |       |              |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Arizona Center  Developed/Developable Land  Under Master Lease  Phoenix, AZ |       | —           |       | 13,893                      |       | —                                           |       | —                                                  |       | —             |       | 13,893            |       | — |   | 13,893 |   | N/A |   | N/A |   | N/A |   | N/A |   |
|                                                                        |       |             |       |                        |       |                                             |       |                                                    |       |               |       |              |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Fashion Show  Redevelopment of Retail Ctr  Las Vegas, NV                    |       | —           |       | —                      |       | —                                           |       | 7,150                                                   |       | —             |       | —            |       | 7,150 |   | 7,150 |   | N/A |   | N/A |   | N/A |   | N/A |   |
|                                                                        |       |             |       |                        |       |                                             |       |                                                    |       |               |       |              |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Coral Gables  Developable Land  Coral Gables, FL                            |       | —           |       | 6,987                       |       | —                                           |       | —                                                  |       | —             |       | 6,987             |       | — |   | 6,987 |   | N/A |   | N/A |   | N/A |   | N/A |   |
|                                                                        |       |             |       |                        |       |                                             |       |                                                    |       |               |       |              |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Other Projects                                                              |       | —           |       | 1,305                       |       | —                                           |       | 7,487                                                   |       | —             |       | 1,305             |       | 7,487 |   | 8,792 |   | N/A |   |   |   |   |   |   |   |
|                                                                        |       |             |       |                        |       |                                             |       |                                                    |       |               |       |              |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Total Properties in Development                                             |       | $                | 60,327     |                        | $          | 120,657                                          |       | $                                                       | —     |               | $          | 134,940           |       | $ | — |   | $ | 120,657 |   | $ | 134,940 |   | $ | 255,597 |   | N/A |   |   |   |   |   |   |   |

 

F-44

----

 

THE ROUSE COMPANY LP AND SUBSIDIARIES

*A Subsidiary of General GrowthProperties, Inc.*

Real Estate and AccumulatedDepreciation (Note 1)

December 31, 2004

(in thousands)

 
| ** **                                                                             | ** ** | ** **       | ** ** | **Initial cost to Company** | ** ** | **Costs capitalized subsequent  to acquisition** | ** ** | **Gross amount at which carried****at close of period** | ** ** | ** **         | ** ** | **Life on which** | ** ** |
|----------------------------------------------------------------------------------------|------------|------------------|------------|-----------------------------|------------|--------------------------------------------------|------------|---------------------------------------------------------|------------|--------------------|------------|-------------------|------------|
| ** **                                                                             | ** ** | ** **       | ** ** | ** **                  | ** ** | ** **                                       | ** ** | ** **                                              | ** ** | ** **         | ** ** | ** **        | ** ** | **Accumulated** | ** ** | **Date** | ** ** | ** ** | ** ** | **depreciation in** |   |
| ** **                                                                             | ** ** | ** **       | ** ** | ** **                  | ** ** | ** **                                       | ** ** | ** **                                              | ** ** | ** **         | ** ** | ** **        | ** ** | **depreciation** | ** ** | **completion** | ** ** | ** ** | ** ** | **latest income** |   |
| ** **                                                                             | ** ** | ** **       | ** ** | ** **                  | ** ** | **Buildings and**                                | ** ** | ** **                                              | ** ** | **Carrying costs** | ** ** | ** **        | ** ** | **Buildings and** | ** ** | ** ** | ** ** | **and** | ** ** | **of** | ** ** | **Date** | ** ** | **statement is** |   |
| **Description**                                                                        | ** ** | **Encumbrances** | ** ** | **Land**                    | ** ** | **improvements**                                 | ** ** | **Improvements**                                        | ** ** | **(Note 2)**       | ** ** | **Land**          | ** ** | **improvements** | ** ** | **Total** | ** ** | **amortization** | ** ** | **construction** | ** ** | **acquired** | ** ** | **computed** |   |
|                                                                                   |       |             |       |                        |       |                                             |       |                                                    |       |               |       |              |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Investment Land and Land Held for Development and Sale:                                |       |             |       |                        |       |                                             |       |                                                    |       |               |       |              |       |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                                   |       |             |       |                        |       |                                             |       |                                                    |       |               |       |              |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Summerlin  Land in Various Stages of  Development  Summerlin, NV                       |       | $                | 18,147     |                        | $          | 74,029                                           |       | $                                                       | —     |               | $          | 169,471           |       | $ | — |   | $ | 243,500 |   | $ | — |   | $ | 243,500 |   | N/A |   | N/A |   | 06/96 |   | N/A |   |
|                                                                                   |       |             |       |                        |       |                                             |       |                                                    |       |               |       |              |       |   |   |   |   |   |   |   |   |   |   |   |   |
| The Bridgelands  Land in Various Stages of  Development  Houston, TX                   |       | 57,917           |       | 104,898                     |       | —                                           |       | 13,117                                                  |       | —             |       | 118,015           |       | — |   | 118,015 |   | N/A |   | N/A |   | 12/03 |   | N/A |   |
|                                                                                   |       |             |       |                        |       |                                             |       |                                                    |       |               |       |              |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Columbia and Emerson  Land in Various Stages of  Development  Howard County, MD        |       | —           |       | 53,000                      |       | —                                           |       | 39,595                                                  |       | —             |       | 92,595            |       | — |   | 92,595 |   | N/A |   | N/A |   | 09/85 |   | N/A |   |
|                                                                                   |       |             |       |                        |       |                                             |       |                                                    |       |               |       |              |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Fairwood  Land in Various Stages of  Development  Prince George’s County, MD |       | —           |       | 58,266                      |       | —                                           |       | —                                                  |       | —             |       | 58,266            |       | — |   | 58,266 |   | N/A |   | N/A |   | 01/04 |   | N/A |   |
|                                                                                   |       |             |       |                        |       |                                             |       |                                                    |       |               |       |              |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Other                                                                                  |       | —           |       | —                      |       | —                                           |       | 74                                                      |       | —             |       | 74                |       | — |   | 74 |   | N/A |   |   |   |   |   |   |   |
|                                                                                   |       |             |       |                        |       |                                             |       |                                                    |       |               |       |              |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Total Investment Land and Land Held for Development and Sale                           |       | 76,064           |       | 290,193                     |       | —                                           |       | 222,257                                                 |       | —             |       | 512,450           |       | — |   | 512,450 |   | N/A |   |   |   |   |   |   |   |
|                                                                                   |       |             |       |                        |       |                                             |       |                                                    |       |               |       |              |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Total                                                                                  |       | $                | 4,053,763  |                        | $          | 1,052,538                                        |       | $                                                       | 2,120,280  |               | $          | 3,480,384         |       | $ | — |   | $ | 1,274,795 |   | $ | 5,378,407 |   | $ | 6,653,202 |   | $ | 1,005,502 |   |   |   |   |   |   |   |
|                                                                                        |            |                  |            |                             |            |                                                  |            |                                                         |            |                    |            |                   |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

F-45

----

 

Schedule III, continued

 

THEROUSE COMPANY LP AND SUBSIDIARIES

*ASubsidiary of General Growth Properties, Inc.*

RealEstate and Accumulated Depreciation (Note 1)

December 31,2004

 

Notes:

 

(1)          Reference ismade to Notes 1, 4 and 7.  A notation ofN/A within the date acquired column indicates properties that we owned atcompletion of construction.

 

(2)          Thedetermination of these amounts is not practicable and, accordingly, they areincluded in improvements.

 

(3)          The changesin total cost of properties for the years ended December 31, 2004, 2003and 2002 are as follows (in thousands):

 
| ** **                                          | ** ** | **2004** | ** ** | **2003** | ** ** | **2002**  | ** ** |
|-----------------------------------------------------|------------|----------|------------|----------|------------|-----------|------------|
|                                                |       |     |       |     |       |      |       |
| Balance at beginning of year                        |       | $        | 6,107,174  |     | $          | 6,208,903 |       | $ | 4,862,384 |   |
| Additions, at cost                                  |       | 342,059  |       | 314,102  |       | 308,044   |       |
| Cost of properties acquired                         |       | 668,149  |       | 295,341  |       | 1,494,898 |       |
| Cost of land sales                                  |       | (119,572 | )          | (89,109  | )          | (78,719   | )          |
| Retirements, sales and other dispositions           |       | (224,297 | )          | (609,246 | )          | (302,532  | )          |
| Provision for loss on operating properties (Note 7) |       | (120,311 | )          | (12,817  | )          | (75,172   | )          |
| Balance at end of year                              |       | $        | 6,653,202  |     | $          | 6,107,174 |       | $ | 6,208,903 |   |
|                                                     |            |          |            |          |            |           |            |  |  |  |  |  |  |

 

(4)          Thechanges in accumulated depreciation and amortization for the years ended December 31,2004, 2003 and 2002 include accumulated depreciation of $41,180,000 in 2003that is presented net with properties held for sale in the consolidated balancesheet, and are as follows (in thousands):

 
| ** **                                          | ** ** | **2004** | ** ** | **2003** | ** ** | **2002** | ** ** |
|-----------------------------------------------------|------------|----------|------------|----------|------------|----------|------------|
|                                                |       |     |       |     |       |     |       |
| Balance at beginning of year                        |       | $        | 938,457    |     | $          | 896,963  |       | $ | 820,622 |   |
| Depreciation and amortization charged to operations |       | 173,212  |       | 165,003  |       | 146,432  |       |
| Retirements, sales and other, net                   |       | (55,459  | )          | (118,567 | )          | (37,042  | )          |
| Provision for loss on operating properties (Note 7) |       | (50,708  | )          | (4,942   | )          | (33,049  | )          |
|                                                |       | $        | 1,005,502  |     | $          | 938,457  |       | $ | 896,963 |   |
|                                                     |            |          |            |          |            |          |            |  |  |  |  |  |

 

(5)          Theaggregate cost of properties for Federal income tax purposes is approximately $5.2billion at December 31, 2004.

 

(6)          Referenceis made to Note 1(d) for information related to depreciation.

 

(7)          Costsand accumulated depreciation and amortization are reduced by impairment losseson certain buildings and improvements. Reference is made to Notes 2 and 12 for information related to thelosses.

 

F-46

----

 

Part IV

 

Item 15.                               Exhibits,Financial Statement Schedules and Reports on Form 8-K.

 

(a)                                   FinancialStatements and Schedules:

 

The consolidatedfinancial statements listed in the accompanying Index to Financial Statementsand Schedules are filed as part of this Annual Report on Form 10-K.

 

(b)                                  Exhibits

 

See Exhibit Index onpage S-1.

 

(c)                                   SeparateFinancial Statements

 

Not applicable

 

IV-1

----

 

SIGNATURES

 

Pursuant to therequirements of Section 13 or 15(d) of the Securities Exchange Act of1934, the Registrant has duly caused this report to be signed on its behalf bythe undersigned, thereunto duly authorized.

 

The Rouse Company LP

By: Rouse LLC, itsgeneral partner

 

 
| By:    | /s/ John Bucksbaum       |   | March 31, 2005 |
|--------|--------------------------|--------|---------------------|
|   | John  Bucksbaum          |   |
|   | Chief  Executive Officer |   |

 

 

Pursuant to therequirements of the Securities Exchange Act of 1934, this report has beensigned below by the following persons on behalf of the Registrant and in thecapacities and on the dates indicated.

 
| **Signature**              | ** ** | **Title**                                      | ** ** | **Date**            |
|----------------------------|------------|------------------------------------------------|------------|---------------------|
|                       |       |                                           |       |                |
|  /s/ John Bucksbaum   |       | Chief Executive  Officer                       |       | March 31, 2005 |
|  John Bucksbaum       |       | (Principal Executive  Officer)                 |       |                |
|                       |       |                                           |       |                |
|  /s/ Robert Michaels  |       | President                                      |       | March 31, 2005 |
|  Robert Michaels      |       |                                           |       |                |
|                       |       |                                           |       |                |
|  /s/ Bernard Freibaum |       | Executive Vice  President                      |       | March 31, 2005 |
|  Bernard Freibaum     |       | (Principal Financial  and  Accounting Officer) |       |                |

 

IV-2

----

 

ExhibitIndex

 
| **Exhibit No.** | ** ** | ** **                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
|-----------------|------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|            |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| 3.1             |       | Amended and Restated  Agreement of Limited Partnership of The Rouse Company LP, dated November 12,  2004.                                                                                                                                                                                                                                                                                                                                                                                                          |
|            |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| 3.2             |       | Amended and Restated  Limited Liability Company Agreement of Rouse LLC dated November 12, 2004                                                                                                                                                                                                                                                                                                                                                                                                                     |
|            |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| 4.1             |       | The Rouse Company and  the First National Bank of Chicago (Trustee) Indenture dated as of February 25,  1995—incorporated by reference to the General Growth Properties, Inc. Form  10-K Annual Report for the fiscal year ended December 31, 2004 (SEC File  No. 1-11656).                                                                                                                                                                                                                              |
|            |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| 10.1            |       | Amended and Restated  Supplemental Retirement Benefit Plan of The Rouse Company, made as of January 1,  1985 and further amended and restated as of September 24, 1992, March 4,  1994, and May 10, 1995—incorporated by reference to The Rouse Company’s Form  10-K Annual Report for the fiscal year ended December 31, 1995 (SEC File  No. 001-11543).                                                                                                                            |
|            |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| 10.2            |       | Contingent Stock  Agreement, effective as of January 1, 1996, by the Company in favor of  and for the benefit of the Holders and Representatives named  therein—incorporated by reference to the Exhibits to The Rouse Company’s Form  S-4 Registration Statement (No. 333-1693), dated March 13, 1996.                                                                                                                                                                                             |
|            |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| 10.3            |       | Contribution Agreement,  dated as of February 1, 1999, among The Rouse Company of Nevada, Inc.,  HRD Properties, Inc., Rouse-Bridgewater Commons, LLC, Rouse-Park Meadows  Holding, LLC, Rouse-Towson Town Center LLC, Bridgewater Commons Mall, LLC,  Rouse-Fashion Place, LLC, Rouse-Park Meadows LLC, Towson TC, LLC, TTC SPE,  LLC and Fourmall Acquisition, LLC—incorporated by reference to The Rouse  Company’s Current Report on Form 8-K dated February 1, 1999 (SEC File  No. 001-11543). |
|            |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| 10.4            |       | Assumption Agreement  dated October 19, 2004 by General Growth Properties, Inc. and The Rouse  Company in favor of and for the benefit of the Holders and the  Representatives (as defined therein)—incorporated by reference to the General  Growth Properties, Inc. Form 10-K Annual Report for the fiscal year ended December 31,  2004 (SEC File No. 1-11656).                                                                                                                                  |
|            |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| 21              |       | Subsidiaries of the  Registrant                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
|            |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| 31.1            |       | Certification Pursuant  to Rule 13a – 14(a) by John Bucksbaum, Chief Executive Officer                                                                                                                                                                                                                                                                                                                                                                                                                             |
|            |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| 31.2            |       | Certification Pursuant  to Rule 13a – 14(a) by Bernard Freibaum, Executive Vice President                                                                                                                                                                                                                                                                                                                                                                                                                          |
|            |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| 32.1            |       | Certification Pursuant  to 18 U.S.C. Section 1350 – Chief Executive Officer                                                                                                                                                                                                                                                                                                                                                                                                                                   |
|            |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| 32.2            |       | Certification Pursuant  to 18 U.S.C. Section 1350 – Executive Vice President                                                                                                                                                                                                                                                                                                                                                                                                                                  |
|            |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| 99              |       | Additional Exhibits:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
|            |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
|            |       | 99.1                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    | Factors Affecting  Future Operating Results |

 

S-1

----