10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

ý	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2004
OR
o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                  to                  

Commission File Number    001-11543

(Exact name of registrant as specified in its charter)

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

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes  ýNo  o

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

Yes  ýNo  o

Indicate the number of shares outstanding of the issuer’s common stock as of November 1, 2004:

Common Stock, $0.01 par value	103,707,035
Title of Class	Number of Shares

Part I.Financial Information

Item 1.Financial Statements.

THE ROUSE COMPANY AND SUBSIDIARIES

Condensed Consolidated Statements of Operations and Comprehensive Income

Three and Nine Months Ended September 30, 2004 and 2003

(Unaudited; in thousands, except per share data)

	Three months ended September 30,								Nine months ended September 30,
	2004			2003					2004				2003
Revenues:
Rents from tenants	$	216,372		$	189,405				$		623,276		$	548,279
Land sales	53,706			62,570					258,894				220,009
Other	13,340			11,392					41,592				39,802
Total revenues	283,418			263,367					923,762				808,090
Operating expenses, exclusive of provision for bad debts, depreciation and amortization:
Operating properties	(93,940		)	(81,724				)	(266,252			)	(235,400		)
Land sales operations	(30,009		)	(29,505				)	(155,443			)	(129,185		)
Other	(17,816		)	(13,238				)	(37,313			)	(48,595		)
Total operating expenses, exclusive of provision for bad debts, depreciation and amortization	(141,765		)	(124,467				)	(459,008			)	(413,180		)
Interest expense	(60,379		)	(54,195				)	(178,626			)	(163,873		)
Provision for bad debts	(2,408		)	(2,997				)	(7,058			)	(5,682		)
Depreciation and amortization	(47,175		)	(43,288				)	(143,521			)	(121,855		)
Other income, net	325			2,209					2,664				6,398
Other provisions and losses, net	(45,268		)	(2,887				)	(51,448			)	(22,644		)
Earnings (loss) before income taxes, equity in earnings of unconsolidated real estate ventures, net gains on dispositions of interests in operating properties and discontinued operations	(13,252		)	37,742					86,765				87,254
Income taxes, primarily deferred	(18,205		)	(1,627				)	(57,319			)	(28,205		)
Equity in earnings of unconsolidated real estate ventures	6,499			5,862					15,134				20,143
Earnings (loss) before net gains on dispositions of interests in operating properties and discontinued operations	(24,958		)	41,977					44,580				79,192
Net gains on dispositions of interests in operating properties	166			272					14,054				22,076
Earnings (loss) from continuing operations	(24,792		)	42,249					58,634				101,268
Discontinued operations	602			(1,757				)	45,529				101,456
Net earnings (loss)	(24,190		)	40,492					104,163				202,724
Other items of comprehensive income (loss):
Minimum pension liability adjustment	418			—					(1,219			)	390
Unrealized net gains on derivatives designated as cash flow hedges	678			3,281					2,781				82
Unrealized net gains on available-for-sale securities	144			—					570				—
Comprehensive income (loss)	$	(22,950	)	$	43,773				$		106,295		$	203,196
Net earnings (loss) applicable to common shareholders	$	(24,190	)	$	37,454				$		104,163		$	193,610
Earnings (loss) per share of common stock
Basic:
Continuing operations	$	(.24	)	$		.44			$	.57			$	1.05
Discontinued operations	.01			(.02				)	.45				1.15
Total	$	(.23	)	$		.42			$	1.02			$	2.20
Diluted:
Continuing operations	$	(.24	)	$			.43		$	.56			$	1.02
Discontinued operations	.01			(.02				)	.44				1.13
Total	$	(.23	)	$			.41		$	1.00			$	2.15
Dividends per share:
Common stock	$	.47		$			.42		$	1.41			$	1.26
Preferred stock	$	—		$			.75		$	—			$	2.25

The accompanying notes are an integral part of these statements.

2

Part I.Financial Information

Item 1.Financial Statements.

THE ROUSE COMPANY AND SUBSIDIARIES

Condensed Consolidated Balance Sheets

September 30, 2004 and December 31, 2003

(In thousands, except share data)

	September 30, 2004						December 31, 2003
	(Unaudited)
Assets:
Property and property-related deferred costs:
Operating properties:
Property	$		5,863,991				$	5,351,748
Less accumulated depreciation	1,012,762						897,277
	4,851,229						4,454,471
Deferred costs	254,932						238,122
Less accumulated amortization	109,381						94,424
	145,551						143,698
Net operating properties	4,996,780						4,598,169
Properties in development	255,362						167,073
Properties held for sale	8,063						138,823
Investment land and land held for development and sale	480,337						414,666
Total property and property-related deferred costs	5,740,542						5,318,731
Investments in unconsolidated real estate ventures	572,814						628,305
Advances to unconsolidated real estate ventures	3,865						19,562
Prepaid expenses, receivables under finance leases and other assets	572,523						479,409
Accounts and notes receivable	76,407						53,694
Investments in marketable securities	49,946						22,313
Cash and cash equivalents	33,107						117,230
Total assets	$				7,049,204		$	6,639,244
Liabilities:
Debt:
Property debt not carrying a Parent Company guarantee of repayment	$			2,588,514			$		2,768,288
Debt secured by properties held for sale	—						110,935
Parent Company debt and debt carrying a Parent Company guarantee of repayment:
Property debt	180,192						179,150
Other debt	1,867,366						1,386,119
	2,047,558						1,565,269
Total debt	4,636,072						4,444,492
Accounts payable and accrued expenses	208,404						179,530
Other liabilities	641,387						611,042
Parent Company-obligated mandatorily redeemable preferred securities of a trustholding solely Parent Company subordinated debt securities	—						79,216
Shareholders’ equity:
Series B Convertible Preferred stock with a liquidation preference of $202,500	—						41
Common stock of 1¢ par value per share; authorized 500,000,000 shares in 2004and 250,000,000 shares in 2003; issued 103,687,717 shares in 2004 and 91,759,723 shares in 2003	1,037						918
Additional paid-in capital	1,624,088						1,346,890
Accumulated deficit	(52,022					)	(10,991				)
Accumulated other comprehensive income (loss):
Minimum pension liability adjustment	(5,847					)	(4,628				)
Unrealized net losses on derivatives designated as cash flow hedges	(4,485					)	(7,266				)
Unrealized net gains on available-for-sale securities	570						—
Total shareholders’ equity	1,563,341						1,324,964
Total liabilities and shareholders’ equity	$	7,049,204					$			6,639,244

The accompanying notes are an integral part of these statements.

3

Part I.Financial Information

Item 1.Financial Statements.

THE ROUSE COMPANY AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows

Nine Months Ended September 30, 2004 and 2003

(Unaudited, in thousands)

	2004			2003
Cash flows from operating activities:
Rents from tenants and other revenues received	$	654,630		$	652,232
Proceeds from land sales and notes receivable from land sales	225,946			228,276
Interest received	5,517			5,692
Operating expenditures	(376,642		)	(329,364		)
Land development and acquisition expenditures	(130,424		)	(106,467		)
Interest paid	(164,664		)	(177,702		)
Income taxes paid	(22,374		)	(9,144		)
Operating distributions from unconsolidated real estate ventures	37,238			41,206
Net cash provided by operating activities	238,227			304,729
Cash flows from investing activities:
Expenditures for properties in development	(79,748		)	(128,566		)
Expenditures for improvements to existing properties	(54,137		)	(54,106		)
Expenditures for acquisitions of interests in properties and other assets	(292,904		)	(173,896		)
Proceeds from dispositions of interests in properties	87,823			272,061
Other distributions from unconsolidated real estate ventures	30,737			—
Expenditures for investments in unconsolidated real estate ventures	(3,781		)	(42,739		)
Other	(832		)	19,291
Net cash used by investing activities	(312,842		)	(107,955		)
Cash flows from financing activities:
Proceeds from issuance of property debt	12,946			215,631
Repayments of property debt:
Scheduled principal payments	(55,276		)	(55,426		)
Other payments	(446,652		)	(426,724		)
Proceeds from issuance of other debt	502,736			269,655
Repayments of other debt	(11,500		)	(3,690		)
Repayments of Parent Company-obligated mandatorily redeemable preferred securities	(79,751		)	(32,056		)
Purchases of common stock	(31,117		)	(71,076		)
Proceeds from issuance of common stock	221,917			—
Proceeds from exercise of stock options	30,923			61,925
Dividends paid	(145,195		)	(120,416		)
Other	(8,539		)	(15,455		)
Net cash used by financing activities	(9,508		)	(177,632		)
Net increase (decrease) in cash and cash equivalents	(84,123		)	19,142
Cash and cash equivalents at beginning of period	117,230			41,633
Cash and cash equivalents at end of period	$	33,107		$	60,775

The accompanying notes are an integral part of these statements.

4

Part I.Financial Information

Item 1.Financial Statements.

THE ROUSE COMPANY AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows, continued

Nine Months Ended September 30, 2004 and 2003

(Unaudited, in thousands)

	2004			2003
Reconciliation of net earnings to net cash provided by operating activities:
Net earnings	$	104,163		$	202,724
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation and amortization	144,501			136,448
Change in undistributed earnings of unconsolidated real estate ventures	19,259			21,963
Net gains on dispositions of interests in operating properties	(59,235		)	(95,786		)
Impairment losses on operating properties	432			6,500
Losses (gains) on extinguishment of debt	3,312			(20,454		)
Participation expense pursuant to Contingent Stock Agreement	47,776			45,863
Land development and acquisition expenditures in excess of cost of land sales	(39,153		)	(25,515		)
Provision for bad debts	7,058			6,536
Debt assumed by purchasers of land	(5,618		)	(17,514		)
Deferred income taxes	44,758			27,168
Increase in accounts and notes receivable	(28,839		)	(7,826		)
Decrease (increase) in other assets	(22,906		)	12,138
Increase in accounts payable, accrued expenses and other liabilities	26,661			8,769
Other, net	(3,942		)	3,715
Net cash provided by operating activities	$	238,227		$	304,729
Schedule of noncash investing and financing activities:
Common stock issued pursuant to Contingent Stock Agreement	$	51,817		$	66,784
Capital lease obligations incurred	3,704			1,429
Lapses of restrictions on common stock awards and grants of common stock	4,287			6,974
Debt assumed by purchasers of land	5,618			17,514
Debt assumed by purchasers of operating properties	130,787			276,588
Debt and other liabilities assumed or issued in acquisition of assets	340,524			454,198
Debt extinguished in excess of cash paid	—			28,026
Property and other assets contributed to an unconsolidated real estate venture	—			164,306
Debt and other liabilities related to property contributed to an unconsolidated real estate venture	—			163,406

5

Part I.Financial Information

Item 1.Financial Statements.

THE ROUSE COMPANY AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited)

September 30, 2004

(1)SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

(a)Basis of presentation

The unaudited consolidated financial statements include the accounts of The Rouse Company, our subsidiaries and ventures (“we,” “Rouse” or “us”) in which we have a majority voting interest and control. We also consolidate the accounts of variable interest entities where we are the primary beneficiary. We account for investments in other ventures using the equity or cost methods as appropriate in the circumstances. Significant intercompany balances and transactions are eliminated in consolidation.

The unaudited condensed consolidated financial statements include all adjustments which are necessary, in the opinion of management, to fairly present our financial position and results of operations. All such adjustments are of a normal recurring nature. The statements have been prepared using the accounting policies described in our 2003 Annual Report to Shareholders.

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and judgments that affect the reported amounts of assets and liabilities and disclosures of contingencies at the date of the financial statements and revenues and expenses recognized during the reporting period. Significant estimates are inherent in the preparation of our financial statements in a number of areas, including the cost ratios and completion percentages used for land sales, evaluation of impairment of long-lived assets (including operating properties and properties held for development or sale), evaluation of collectibility of accounts and notes receivable, allocation of the purchase price of acquired properties and evaluation of loss contingencies. Actual results could differ from these and other estimates.

In April 2004, we reclassified certain costs and expenses (primarily employee termination benefits) related to organizational changes and early retirements from other provisions and losses, net to operating expenses. We made these reclassifications because these expenses are neither infrequent nor unusual and are becoming a normal cost of doing business. The amounts reclassified were $0.9 million and $7.9 million in the three and nine months ended September 30, 2003, respectively, and $1.0 million in the three months ended March 31, 2004.

Certain other amounts for 2003 have been reclassified to conform to our current presentation.

(b)Property and property-related deferred costs

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

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

Depreciation of each operating property is computed using the straight-line method. The annual rate of depreciation for each retail center (with limited exceptions) is based on a 55-year composite life and a salvage value of approximately 10%. Office buildings and other properties are depreciated using composite lives of 40 years. Furniture and fixtures and certain common area improvements are depreciated using estimated useful lives ranging from 2 to 10 years.

6

Part I.Financial Information

Item 1.Financial Statements.

THE ROUSE COMPANY AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited), continued

If events or circumstances indicate that the carrying value of an operating property to be held and used may be impaired, a recoverability analysis is performed based on estimated undiscounted future cash flows to be generated from the property. If the analysis indicates that the carrying value is not recoverable from future cash flows, the property is written down to estimated fair value and an impairment loss is recognized. Fair values are determined based on appraisals and/or estimated future cash flows using appropriate discount and capitalization rates.

Properties held for sale are carried at the lower of their carrying values (i.e. cost less accumulated depreciation and any impairment loss recognized, where applicable) or estimated fair values less costs to sell. The net carrying values of operating properties are classified as properties held for sale when the properties are actively marketed, their sale is considered probable within one year and various other criteria relating to their disposition are met. Depreciation of these properties is discontinued at that time, but operating revenues, interest and other operating expenses continue to be recognized until the date of sale. Revenues and expenses of properties that are classified as held for sale are presented as discontinued operations for all periods presented in the statements of operations if the properties will be or have been sold on terms where we have limited or no continuing involvement with them after the sale. If active marketing ceases or the properties no longer meet the criteria to be classified as held for sale, the properties are reclassified as operating, depreciation is resumed, depreciation for the period the properties were classified as held for sale is recognized and deferred selling costs, if any, are charged to expense. Additionally, we present other assets and liabilities of properties classified as held for sale separately in the balance sheet, if material.

Gains from dispositions of interests in operating properties are recognized using the full accrual method provided that various criteria relating to the terms of the transactions and any subsequent involvement by us with the properties disposed of are met. Gains relating to transactions that do not meet the established criteria are deferred and recognized when the criteria are met or using the installment or cost recovery methods, as appropriate in the circumstances.

(c)Acquisitions of operating properties

We allocate the purchase price of acquired properties to tangible and identified intangible assets based on their fair values. In making estimates of fair values for purposes of allocating purchase price, we use a number of sources, including independent appraisals that may be obtained in connection with the acquisition or financing of the respective property and other market data. We also consider information obtained about each property as a result of our pre-acquisition due diligence, marketing and leasing activities in estimating the fair value of the tangible and intangible assets acquired.

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

Our intangible assets arise primarily from contractual rights and include leases with above- or below-market rents (including ground leases where we are lessee), in-place lease and customer relationship values and a real estate tax stabilization agreement.

Above-market and below-market in-place lease values are recorded based on the present value (using an interest rate which reflects the risks associated with the leases acquired) of the difference between (i) the contractual amounts to be received or paid pursuant to the in-place leases and (ii) our estimate of fair market lease rates for the corresponding space, measured over a period equal to the remaining non-cancelable term of the lease (including those under bargain renewal options). The capitalized above- and below-market lease values are amortized as adjustments to rental income or rental expense over the remaining terms of the respective leases (including periods under bargain renewal options).

7

Part I.Financial Information

Item 1.Financial Statements.

THE ROUSE COMPANY AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited), continued

The aggregate fair values of in-place leases and customer relationship assets acquired are measured based on the difference between (i) the property valued with existing in-place leases adjusted to market rental rates and (ii) the property valued as if vacant. This value is allocated to in-place lease and customer relationship assets (both anchor stores and tenants). The fair value of in-place leases is based on our estimates of carrying costs during the expected lease-up periods and costs to execute similar leases. Our estimate of carrying costs includes real estate taxes, insurance and other operating expenses and lost rentals during the expected lease-up periods considering current market conditions. Our estimate of costs to execute similar leases includes leasing commissions, legal and other related costs. The fair value of anchor store agreements is determined based on our experience negotiating similar relationships (not in connection with property acquisitions). The fair value of tenant relationships is based on our evaluation of the specific characteristics of each tenant’s lease and our overall relationship with that respective tenant. Characteristics we consider in determining these values include the nature and extent of our existing business relationships with the tenant, growth prospects for developing new business with the tenant, the tenant’s credit quality and expectations of lease renewals, among other factors. The value of in-place leases is amortized to expense over the initial term of the respective leases, primarily ranging from two to ten years. The value of anchor store agreements is amortized to expense over the estimated term of the anchor store’s occupancy in the property. Should an anchor store vacate the premises, the unamortized portion of the related intangible is charged to expense. The value of tenant relationship intangibles is amortized to expense over the initial term and any renewal periods in the respective leases, but in no event does the amortization period exceed the remaining depreciable life of the building. Should a tenant terminate its lease, the unamortized portion of the in-place lease value and customer relationship intangibles is charged to expense. The value allocated to the tax stabilization agreement was determined based on the difference between the present value of estimated market real estate taxes and amounts due under the agreement and is amortized to operating expense over the term of the agreement, which is approximately 24 years.

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

	2004		2003
Above-market leases	$	3.8	$	1.1
In-place lease assets	2.9		2.0
Tenant relationships	6.5		0.6
Below-market leases	4.2		4.7
Anchor store agreements	1.5		2.5
Below-market ground lease	14.5		—
Real estate tax stabilization agreement	94.2		—

(d)Investments in marketable securities and cash and cash equivalents

Our investment policy defines authorized investments and establishes various limitations on the maturities, credit quality and amounts of investments held. Authorized investments include U.S. government and agency obligations, certificates of deposit, bankers’ acceptances, repurchase agreements, commercial paper, money market mutual funds and corporate debt and equity securities. We may also invest in mutual funds to closely match the investment selections of participants in nonqualified deferred compensation plans.

Debt security investments with maturities at dates of purchase in excess of three months are classified as marketable securities and carried at amortized cost as it is our intention to hold these investments until maturity. Short-term investments with maturities at dates of purchase of three months or less are classified as cash equivalents. Most investments in marketable equity securities are held in an irrevocable trust for participants in our nonqualified defined benefit pension plan and our nonqualified defined contribution plans, are classified as trading securities and are carried at market value with changes in values recognized in earnings. Other investments in marketable equity securities subject to significant restrictions on sale or transfer are classified as available-for-sale and are carried at market value with unrealized changes in values recognized in other comprehensive income.

8

Part I.Financial Information

Item 1.Financial Statements.

THE ROUSE COMPANY AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited), continued

Other income, net in the three and nine months ended September 30, 2004 and 2003 is summarized as follows (in thousands):

	Three months ended September 30,					Nine months ended September 30,
	2004			2003		2004		2003
Interest income	$	565		$	529	$	1,759	$	1,690
Dividends	50			19		102		65
Gains (loss) on trading securities, net	(290		)	1,661		803		4,643
	$	325		$	2,209	$	2,664	$	6,398

(e)Revenue recognition and related matters

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

Revenues related to variable recoveries from tenants of real estate taxes, utilities, maintenance, insurance and other expenses pursuant to leases are recognized in the period in which the related expenses are incurred. Fixed contributions 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 the managed properties and are recognized as the managed properties’ revenues are earned.

Revenues from land sales are recognized using the full accrual method provided that various criteria relating to the terms of the transactions and any subsequent involvement by us with the land sold are met. Revenues relating to transactions that do not meet the established criteria are deferred and recognized when the criteria are met or using the installment or cost recovery methods, as appropriate in the circumstances. For land sale transactions under the terms of which we are required to perform additional services and incur significant costs after title has passed, revenues and cost of sales are recognized on a percentage of completion basis.

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

(f)Derivative financial instruments

We use derivative financial instruments to reduce risk associated with movements in interest rates. We may choose to reduce cash flow and earnings volatility associated with interest rate risk exposure on variable-rate borrowings and/or forecasted fixed-rate borrowings. In some instances, lenders may require us to do so. In order to limit interest rate risk on variable-rate borrowings, we may enter into pay fixed-receive variable interest rate swaps or interest rate caps to hedge specific risks. In order to limit interest rate risk on forecasted borrowings, we may enter into forward-rate agreements, forward starting swaps, interest rate locks and interest rate collars. We may also enter into pay variable-receive fixed interest rate swaps to hedge the fair values of fixed-rate borrowings. In addition, we may use derivative financial instruments to reduce risk associated with movements in currency exchange rates if and when we are exposed to such risk. We do not use derivative financial instruments for speculative purposes.

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

9

Part I.Financial Information

Item 1.Financial Statements.

THE ROUSE COMPANY AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited), continued

Parties to interest rate exchange agreements are subject to market risk for changes in interest rates and risk of credit loss in the event of nonperformance by the counterparty. We do not require any collateral under these agreements but deal only with highly rated financial institution counterparties (which, in certain cases, are also the lenders on the related debt) and expect that all counterparties will meet their obligations.

All of the pay fixed-receive variable interest rate swaps and other pay fixed-receive variable derivative financial instruments we used in 2004 and 2003 qualified as cash flow hedges and hedged our exposure to forecasted interest payments on variable-rate LIBOR-based debt or the forecasted issuance of fixed-rate debt. Accordingly, the effective portion of the instruments’ gains or losses is reported as a component of other comprehensive income and reclassified into earnings when the related forecasted transactions affect earnings. If we discontinue a cash flow hedge because it is probable that the original forecasted transaction will not occur, the net gain or loss in accumulated other comprehensive income is immediately reclassified into earnings. If we discontinue a cash flow hedge because the variability of the probable forecasted transaction has been eliminated, the net gain or loss in accumulated other comprehensive income is reclassified to earnings over the term of the designated hedging relationship. Any subsequent changes in the fair value of the derivative are immediately recognized in earnings.

In 2004, we entered into pay variable-receive fixed interest rate swaps designated as fair value hedges of fixed-rate debt instruments. These hedges and the hedged instruments are carried at their fair values with changes in their fair values recorded in earnings. Because the hedges are highly effective, the changes in their values are substantially equal and offsetting.

We have not recognized any losses as a result of hedge discontinuance, and the expense that we recognized related to changes in the time value of interest rate cap agreements was insignificant for 2004 and 2003.

Amounts receivable or payable under interest rate cap and swap agreements are accounted for as adjustments to interest expense on the related debt.

10

Part I.Financial Information

Item 1.Financial Statements.

THE ROUSE COMPANY AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited), continued

(g)Stock-based compensation

We apply the intrinsic value-based method of accounting prescribed by Accounting Principles Board (“APB”) Opinion No. 25, “Accounting for Stock Issued to Employees,” and related interpretations to account for stock-based employee compensation plans. Under this method, compensation cost is recognized for awards of shares of common stock or stock options to our officers and employees only if the quoted market price of the stock at the grant date (or other measurement date, if later) is greater than the amount the grantee must pay to acquire the stock. The following table summarizes the pro forma effects on net earnings (loss) (in thousands) and earnings (loss) per share of common stock of using the fair value-based method, rather than the intrinsic value-based method, to account for stock-based compensation awards made since 1995.

	Three months ended September 30,						Nine months ended September 30,
	2004			2003			2004			2003
Net earnings (loss), as reported	$	(24,190	)	$	40,492		$	104,163		$	202,724
Add: Stock-based employee compensation expense included in reported net earnings, net of related tax effects and amounts capitalized	782			391			2,450			3,487
Deduct: Total stock-based employee compensation expense determined under fair value-based method, net of related tax effects and amounts capitalized	(1,570		)	(1,530		)	(7,083		)	(8,511		)
Pro forma net earnings (loss)	$	(24,978	)	$	39,353		$	99,530		$	197,700
Earnings (loss) per share of common stock:
Basic:
As reported	$	(.23	)	$	.42		$	1.02		$	2.20
Pro forma	$	(.24	)	$	.41		$	.97		$	2.14
Diluted:
As reported	$	(.23	)	$	.41		$	1.00		$	2.15
Pro forma	$	(.24	)	$	.40		$	.96		$	2.10

The per share weighted-average estimated fair values of options granted during 2004 and 2003 were $6.83 and $3.43, respectively. These fair values were estimated on the dates of each grant using the Black-Scholes option-pricing model with the following assumptions:

	Three months ended September 30,				Nine months ended September 30,
	2004		2003		2004		2003
Risk-free interest rate	3.7	%	3.0	%	3.5	%	3.2	%
Dividend yield	3.9	%	4.2	%	4.0	%	5.4	%
Volatility factor	20.0	%	20.0	%	20.0	%	20.0	%
Expected life in years	5.7		4.5		6.4		6.4

11

Part I.Financial Information

Item 1.Financial Statements.

THE ROUSE COMPANY AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited), continued

(2)MERGER AGREEMENT WITH GENERAL GROWTH PROPERTIES, INC. AND EXTRAORDINARY DIVIDEND

On August 19, 2004, we executed a definitive merger agreement with General Growth Properties, Inc. (“GGP”). Under the terms of the agreement, which has been approved by each company’s Board of Directors, a subsidiary of GGP will be merged with and into Rouse, Rouse will become a subsidiary of GGP and holders of Rouse common stock will receive $67.50 per share (reduced by reason of the extraordinary dividend described below). The merger was approved by our shareholders on November 9, 2004 and is expected to close on November 12, 2004.

On or prior to the closing of  the merger, we will pay an extraordinary dividend of $2.29474 per share, which will result in merger consideration of $65.20526 per share.

(3)TAX MATTERS

We elected to be taxed as a real estate investment trust (“REIT”) pursuant to the Internal Revenue Code of 1986, as amended, effective January 1, 1998. Subject to the payment of the extraordinary dividend noted above, we believe that we met, or have the ability to meet, the qualifications for REIT status as of September 30, 2004.

One of the conditions for closing the merger is that we deliver to GGP an opinion of tax counsel acceptable to GGP with respect to our qualification as a REIT. In preparing for the merger, we discovered that we may have non-REIT earnings and profits that we did not distribute to our shareholders. These earnings and profits include non-REIT earnings and profits we would have succeeded to in 2001 if a tax election we made in 2001 with respect to one of our subsidiaries was determined to be invalid.  Such earnings and profits also include earnings and profits which might be attributed to certain intercompany transactions. Based on advice from our outside legal counsel who assist us with REIT tax matters and our internal analysis, we believed that paying additional distributions to our shareholders (which we refer to as extraordinary dividends) and making payments of additional tax, interest and penalties were the most expedient courses of action to take. On November 9, 2004, we entered into an agreement with the Internal Revenue Service (“IRS”) to settle these matters and treat the payment of extraordinary dividends as satisfying our distribution requirements. The amount of the extraordinary dividend to be paid is $238 million ($2.29474 per share). Additionally, we paid approximately $23.1 million of interest and a penalty of approximately $21.4 million to the IRS under the terms of the closing agreement with the IRS. We also expect to pay an additional $8.5 million of income taxes, penalty and interest. We recorded a liability of $52 million in the third quarter of 2004 and will record the interest applicable to the fourth quarter of 2004 in that period.

A REIT is permitted to own securities of taxable REIT subsidiaries (“TRS”) in an amount up to 20% of the fair value of its assets. TRS are taxable corporations that are used by REITs generally to engage in nonqualifying REIT activities or perform nonqualifying services. We own and operate several TRS that are principally 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 and other properties. Except with respect to the TRS, management does not believe that we will be liable for significant income taxes at the Federal level or in most of the states in which we operate in 2004 and future years. Current Federal income taxes of the TRS are likely to increase in future years as we exhaust the net loss carryforwards of certain TRS and complete certain land development projects. These increases could be significant.

Our net deferred tax assets were $69.4 million and our deferred tax liabilities were $115.2 million at September 30, 2004. Our net deferred tax assets were $91.0 million and our deferred tax liabilities were $86.4 million at December 31, 2003. Deferred income taxes will become payable as temporary differences reverse (primarily due to the completion of land development projects) and TRS net operating loss carryforwards are exhausted.

(4)DISCONTINUED OPERATIONS

In May 2004, we agreed to sell our interests in two office buildings in Hunt Valley, Maryland. We recorded aggregate impairment losses of $1.4 million in the fourth quarter of 2003 and $0.4 million in the nine months ended September

12

Part I.Financial Information

Item 1.Financial Statements.

THE ROUSE COMPANY AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited), continued

30, 2004 related to these properties. These properties are classified as held for sale at September 30, 2004 and were sold in October 2004.

In May 2004, we sold our interest in one office building in Hughes Center, a master-planned business park in Las Vegas, Nevada, as part of the 2003 agreements under which we acquired interests in entities developing The Woodlands, a master-planned community in the Houston, Texas metropolitan area, for cash of $7.0 million and the assumption by the buyer of $3.5 million of mortgage debt. We recorded a gain on this sale of $5.5 million. In January and February 2004, we sold interests in five office buildings and seven parcels subject to ground leases in Hughes Center as part of the same 2003 agreements, for cash of $64.3 million and the assumption by the buyer of $107.3 million of mortgage debt. We recorded aggregate gains on these sales in the first quarter of 2004 of approximately $35.3 million (net of deferred income taxes of $2.7 million). In December 2003, in related transactions, we sold interests in two office buildings and two parcels subject to ground leases in Hughes Center.

We also recorded, in the nine months ended September 30, 2004, net gains of $3.6 million (net of deferred income taxes of $2.9 million) related to the resolutions of certain contingencies related to disposals of properties in 2002, 2003 and 2004.

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

In August 2003, we sold The Jacksonville Landing, a retail center in Jacksonville, Florida, for net proceeds of $4.8 million. We recognized a gain of $2.8 million relating to this sale.

In July and September 2003, we sold three small neighborhood retail properties in Columbia, Maryland for aggregate proceeds of $2.2 million and recognized aggregate gains of $0.9 million.

In May and June 2003, we sold eight office and industrial buildings in the Baltimore-Washington corridor for net proceeds of $46.6 million and recorded aggregate gains of $4.4 million.

In April and May 2003, we sold six retail centers 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, we received net cash proceeds of $218.4 million, the purchaser assumed $276.6 million of property debt, and we assumed a participating mortgage secured by Christiana Mall. We recognized aggregate gains of $65.4 million relating to the monetary portions of these transactions.

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

13

Part I.Financial Information

Item 1.Financial Statements.

THE ROUSE COMPANY AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited), continued

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

	Three months ended September 30,						Nine months ended September 30,
	2004			2003			2004			2003
Revenues	$	359		$	11,720		$	3,963		$	76,940
Operating expenses, exclusive of depreciation and amortization	(73		)	(5,349		)	(1,563		)	(36,691		)
Interest expense	(1		)	(2,912		)	(738		)	(18,109		)
Depreciation and amortization	(1		)	(2,580		)	(980		)	(14,593		)
Other provisions and losses, net	—			—			—			26,896
Impairment losses on operating properties	(162		)	(6,500		)	(432		)	(6,500		)
Gains on dispositions of interests in operating properties, net	467			3,908			45,181			73,710
Income tax benefit (provision), primarily deferred	13			(44		)	98			(197		)
Discontinued operations	$	602		$	(1,757	)	$	45,529		$	101,456

(5)UNCONSOLIDATED REAL ESTATE VENTURES

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

At December 31, 2003, these ventures were primarily partnerships and corporations which own retail centers (most of which we manage) and ventures developing the master-planned communities known as The Woodlands, near Houston, Texas, and Fairwood, in Prince George’s County, Maryland. In January 2004, we acquired our partners’ interests in the joint venture that is developing Fairwood, increasing our ownership interest to 100%. Prior to this transaction, we held a noncontrolling interest in this venture and accounted for our investment as an investment in unconsolidated real estate ventures. We consolidated the venture in our financial statements from the date of the acquisition.

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

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

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

14

Part I.Financial Information

Item 1.Financial Statements.

THE ROUSE COMPANY AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited), continued

(6)DEBT

Debt is summarized as follows (in thousands):

	September 30, 2004				December 31, 2003
	Total		Due in one year		Total			Due in one year
Mortgages and bonds	$	2,708,018	$	595,041	$		3,025,802	$	484,588
Medium-term notes	45,500		43,500		45,500			—
Credit facility borrowings	259,500		—		271,000			—
3.625% Notes due March 2009	389,765		—		—			—
8% Notes due April 2009	200,000		—		200,000			—
7.2% Notes due September 2012	399,592		—		399,553			—
5.375% Notes due November 2013	453,761		—		350,000			—
Other loans	179,936		72,312		152,637			32,147
Total	$	4,636,072	$	710,853	$	4,444,492		$		516,735

The amounts due in one year represent maturities under existing loan agreements, except where refinancing commitments from outside lenders have been obtained. In these instances, maturities are determined based on the terms of the refinancing commitments.

We expect to repay the debt due in one year with operating cash flows, proceeds from property financings (including refinancings of maturing mortgages) or other available corporate funds.

During the first quarter of 2004, we repaid approximately $443 million of mortgage loans with proceeds from borrowings under our credit facility. In March 2004, we issued $400 million of 3.625% Notes due in 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.

At September 30, 2004 and December 31, 2003, approximately $82 million and $83 million, respectively, of our debt provided for payments of additional interest based on operating results of the related properties in excess of stated levels. The participating debt primarily relates to a retail center where the lender receives a fixed interest rate of 7.625% and a 5% participation in cash flows. The lender also will receive a payment at maturity (November 2004) equal to the greater of 5% of the value of the property in excess of the debt balance or the amount required to provide an internal rate of return of 8.375% over the term of the loan. The internal rate of return of the lender is limited to 12.5%. We recognize interest expense on this debt at a rate required to provide the lender the required minimum internal rate of return (8.375%) and monitor the accrued liability and the fair value of the projected payment due on maturity. Based on our analysis, we believe that the payment at maturity will be the balance needed to provide the specified minimum internal rate of return.

15

Part I.Financial Information

Item 1.Financial Statements.

THE ROUSE COMPANY AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited), continued

At September 30, 2004, we had interest rate swap agreements and forward-starting swap agreements in place that effectively fix the LIBOR rate on a portion of our variable-rate debt through December 2006. Information related to the in-place swap agreements as of September 30, 2004 is as follows (dollars in millions):

Total notional amount	$	563.1
Average fixed effective rate (pay rate)	2.3		%
Average variable interest rate of related debt (receive rate)	1.7		%
Fair values of assets	$	1.3
Fair values of liabilities	$	1.2

As discussed above, we issued $400 million of 3.625% Notes in March 2004. We simultaneously entered into agreements to effectively convert this fixed-rate debt to variable-rate debt for the term of these notes. Under these agreements, we receive a fixed rate of 3.625% and pay a variable rate based on the six-month LIBOR rate, set in arrears, plus an average spread of 19.375 basis points. The expected pay rate was 2.71% at September 30, 2004. The fair value of these agreements was a liability of $9.1 million at September 30, 2004.

In November 2004, we terminated pay-fixed, receive variable interest rate swap agreements with aggregate national amounts of $411.5 million and pay-variable, receive-fixed interest rate swap agreements with aggregate national amounts of $400 million.

(7)PENSION, POST RETIREMENT AND DEFERRED COMPENSATION PLANS

We have a qualified defined benefit pension plan (“qualified plan”) covering substantially all employees, and separate nonqualified unfunded defined benefit pension plans primarily covering participants in the qualified plan whose defined benefits exceed the qualified plan’s limits (“supplemental plan”). In February 2003, our Board of Directors approved modifications to our qualified plan and supplemental plan so that covered employees would not earn additional benefits for future services. The curtailment of the qualified and supplemental plans required us to immediately recognize substantially all unamortized prior service cost and unrecognized transition obligation and resulted in a curtailment loss of $10.2 million for the nine months ended September 30, 2003. We also incurred settlement losses of $3.5 million and $9.6 million for the nine months ended September 30, 2004 and 2003, respectively, related to lump-sum distributions made primarily to employees retiring as a result of organizational changes and early retirement programs offered in 2003 and 2002 and a change in the senior management organizational structure in March 2003. The lump-sum distributions were paid to participants primarily from assets of our qualified plan, or with respect to the supplemental plan, from contributions made by us.

In February 2004, we adopted a proposal to terminate our qualified and supplemental plans. When we complete the terminations, we will be required to settle the obligations of the qualified plan by paying accumulated benefits to eligible participants. In connection with the adoption of the proposal to terminate the plans, we transferred the assets of the qualified plan to cash and cash equivalents to mitigate market risk during the period prior to distributions to participants. At September 30, 2004, the qualified plan had sufficient assets to settle its obligations without additional contributions by us.

On August 27, 2004, we received a favorable determination letter from the IRS approving the termination of our qualified plan. On October 4, 2004, we began distributing the plan’s assets to its beneficiaries and recording associated settlement losses. We expect to make final distributions from the qualified plan and to record total settlement losses of approximately $26 million in the fourth quarter of 2004. Concurrent with the first distributions from the qualified plan, we terminated our supplemental plan by merger into our nonqualified supplemental defined contribution plan (as more fully described below) and recognized a settlement loss of approximately $5.4 million.

We have a qualified defined contribution plan and a nonqualified supplemental defined contribution plan available to substantially all employees. In 2004 and 2003, we matched 100% of participating employees’ pre-tax contributions up to a maximum of 3% of eligible compensation and 50% of participating employees’ pre-tax contributions up to an additional maximum of 2% of eligible compensation.

The supplemental plan obligations were $17.3 million at September 30, 2004. On August 23, 2004, we funded an irrevocable trust for the participants in our supplemental plan and our nonqualified supplemental defined contribution plan with cash of approximately $27.2 million and the transfer of marketable securities valued at approximately $25.2 million.

16

Part I.Financial Information

Item 1.Financial Statements.

THE ROUSE COMPANY AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited), continued

In an action related to the curtailment of the qualified and supplemental plans, we added new components to the defined contribution plans under which we either make or accrue discretionary contributions to the plans for all employees who were previously covered by the defined benefit pension plans. Expenses related to these plans were $1.4 million and $4.3 million for the three and nine months ended September 30, 2004, respectively, and $1.5 million and $4.9 million for the three and nine months ended September 30, 2003, respectively.

We also have a retiree benefits plan that provides postretirement medical and life insurance benefits to full-time employees who meet 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 annual contribution.

17

Part I.Financial Information

Item 1.Financial Statements.

THE ROUSE COMPANY AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited), continued

The normal date for measurement of our pension plan obligations is December 31 of each year, unless more recent measurements of both plan assets and obligations are available, or if a significant event occurs, such as a plan amendment or curtailment, that would ordinarily call for such measurements. In February 2004, we adopted a plan to terminate our qualified and supplemental plans. Due to the termination of the plans, we measured our benefit obligations as of March 31, 2004, including the impact of the termination. Information relating to the obligations, assets and funded status of the plans at March 31, 2004 and December 31, 2003 is summarized as follows (dollars in thousands):

	Pension Plans															Postretirement
	Qualified						Supplemental and Other									Plan
	March 31, 2004			December 31, 2003			March 31, 2004				December 31, 2003					March 31, 2004					December 31, 2003
Projected benefit obligation at end of period	$	64,862		$	56,228		$		18,441		$			17,855		$	N/A				$		N/A
Accumulated benefit obligation at end of period	64,862			56,228			18,441				17,846					17,645					17,555
Benefit obligations at end of period	$	64,862		$	56,228		$		18,441		$		17,855			$		17,645			$		17,555
Fair value of plan assets at end of period	65,304			65,339			—				—					—					—
Funded status	$	442		$	9,111		$	(18,441		)	$	(17,855			)	$			(17,645	)	$	(17,555		)
Weighted-average assumptions at period end:
Discount rate	5.12		%	6.00		%	5.16			%	6.00				%	6.00				%	6.00			%
Lump sum rate	5.12			6.00			5.16				6.00					—					—
Expected rate of return on plan assets	5.12			8.00			—				—					—					—
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			8.00				—					—					—
Rate of compensation increase	N/A			4.50			N/A				4.50					N/A					N/A

18

Part I.Financial Information

Item 1.Financial Statements.

THE ROUSE COMPANY AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited), continued

The assets of the qualified plan historically consisted primarily of fixed income and marketable equity securities. The primary investment objective for the qualified plan had been to provide for growth of capital with a moderate level of volatility. In connection with the approval to terminate the plans, we transferred the assets of the qualified plan to cash and cash equivalents to mitigate market risk during the period prior to distributions to participants.

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

	Three months ended September 30,							Nine months ended September 30,
	2004				2003			2004			2003
Service cost	$		—		$	—		$	—		$	—
Interest cost on projected benefit obligations	1,035				1,103			3,156			3,690
Expected return on funded plan assets	(799			)	(1,158		)	(2,907		)	(3,591		)
Prior service cost recognized	8				8			23			396
Net actuarial loss recognized	387				918			1,167			2,380
Amortization of transition obligation	—				—			—			17
Net pension cost before special events	631				871			1,439			2,892
Special events:
Settlement losses	680				2,179			3,547			9,598
Curtailment loss	—				—			—			10,212
Net pension cost	$	1,311			$	3,050		$	4,986		$	22,702

The curtailment loss in 2003 and settlement losses for the three and nine months ended September 30, 2004 and 2003 are included in other provisions and losses, net, in the condensed consolidated statements of operations.

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

	Three months ended September 30,						Nine months ended September 30,
	2004			2003			2004			2003
Service cost	$	120		$	98		$	361		$	296
Interest cost on accumulated benefit obligations	254			257			763			773
Net actuarial loss recognized	35			29			106			85
Amortization of prior service cost	(60		)	(60		)	(181		)	(181		)
Net postretirement benefit cost	$	349		$	324		$	1,049		$	973

(8)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 of regional shopping centers, downtown specialty marketplaces, the retail components of mixed-use projects and community retail centers. The office and other properties segment includes the operation and management of office and industrial properties and the nonretail components of the mixed-use projects. The community development segment includes the development and sale of land, primarily in large-scale, long-term community development projects in and around Columbia, Maryland, Summerlin, Nevada and Houston, Texas. The commercial development segment includes the evaluation of all potential new development projects (including expansions of existing properties) and acquisition opportunities and the management of them through the development or acquisition process. The corporate segment is responsible for shareholder and director services, financial management, strategic planning and certain other general and support functions. Our business segments offer different products or services and are managed separately because each requires different operating strategies or management expertise.

19

Part I.Financial Information

Item 1.Financial Statements.

THE ROUSE COMPANY AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited), continued

The operating measure used to assess operating results for the business segments is Net Operating Income (“NOI”). Prior to April 1, 2004, we excluded certain expenses related to organizational changes and early retirement costs from our definition of NOI. Effective April 1, 2004, we revised our definition to include these amounts in our corporate segment. We made these reclassifications because these expenses are neither infrequent nor unusual and are becoming a normal cost of doing business. Amounts for prior periods have been reclassified to conform to the current definition.

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

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

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

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

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

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

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

	Retail Centers		Office and Other Properties		Community Development		Commercial Development			Corporate			Total
Three months ended September 30, 2004
Revenues	$	223,797	$	58,806	$	86,215	$	—		$	—		$	368,818
Operating expenses	90,902		32,950		59,113		3,137			14,527			200,629
NOI	$	132,895	$	25,856	$	27,102	$	(3,137	)	$	(14,527	)	$	168,189
Three months ended September 30, 2003
Revenues	$	198,924	$	49,738	$	62,833	$	—		$	—		$	311,495
Operating expenses	80,959		20,160		29,473		2,727			5,586			138,905
NOI	$	117,965	$	29,578	$	33,360	$	(2,727	)	$	(5,586	)	$	172,590
Nine months ended September 30, 2004
Revenues	$	648,585	$	178,749	$	342,268	$	—		$	—		$	1,169,602
Operating expenses	257,091		100,220		234,472		8,229			26,362			626,374
NOI	$	391,494	$	78,529	$	107,796	$	(8,229	)	$	(26,362	)	$	543,228
Nine months ended September 30, 2003
Revenues	$	622,102	$	149,955	$	221,760	$	—		$	—		$	993,817
Operating expenses	250,145		59,609		129,192		10,702			22,979			472,627
NOI	$	371,957	$	90,346	$	92,568	$	(10,702	)	$	(22,979	)	$	521,190

20

Part I.Financial Information

Item 1.Financial Statements.

THE ROUSE COMPANY AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited), continued

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

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

	Three months ended September 30,						Nine months ended September 30,
	2004			2003			2004			2003
Revenues:
Total reported above	$	368,818		$	311,495		$	1,169,602		$	993,817
Our share of revenues of proportionate share and other ventures and revenues of The Woodlands community development venture	(85,041		)	(36,478		)	(241,877		)	(108,944		)
Revenues of discontinued operations	(359		)	(11,720		)	(3,963		)	(76,940		)
Other	—			70			—			157
Total in condensed consolidated financial statements	$	283,418		$	263,367		$	923,762		$	808,090
Operating expenses, exclusive of provision for bad debts, depreciation and amortization:
Total reported above	$	200,629		$	138,905		$	626,374		$	472,627
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	(58,018		)	(12,717		)	(165,902		)	(37,973		)
Operating expenses of discontinued operations	(73		)	(5,030		)	(1,445		)	(35,132		)
Other	(773		)	3,309			(19		)	13,658
Total in condensed consolidated financial statements	$	141,765		$	124,467		$	459,008		$	413,180
Operating results:
NOI	$	168,189		$	172,590		$	543,228		$	521,190
Interest expense	(60,379		)	(54,195		)	(178,626		)	(163,873		)
NOI of discontinued operations	(286		)	(6,690		)	(2,518		)	(41,808		)
Depreciation and amortization	(47,175		)	(43,288		)	(143,521		)	(121,855		)
Other provisions and losses, net	(45,268		)	(2,887		)	(51,448		)	(22,644		)
Income taxes, primarily deferred	(18,205		)	(1,627		)	(57,319		)	(28,205		)
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 ventures, net	(20,524		)	(17,899		)	(60,841		)	(50,828		)
Other	(1,310		)	(4,027		)	(4,375		)	(12,785		)
Earnings (loss) before net gains on dispositions of interests in operating properties and discontinued operations in condensed consolidated financial statements	$	(24,958	)	$	41,977		$	44,850		$	79,192

21

Part I.Financial Information

Item 1.Financial Statements.

THE ROUSE COMPANY AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited), continued

The assets by segment and the reconciliation of total segment assets to the total assets in the condensed consolidated financial statements are as follows (in thousands):

	September 30, 2004			December 31, 2003
Retail centers	$	5,600,816		$	5,069,644
Office and other properties	1,068,466			1,165,599
Community development	838,792			835,525
Commercial development	189,444			114,439
Corporate	246,786			327,294
Total segment assets	7,944,304			7,512,501
Our share of assets of unconsolidated proportionate share ventures	(1,456,797		)	(1,464,329		)
Investments in and advances to unconsolidated proportionate share ventures	561,697			591,072
Total assets in condensed consolidated financial statements	$	7,049,204		$	6,639,244

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

	September 30, 2004		December 31, 2003
Retail centers	$	304,501	$	345,486
Office and other properties	174,561		158,360
Community development	97,617		144,021
Total	$	576,679	$	647,867

(9)Other Provisions and Losses, Net

Other provisions and losses, net consist of the following (in thousands):

	Three months ended September 30,				Nine months ended September 30,
	2004		2003		2004		2003
Pension plan settlement losses (see note 7)	$	680	$	2,172	$	3,547	$	9,536
Pension plan curtailment loss (see note 7)	—		—		—		10,212
Net losses on early extinguishment of debt	—		715		3,313		6,442
Interest on the extraordinary dividend (see note 3)	22,215		—		22,215		—
Interest and penalties for other tax related matters (see note 3)	22,373		—		22,373		—
Other, net	—		—		—		(3,546		)
Total	$	45,268	$	2,887	$	51,448	$	22,644

As discussed in note 7 above, we curtailed our defined benefit pension plans in the first quarter of 2003 and recognized a loss.

During the nine months ended September 30, 2004, we recognized net losses of $3.3 million, primarily unamortized issuance costs, related to the extinguishment of debt not associated with discontinued operations prior to scheduled maturity and to the redemption of the Parent Company-obligated mandatorily redeemable securities. During the three and nine months ended September 30, 2003, we recognized net losses of $0.7 million and $6.4 million, respectively, primarily prepayment penalties related to the extinguishment of debt not associated with discontinued operations prior to scheduled maturity.

As discussed in note 3, we agreed to pay interest on the extraordinary dividend and interest and penalties associated with other tax related matters. The other amount for the nine months ended September 30, 2003 consists primarily of a fee of $3.8 million that we earned on the facilitation of a real estate transaction between two parties that are unrelated to us.

22

Part I.Financial Information

Item 1.Financial Statements.

THE ROUSE COMPANY AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited), continued

(10)Net Gains on Dispositions of Interests in Operating Properties

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

	Three months ended September 30,				Nine months ended September 30,
	2004		2003		2004			2003
Regional retail centers	$	—	$	—	$	—		$	21,561
Office and other properties	—		—		14,096			—
Other	166		272		(42		)	515
Total	$	166	$	272	$	14,054		$	22,076

In 2000, we contributed our ownership interests in 37 buildings in two industrial parks to a joint venture in exchange 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 our continuing involvement in the venture, deferred gains of approximately $14.4 million. In June 2004, we redeemed our interest in the venture and terminated our guarantee of its indebtedness. Accordingly, we recognized the previously deferred gain of $14.4 million (net of deferred income taxes of approximately $1.7 million).

In April 2004, we sold most of our interest in Westin New York, a hotel in New York City, for net proceeds of $15.8 million and recognized a gain of $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 the Philadelphia metropolitan area (see note 3), we acquired Christiana Mall from a party related to the purchaser and assumed a participating mortgage secured by Christiana Mall.  The participating mortgage had a fair value of $160.9 million.  The holder of this mortgage had the right to receive $120 million in cash and participation in cash flows and the right to convert this participation feature into a 50% equity interest in Christiana Mall.  The holder exercised this right in June 2003.  We recorded a portion of the cost of Christiana Mall based on the historical cost of the properties we exchanged to acquire this property because a portion of the transaction was considered nonmonetary under EITF Issue 01-2, “Interpretations of APB Opinion No. 29.”  As a consequence, when we subsequently disposed of the 50% interest in the property, we recognized a gain of $21.6 million.

(11)Preferred Stock

The shares of Series B Convertible Preferred stock had a liquidation preference of $50 per share and earned dividends at an annual rate of 6% of the liquidation preference.  At the option of the holders, each share of the Series B Convertible Preferred stock was convertible into 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 stock for each share of Preferred stock).  The conversion price was subject to adjustment in certain circumstances such as stock dividends, stock splits, rights offerings, mergers and similar transactions.  In addition, these shares of Preferred stock were redeemable for shares of common stock at our option, subject to certain conditions related to the market price of our common stock. There were 4,047,555 shares of Preferred stock issued and outstanding at December 31, 2003. On January 7, 2004, we called for the redemption of all outstanding shares of the Series B Convertible Preferred stock pursuant to the terms of its issuance and established February 10, 2004 as the redemption date. In the first quarter of 2004, we issued 5,308,199 shares of common stock upon conversion or redemption of all of the outstanding shares of Series B Convertible Preferred stock.

23

Part I.Financial Information

Item 1.Financial Statements.

THE ROUSE COMPANY AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited), continued

(12)Earnings (Loss) Per Share

Information relating to the calculations of earnings (loss) per share (“EPS”) of common stock for the three months ended September 30, 2004 and 2003 is summarized as follows (in thousands):

	2004						2003
	Basic			Diluted			Basic			Diluted
Earnings (loss) from continuing operations	$	(24,792	)	$	(24,792	)	$	42,249		$	42,249
Dividends on unvested common stock awards and other	(164		)	(164		)	(163		)	(91		)
Dividends on Series B Convertible Preferred stock	—			—			(3,038		)	(3,038		)
Adjusted earnings (loss) from continuing operations used in EPS computation	$	(24,956	)	$	(24,956	)	$	39,048		$	39,120
Weighted-average shares outstanding	103,153			103,153			89,117			89,117
Dilutive securities:
Options, unvested common stock awards and other	—			—			—			2,732
Adjusted weighted-average shares used in EPS computation	103,153			103,153			89,117			91,849

Information relating to the calculations of earnings (loss) per share (“EPS”) of common stock for the nine months ended September 30, 2004 and 2003 is summarized as follows (in thousands):

	2004								2003
	Basic				Diluted				Basic				Diluted
Earnings from continuing operations	$	58,634			$	58,634			$	101,268			$	101,268
Dividends on unvested common stock awards and other	(499			)	(499			)	(506			)	(506		)
Dividends on Series B Convertible Preferred stock	—				—				(9,114			)	(9,114		)
Adjusted earnings from continuing operations used in EPS computation	$		58,135		$		58,135		$		91,648		$	91,648
Weighted-average shares outstanding	101,188				101,188				87,841				87,841
Dilutive securities:
Options, unvested common stock awards and other	—				2,149				—				2,132
Series B Convertible Preferred stock	—				623				—				—
Adjusted weighted-average shares used in EPS computation	101,188				103,960				87,841				89,973

Effects of potentially dilutive securities are presented only in periods in which they are dilutive.

24

Part I.Financial Information

Item 1.Financial Statements.

THE ROUSE COMPANY AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited), continued

(13)Commitments and Contingencies

Other commitments and contingencies (that are not reflected in the condensed consolidated balance sheets) at September 30, 2004 and December 31, 2003 are summarized as follows (in millions):

	September 30, 2004		December 31, 2003
Guarantee of debt of unconsolidated real estate ventures:
Village of Merrick Park	$	100.0	$	100.0
Hughes Airport-Cheyenne Centers	—		28.8
Construction contracts for properties in development:
Consolidated subsidiaries, primarily related to Fashion Show and The Shops at La Cantera	136.0		103.1
Our share of unconsolidated real estate ventures, primarily related to the Village of Merrick Park and the venture developing The Woodlands	9.4		9.5
Contract to purchase Oxmoor Center	118.0		—
Contract to purchase an interest in Mizner Park	—		18.0
Construction contracts for land development:
Consolidated subsidiaries, primarily Columbia and Summerlin operations	84.3		83.1
Our share of the unconsolidated venture developing The Woodlands	26.2		—
Our share of long-term ground lease obligations of unconsolidated real estate ventures	120.3		121.1
Bank letters of credit and other	16.1		14.9
	$	610.3	$	478.5

We have guaranteed up to $100 million for the repayment of a mortgage loan of the unconsolidated real estate venture that owns the Village of Merrick Park.  The amount of the guarantee may be reduced or eliminated upon the achievement of certain lender requirements.  The fair value of the guarantee is not material. Additionally, venture partners have provided guarantees to us for their share (60%) of the loan guarantee.

In August 2004, we agreed to purchase Oxmoor Center, a regional retail center in Louisville, Kentucky.  This transaction closed in November 2004.  We assumed mortgage debt with a face value of approximately $60 million and paid $58 million in cash to the seller, using the proceeds of borrowings under our credit facility.

We determined that several of our consolidated partnerships are limited-life entities.  We estimate the fair values of minority interests in these partnerships at September 30, 2004 aggregated approximately $63.8 million.  The aggregate carrying values of the minority interests were approximately $29.8 million at September 30, 2004.

We and certain of our subsidiaries are defendants in various litigation matters arising in the ordinary course of business, some of which involve claims for damages that are substantial in amount.  Some of these litigation matters are covered by insurance.  We are also aware of claims arising from disputes in the ordinary course of business or related to our agreement to be acquired by GGP.  We record provisions for litigation matters and other claims when we believe a loss is probable and can be reasonably estimated.  We continuously monitor these claims and adjust recorded liabilities as developments warrant.  We further believe that any losses we may suffer for litigation and other claims in excess of the recorded aggregate liabilities are not material.  Accordingly, in our opinion, adequate provision has been made for losses with respect to litigation matters and other claims, and the ultimate resolution of these matters is not likely to have a material effect on our consolidated financial position or results of operations.  Our assessment of the potential outcomes of these matters involves significant judgment and is subject to change based on future developments.

25

Part I.Financial Information

Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations.

THE ROUSE COMPANY AND SUBSIDIARIES

Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis covers any material changes in our financial condition since December 31, 2003 and any material changes in our results of operations for the three and nine months ended September 30, 2004 as compared to the same periods in 2003.  This discussion and analysis should be read in conjunction with Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our 2003 Annual Report to Shareholders and represents views of current management and not General Growth Properties, Inc. (“GGP”).

RECENT DEVELOPMENTS

Merger Agreement with General Growth Properties, Inc. and Extraordinary Dividend

On August 19, 2004, we executed a definitive merger agreement with GGP.  Under the terms of the agreement, which has been approved by each company’s Board of Directors, a subsidiary of GGP will be merged with and into Rouse, Rouse will become a subsidiary of GGP and holders of Rouse common stock will receive $67.50 per share (reduced by reason of the extraordinary dividend described below).  The merger was approved by our shareholders on November 9, 2004 and is expected to close on November 12, 2004.

On or prior to the closing of the merger, we will pay an extraordinary dividend of $2.29474 per share, which will result in merger consideration of $65.20526 per share.

Tax Matters

One of the conditions for closing the merger is that we deliver to GGP an opinion of tax counsel acceptable to GGP with respect to our qualification as a REIT.  In preparing for the merger, we discovered that we may have non-REIT earnings and profits that we did not distribute to our shareholders.  These earnings and profits include non-REIT earnings and profits we would have succeeded to in 2001 if a tax election we made in 2001 with respect to one of our subsidiaries was determined to be invalid.  Such earnings and profits also included earnings and profits which might be attributed to certain intercompany transactions. Based on advice from our outside legal counsel who assist us with REIT tax matters and our internal analysis, we believed that paying additional distributions to our shareholders (which we refer to as extraordinary dividends) and making payments of additional tax, interest and penalties were the most expedient courses of action to take.  On November 9, 2004, we entered into an agreement with the Internal Revenue Service (“IRS”) to settle these matters and treat the payment of extraordinary dividends as satisfying our distribution requirements.  The amount of the extraordinary dividend to be paid is approximately $238 million ($2.29474 per share).  Additionally, we paid approximately $23.1 million of interest and a penalty of approximately $21.4 million to the IRS under the terms of the closing agreement with the IRS.  We also expect to pay an additional $8.5 million of income taxes, penalty and interest.  We recorded a liability of $52 million in the third quarter of 2004 and will record the interest applicable to the fourth quarter of 2004 in that period.

26

Part I.Financial Information

Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations.

GENERAL

Through our subsidiaries and affiliates, we acquire, develop and manage a diversified portfolio of operating properties located 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 industrial operations; and

•community development and land sales.

We are one of the largest publicly traded real estate companies in the United States of America. We have been publicly traded since 1957 and began operating as a real estate investment trust (“REIT”) on January 1, 1998. We engage in our real estate business through subsidiaries and affiliates.

We elected to be taxed as a REIT pursuant to the Internal Revenue Code of 1986, as amended, effective January 1, 1998.  In general, a corporation that distributes at least 90% of its REIT taxable income to shareholders in any taxable year and complies with certain other requirements (relating primarily to the nature of its assets and the sources of its revenues) is not subject to Federal income taxation to the extent of the income which it distributes.  Subject to the payment of the extraordinary dividend noted above, we believe that we met, or had the ability to meet, the qualifications for REIT status as of September 30, 2004, and to distribute at least 90% of our REIT taxable income (determined after taking into account any net operating loss deductions) to shareholders in 2004.  In 2001, we elected to treat certain subsidiaries as Taxable REIT Subsidiaries (“TRS”), which are subject to Federal and state income taxes.  We conduct our community development activities in TRS.

Revenues from our retail center, office, mixed-use and industrial operations are derived primarily from tenant rents.  Tenant leases in our retail centers generally provide for minimum rent, additional rent based on tenant sales in excess of stated levels and reimbursement of real estate taxes and other operating expenses.  Tenant leases in our office and other properties generally provide for minimum rent and reimbursement of real estate taxes and other operating expenses in excess of stated amounts.  The profitability of our retail centers depends primarily on occupancy and rent levels which, in turn, are affected by the profitability of the tenants.  Tenant profitability depends on a number of factors, including consumer spending, business and consumer confidence, competition and general economic conditions in the markets in which they and we operate.  The profitability of our office and other properties also depends on occupancy and rent levels and is affected by a number of factors, including tenants’ profitability and space needs due to growth or contraction in employment levels, business confidence and competition and general economic conditions in the markets in which they and we operate.

Revenues from our community development and land sales business are derived primarily from land sales to developers and homebuilders and participations with homebuilders in their sales of finished homes to homebuyers.  The profitability of our community development business is affected by demand for housing, mortgage interest rates, consumer confidence, and general economic conditions in the Baltimore-Washington, Las Vegas and Houston metropolitan areas.

27

Part I.Financial Information

Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Operating Properties

Our primary business strategies relating to operating properties include (1) owning and operating premier properties – shopping centers and large-scale mixed-use projects in major markets across the United States and (2) owning and operating geographically concentrated office and industrial buildings, principally complementing community development activities.  Recent acquisition activities include the following:

•In April 2003, we acquired Christiana Mall, a regional retail center in Newark, Delaware.  We subsequently conveyed a 50% interest in this property in June 2003 pursuant to the terms of a participating mortgage that we assumed in the acquisition.

•In August 2003, we acquired the remaining interest in Staten Island Mall, a regional retail center in Staten Island, 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 certain office buildings and a 52.5% economic interest in entities (which we refer to as the “Woodlands Entities”) that own The Woodlands, a master-planned community in the Houston, Texas metropolitan area. In addition to developable land, we acquired interests in operating properties owned by the Woodlands Entities, including three golf course complexes, a resort conference center, a hotel, interests in seven office buildings and other assets.

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

•In November 2004, we purchased Oxmoor Center, a regional center in Louisville, Kentucky.

•We are an investor in a consolidated joint venture that is developing The Shops at La Cantera, a regional retail center in San Antonio, Texas, expected to open in 2005.

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

•We are developing a regional retail center in Summerlin, Nevada.

We continually assess whether properties in which we own interests are consistent with our business strategies. We have disposed of interests in more than 50 retail centers and numerous other properties since 1993 (at times using tax-deferred exchanges or joint ventures).  We may also dispose of interests in properties for other reasons.  We have disposed of interests in the following properties during 2003 and 2004:

•In April and May 2003, we sold six retail centers in the Philadelphia metropolitan area (Cherry Hill Mall, Echelon Mall, Exton Square, Gallery at Market East, Moorestown Mall and Plymouth Meeting).

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

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

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

•In December 2003 and January, February and May 2004, we disposed of interests in eight office properties and nine parcels subject to ground leases in Hughes Center, a master-planned business park in Las Vegas, Nevada, in connection with our acquisition of a 52.5% economic interest in The Woodlands.

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

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

28

Part I.Financial Information

Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Community Development

Our primary business strategy relating to community development is to develop and sell land in our planned communities in a manner that increases the value of the remaining land to be developed and sold and to provide current cash flows.  Our major land development projects include communities in and around Columbia, Maryland, Summerlin, Nevada, and Houston, Texas.  In addition, at December 31, 2003, we were an investor in an unconsolidated real estate venture that is developing Fairwood, a planned community in Prince George’s County, Maryland.  In January 2004, we acquired our partners’ interests in this joint venture, increasing our ownership interest to 100%.  In May 2003, we purchased approximately 8,060 acres of investment land and land to be held for development and sale in the Houston, Texas metropolitan area on which we intend to develop Bridgelands, a master-planned community.  We have also acquired a total of 947 acres of contiguous land in separate transactions executed in the second half of 2003 and early 2004. We expect to begin significant development activities at Bridgelands in 2004 and to begin selling this land in 2005.  In December 2003, we acquired a 52.5% economic interest in The Woodlands, an existing master-planned community in the Houston, Texas metropolitan area, which includes, among other assets, approximately 5,500 acres of saleable land.

We acquired Summerlin, our master-planned community in suburban Las Vegas, Nevada, in the acquisition of The Hughes Corporation (“Hughes”) in 1996.  In connection with the acquisition of Hughes, we entered into a Contingent Stock Agreement (“Contingent Stock Agreement”) for the benefit of the former Hughes owners or their successors (“beneficiaries”).  Under the terms of the Contingent Stock Agreement, shares of Rouse common stock are issuable to the beneficiaries based on the appraised values of defined asset groups, including Summerlin, at specified termination dates to 2009 and/or cash flows from the development and/or sale of those assets prior to the termination dates.  We account for the beneficiaries’ share of earnings from the assets as an operating expense. We account for any distributions to the beneficiaries as of the termination dates related to assets we own as of the termination dates as additional investments in the related assets (that is, contingent consideration). At the time of the acquisition of Hughes, we reserved 20 million shares of common stock for possible issuance under the Contingent Stock Agreement, of which 8,516,630 common shares remain reserved after giving effect to issuances under the Contingent Stock Agreement through September 30, 2004. The number of shares initially reserved was determined based on estimates made at the time of the acquisition. The actual number of shares issuable will be determined only from events occurring over the term of the Contingent Stock Agreement, including the values of the remaining assets on the termination dates, cash flows prior to the termination dates and the value of our common stock, and could substantially exceed the number of shares reserved.

OPERATING RESULTS

The following discussion and analysis of operating results covers each of our business segments, as management believes that a segment analysis provides the most effective means of understanding our business.  It also provides information about other elements of the condensed consolidated statements of operations that are not included in the segment results.  You should refer to the condensed consolidated statements of operations and note 8 to the condensed consolidated financial statements when reading this discussion and analysis.

29

Part I.Financial Information

Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Comparisons of Net Operating Income and net earnings (loss) from one year to another are affected significantly by property acquisition, disposition and development activity. As discussed in more detail below, other factors that have contributed to our operating results in 2004 and 2003 include the following:

•maintenance of high occupancy levels in retail properties;

•higher rents on re-leased space;

•strong demand for land in and around Columbia and Summerlin;

•refinancings of project-related debt at lower interest rates;

•repayments of debt;

•redemption of Parent Company-obligated mandatorily redeemable securities;

•cost reduction measures;

•costs related to organizational changes;

•pension plan curtailment and settlement losses;

•establishment of an irrevocable trust for supplemental pension plan obligations;

•merger related costs; and

•costs associated with tax related matters.

The operating measure used to assess operating results for the business segments is Net Operating Income (“NOI”).  We define NOI as segment revenues less segment operating expenses (including provision for bad debts, losses (gains) on marketable securities classified as trading, net losses (gains) on sales of properties developed for sale and our partner’s share of NOI of the venture developing The Woodlands, but excluding income taxes, ground rent expense, distributions on Parent Company-obligated mandatorily redeemable preferred securities and other subsidiary preferred stock and real estate depreciation and amortization).  Additionally, discontinued operations, equity in earnings of unconsolidated real estate ventures and minority interests are adjusted to reflect NOI on the same basis.  Prior to April 1, 2004, we excluded certain expenses related to organizational changes and early retirement costs from our definition of NOI. Effective April 1, 2004, we revised our definition to include these amounts in our corporate segment.  We made these reclassifications because these expenses are neither infrequent nor unusual and are becoming a normal cost of doing business.  Amounts for prior periods have been reclassified and conform to the current definition.

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

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

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

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

•we include discontinued operations and minority interests in NOI rather than presenting separately.

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

30

Part I.Financial Information

Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations.

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

	Retail Centers		Office and Other Properties		Community Development		Commercial Development			Corporate			Total
Three months ended September 30, 2004
Revenues	$	223.8	$	58.8	$	86.2	$	—		$	—		$	368.8
Operating expenses	90.9		33.0		59.1		3.1			14.5			200.6
NOI	$	132.9	$	25.8	$	27.1	$	(3.1	)	$	(14.5	)	$	168.2
Three months ended September 30, 2003
Revenues	$	198.9	$	49.7	$	62.9	$	—		$	—		$	311.5
Operating expenses	80.9		20.2		29.6		2.7			5.5			138.9
NOI	$	118.0	$	29.5	$	33.3	$	(2.7	)	$	(5.5	)	$	172.6
Nine months ended September 30, 2004
Revenues	$	648.6	$	178.7	$	342.3	$	—		$	—		$	1,169.6
Operating expenses	257.1		100.2		234.5		8.2			26.4			626.4
NOI	$	391.5	$	78.5	$	107.8	$	(8.2	)	$	(26.4	)	$	543.2
Nine months ended September 30, 2003
Revenues	$	622.1	$	149.9	$	221.8	$	—		$	—		$	993.8
Operating expenses	250.1		59.6		129.2		10.7			23.0			472.6
NOI	$	372.0	$	90.3	$	92.6	$	(10.7	)	$	(23.0	)	$	521.2

Note:

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

31

Part I.Financial Information

Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Reconciliations of total revenues and operating expenses reported above to the related amounts in the condensed consolidated financial statements and of NOI reported above to earnings (loss) before net gains on dispositions of interests in operating properties and discontinued operations in the condensed consolidated financial statements are summarized as follows (in millions):

	Three months ended September 30,						Nine months ended September 30,
	2004			2003			2004			2003
Revenues:
Total reported above	$	368.8		$	311.5		$	1,169.6		$	993.8
Our share of revenues of proportionate share and other ventures and revenues of The Woodlands community development venture	(85.0		)	(36.5		)	(241.9		)	(108.9		)
Revenues of discontinued operations	(0.4		)	(11.7		)	(4.0		)	(76.9		)
Other	—			0.1			—			0.1
Total in condensed consolidated financial statements	$	283.4		$	263.4		$	923.7		$	808.1
Operating expenses, exclusive of provision for bad debts, depreciation and amortization:
Total reported above	$	200.6		$	138.9		$	626.4		472.6
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	(58.0		)	(12.7		)	(165.9		)	(38.0		)
Operating expenses of discontinued operations	(0.1		)	(5.0		)	(1.5		)	(35.1		)
Other	(0.7		)	3.3			—			13.7
Total in condensed consolidated financial statements	$	141.8		$	124.5		$	459.0		$	413.2
Operating results:
NOI reported above	$	168.2		$	172.6		$	543.2		$	521.2
Interest expense	(60.4		)	(54.2		)	(178.6		)	(163.9		)
NOI of discontinued operations	(0.3		)	(6.7		)	(2.5		)	(41.8		)
Depreciation and amortization	(47.2		)	(43.3		)	(143.5		)	(121.9		)
Other provisions and losses, net	(45.3		)	(2.9		)	(51.4		)	(22.6		)
Income taxes, primarily deferred	(18.2		)	(1.6		)	(57.3		)	(28.2		)
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 ventures, net	(20.5		)	(17.9		)	(60.8		)	(50.8		)
Other	(1.3		)	(4.0		)	(4.5		)	(12.8		)
Earnings (loss) before net gains on dispositions of interests in operating properties and discontinued operations in condensed consolidated financial statements	$	(25.0	)	$	42.0		$	44.6		$	79.2

The reasons for significant changes in revenues and expenses comprising NOI are discussed below in the Business Segment Information section of this Management’s Discussion and Analysis.

32

Part I.Financial Information

Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Business Segment Information

Operating Properties:

We report the results of our operating properties in two segments:  (1) retail centers and (2) office and other properties.  Our tenant leases provide the foundation for the performance of our operating properties.  In addition to minimum rents, the majority of retail and office tenant leases provide for other rents which reimburse us for certain operating expenses.  Substantially all of our retail leases also provide for additional rent (percentage rent) based on tenant sales in excess of stated levels.  As leases expire, space is re-leased, minimum rents are adjusted to market rates, expense reimbursement provisions are updated and new percentage rent levels are established for retail leases. Expense reimbursement provisions in our retail leases have historically required tenants to pay their variable shares of a property’s operating costs. We have begun revising the expense reimbursement provisions so that tenants continue to pay their shares of a property’s real estate tax and utility expenses while paying stated rates for all other operating expenses.  The stated rate increases annually based on negotiated amounts or the consumer price index.  We believe this new approach to tenant reimbursements will simplify lease negotiations, facilitate collections and, over the longer-term, allow us to reduce our lease administration costs.

Some portions of our discussion and analysis focus on “comparable” properties.  Comparable properties exclude those that have been acquired or disposed of, newly developed or undergone significant expansion in either of the two periods being compared and exclude South Street Seaport. South Street Seaport is a retail center in lower Manhattan that we own and operate. We do not consider South Street Seaport as a comparable property because, with its location near the World Trade Center site, it continues to be significantly affected by lower pedestrian and other traffic and other commercial activity in the area.

Retail Centers:

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

	Three months ended September 30,					Nine months ended September 30,
	2004			2003		2004		2003
Revenues	$		223.8	$	198.9	$	648.6	$	622.1
Operating expenses	90.9			80.9		257.1		250.1
NOI	$	132.9		$	118.0	$	391.5	$	372.0

The changes in segment revenues for the three and nine months ended September 30, 2004, respectively, compared to the same periods in 2003 are summarized as follows (in millions):

	Three months ended September 30, 2004			Nine months ended September 30, 2004
Decrease due to dispositions of interests in operating properties	$	(3.3	)	$	(47.9	)
Receipt of business interruption insurance claim at South Street Seaport in 2003	—			(1.5		)
Increase due to acquisitions of interests in properties	21.0			59.3
Increase due to openings of expansions and new development(1)	4.5			12.4
Other(2)	2.7			4.2
Net increase	$	24.9		$	26.5

(1)2003 openings of the second phase of Fashion Show expansion and additional components of the Village of Merrick Park.

(2)Attributable to higher rents on re-leased space and change in occupancy at comparable retail centers, our comparable retail centers had average occupancy levels of approximately 92.4% and 93.1% during the nine months ended September 30, 2004 and 2003, respectively.

33

Part I.Financial Information

Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The changes in segment operating expenses for the three and nine months ended September 30, 2004, respectively, compared to the same periods in 2003 are summarized as follows (in millions):

	Three months ended September 30, 2004			Nine months ended September 30, 2004
Decrease due to dispositions of interests in operating properties	$	(1.5	)	$	(23.7	)
Increase due to acquisitions of interests in properties	10.0			26.6
Increase due to openings of expansions and new development(1)	(0.7		)	2.9
Other	2.2			1.2
Net increase	$	10.0		$	7.0

(1)2003 openings of the second phase of Fashion Show expansion and additional components of the Village of Merrick Park.

In summary, the changes in NOI for the three and nine months ended September 30, 2004, respectively, compared to the same periods in 2003 were attributable primarily to (in millions):

	Three months ended September 30, 2004			Nine months ended September 30, 2004
Decrease due to dispositions of interests in operating properties	$	(1.8	)	$	(24.2	)
Receipt of business interruption insurance claim at South Street Seaport in 2003	—			(1.5		)
Increase due to acquisitions of interests in properties	11.0			32.7
Increase due to openings of expansions and new development	5.2			9.5
Other	0.5			3.0
Net increase	$	14.9		$	19.5

We believe that the ability to increase rents and maintain high average occupancy levels at our comparable retail centers in spite of difficult economic conditions is indicative of the high demand that retailers have for our space.

We anticipate growth in NOI from retail centers in 2004, as we expect to benefit from the 2003 acquisitions of interests in Christiana Mall, Staten Island Mall and Mizner Park, the 2004 acquisitions of Providence Place and Oxmoor Center and the 2003 and 2004 openings of additional space at Fashion Show and additional components of the Village of Merrick Park.  Additionally, we expect to maintain high occupancy levels in our comparable retail properties and to achieve higher rents on re-leased space because of the high quality of our retail centers and the demand that retailers have for space in them.  These increases will be partially offset by the NOI of the properties we disposed of in 2003 and 2004.

Office and Other Properties:

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

	Three months ended September 30,				Nine months ended September 30,
	2004		2003		2004		2003
Revenues	$	58.8	$	49.7	$	178.7	$	149.9
Operating expenses	33.0		20.2		100.2		59.6
NOI	$	25.8	$	29.5	$	78.5	$	90.3

34

Part I.Financial Information

Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The changes in segment revenues for the three and nine months ended September 30, 2004, respectively, compared to the same periods in 2003 are summarized as follows (in millions):

	Three months ended September 30, 2004			Nine months ended September 30, 2004
Increase due to acquisitions of interests in properties(1)	$	17.8		$	55.9
Decrease due to dispositions of interests in operating properties	(9.7		)	(27.7		)
Other(2)	1.0			0.6
Net increase	$	9.1		$	28.8

(1)Includes 2003 acquisition of interests in office facilities at Mizner Park and the office, hotel and conference facilities owned by the Woodlands Entities.

(2)Includes effect of lower average occupancy levels at comparable office and other properties. Our comparable office and other properties had average occupancy levels of approximately 84.9% and 87.3% during the nine months ended September 30, 2004 and 2003, respectively.

The changes in segment operating expenses for the three and nine months ended September 30, 2004, respectively, compared to the same periods in 2003 are summarized as follows (in millions):

	Three months ended September 30, 2004			Nine months ended September 30, 2004
Increase due to acquisitions of interests in properties(1)	$	16.3		$	50.3
Decrease due to dispositions of interests in operating properties	(3.5		)	(10.0		)
Other	—			0.3
Net increase	$	12.8		$	40.6

(1)Includes 2003 acquisition of interests in office facilities at Mizner Park and the office, hotel and conference facilities owned by the Woodlands Entities.

In summary, the changes in NOI for the three and nine months ended September 30, 2004, respectively, compared to the same periods in 2003 were attributable primarily to (in millions):

	Three months ended September 30, 2004			Nine months ended September 30, 2004
Increase due to acquisitions of interests in properties	$	1.5		$	5.6
Decrease due to dispositions of interests in operating properties	(6.2		)	(17.7		)
Other	1.0			0.3
Net decrease	$	(3.7	)	$	(11.8	)

Difficult general economic conditions and weakening office demand led to higher vacancy rates in our office portfolio.  We expect NOI from our office and other properties segment to decline in 2004 due to the disposal of properties in 2004 and 2003, as well as what we believe is a continuing national trend of weakened demand for office space.

Community Development:

Community development operations relate to the communities of Summerlin, Nevada; Columbia, Emerson and Stone Lake in Howard County, Maryland; Fairwood in Prince George’s County, Maryland; and The Woodlands in Houston, Texas.  We have also acquired developable land in the Houston, Texas metropolitan area (which we call “Bridgelands”) and expect to begin significant development activities at the Bridgelands in 2004 and to begin selling this land in 2005.  We refer to the Maryland properties as our Columbia-based operations.

35

Part I.Financial Information

Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Revenues and operating income from land sales are affected by such factors as the availability to purchasers of construction and permanent mortgage financing at acceptable interest rates, consumer and business confidence, regional economic conditions in the Baltimore-Washington, Las Vegas and Houston metropolitan areas, levels of homebuilder inventory, availability of saleable land for particular uses and our decisions to sell, develop or retain land.  We believe that land sales in 2004 and 2003 benefited from strong housing demand, low interest rates, availability of mortgage financing and growing consumer confidence.  Should interest rates increase significantly or consumer confidence decline, land sales may be adversely affected.  Revenues for community development include land sales to developers and participations with builders in their sales of finished homes to homebuyers.

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

	Three months ended September 30,						Nine months ended September 30,
	2004			2003			2004			2003
Nevada-based Operations:
Revenues:
Summerlin	$	38.5		$	31.6		$	162.5		$	164.9
Other	0.1			0.2			36.3			0.7
Operating costs and expenses:
Summerlin	24.0			17.6			100.4			107.2
Other	0.3			1.4			30.2			2.4
NOI	$	14.3		$	12.8		$	68.2		$	56.0
Columbia-based Operations:
Revenues	$	15.1		$	31.1		$	60.1		$	56.2
Operating costs and expenses	5.8			10.6			24.8			19.6
NOI	$	9.3		$	20.5		$	35.3		$	36.6
Houston Operations:
Revenues	$	32.5		$	—		$	83.4		$	—
Operating costs and expenses	29.0			—			79.1			—
NOI	$	3.5		$	—		$	4.3		$	—
Total:
Revenues	$	86.2		$	62.9		$	342.3		$	221.8
Operating costs and expenses	59.1			29.6			234.5			129.2
NOI	$	27.1		$	33.3		$	107.8		$	92.6
Operating Margins (NOI divided by Revenues):
Summerlin	37.7		%	44.3		%	38.2		%	35.0		%
Columbia	61.6			65.9			58.7			65.1

Revenues from Summerlin operations increased $6.9 million and NOI increased $0.5 million for the three months ended September 30, 2004 compared to the same period in 2003. Revenues from Summerlin operations decreased $2.4 million and NOI increased $4.4 million for the nine months ended September 30, 2004 compared to the same period in 2003. The changes in revenues are attributable primarily to higher pricing and participation in homebuilders’ sales of finished homes partially in the three months ended September 30, 2004, and fully in the nine months ended September 30, 2004, offset by fewer acres sold. The increases in NOI are attributable primarily to higher participation in sales of finished homes and to higher margins on land sold for residential and commercial purposes. The decrease in operating margin for the three months ended September 30, 2004 was attributable primarily to sales of certain low basis parcels in the three months ended September 30, 2003. The increase in operating margin for the nine months ended September 30, 2004 was due primarily to the effects of higher pricing resulting from high demand and the limited availability of land for similar uses in the area.

Revenues from other Nevada-based operations decreased $0.1 million and NOI increased $1.0 million for the three months ended September 30, 2004 compared to the same period in 2003. Revenues from other Nevada-based operations increased $35.6 million and NOI increased $7.8 million for the nine months ended September 30, 2004 compared to the same period in 2003. These changes were attributable primarily to the sale of substantially all remaining investment land at Hughes Center in Las Vegas and in California.

36

Part I.Financial Information

Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Revenues from Columbia-based operations decreased $16.0 million and NOI decreased $11.2 million for the three months ended September 30, 2004 compared to the same period in 2003. Revenues from Columbia-based operations increased $3.9 million and NOI decreased $1.3 million for the nine months ended September 30, 2004 compared to the same period in 2003. The decreases in revenues and NOI for the three months ended September 30, 2004 were attributable to fewer residential land sales in our Howard County communities partially offset by land sales in Fairwood, in which we acquired our partners’ interests in January 2004. The decreases in operating margins were due primarily to a higher portion of Columbia-based land sales occurring in Fairwood. Margins in Fairwood are lower than those in other Columbia-based communities, primarily because we recently acquired our partners’ interests in the project.

Revenues and NOI from Houston operations relate to community development activities at The Woodlands, in which we acquired an interest on December 31, 2003. Most of the land sold in The Woodlands was completely developed at the date we acquired our interest in The Woodlands. As we allocated our purchase price to the assets of The Woodlands based on their fair values, we recognized little profit on this land. We expect margins to improve as land values appreciate and as additional land is developed and sold.

We expect the results of community development to remain strong in 2004, assuming continued favorable market conditions in the Las Vegas, Howard County and Prince George’s County regions.  We also expect to continue to benefit from our 2003 acquisition of an interest in The Woodlands and our 2004 acquisition of our partners’ interests in Fairwood.

Commercial Development:

Commercial development expenses consist primarily of new business and preconstruction expenses. New business expenses relate primarily to acquisition activities (evaluation of acquisition opportunities and transaction closings), feasibility studies of development opportunities and disposition activities. Preconstruction expenses relate to retail and office and other property development opportunities which may not go forward to completion. These amounts were $3.1 million and $8.2 million in the three and nine months ended September 30, 2004, respectively, and $2.7 million and $10.7 million in the three and nine months ended September 30, 2003, respectively.

Corporate:

Corporate operating expenses consist of costs associated with Company-wide activities which include shareholder relations, the Board of Directors, financial management, organizational changes, strategic planning and equity in operating results of miscellaneous corporate investments.

Corporate operating expenses were $14.5 million and $26.4 million in the three and nine months ended September 30, 2004 and $5.5 million and $23.0 million in the three and nine months ended September 30, 2003. The increase in the three months ended September 30, 2004 was primarily due to costs associated with our anticipated merger with GGP. Excluding merger-related costs, these expenses would have decreased for the three and nine months ended September 30, 2004 due primarily to lower provisions for organizational changes and early retirement costs. The provision for organizational changes and early retirement costs in 2003 related to costs incurred to reduce the size of our workforce and the retirement of a member of executive management in March 2003 and consisted primarily of termination benefits.

37

Part I.Financial Information

Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Other Operating Information

Continuing operations

Interest:

Interest expense increased $6.2 million and $14.8 million for the three and nine months ended September 30, 2004 compared to the same periods in 2003.  These increases were attributable primarily to interest costs on debt issued and assumed related to acquisitions in 2003 and 2004.

Depreciation and amortization:

Depreciation and amortization expense increased $3.9 million and $21.7 million in the three and nine months ended September 30, 2004, compared to the same periods in 2003.  These increases were attributable primarily to property acquisitions in 2004 and 2003 and the opening of the second phase of Fashion Show expansion in 2003.

Other provisions and losses, net:

The other provisions and losses, net are summarized as follows (in millions):

	Three months ended September 30,					Nine months ended September 30,
	2004			2003		2004		2003
Pension plan settlement losses	$		0.7	$	2.2	$	3.5	$	9.5
Pension plan curtailment loss	—			—		—		10.2
Net losses on early extinguishment of debt	—			0.7		3.3		6.4
Interest on the extraordinary dividend	22.2			—		22.2		—
Interest and penalties for other tax related matters	22.4			—		22.4		—
Other, net	—			—		—		(3.5		)
	$	45.3		$	2.9	$	51.4	$	22.6

In February 2003, our Board of Directors approved modifications to certain of our defined benefit pension plans so that covered employees would not earn additional benefits for future services.  The curtailment of the plans required us to immediately recognize substantially all unamortized prior service cost and unrecognized transition obligation and resulted in a curtailment loss of $10.2 million for the nine months ended September 30, 2003.  We also incurred settlement losses of $0.7 million and $3.5 million for the three and nine months ended September 30, 2004 and $2.2 million and $9.5 million for the three and nine months ended September 30, 2003, respectively, related to lump-sum distributions made primarily to employees retiring as a result of organizational changes and early retirement programs offered in 2003 and 2002 and a change in the senior management organizational structure in March 2003.

In February 2004, we adopted a proposal to terminate our qualified and supplemental plans.  When we complete the terminations, we will be required to settle the obligations of the qualified plan by paying accumulated benefits to eligible participants. In connection with the adoption of the proposal to terminate the plans, we transferred the assets of the qualified plan to cash and cash equivalents to mitigate market risk during the period prior to distributions to participants. At September 30, 2004, the funded plan had sufficient assets to settle its obligations without additional contributions by us.

38

Part I.Financial Information

Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations.

On August 27, 2004, we received a favorable determination letter from the IRS approving the termination of our qualified plan.  On October 4, 2004, we began distributing the plan’s assets to its beneficiaries and recording associated settlement losses.  We expect to make final distributions from the qualified plan and to record total settlement losses of approximately $26 million in the fourth quarter of 2004.  Concurrent with the first distributions from the qualified plan, we terminated our supplemental plan by merger into our nonqualified supplemental defined contribution plan and recognized a settlement loss of approximately $5.4 million.

The supplemental plan obligations were $17.3 million at September 30, 2004. On August 23, 2004, we funded an irrevocable trust for the participants in our supplemental plan and our nonqualified supplemental defined contribution plans with cash of approximately $27.2 million and the transfer of marketable securities valued at approximately $25.2 million.

During the nine months ended September 30, 2004, we recognized net losses of $3.3 million, primarily unamortized issuance costs, related to the extinguishment of debt not associated with discontinued operations prior to scheduled maturity and to the redemption of the Parent Company-obligated mandatorily redeemable securities. During the three and nine months ended September 30, 2003, we recognized net losses of $0.7 million and $6.4 million, primarily prepayment penalties related to the extinguishment of debt not associated with discontinued operations prior to scheduled maturity.

During the three months ended September 30, 2004, we accrued interest of approximately $22.2 million related to the extraordinary dividend discussed above and a penalty of approximately $21.4 million related to certain other tax matters. The other amount for the nine months ended September 30, 2003 consists primarily of a fee that we earned on the facilitation of a real estate transaction between two parties that are unrelated to us.

Net gains on dispositions of interests in operating properties:

Net gains on dispositions of interests in operating properties included in earnings from continuing operations are summarized as follows (in millions):

	Three months ended September 30,					Nine months ended September 30,
	2004			2003		2004		2003
Regional retail centers	$		—	$	—	$	—	$	21.6
Office and other properties	—			—		14.1		—
Other	0.2			0.3		—		0.5
Total	$	0.2		$	0.3	$	14.1	$	22.1

In 2000, we contributed our ownership interests in 37 buildings in two industrial parks to a joint venture in exchange 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 our continuing involvement in the venture, deferred gains of approximately $14.4 million. In June 2004, we redeemed our interest in the venture and terminated our guarantee of its indebtedness. Accordingly, we recognized the previously deferred gain, net of deferred income taxes of approximately $1.7 million.

In April 2004, we sold most of our interest in Westin New York, a hotel in New York City, for net proceeds of $15.8 million and recognized a gain of $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 the Philadelphia metropolitan area (see note 2), we acquired Christiana Mall from a party related to the purchaser and assumed a participating mortgage secured by Christiana Mall.  The participating mortgage had a fair value of $160.9 million.  The holder of this mortgage had the right to receive $120 million in cash and participation in cash flows and the right to convert this participation feature into a 50% equity interest in Christiana Mall.  The holder exercised this right in June 2003.  We recorded a portion of the cost of Christiana Mall based on the historical cost of the properties we exchanged to acquire this property because a portion of the transaction was considered nonmonetary under EITF Issue 01-2, “Interpretations of APB Opinion No. 29.”  As a consequence, when we subsequently disposed of the 50% interest in the property, we recognized a gain of $21.6 million.

39

Part I.Financial Information

Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Income taxes:

We and certain wholly owned subsidiaries have made a joint election to treat the subsidiaries as taxable REIT subsidiaries (“TRS”) for Federal and certain state income tax purposes, which election allows us to engage in certain non-qualifying REIT activities.  With respect to the TRS, we are liable for income taxes at the Federal and state levels.  Our current and deferred income tax provisions relate primarily to the earnings of the TRS.  The income tax provisions from continuing operations (excluding taxes related to gains on sales of operating properties) were $18.2 million and $57.3 million in the three and nine months ended September 30, 2004 and $1.6 million and $28.2 million in the three and nine months ended September 30, 2003, respectively, and related primarily to the earnings of TRS.

As discussed above, we conduct our community development activities in TRS.  Income tax expense will increase in future years as we continue our community development activities. Participation expense pursuant to the Contingent Stock Agreement is not deductible for Federal income tax purposes.  Accordingly, we also expect our income tax expense to increase as a percentage of community development NOI.

Equity in earnings of unconsolidated real estate ventures:

Equity in earnings of unconsolidated real estate ventures is summarized as follows (in millions):

	Three months ended September 30,						Nine months ended September 30,
	2004			2003			2004			2003
Net operating income	$	27.0		$	23.7		$	76.0		$	70.9
Ground rent expense	(0.5		)	(0.4		)	(1.5		)	(1.2		)
Interest expense	(10.1		)	(8.7		)	(29.7		)	(24.9		)
Depreciation and amortization	(9.9		)	(8.7		)	(29.7		)	(24.7		)
Equity in earnings of unconsolidated real estate ventures	$	6.5		$	5.9		$	15.1		$	20.1

For segment reporting purposes, our share of the NOI of unconsolidated real estate ventures is included in the operating results of retail centers, office and other properties, community development and commercial development as discussed above in this Management’s Discussion and Analysis.  The increase in NOI, interest expense and depreciation and amortization was attributable primarily to acquisitions in 2003 and 2004. Beginning in the second quarter of 2003, we owned a 50% interest in Christiana Mall. In December 2003 and January 2004, we acquired 50% interests in the retail and certain office components of Mizner Park. The increases were offset by the December 2003 disposition of our investment in Kravco Investments, L.P. and the April 2004 disposition of most of our interest in Westin New York. Also, in August 2003, we acquired the remaining interest in Staten Island Mall, in which we previously had a noncontrolling interest and accounted for as an unconsolidated real estate venture.

Discontinued operations

The operating results of discontinued operations are summarized as follows (in millions):

	Three months ended September 30,						Nine months ended September 30,
	2004			2003			2004			2003
Revenues	$	0.4		$	11.7		$	4.0		$	76.9
Operating expenses, exclusive of depreciation and amortization	(0.1		)	(5.4		)	(1.6		)	(36.6		)
Interest expense	—			(2.9		)	(0.8		)	(18.1		)
Depreciation and amortization	—			(2.6		)	(1.0		)	(14.6		)
Other provisions and losses, net	—			—			—			26.9
Impairment losses on operating properties	(0.2		)	(6.5		)	(0.4		)	(6.5		)
Gains on dispositions of interests in operating properties, net	0.5			3.9			45.2			73.7
Income tax benefit (provision), primarily deferred	—			—			0.1			(0.2		)
Discontinued operations	$	0.6		$	(1.8	)	$	45.5		$	101.5

40

Part I.Financial Information

Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations.

We may sell interests in retail centers that are not consistent with our long-term business strategies or not meeting our investment criteria and office and other properties that are not located in our master-planned communities or not part of urban mixed-use properties.  We may also dispose of properties for other reasons.  Discontinued operations include the operating results of properties sold during 2004 and 2003 in which we do not have significant continuing involvement.  For segment reporting purposes, our share of the NOI of the properties in discontinued operations is included in the operating results of retail centers, office and other properties or commercial development as discussed above in this Management’s Discussion and Analysis.

In May 2004, we agreed to sell our interests in two office buildings in Hunt Valley, Maryland. We recorded aggregate impairment losses of $1.4 million in the fourth quarter of 2003 and $0.4 million in the second and third quarters of 2004 related to these properties. These properties are classified as held for sale at September 30, 2004 and were sold in October 2004.

In May 2004, we sold our interest in one office building in Hughes Center, a master-planned business park in Las Vegas, Nevada, as part of the 2003 agreements under which we acquired interests in entities developing The Woodlands, a master-planned community in the Houston, Texas metropolitan area, for cash of $7.0 million and the assumption by the buyer of $3.5 million of mortgage debt. We recorded a gain on this sale of $5.5 million. In January and February 2004, we sold interests in five office buildings and seven parcels subject to ground leases in Hughes Center as part of the same 2003 agreements, for cash of $64.3 million and the assumption by the buyer of $107.3 million of mortgage debt. We recorded aggregate gains on these sales in the first quarter of 2004 of approximately $35.3 million (net of deferred income taxes of $2.7 million). In December 2003, in related transactions, we sold interests in two office buildings and two parcels subject to ground leases in Hughes Center.

We also recorded, in the second and third quarters of 2004, net gains of $3.3 million (net of deferred income taxes of $0.4 million) related to the resolutions of certain contingencies related to disposals of properties in 2002, 2003 and 2004.

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

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

In May and June 2003, we sold eight office and industrial buildings in the Baltimore-Washington corridor for net proceeds of $46.6 million and recorded aggregate gains of $4.4 million.

In April and May 2003, we sold six retail centers 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, we received net cash proceeds of $218.4 million, the purchaser assumed $276.6 million of property debt, and we assumed a participating mortgage secured by Christiana Mall.  We recognized aggregate gains 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 2002 related to one of the retail centers sold.

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

Net earnings (loss):

Net earnings (loss) were $(24.2) million and $104.2 million for the three and nine months ended September 30, 2004 and $40.5 million and $202.7 million for the three and nine months ended September 30, 2003. The changes in net earnings (loss) for the three and nine months ended September 30, 2004 as compared to the same periods in 2003 were attributable to the factors discussed above, primarily the change in gains on dispositions of interests in operating properties included in discontinued operations, merger related costs and costs associated with resolving certain tax related matters.

41

Part I.Financial Information

Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Funds From Operations:

We use Funds From Operations (“FFO”) as a supplement to our reported net earnings.  Historical cost accounting for real estate assets implicitly assumes that the value of real estate assets diminishes over time as reflected through depreciation and amortization expenses.  We believe that the value of real estate assets does not diminish predictably over time, as historical cost accounting implies, and instead fluctuates due to market and other conditions.  Accordingly, we believe FFO provides investors with useful information about our operating performance because it excludes real estate depreciation and amortization expense.  We use the definition of FFO adopted by the National Association of Real Estate Investment Trusts.  Accordingly, FFO is defined as net earnings (computed in accordance with accounting principles generally accepted in the United States of America (“GAAP”)), excluding gains (losses) on dispositions of interests in depreciated operating properties and real estate depreciation and amortization expense.  Also, beginning July 1, 2003, we include impairment losses on operating properties in FFO. FFO for all periods presented conforms to this definition.  Our calculation of FFO may not be comparable to similarly titled measures reported by other companies because all companies do not calculate FFO in the same manner.  FFO is not a liquidity measure and should not be considered as an alternative to cash flows or indicative of cash available for distribution.  It also should not be considered an alternative to net earnings (loss), as determined in accordance with GAAP, as an indication of our financial performance.

Net earnings (loss) is reconciled to FFO as follows (in millions):

	Three months ended September 30,						Nine months ended September 30,
	2004			2003			2004			2003
Net earnings (loss)	$	(24.2	)	$	40.5		$	104.2		$	202.7
Depreciation and amortization	57.1			54.5			174.1			161.1
Net gains on dispositions of interests in operating properties	(0.6		)	(4.2		)	(59.2		)	(95.8		)
Funds From Operations	$	32.3		$	90.8		$	219.1		$	268.0

Depreciation and amortization and net gains on dispositions of interests in operating properties include our share of the depreciation and amortization and net gains on dispositions of interests in operating properties of unconsolidated real estate ventures and of those properties classified as discontinued operations.

The decrease in FFO for the three and nine months ended September 30, 2004 compared to the same periods in 2003 was attributable to factors discussed above in this Management’s Discussion and Analysis.

Financial condition, liquidity and capital resources:

Our primary cash requirements are for operating expenses, land development and acquisition expenditures, debt service, development of new properties, expansions and improvements to existing properties, acquisitions and dividends.  We believe that our liquidity and capital resources are adequate for our near-term and longer-term requirements.  We had cash and cash equivalents and unrestricted investments in marketable securities totaling $33.1 million and $139.5 million at September 30, 2004 and December 31, 2003, respectively.

We have historically relied primarily on fixed-rate, nonrecourse loans from private institutional lenders to finance most of our operating properties. We have also made use of the public equity and debt markets to meet our capital needs, principally to repay or refinance corporate debt and to provide funds for project development and acquisition costs and other corporate purposes. We have recently issued unsecured corporate debt to repay debt secured by our operating properties as part of our strategy to increase the number of our operating properties unencumbered by mortgage debt.

42

Part I.Financial Information

Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations.

We have a credit facility with a group of lenders that provides for borrowings of up to $900 million.  The facility is available until July 2006, subject to a one-year renewal option.  The facility bears interest at LIBOR plus a margin.  The margin is determined based on the ratings assigned to our senior unsecured long-term debt securities by Moody’s Investors Service, Inc. (“Moody’s”) and Standard & Poor’s Ratings Services (“S&P”) and may range from 0.6% to 1.25%.  At September 30, 2004 our senior unsecured credit rating was Baa3 with Moody’s and BBB- with S&P, which resulted in a margin of .90% on our credit facility. In October 2004, the rating agencies placed our unsecured debt under review with negative implications as a result of the proposed merger with General Growth Properties. The margin of .90% on our credit facility has not changed since September 30, 2004. The credit facility may be used for various purposes, including land and project development costs, property acquisitions, liquidity and other corporate needs.  Availability under the facility was $640.5 million at September 30, 2004.

We had a shelf registration statement for the sale of up to an aggregate of approximately $2.25 billion (based on the public offering price) of common stock, preferred stock and debt securities. In February 2004, we issued $223 million of common stock under the shelf registration statement. With the issuance of the $500 million of notes in March 2004, the availability under our shelf registration was exhausted.

Our debt at September 30, 2004 is summarized as follows (in millions):

	September 30, 2004
	Total			Due in one year
Mortgages and bonds	$		2,708.0	$	595.0
Medium-term loans	45.5			43.5
Credit facility borrowings	259.5			—
3.625% Notes due March 2009	389.8			—
8% Notes due April 2009	200.0			—
7.2% Notes due September 2012	399.6			—
5.375% Notes due November 2013	453.8			—
Other loans	179.9			72.3
Total	$	4,636.1		$		710.8

As of September 30, 2004, our debt due in one year includes balloon payments of $628 million that are expected to be paid at or before the scheduled maturity dates of the related loans from proceeds of property refinancings (including refinancings of the maturing mortgages) and other available corporate funds.  We may obtain extensions of maturities on certain loans.  We may use distributions of financing proceeds from unconsolidated real estate ventures to provide liquidity.  We may also sell interests in operating properties or contribute operating properties or development projects to joint ventures in exchange for cash distributions from and ownership interests in the joint ventures.

We expect to spend more than $45 million for new developments, expansions and improvements to existing consolidated properties in the remainder of 2004.  A substantial portion of these expenditures relates to new retail properties and retail center redevelopment/expansions, and it is expected that most of these costs will be financed by debt, including borrowings under existing property-specific construction loans.  In addition, we are an investor in several unconsolidated joint ventures that are developing certain projects, with the other venturers funding a portion of development costs.  We expect to invest approximately $3 million in these joint ventures in the remainder of 2004. On November 10, 2004, we acquired Oxmoor Center, a regional retail center in Louisville, Kentucky, assuming mortgage debt with a face value of $60 million and paying $58 million in cash to the seller using borrowings under our credit facility.

As discussed above, we will be required to pay a special dividend to continue to qualify as a REIT. This dividend will be approximately $238 million. We expect to use borrowings on our revolving credit facility to fund the special dividend. On November 9, 2004, we paid a penalty to the IRS of approximately $21.4 million related to other tax matters. On November 10, 2004 we paid interest to the IRS of approximately $23.1 million related to the special dividend.  We used borrowings under our credit facility to fund these payments.

43

Part I.Financial Information

Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Net cash provided by operating activities was $238.2 million for the nine months ended September 30, 2004 and $304.7 million for the nine months ended September 30, 2003.  The level of cash flows provided by operating activities is affected by the timing of receipts of rents, proceeds from land sales and other revenues and payment of operating and interest expenses and community development costs.  The level of cash provided by operating distributions from unconsolidated real estate ventures is affected by the timing of receipt of their revenues (including land sales revenues), payment of operating and interest expenses and other sources and uses of cash. The decrease in net cash provided of $66.5 million was attributable primarily to higher land development and acquisition expenditures related primarily to the acquisition of Fairwood and expenditures to fund an irrevocable trust for participants in our non-qualified defined benefit pension plan and our non-qualified supplemental defined contribution plan ($27.2 million).

Net cash used by investing activities was $312.8 million for the nine months ended September 30, 2004 and $108.0 million for the nine months ended September 30, 2003.

Net cash used by investing activities in 2004 was primarily:

•Expenditures for acquisitions of interests in properties ($292.9 million, primarily Providence Place and Mizner Park); and

•Expenditures for properties in development ($79.8 million, primarily Fashion Show and La Cantera).

These expenditures were partially offset by:

•Proceeds from dispositions of interests in properties ($87.8 million, primarily Hughes Center and Westin New York) and

•Distribution of financing proceeds from the unconsolidated venture that owns Mizner Park ($30.0 million).

Net cash used by investing activities in 2003 was primarily:

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

•Expenditures for properties in development ($128.6 million, primarily Fashion Show); and

•Expenditures for investments in unconsolidated ventures ($42.7 million, primarily the Village of Merrick Park).

These expenditures were partially offset by proceeds from the sale of six retail centers in the Philadelphia metropolitan area ($218.3 million, net of the acquisition of Christiana Mall), the Jacksonville Landing ($4.8 million) and eight office and industrial buildings in the Baltimore-Washington corridor ($46.6 million).

Cash used by investing activities also includes improvements to existing properties. Improvements to existing properties consist primarily of costs of renovation and remerchandising programs and other tenant improvement costs.

Net cash used by financing activities was $9.5 million for the nine months ended September 30, 2004 and $177.6 million for the nine months ended September 30, 2003.

Net cash provided by financing activities in 2004 was primarily:

•Net proceeds from the issuance of 4.6 million shares of common stock ($222 million) in February 2004, which were used primarily to fund our acquisition of Providence Place;

•Proceeds from the issuance of the 3.625% Notes and the 5.375% Notes in March 2004 ($503 million), which were used primarily to repay the credit facility borrowings that were used to repay property debt and fund our acquisition of Providence Place; and

•Proceeds from the exercise of stock options ($30.9 million).

44

Part I.Financial Information

Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations.

These proceeds were partially offset by:

•Repayments of property debt, primarily debt secured by Fashion Show ($240.3 million), Woodbridge ($121.5 million), Faneuil Hall ($55.0 million) and West Kendall ($22.8 million);

•Repayments of Parent Company-obligated mandatorily redeemable preferred securities ($79.8 million);

•Purchases of common stock ($31.1 million); and

•Payment of dividends on common stock ($145.2 million).

Net cash used by financing activities in 2003 was primarily:

•Repayment of property debt, primarily debt secured by Christiana Mall ($120 million) and North Star ($155 million), and other property debt ($152 million);

•Repayment of Parent Company-obligated mandatorily redeemable preferred securities( $32.1 million);

•Payment of dividends on common stock and preferred stock ($120.4 million);

•Net repayments under our credit facility ($121.7 million); and

•Purchases of common stock ($71.1 million).

These uses of cash were partially offset by proceeds from the issuance of property debt ($215.6 million, primarily debt secured by Christiana Mall, $120 million, and projects in development, $77 million) and proceeds from the exercise of stock options ($61.9 million).

Off-balance sheet arrangements and unconsolidated ventures:

We own interests in unconsolidated real estate ventures that own and/or develop properties, including master-planned communities.  We use these ventures to limit our risk associated with individual properties and to reduce our capital requirements.  We may also contribute our interests in properties to unconsolidated ventures for cash distributions and interests in the ventures to provide liquidity as an alternative to outright property sales.  These ventures own properties managed by us for a fee and are controlled jointly by our venture partners and us.  At September 30, 2004, these ventures also include the joint venture that is developing the planned community of The Woodlands.  These ventures are accounted for using the equity or cost method, as appropriate.

At September 30, 2004, we had other commitments and contingencies related to unconsolidated ventures.  These commitments and contingencies are summarized as follows (in millions):

Guarantee of debt:
Village of Merrick Park	$	100.0
Construction contracts for properties in development	9.4
Construction contracts for land development	26.2
Long-term ground lease obligations	120.3
	$	255.9

We have guaranteed up to $100 million for the repayment of a mortgage loan of the unconsolidated real estate venture that owns the Village of Merrick Park.  The amount of the guarantee may be reduced or eliminated upon the achievement of certain lender requirements.  The fair value of the guarantee is not material. Additionally, venture partners have provided guarantees to us for their share (60%) of the loan guarantee.

We determined that several of our consolidated partnerships are limited-life entities.  We estimate the fair values of minority interests in these partnerships at September 30, 2004 aggregated approximately $63.8 million.  The aggregate carrying values of the minority interests were approximately $29.8 million at September 30, 2004.

45

Part I.Financial Information

Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Internal Control Related Matters:

We, in consultation with our internal and independent auditors, identified, during the course of internal control audits and due diligence procedures related to the planned merger with GGP, significant internal control deficiencies related to our REIT compliance process and information technology general controls over program change management and access security.

We are actively working to remediate the internal control deficiencies identified and such efforts include:

•Enhancing cross-functional communication processes related to all tax matters, developing formal training programs related to REIT/TRS activities, enhancing documentation regarding REIT compliance tests and related conclusions and establishing a more rigorous process related to creating and monitoring activities of subsidiaries; and

•Formalizing and documenting policies and procedures related to information technology access, developing, implementing and maintaining a well documented management process, and enhancing monitoring controls.

While we have taken or are in the process of taking the aforementioned steps to address the indicated deficiencies, which are designed to enhance existing internal controls and procedures for financial reporting, the efficacy of the steps we have taken to date and the steps we are still in the process of completing are subject to continued review and will need to be supported by confirmation and testing from both our internal and independent auditors. As a result, additional changes may be made to our internal controls and procedures.

We, our internal audit department and our independent registered public accounting firm consider these deficiencies to be significant deficiencies as defined by standards established by the Public Company Accounting Oversight Board (United States) and have reported such deficiencies to the audit committee of the board of directors.  Notwithstanding the presence of the internal control deficiencies noted above, we believe that we have compensating controls in place and have performed additional procedures where necessary to reduce, to a relatively low level, the risk of material misstatement in our financial statements included in this Form 10-Q for the quarterly period ended September 30, 2004.

Compensating controls include rigorous analytical review procedures, end user reconciliations and other controls that we believe are effective in detecting errors that could result from the deficiencies in information technology general controls. With respect to our REIT compliance process, we have enhanced our disclosure controls and performed analyses of all of our subsidiaries and their related activities to identify potential REIT compliance issues.

In addition, during and subsequent to the end of the quarter, there have been significant resignations in the accounting staff of the Company, particularly in the financial reporting area that are related to the expected merger with GGP.  While we do not believe these resignations resulted in a significant deficiency in internal controls and procedures related to financial reporting during the quarter that could have resulted in a material misstatement in the consolidated financial statements, we believe they could impact future periods.  We have determined that the loss of these personnel could result in certain conditions which, when considered collectively, could constitute a material weakness in our internal controls. Such conditions include:

•the lack of proper segregation of duties;

•insufficient resources to perform an appropriate review and analysis of detailed accounting records;

•the absence of appropriate levels of accounting resources to adequately review and supervise the preparation of accounting records; and

•insufficient resources with financial accounting and reporting expertise to accurately and efficiently prepare and review the consolidated financial statements.

46

Part I.Financial Information

Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Critical accounting policies:

Critical accounting policies are those that are both important to the presentation of our financial condition and results of operations and require management’s most difficult, complex or subjective judgments.  Our critical accounting policies are those applicable to the evaluation of impairment of long-lived assets, the evaluation of the collectibility of accounts and notes receivable, profit recognition on land sales and allocation of the purchase price of acquired properties.

Impairment of long-lived assets:  If events or changes in circumstances indicate that the carrying values of operating properties, properties in development or land held for development and sale may be impaired, a recovery analysis is performed based on the estimated undiscounted future cash flows to be generated from the property.  If the analysis indicates that the carrying value of the tested property is not recoverable from estimated future cash flows, the property is written down to estimated fair value and an impairment loss is recognized.  Fair values are determined based on estimated future cash flows using appropriate discount and capitalization rates.  The estimated cash flows used for the impairment analyses and to determine estimated fair values are based on our plans for the tested asset and our views of market and economic conditions.  The estimates consider matters such as current and historical rental rates, occupancies for the tested property and comparable properties and recent sales data for comparable properties.  Changes in estimated future cash flows due to changes in our plans or views of market and economic conditions could result in recognition of impairment losses which, under the applicable accounting guidance, could be substantial.

Properties held for sale, including land held for sale, are carried at the lower of their carrying values (i.e., cost less accumulated depreciation and any impairment loss recognized, where applicable) or estimated fair values less costs to sell.  Accordingly, decisions by us to sell certain operating properties, properties in development or land held for development and sale will result in impairment losses if carrying values of the specific properties exceed their estimated fair values less costs to sell.  The estimates of fair value consider matters such as recent sales data for comparable properties and, where applicable, contracts or the results of negotiations with prospective purchasers.  These estimates are subject to revision as market conditions and our assessment of them change.

Collectibility of accounts and notes receivable:  The allowance for doubtful accounts and notes receivable is established based on quarterly analysis of the risk of loss on specific accounts.  The analysis places particular emphasis on past-due accounts and considers information such as the nature and age of the receivables, the payment history of the tenants or other debtors, the financial condition of the tenants and management’s assessment of their ability to meet their lease obligations, the basis for any disputes and the status of related negotiations, among other things.  Our estimate of the required allowance is subject to revision as these factors change and is sensitive to the effects of economic and market conditions on tenants.

Profit recognition on land sales:  Cost of land sales is determined as a specified percentage of land sales revenues recognized for each community development project. The cost ratios used are based on actual costs incurred and estimates of development costs and sales revenues to completion of each project.  The ratios are reviewed regularly and revised for changes in sales and cost estimates or development plans.  Significant changes in these estimates or development plans, whether due to changes in market conditions or other factors, could result in changes to the cost ratio used for a specific project.  The specific identification method is used to determine cost of sales for certain parcels of land, including acquired parcels we do not intend to develop or for which development is complete at the date of acquisition.

Allocation of the purchase price of acquired properties:  We allocate the purchase price of acquired properties to tangible and identified intangible assets based on their fair values.  In making estimates of fair values for purposes of allocating purchase price, we use a number of sources, including independent appraisals that may be obtained in connection with the acquisition or financing of the respective property and other market data.  We also consider information obtained about each property as a result of our pre-acquisition due diligence, marketing and leasing activities in estimating the fair value of the tangible and intangible assets acquired.

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

Our intangible assets arise primarily from contractual rights and include leases with above- or below-market rents (including ground leases where we are lessee), in-place lease and customer relationship values and a real estate tax stabilization agreement.

47

Part I.Financial Information

Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Above-market and below-market in-place lease values are recorded based on the present value (using an interest rate which reflects the risks associated with the leases acquired) of the difference between (i) the contractual amounts to be received or paid pursuant to the in-place leases and (ii) our estimate of fair market lease rates for the corresponding space, measured over a period equal to the remaining non-cancelable term of the lease (including those under bargain renewal options).  The capitalized above- and below-market lease values are amortized as adjustments to rental income or rental expense over the remaining terms of the respective leases (including periods under bargain renewal options).

The aggregate fair values of in-place leases and customer relationship assets acquired are measured based on the difference between (i) the property valued with existing in-place leases adjusted to market rental rates and (ii) the property valued as if vacant.  This value is allocated to in-place lease and customer relationship assets (both anchor stores and tenants).  The fair value of in-place leases is based on our estimates of carrying costs during the expected lease-up periods and costs to execute similar leases.  Our estimate of carrying costs includes real estate taxes, insurance and other operating expenses and lost rentals during the expected lease-up periods considering current market conditions.  Our estimate of costs to execute similar leases includes leasing commissions, legal and other related costs. The fair value of anchor store agreements is determined based on our experience negotiating similar relationships (not in connection with property acquisitions). The fair value of tenant relationships is based on our evaluation of the specific characteristics of each tenant’s lease and our overall relationship with that respective tenant.  Characteristics we consider in determining these values include the nature and extent of our existing business relationships with the tenant, growth prospects for developing new business with the tenant, the tenant’s credit quality and expectations of lease renewals, among other factors.  The value of in-place leases is amortized to expense over the initial term of the respective leases, primarily ranging from two to ten years.  The value of anchor store agreements is amortized to expense over the estimated term of the anchor store’s occupancy in the property.  Should an anchor store vacate the premises, the unamortized portion of the related intangible is charged to expense.  The value of tenant relationship intangibles is amortized to expense over the initial term and any renewal periods in the respective leases, but in no event does the amortization period exceed the remaining depreciable life of the building.  Should a tenant terminate its lease, the unamortized portion of the in-place lease value and customer relationship intangibles is charged to expense. The value allocated to the tax stabilization agreement was determined based on the difference between the present value of estimated market real estate taxes and amounts due under the agreement and is amortized to operating expense over the term of the agreement, which is approximately 24 years.

Impact of inflation:

The major portion of our operating properties, our retail centers, is substantially protected from declines in the purchasing power of the dollar.  Retail leases generally provide for minimum rents plus percentage rents based on sales over a minimum base.  In many cases, increases in tenant sales (whether due to increased unit sales or increased prices from demand or general 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 certain operating expenses; consequently, increases in these costs do not have a significant impact on our operating results.  We have a significant amount of fixed-rate debt which, in a period of inflation, will result in a holding gain since debt will be paid off with dollars having less purchasing power.

48

Part I.Financial Information

Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Information relating to forward-looking statements:

This report on Form 10-Q includes forward-looking statements which reflect our current views with respect to future events and financial performance.  Such forward-looking statements include, among others, statements regarding our strategy, statements regarding expectations as to operating results from our retail centers, our office and other properties and our community development activities, expectations as to our ability to lease vacating and expiring space, expectations as to the completion of pending sale transactions, expectations as to operating results from acquisitions, expectations regarding income taxes in future years and our beliefs as to our liquidity and capital resources and as to our expenditures for new developments, expansions and improvements.

Forward-looking statements are subject to certain risks and uncertainties, including those identified below which could cause actual results to differ materially from historical results or those anticipated.  The words “will,” “plan,” “believe,” “expect,” “anticipate,” “target,” “intend” and similar expressions identify forward-looking statements.  Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of their dates.  We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.  The following are among the factors that could cause actual results to differ materially from historical results or those anticipated: (1) changes in the economic climate; (2) our dependence on rental income from real property; (3) uncertainty from terrorist attacks and volatility in the financial markets; (4) our lack of geographical diversification; (5) possible environmental liabilities; (6) special local economic and environmental risks in Nevada; (7) real estate development and investment risks; (8) the effect of uninsured loss; (9) the cost and adequacy of insurance; (10) the illiquidity of real estate investments; (11) competition; and (12) risks associated with the acquisition of assets from Rodamco North America N.V.  Further, domestic or international incidents could affect general economic conditions and our business.  For a more detailed discussion of these and other factors, see attached Exhibit 99.1.

49

Part I.Financial Information

Item 3.Quantitative and Qualitative Disclosures about Market Risk.

Market Risk Information:

The market risk associated with financial instruments and derivative financial and commodity instruments is the risk of changes in market prices or rates.  Our market risk arises primarily from interest rate risk relating to debt obligations. We manage our exposure to this risk by maintaining our ratio of variable-rate debt to total debt at levels specified by management and based on market conditions. We use interest rate exchange agreements, including cash flow hedges and fair value hedges, to manage this risk.  We do not enter into interest rate exchange agreements for speculative purposes.

Our interest rate risk is monitored closely by management.  The table below presents the annual maturities, weighted-average interest rates on outstanding debt at the end of each year (based on a LIBOR rate of 1.8%) and fair values required to evaluate expected cash flows under debt agreements at September 30, 2004.  Information relating to debt maturities is based on expected maturity dates and is summarized as follows (in millions):

	Remaining 2004			2005			2006			2007			2008			Thereafter			Total			Fair Value
Fixed-rate debt	$	110		$	180		$	297		$	239		$	499		$	2,291		$	3,616		$	3,804
Average interest rate	6.6		%	6.5		%	6.4		%	6.3		%	6.2		%	6.2		%	6.2		%
Variable-rate LIBOR debt	$	3.0		$	460		$	290		$	260		$	2.0		$	5.0		$	1,020		$	1,020
Average interest rate	2.8		%	2.9		%	2.9		%	4.1		%	4.2		%	4.2		%	3.2		%

At September 30, 2004, approximately $152 million of our variable-rate LIBOR debt related to borrowings under construction loans that we expect to repay with proceeds of long-term, fixed-rate debt in 2005 and 2006 when we expect to complete construction of the related projects and/or the loans reach maturity.

We had interest rate swap agreements and forward-starting swap agreements in place at September 30, 2004 that effectively fix the LIBOR rate on a portion of our variable-rate debt through 2006. The weighted-average notional amounts of these agreements and their terms are summarized as follows (in millions):

	Remaining 2004			2005			2006
Weighted-average notional amount	$	472.6		$	102.7		$	10.4
Weighted-average fixed effective rate (pay rate)	2.2		%	1.9		%	4.7		%
Weighted-average variable interest rate of related debt (receive rate) based on LIBOR at September 30, 2004	1.8		%	1.8		%	1.8		%

The fair values of the assets and liabilities related to these agreements were $1.3 million and $1.2 million, respectively, at September 30, 2004.

We also had interest rate swap agreements at September 30, 2004 that effectively converted $400 million of debt with a fixed rate of 3.625% to variable-rate debt through March 2009. The agreements have a weighted-average pay rate of six-month LIBOR (set in arrears) plus a spread of 19.375 basis points. The pay rate based on the projected six-month LIBOR rate at September 30, 2004 was 2.71%. The fair values of these instruments are recorded as liabilities of $9.1 million at September 30, 2004.

As the table incorporates only those exposures that exist as of September, 2004, it does not consider exposures or positions which could arise or have arisen after that date.  As a result, our ultimate realized gain or loss with respect to interest rate fluctuations will depend on the exposures that arise after September 30, 2004, our hedging strategies during that period and interest rates.

We had investments in fixed income and marketable equity securities of $49.9 million at September 30, 2004.  Our market risk related to these securities is limited to changes in their fair values and such changes are not likely to have a material effect on our consolidated financial position. Most of our investments in marketable securities closely match our liabilities related to certain deferred compensation plans.  As a result, changes in the market values of these investments do not have a significant effect on our earnings. Marketable securities classified as available for sale are not material.

Based on our outstanding variable-rate LIBOR debt and interest rate swaps in effect at September 30, 2004, a hypothetical LIBOR increase of 1% would cause annual interest expense to increase $9.5 million.

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Part I.Financial Information

Item 4.Controls and Procedures.

Controls and Procedures:

Evaluation of Disclosure Controls and Procedures: As of September 30, 2004, we carried out an evaluation, under the supervision and with the participation of management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a – 15(e) under the Securities Exchange Act of 1934).  Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures are effective.

During our evaluation, we did not identify any changes in our internal control structure over financial reporting that occurred during the quarter ended September 30, 2004 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. However, we, in consultation with our internal and independent auditors, identified, during the course of internal control audits and due diligence procedures related to the planned merger with GGP, significant internal control deficiencies related to our REIT compliance process and information technology general controls over program change management and access security.

We are actively working to remediate the internal control deficiencies identified and such efforts include:

•Enhancing cross-functional communication processes related to all tax matters, developing formal training programs related to REIT/TRS activities, enhancing documentation regarding REIT compliance tests and related conclusions and establishing a more rigorous process related to creating and monitoring activities of subsidiaries; and

•Formalizing and documenting policies and procedures related to information technology access, developing, implementing and maintaining a well documented management process, and enhancing monitoring controls.

While we have taken or are in the process of taking the aforementioned steps to address the indicated deficiencies, which are designed to enhance existing internal controls and procedures for financial reporting, the efficacy of the steps we have taken to date and the steps we are still in the process of completing are subject to continued review and will need to be supported by confirmation and testing from both our internal and independent auditors. As a result, additional changes may be made to our internal controls and procedures.

We, our internal audit department and our independent registered public accounting firm consider these deficiencies to be significant deficiencies as defined by the standards established by the Public Company Accounting Oversight Board (United States) and have reported such deficiencies to the audit committee of the board of directors. Notwithstanding the presence of the internal control deficiencies noted above, we believe that we have compensating controls in place and have performed additional procedures where necessary to reduce, to a relatively low level, the risk of material misstatement in our financial statements included in this Form 10-Q for the quarterly period ended September 30, 2004.

Compensating controls include rigorous analytical review procedures, end user reconciliations and other controls that we believe are effective in detecting errors that could result from the deficiencies in information technology general controls. With respect to our REIT compliance process, we have enhanced our disclosure controls and performed analyses of all of our subsidiaries and their related activities to identify potential REIT compliance issues.

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Part I.Financial Information

Item 4.Controls and Procedures.

In addition, during and subsequent to the end of the quarter, there have been significant resignations in the accounting staff of the Company, particularly in the financial reporting area that are related to the expected merger with GGP. While we do not believe these resignations resulted in a significant deficiency in internal controls and procedures related to financial reporting during the quarter that could have resulted in a material misstatement in the consolidated financial statements, we believe they could impact future periods.  We have determined that the loss of these personnel could result in certain conditions which, when considered collectively, could constitute a material weakness in our internal controls. Such conditions include:

•the lack of proper segregation of duties;

•insufficient resources to perform an appropriate review and analysis of detailed accounting records;

•the absence of appropriate levels of accounting resources to adequately review and supervise the preparation of accounting records; and

•insufficient resources with financial accounting and reporting expertise to accurately and efficiently prepare and review the consolidated financial statements.

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Part II.Other Information

Item 1.Legal Proceedings.

None

Item 2.Unregistered Sales of Equity Securities and Use of Proceeds

ISSUER PURCHASES OF EQUITY SECURITIES

Period	Total Number of Shares Purchased (1)	Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Maximum Number (or Approximate Dollar Value) of Shares that May Yet Be Purchased Under the Plans or Programs (2)
July 1–July 31, 2004	6,621	$	47.82	—	—
August 1–August 31, 2004	1,407	49.04		—	—
September 1–September 30, 2004	22,607	66.82		—	—
Total	30,635	$	61.90	—	—

(1)Shares repurchased in July, August and September 2004 were surrendered by grantees in connection with their exercise of stock options.

(2)In 1999, our Board of Directors authorized the repurchase of common shares for up to $250 million, subject to certain pricing restrictions. No shares were repurchased under this program in the quarterly period ended September 30, 2004.

Item 3.Defaults Upon Senior Securities.

None

Item 4.Submission of Matters to a Vote of Security Holders.

None

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Item 5.Other Information.

None

Item 6.Exhibits.

(a)Exhibits

Exhibit 10.1–Executive Agreement, dated July 14, 2004, between The Rouse Company and Duke S. Kassolis.

Exhibit 10.2–Executive Agreement, dated July 14, 2004, between The Rouse Company and Robert Minutoli.

Exhibit 10.3–Letter Agreement, dated August 9, 2004, between The Rouse Company and Anthony W. Deering.

Exhibit 10.4–Executive Agreement, dated August 19, 2004, between The Rouse Company and Thomas J. DeRosa.

Exhibit 10.5–Executive Agreement, dated August 19, 2004, between The Rouse Company and Alton J. Scavo.

Exhibit 10.6–Letter Agreement, dated August 19, 2004, between The Rouse Company and Anthony W. Deering.

Exhibit 31.1–Certification Pursuant to Rule 13a–14(a) by Anthony W. Deering, Chairman of the Board, President and Chief Executive Officer

Exhibit 31.2–Certification Pursuant to Rule 13a–14(a) by Thomas J. DeRosa, Vice Chairman and Chief Financial Officer

Exhibit 32.1–Certification Pursuant to 18 U.S.C. Section 1350–Chief Executive Officer

Exhibit 32.2–Certification Pursuant to 18 U.S.C. Section 1350–Chief Financial Officer

Exhibit 99.1–Factors Affecting Future Operating Results

The Registrant agrees to furnish to the Securities and Exchange Commission upon request a copy of any instrument with respect to long-term debt not filed herewith as to which the total amount of securities authorized thereunder does not exceed 10 percent of the total assets of the Registrant and its subsidiaries on a consolidated basis.

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Signatures

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

		on behalf of THE ROUSE COMPANY and as
		Principal Financial Officer:
Date: November 12, 2004	By	/s/ Thomas J. DeRosa
		Thomas J. DeRosa Vice Chairman and Chief Financial Officer
		Principal Accounting Officer:
Date: November 12, 2004	By	/s/ Melanie M. Lundquist
		Melanie M. Lundquist
		Senior Vice President and Corporate Controller

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Exhibit Index

Exhibit No.
10.1	Executive Agreement, dated July 14, 2004, between The Rouse Company and Duke S. Kassolis.
10.2	Executive Agreement, dated July 14, 2004, between The Rouse Company and Robert Minutoli.
10.3	Letter Agreement, dated August 9, 2004, between The Rouse Company and Anthony W. Deering.
10.4	Executive Agreement, dated August 19, 2004, between The Rouse Company and Thomas J. DeRosa.
10.5	Executive Agreement, dated August 19, 2004, between The Rouse Company and Alton J. Scavo.
10.6	Letter Agreement, dated August 19, 2004, between The Rouse Company and Anthony W. Deering.
31.1	Certification Pursuant to Rule 13a–14(a by Anthony W. Deering, Chairman of the Board, President and Chief Executive Officer
31.2	Certification Pursuant to Rule 13a–14(a by Thomas J. DeRosa, Vice Chairman and Chief Financial Officer
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–Chief Financial Officer
99.1	Factors Affecting Future Operating Results

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EX-10.1

Exhibit 10.1

EXECUTIVE AGREEMENT dated
July 14, 2004 (the “Effective Date”) between
THE ROUSE COMPANY
(together with its subsidiaries and affiliates, the “Company”)
and Duke S. Kassolis (the “Executive”)

The Company and the Executive agree as follows:

SECTION 1.  Definitions.  As used in this Agreement:

(a)“Accrued Obligations” means the sum of the amounts described in Section 6(a)(i)(A) and clause (2) of Section 6(a)(ii).

(b)“Annual Base Salary” means the Executive’s salary at a rate not less than the Executive’s annualized salary in effect (i) immediately prior to the Operative Date, (ii) on the date that is six months prior to the Operative Date or (iii) as of any date after the Operative Date (whichever date results in the highest salary).

(c)“Annual Bonus” in any year means an amount that is not less than annual cash bonus that would be paid to the Executive with respect to such year assuming that the Executive and the Company satisfied all applicable performance at the “target,” “satisfactory,” “acceptable” or other similar level.

(d)“Board” means the Board of Directors of the Company.

(e)“Cause” means (i) the willful and continued failure of the Executive to perform substantially the Executive’s duties owed to the Company after a written demand for substantial performance is delivered to the Executive which specifically identifies the nature of such non-performance (other than any such failure resulting from the Executive’s incapacity due to physical or mental illness or any such actual or anticipated failure after the issuance of a Notice of Termination by the Executive for Good Reason pursuant to Section 5(d)), (ii) willful gross misconduct by the Executive that is significantly and demonstrably injurious to the Company, or (iii) the Executive in the course of his or her employment (x) is convicted of a felony or (y) willfully engages in a fraud that results in material harm to the Company.  No act or omission on the part of the Executive shall be considered “willful” unless it is done or omitted in bad faith or without reasonable belief that the action or omission was in the best interests of the Company.  For purposes of this Section 1(e), any act or failure to act based upon authority given pursuant to a resolution duly adopted by the Board or upon the instructions of the Board, the Company’s Chief Executive Officer or other executive officer of the Company, or based upon the advice of counsel for the Company shall be conclusively presumed to be done, or omitted to be done, by the Executive in good faith and in the best interests of the Company.  Notwithstanding the foregoing, the Executive shall not be deemed to have been terminated for Cause without (1) reasonable notice to the Executive setting forth the

reasons for the Company’s intention to terminate for Cause, (2) an opportunity for the Executive, together with his or her counsel, to be heard before the Board, and (3) delivery to the Executive of a Notice of Termination from the Board finding that in the good faith opinion of three-quarters (3/4) of the Board the Executive was guilty of conduct set forth in clause (i), (ii) or (iii) above and specifying the particulars thereof in detail.

(f)A “Change in Control” shall mean the occurrence of any of the following after the Effective Date:

(a)An acquisition (other than directly from the Company) of any voting securities of the Company (the “Voting Securities”) by any “Person” (as the term “person” is used for purposes of Section 13(d) or 14(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)), immediately after which such Person has “Beneficial Ownership” (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of more than twenty percent (20%) of (1) the then-outstanding Common Shares (or any other securities into which the Common Shares are changed or for which the Common Shares are exchanged) or (2) the combined voting power of the Company’s then-outstanding Voting Securities, in either case unless such acquisition is expressly approved by resolution of the Board (x) adopted at a meeting of the Board held not later than the date of the next regularly scheduled or special meeting held following the date that the Company obtains actual knowledge of such acquisition or threatened acquisition and (y) passed upon affirmative vote of not less than a majority of the Board present at such meeting (which approval may be limited in purpose and effect solely to affecting the rights of the Executive under this Agreement); provided, however, that in determining whether a Change in Control has occurred pursuant to this paragraph (a), the acquisition of Common Shares or Voting Securities in a Non-Control Acquisition (as hereinafter defined) shall not constitute a Change in Control.  A “Non-Control Acquisition” shall mean an acquisition by (i) an employee benefit plan (or a trust forming a part thereof) maintained by (A) the Company or (B) any corporation or other Person the majority of the voting power, voting equity securities or equity interest of which is owned, directly or indirectly, by the Company (for purposes of this definition, a “Related Entity”), (ii) the Company or any Related Entity, or (iii) any Person in connection with a Non-Control Transaction (as hereinafter defined);

(b)The individuals who, as of the Effective Date, are members of the board of directors of the Company (the “Incumbent Board”), cease for any reason to constitute at least a majority of the members of the board of directors of the Company or, following a Merger (as hereinafter defined), the board of directors of (x) the corporation resulting from such Merger (the “Surviving Corporation”), if fifty percent (50%) or more of the combined voting power of the then-outstanding voting securities of the Surviving Corporation is not Beneficially Owned, directly or indirectly, by another Person (a “Parent Corporation”) or (y) if there is one or more than one Parent Corporation, the ultimate Parent Corporation; provided, however, that, if the election, or nomination for

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election by the Company’s common stockholders, of any new director was approved by a vote of at least two-thirds of the Incumbent Board, such new director shall, for purposes of the Plan, be considered a member of the Incumbent Board; and provided, further, however, that no individual shall be considered a member of the Incumbent Board if such individual initially assumed office as a result of an actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the board of directors of the Company (a “Proxy Contest”), including by reason of any agreement intended to avoid or settle any Proxy Contest; or

(c)The consummation of a merger, consolidation or reorganization (1) with or into the Company or (2) in which securities of the Company are issued (a “Merger”), unless such Merger is a Non-Control Transaction.  A “Non-Control Transaction” shall mean a Merger in which:

(A)the stockholders of the Company immediately before such Merger own directly or indirectly immediately following such Merger at least eighty percent (80%) of the combined voting power of the outstanding voting securities of (x) the Surviving Corporation, if there is no Parent Corporation or (y) if there is one or more than one Parent Corporation, the ultimate Parent Corporation; and

(B)the individuals who were members of the Incumbent Board immediately prior to the execution of the agreement providing for such Merger constitute at least a majority of the members of the board of directors of (x) the Surviving Corporation, if there is no Parent Corporation, or (y) if there is one or more than one Parent Corporation, the ultimate Parent Corporation; or

(d)the shareholders of the Company approve (a) the sale or disposition by the Company (other than to a subsidiary of the Company) of all or substantially all of the assets of the Company, or (b) a complete liquidation or dissolution of the Company.

If (i) the Executive’s employment is terminated by the Company without Cause prior to the date of a Change in Control or (ii) an action is taken with respect to the Executive prior to the date of a Change in Control that would constitute Good Reason if taken after a Change in Control, and the Executive reasonably demonstrates that such termination or action (A) was at the request of a third party that has indicated an intention or taken steps reasonably calculated to effect a Change in Control or (B) otherwise arose in connection with, or in anticipation of, a Change in Control that has been threatened or proposed, such termination or action shall be deemed to have occurred after such Change in Control for purposes of this Agreement, so long as such Change in Control actually occurs.

(g)“Common Shares” means the Common Stock of the Company.

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(h)“Date of Termination” means: (i) if the Executive’s employment is terminated by the Company for Cause or by the Executive for Good Reason, the date of receipt of the Notice of Termination or any later date specified therein, (ii) if the Executive’s employment is terminated by the Company other than for Cause or Incapacity, the Date of Termination shall be the date on which the Company notifies the Executive of such termination, and (iii) if the Executive’s employment is terminated by reason of death or Incapacity, the Date of Termination shall be the date of death of the Executive or the Incapacity Effective Date, as the case may be.

(i)“Dependents”, as of any date, means the members of the Executive’s family who under the most liberal eligibility rules (as in effect on a date that is six months prior to the Operative Date) of the plans or programs of the Company (or any successor) which provide medical benefits, would, be eligible for benefits under such plans or programs on such date.

(j)“Deering Retention Agreement” means that certain agreement between the Company and Anthony W. Deering dated September 24, 1998, as amended July 12, 1999 and March 31, 2003 and as the same may be further amended.

(k)“Good Reason” means any failure by the Company to comply with any of the provisions of this Agreement, other than an isolated, insubstantial and inadvertent failure not occurring in bad faith and which is remedied by the Company promptly after receipt of notice thereof from the Executive.

(l)“Incapacity” means, and shall be deemed the reason for the termination by the Company of the Executive’s employment, if, as a result of the Executive’s incapacity due to physical or mental illness, (i) the Executive shall have been absent from the full-time performance of the Executive’s duties with the company for a period of six (6) consecutive months, (ii) the Company gives the Executive a Notice of Termination for Incapacity, and (iii) the Executive does not return to the full-time performance of the Executive’s duties within thirty (30) days after such Notice of Termination is given.

(m)“Incapacity Effective Date” means the date on which the period described in Section 1(l)(iii) expires.

(n)“Multiple” means 3.

(o)“Notice of Termination” means a written notice which (i) to the extent applicable, indicates the specific termination provision in this Agreement relied upon, (ii) to the extent applicable, sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive’s employment under such provision, (iii) in the case of termination by the Company for Cause, confirms that such termination is pursuant to a resolution of the Board, and (iv) if the Date of Termination is

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other than the date of receipt of such notice, specifies the termination date (which date shall be not more than 30 calendar days after the giving of such notice).

(p)“Operative Date” means the date on which a Change in Control shall have occurred.

(q)“Other Benefits” means any other amounts or benefits required to be paid or provided or which the Executive is eligible to receive under any plan, program, policy or practice or contract or agreement of the Company, including earned but unpaid and stock and similar compensation, that is in effect on the date that is six months prior to the Operative Date.

(r)“Savings Plan (Excess)” means The Rouse Company Excess Savings Plan as it now exists or may hereafter be amended prior to the date that is six months prior to the Operative Date.

(s)“Term” means the term of this Agreement which shall begin as of the Effective Date and shall continue to and remain in effect until the fourth anniversary of the Effective Date (and any further extensions pursuant to Section 2) or, if later, three years following an Operative Date occurring prior to the later of (i) the fourth anniversary of the Effective Date, or (ii) such later date to which this Agreement has been extended pursuant to Section 2.

SECTION 2.  Extension of this Agreement.  If no Operative Date shall have occurred on or before the 365th calendar day preceding the date on which the Term is then scheduled to expire, then the Term shall automatically be extended for one year unless either party shall have given the other party written notice of its election not to extend the Term; provided, that an election by the Company not to extend the Term shall be void ab initio if, at the time of such election, the Company is a party to an agreement providing for a transaction or transactions that, if consummated, would constitute a Change in Control.

SECTION 3.  Terms of Employment prior to Operative Date.  Except as set forth in Section 12, prior to the Operative Date, the terms and conditions of the Executive’s employment, including the Executive’s rights upon termination of the Executive’s employment, shall be the same as they would have been had this Agreement not been entered into by the Executive and the Company.

SECTION 4.  Terms of Employment on and after Operative Date.

(a)Position and Duties.  (i)  On and after the Operative Date and during the Term of this Agreement, (A) the Executive’s position (including, without limitation, status, offices, titles, authority, duties and responsibilities) shall be at least commensurate in all material respects with the most significant of those held, exercised and assigned

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immediately prior to the Operative Date and (B) the Executive’s primary work location after the Operative Date shall not be changed from his or her primary work location immediately prior to the Operative Date, and the Company shall not require the Executive to travel on Company business to a substantially greater extent than required on the date that is six months prior to the Operative Date, except for travel and temporary assignments which are reasonably required for the full discharge of the Executive’s responsibilities and which are consistent with the Executive’s being based at his or her primary work location.

(ii)On and after the Operative Date and during the Term of this Agreement, but excluding any periods of vacation and sick leave to which the Executive is entitled, the Executive agrees to devote reasonable attention and time during normal business hours to the business and affairs of the Company and, to the extent necessary to discharge the responsibilities assigned to the Executive hereunder, to use the Executive’s reasonable best efforts to perform faithfully and efficiently such responsibilities.

(b)Compensation.  (i)  Salary.  On and after the Operative Date and during the Term of this Agreement, the Executive shall receive compensation at an annual rate not less than his or her Annual Base Salary.

(ii)Stock Incentive, Savings and Other Retirement and Supplemental Retirement Plans.  On and after the Operative Date and during the Term of this Agreement, the Executive will be entitled to participate in all stock incentive, 401(k) savings, pension and other retirement and supplemental retirement plans and programs that are generally available to full-time officers or employees of the Company at levels that have not materially decreased from the levels in effect on the date that is six months prior to the Operative Date.

(iii)Welfare Benefit Plans.  On and after the Operative Date and during the Term of this Agreement, the Executive and any persons who from time to time thereafter are his or her Dependents shall be eligible to participate in and shall receive (or, in the case of life insurance, shall be entitled to have the Executive’s beneficiary receive) all benefits under welfare benefit plans and programs that are generally available to full-time officers or employees of the Company at levels that have not materially decreased from the levels in effect on the date that is six months prior to the Operative Date.

(iv)Business Expenses.  On and after the Operative Date and during the Term of this Agreement, the Company shall, in accordance with policies in effect with respect to the payment of such expenses immediately prior to the Operative Date, pay or reimburse the Executive for all reasonable out-of-pocket travel and other expenses incurred by the Executive in performing services hereunder.  All such expenses shall be accounted for in such reasonable detail as the Company may require.

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(v)Vacations.  On and after the Operative Date and during the Term of this Agreement, the Executive shall be entitled to periods of vacation not less than those to which the Executive was entitled on the date that is six months prior to the Operative Date.

(vi)Other Benefits.  On and after the Operative Date and during the Term of this Agreement, the Executive shall be entitled to all Other Benefits not specifically provided for in subsections (i), (ii), (iii), (iv) and (v) of this Section 4(b) that are generally available to full-time officers or employees of the Company.

SECTION 5.  Termination of Employment.

(a)Death or Incapacity.  The Executive’s employment shall terminate automatically upon the Executive’s death.  On and after the Operative Date, the Executive’s employment shall also terminate automatically on his or her Incapacity Effective Date during the Term of this Agreement.

(b)Company Termination.  After the Operative Date, the Company may terminate the Executive’s employment for any reason, subject to the provisions of this Agreement establishing obligations of the Company that arise with respect to certain terminations.

(c)Executive Termination.  After the Operative Date, the Executive may terminate his or her employment for any reason.

(d)Notice of Termination.  On and after the Operative Date and during the Term of this Agreement, any termination by the Company for Cause or Incapacity, or by the Executive for Good Reason, shall be communicated by Notice of Termination to the other party hereto given in accordance with Section 15.  The failure by the Executive or the Company to set forth in the Notice of Termination any fact or circumstance which contributes to a showing of Good Reason, Incapacity or Cause shall not serve to waive any right of the Executive or the Company, respectively, hereunder or preclude the Executive or the Company, respectively, from asserting such fact or circumstance in enforcing the Executive’s or the Company’s rights hereunder.

SECTION 6.  Obligations of the Company upon Termination on or after the Operative Date.

(a)Termination for Good Reason or for Reasons other than for Cause, Death or Incapacity.  If, on or after the Operative Date and during the Term of this Agreement, (x) the Company shall terminate the Executive’s employment other than for Cause, death or Incapacity or (y) the Executive shall terminate his or her employment for Good Reason, then:

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(i)the Company shall pay to the Executive in a lump sum in cash within 30 calendar days after the Date of Termination the aggregate of the following amounts:

(A)the sum of (1) the Executive’s then Annual Base Salary through the Date of Termination to the extent not already paid, plus (2) the product of (x) an amount equal to his or her then Annual Bonus times (y) a fraction, the numerator of which is the number of days in the current fiscal year through the Date of Termination, and the denominator of which is 365 plus (3) any accrued vacation pay to the extent not already paid;

(B)an amount equal to the product of (1) the Multiple times (2) the sum of (x) the Executive’s then Annual Base Salary and (y) his or her then Annual Bonus;

(ii)the Company shall contribute, within 30 calendar days after the Date of Termination, under Section 3 of the Savings Plan (Excess) an amount equal to the sum of (1) the Multiple times the maximum amount that could be contributed by the Company under Section 3 of the Savings Plan (Excess) for a full calendar year based on the Executive’s Compensation (as defined in The Rouse Company Savings Plan) computed for the 12 months immediately preceding such Date of Termination, and (2) one times such maximum amount multiplied by a fraction, the numerator of which is the number of days transpired in the year of termination prior to and including the Date of Termination and the denominator of which is 365;

(iii)for a number of years after the Executive’s Date of Termination equal to the Multiple, or such longer period as may be provided by the terms of the appropriate plan, program, practice or policy, the Company shall continue benefits to the Executive and his or her Dependents at least equal to those which would have been provided to them in accordance with the plans, programs, practices and policies described in Section 4(b)(iii) if the Executive’s employment had not been terminated or, if more favorable to the Executive and his or her Dependents, as in effect generally at any time thereafter;

(iv)the Executive and his or her Dependents shall continue to be eligible to participate in and shall receive all benefits under any plan or program of the Company providing medical benefits as are in effect on the date six months prior to the Operative Date or under any plan or program of a successor to the Company which provides medical benefits that are not less favorable to the Executive and his or her Dependents than such plans or programs of the Company until the date the Executive and his or her Dependents are all eligible for Medicare benefits (by reason of attaining the minimum age for such benefits without regard to whether an application has been made therefor); provided, however, that (A) in no event will a Dependent be eligible for benefits as described in this clause (iv) after the date he or she ceases to be a Dependent and (B) at

8

all times after the expiration of the period described in clause (iii) above, the Executive shall pay for such coverage at the same rate as is charged to other similarly situated individuals electing continuation coverage under Section 4980B of the Internal Revenue Code of 1986, as amended (the “Code”);

(v)all outstanding restricted shares and options granted to Executive to purchase Common Shares under the incentive plans of the Company or under any other option or equity incentive plan shall, to the extent not already vested, immediately become fully vested and, in the case of options, shall remain exercisable until the end of the original term of such option without regard to Executive’s termination of employment;

(vi)the Company will continue to pay any premiums due on any individual insurance policies in effect on the life of the Executive for a number of years following the Date of Termination equal to the Multiple, after which time the Company shall distribute such policy to the Executive without requiring the Executive to repay any premiums paid by the Company;

(vii)the Company shall transfer any car made available to the Executive for his or her use by the Company to the Executive for no consideration, provided that the Executive pays any and all transfer taxes and agrees to be solely responsible for insurance and the cost of insurance after the date of transfer;

(viii)the Executive shall be entitled to keep any computer and/or software provided to the Executive by the Company for home or travel use for no consideration;

(ix)the Company, at no cost to the Executive, shall provide the Executive with outplacement services at a firm selected by the Executive for the period commencing on the Date of Termination and ending on the first to occur of (i) the first anniversary of the Executive’s Date of Termination and (ii) the date on which the Executive obtains full-time employment as an employee;

(x)The Company shall make immediate payment of any deferred compensation balances not already paid to the Executive;

(xi)There shall be immediate vesting of any outstanding equity- and performance-based awards; and

(xii)to the extent not already paid or provided, the Company shall timely pay or provide to the Executive all Other Benefits to the extent accrued on the Date of Termination and not specifically provided for in subsections (i) through (xi) of this Section 6(a).

(b)Death or Incapacity.  If the Executive’s employment is terminated on or after the Operative Date by reason of the Executive’s death or Incapacity, the sole

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payments and benefits to which the Executive or the Executive’s legal representatives shall be entitled hereunder shall be (i) timely payment of Accrued Obligations and (ii) provision by the Company of death benefits or disability benefits for termination due to death or Incapacity, respectively, in accordance with Sections 4(b)(iii) and 6(a)(vi) as in effect at the Operative Date or, if more favorable to the Executive, at the Executive’s Date of Termination.

(c)Cause; Other than for Good Reason.  If the Executive’s employment shall be terminated on or after the Operative Date for Cause, the sole payments and benefits to which the Executive shall be entitled hereunder shall be (x) the Executive’s then Annual Base Salary through the Date of Termination and (y) Other Benefits, but in each case only to the extent unpaid as of the Date of Termination.  If the Executive voluntarily terminates employment during the Term of this Agreement, excluding a termination for Good Reason on or after the Operative Date, the sole payments and benefits to which the Executive shall be entitled hereunder shall be the timely payment of Accrued Obligations and Other Benefits.

SECTION 7.  Non-exclusivity of Rights.  Nothing in this Agreement shall prevent or limit the Executive’s continuing or future participation in any plan, program, policy or practice provided by the Company and for which the Executive may qualify, nor, subject to Section 17(c), shall anything herein limit or otherwise affect such rights as the Executive may have under any contract or agreement with the Company.  Amounts which are vested benefits or which the Executive is otherwise entitled to receive under any plan, policy, practice or program of, or any contract or agreement with, the Company at or subsequent to the Date of Termination shall be payable in accordance with such plan, policy, practice, program, contract or agreement except as explicitly modified by this Agreement.

SECTION 8.  No Mitigation.  The Company agrees that, if the Executive’s employment is terminated on or after the Operative Date and during the Term of this Agreement for any reason, the Executive is not required to seek other employment or to attempt in any way to reduce any amounts payable to the Executive hereunder.  Further, the amount of any payment or benefit provided hereunder on or after the Operative Date shall not be reduced by any compensation earned by the Executive as the result of employment with another employer, by retirement benefits, by offset against any amount claimed to be owed by the Executive to the Company, or otherwise; provided that, notwithstanding the foregoing, the Company shall have the right to offset any amounts earned by the Executive in violation of Section 12 against any amounts otherwise due the Executive hereunder.

SECTION 9.  Resolution of Disputes.

(a)Negotiation.  Subject to the rights of the Company pursuant to Section 12(d), the parties shall attempt in good faith to resolve any dispute arising out of or

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relating to this Agreement promptly by negotiations between the Executive and an executive officer of the Company or member of the Board as may be designated by the Board who has authority to settle the controversy.  Any party may give the other party written notice of any dispute not resolved in the normal course of business.  Within 10 days after the effective date of such notice, the Executive and an executive officer of the Company shall meet at a mutually acceptable time and place within the Baltimore-Washington metropolitan area, and thereafter as often as they reasonably deem necessary, to exchange relevant information and to attempt to resolve the dispute.  If the matter has not been resolved within 30 days of the disputing party’s notice, or if the parties fail to meet within 10 days, either party may initiate arbitration of the controversy or claim as provided hereinafter.  If a negotiator intends to be accompanied at a meeting by an attorney, the other negotiator shall be given at least three business days notice of such intention and may also be accompanied by an attorney.  All negotiations pursuant to this Section 9(a) shall be treated as compromise and settlement negotiations for the purposes of the federal and state rules of evidence and procedure.

(b)Arbitration.  Subject to the rights of the Company pursuant to Section 12(d), any dispute arising out of or relating to this Agreement or the breach, termination or validity thereof, which has not been resolved by nonbinding means as provided in Section 9(a) within 60 days of the initiation of such procedure, shall be finally settled by arbitration conducted expeditiously in accordance with the Center for Public Resources, Inc.  (“CPR”) Rules for Non-Administered Arbitration of Business Disputes by three independent and impartial arbitrators, of whom each party shall appoint one, provided that if one party has requested the other to participate in a non-binding procedure and the other has failed to participate, the requesting party may initiate arbitration before the expiration of such period.  Any such party shall be appointed from the CPR Panels of Neutrals.  The arbitration shall be governed by the United States Arbitration Act and any judgment upon the award decided upon the arbitrators may be entered by any court having jurisdiction thereof.  The arbitrators are not empowered to award damages in excess of compensatory damages and each party hereby irrevocably waives any damages in excess of compensatory damages.  Each party hereby acknowledges that compensatory damages include (without limitation) any benefit or right of indemnification given by another party to the other under this Agreement.

(c)Expenses.  The Company shall promptly pay or reimburse the Executive for all costs and expenses, including, without limitation, court costs and attorneys fees, incurred by the Executive as a result of any claim, action or proceeding (including, without limitation a claim action or proceeding by the Executive against the Company) arising out of, or challenging the validity or enforceability of, this Agreement or any provision hereof or any other agreement or entitlement referred to herein.

SECTION 10.  Certain Additional Payments by the Company.  Subject only to the next following paragraph, in the event that it shall be determined that any payment or

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distribution by the Company to or for the benefit of the Executive, whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise (a “Payment”), would be subject to the excise tax imposed by Section 4999 of the Code (or any successor provision of the Code) or any interest or penalties with respect to such excise tax (such excise tax, together with any such interest and penalties, are hereinafter collectively referred to as the “Excise Tax”), then the Executive shall be entitled to receive an additional payment (an “Excise Gross-Up Payment”) in an amount such that after payment by the Executive of all taxes (including any interest or penalties imposed with respect to such taxes), including any Excise Tax imposed upon the Excise Gross-Up Payment, the Executive retains an amount of the Excise Gross-Up Payment equal to the Excise Tax imposed upon the Payments.  Subject to the provisions of this Section 10, all determinations required to be made hereunder, including whether an Excise Gross-Up Payment is required and the amount of such Excise Gross-Up Payment, shall be made by KPMG LLP or such other nationally recognized accounting firm as may be designated by the Company (the “Accounting Firm”) at the sole expense of the Company, which shall provide detailed supporting calculations both to the Company and the Executive within 15 business days of the date of termination of the Executive’s employment under this Agreement, if applicable, or such earlier time as is requested by the Company.  If the Accounting Firm determines that no Excise Tax is payable by the Executive, the Accounting Firm shall furnish the Executive with an opinion that he or she has substantial authority not to report any Excise Tax on his or her federal income tax return.  Any determination by the Accounting Firm shall be binding upon the Company and the Executive.  As a result of the uncertainty in the application of Section 4999 of the Code (or any successor provision of the Code) at the time of the initial determination by the Accounting Firm hereunder, it is possible that Excise Gross-Up Payments which will not have been made by the Company should have been made (an “Underpayment”), consistent with the calculations required to be made hereunder.  If the Company exhausts its remedies pursuant hereto and the Executive thereafter is required to make a payment of any Excise Tax, the Accounting Firm shall determine the amount of the Underpayment that has occurred and any such Underpayment shall be promptly paid by the Company to or for the benefit of the Executive.

Notwithstanding the immediately preceding paragraph, in the event that a reduction to the Payments in respect of the Executive of 10% or less would cause no Excise Tax to be payable, the Executive will not be entitled to a Gross-Up Payment and the Payments shall be reduced to the extent necessary so that the Payments shall not be subject to the Excise Tax.  Unless the Executive shall have given prior written notice to the Company specifying a different order by which to effectuate the foregoing, the Company shall reduce or eliminate the Payments by first reducing or eliminating the portion of the Payments which are not payable in cash and then by reducing or eliminating cash payments, in each case in reverse order beginning with payments or benefits which are to be paid the farthest in time from the date of the Change in Control.  Any notice given by the Executive pursuant to the preceding sentence shall take

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precedence over the provisions of any other plan, arrangement or agreement governing the Executive’s rights and entitlements to any benefits or compensation.  An illustration of the reduction permitted by this paragraph is set forth on Attachment A to this Agreement.

The Executive shall notify the Company in writing of any claim by the Internal Revenue Service that, if successful, would require the payment by the Company of the Excise Gross-Up Payment.  Such notification shall be given as soon as practicable but no later than 10 business days after the Executive knows of such claim and shall apprise the Company of the nature of such claim and the date on which such claim is requested to be paid.  The Executive shall not pay such claim prior to the expiration of the 30-day period following the date on which he or she gives such notice to the Company (or such shorter period ending on the date that any payment of taxes with respect to such claim is due).  If the Company notifies the Executive in writing prior to the expiration of such period that it desires to contest such claim, the Executive shall:

(i)give the Company any information reasonably requested by the Company relating to such claim;

(ii)take such action in connection with contesting such claim as the Company shall reasonably request in writing from time to time, including (without limitation) accepting legal representation with respect to such claim by an attorney reasonably selected by the Company;

(iii)cooperate with the Company in good faith to contest effectively such claim; and

(iv)permit the Company to participate in any proceedings relating to such claim;

provided that the Company shall bear and pay directly all costs and expenses (including additional interest and penalties) incurred in connection with such contest and shall indemnify and hold the Executive harmless, on an after-tax basis, for any Excise Tax or income tax, including interest and penalties with respect thereto, imposed as a result of such representation and payment of costs and expenses.  Without limitation on the foregoing provisions hereof, the Company shall control all proceedings taken in connection with such contest and, at its sole option, may pursue or forgo any and all administrative appeals, proceedings, hearings and conferences with the taxing authority in respect of such claim and may, at its sole option and to the maximum extent permitted by applicable law, either direct the Executive to pay the tax claimed and sue for a refund or contest the claim in any permissible manner, and the Executive agrees to prosecute such contest to a determination before any administrative tribunal, in a court of initial jurisdiction and in one or more appellate courts as the Company shall determine, provided that if the Company directs the Executive to pay such claim and sue for a

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refund, the Company shall advance the amount of such payment to the Executive, on an interest-free basis and shall indemnify and hold the Executive harmless, on an after-tax basis, from any Excise Tax or income tax, including interest or penalties with respect thereto, imposed with respect to such advance or with respect to any imputed income with respect to such advance, and further provided that any extension of the statute of limitations relating to payment of taxes for the taxable year of the Executive with respect to which such contested amount is claimed to be due is limited solely to such contested amount.  Furthermore, the Company’s control of the contest shall be limited to issues with respect to which an Excise Gross-Up Payment would be payable hereunder, and the Executive shall be entitled to settle or contest, as the case may be, any other issue raised by the Internal Revenue Service or any other taxing authority.

If, after the receipt by the Executive of an amount advanced by the Company pursuant hereto, the Executive becomes entitled to receive any refund with respect to such claim, the Executive shall (subject to the Company’s complying with the requirements hereof) promptly pay to the Company the amount of such refund (together with any interest paid or credited thereon after taxes applicable thereto).  If, after the receipt by the Executive of an amount advanced by the Company pursuant hereto, a determination is made that the Executive shall not be entitled to any refund with respect to such claim and the Company does not notify the Executive in writing of its intent to contest such denial of refund prior to the expiration of 30 days after such determination, then such advance shall be forgiven and shall not be required to be repaid and the amount of such advance shall offset, to the extent thereof, the amount of Excise Gross-Up Payment required to be paid.

SECTION 11.  Reduction of Payments and Benefits.  Notwithstanding any provision of this Agreement to the contrary, in the event that the Total Executive Parachute Payments (as hereinafter defined) exceed 2% of the Subject Amount (as hereinafter defined), then the payments and benefits to be paid and provided to the Executive hereunder shall be reduced to the Reduced Amount (as hereinafter defined).  Unless the Executive shall have given prior written notice to the Company specifying a different order by which to effectuate such reduction, those payments and benefits that are not payable in cash shall be reduced or eliminated first, and those payments and benefits that are payable in cash shall be reduced or eliminated only after all non-cash payments and benefits have been eliminated and, in each case payments and benefits shall be reduced in reverse order beginning with those that are to be paid the farthest in time from the date of the Change in Control.  Any notice given by the Executive pursuant to the preceding sentence shall take precedence over the provisions of any other plan, arrangement or agreement governing the Executive’s rights and entitlements to any benefits or compensation.  An illustration of the reduction permitted by this Section 11 is set forth on Attachment B to this Agreement.

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For purposes of this Section 11, the following terms shall have the following meanings:

“Total Executive Parachute Payments” means the total aggregate cash value of all payments in the nature of compensation that are contingent on a change in ownership or control of the Company (as determined under Treasury Regulation § 1.280G-1 or successor regulation thereto) to be paid or provided to Anthony W. Deering pursuant to the Deering Retention Agreement and to all executives who are parties to Executive Agreements with the Company that provide the same (or substantially similar) payments and benefits as those payments and benefits to be paid or provided pursuant to Section 6(a) (and, if applicable, Section 10) of this Agreement (it being understood that the application of different multiples or formulas in calculating substantially similar types of payments or benefits shall not cause such payments or benefits not to be substantially similar), determined immediately following the Change in Control and assuming that Mr. Deering’s employment and all such Executives’ employment have been terminated immediately following the Change in Control under circumstances that entitle them to such payments and benefits.

“Reduced Amount” means the product of (i) 2% of the Subject Amount times (ii) a fraction, the numerator of which is the portion of the Total Executive Parachute Payments allocable to the Executive and the denominator of which is the Total Executive Parachute Payments.

“Subject Amount” means the amount determined by multiplying (i) the total number of outstanding Common Shares immediately prior to the Change in Control (assuming, for this purpose, that all securities convertible into Common Shares have been so converted, other than stock options and warrants as to which the per share exercise price exceeds the last publicly available trading price of a Common Share prior to the Change in Control (or, if higher, the per share cash value of the consideration to be paid to holders of the Common Shares as a result of the Change in Control)) times (ii) the last publicly available trading price of a Common Share prior to the Change in Control (or, if higher, the per share cash value of the consideration to be paid to holders of the Common Shares as a result of the Change in Control); provided, that there shall be subtracted therefrom the aggregate exercise price of all stock options and warrants not so excluded.

SECTION 12.  Executive Covenants.

(a)Non-competition.  During the Non-Competition Period (as hereinafter defined), the Executive shall not, except with the Company’s permission (which may be withheld in the Company’s sole discretion) be, or be connected in any manner with, a Competitor (as hereinafter defined) (whether directly as an individual or in the capacity of a director, officer or employee of, debt or equity investor in, or consultant or other

15

independent contractor to, a Competitor, or indirectly through direct or indirect ownership, management, operation or control of a person that is a Competitor); provided that in no event shall ownership of not more than 5% or less of the outstanding equity securities of any issuer whose securities are registered under the Exchange Act, standing alone, be prohibited by this Section 12(a), so long as the Executive does not have, or exercise, any rights to manage, operate or control the business of such issuer.  For purposes of this Section 12(a), a “Competitor” shall mean any person that is engaged, directly or indirectly, in any business or activity which is competitive with any activity or business in which the Company or any its affiliates is engaged as of the Date of Termination (including, without limitation, any business or activity which has, as a principal line of business, broad scale long term community development (e.g., broad scale long term community development/land sale projects like Columbia, Maryland and Summerlin, Nevada) and/or the development, ownership or management of regional retail shopping centers in the United States (specifically including, without limitation, Simon Property Group, Inc., Westfield America Trust, The Taubman Centers, Inc., General Growth Properties, Inc., The Macerich Company, CBL & Associates Properties, Inc., Federal Realty Investment Trust, or any of their subsidiaries or affiliates)).  For purposes of this Agreement, the “Non-Competition Period” shall mean the period beginning on the Effective Date and ending on the Date of Termination; provided, however, that if the Executive’s employment is terminated following the Effective Date by the Company for Cause or by the Executive other than for Good Reason, the Non-Competition Period shall continue following the Date of Termination for a period of 2 years.

(b)Non-solicitation.  During the Non-Competition Period, the Executive shall not, other than on behalf of the Company or any of its affiliates or with the Company’s permission (which may be withheld in the Company’s sole discretion), (1) contact, induce or solicit (or assist any person to contact, induce or solicit) any person which has a business relationship with the Company or any of its affiliates to terminate, curtail or otherwise limit such business relationship, or (2) contact, induce or solicit (or assist any person to contact, induce or solicit) for employment (whether as an employee or consultant or other independent contractor) any person who is, or within 12 months prior to the date of such action was, an employee of the Company or any of its affiliates.

(c)Cooperation.  In the event of termination of the Executive’s employment, for whatever reason (other than death), the Executive agrees for a period of 12 months thereafter to cooperate with the Company and its affiliates and to be reasonably available to the Company and its affiliates for a reasonable period of time thereafter with respect to matters arising out of the Executive’s employment by or any other relationship with the Company and its affiliates, whether such matters are business-related or otherwise.  The Company shall reimburse the Executive for all expenses reasonably incurred by the Executive during such period in connection with such cooperation.

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(d)Remedies.  The Executive agrees that any breach of the terms of this Section 12 would result in irreparable injury and damage to the Company for which the Company would have no adequate remedy at law; the Executive therefore also agrees that in the event of said breach or any threat of breach, the Company shall be entitled to an immediate injunction and restraining order to prevent such breach and/or threatened breach and/or continued breach by the Executive and/or any and all persons and/or entities acting for and/or with the Executive, without having to prove damages, in addition to any other remedies to which the Company may be entitled at law or in equity.  The terms of this paragraph shall not prevent the Company from pursuing any other available remedies for any breach or threatened breach hereof, including, without limitation, the recovery of damages from the Executive.  The Executive and the Company further agree that the provisions of the covenants contained in this Section 12 are reasonable and necessary to protect the businesses of the Company and its affiliates because of the Executive’s access to confidential information and his or her material participation in the operation of such businesses.  Should a court or arbitrator determine, however, that any provision of the covenants contained in this Section 12 is not reasonable or valid, either in period of time, geographical area, or otherwise, the parties hereto agree that such provision should be interpreted and enforced to the maximum extent which such court or arbitrator deems reasonable or valid.

The existence of any claim or cause of action by the Executive against the Company or any of its affiliates, whether predicated on this Agreement or otherwise, shall not constitute a defense to the enforcement by the Company of the covenants contained in this Section 12.

SECTION 13.  Successors; Binding Agreement.

(a)The Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business or assets of the Company, by agreement, in form and substance satisfactory to the Executive, expressly to assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform if no such succession had taken place.  Failure of the Company to obtain such assumption and agreement prior to the effectiveness of any such succession will be a breach of this Agreement and entitle the Executive to compensation from the Company in the same amount and on the same terms as the Executive would be entitled to hereunder had the Company terminated the Executive for reason other than Cause or Incapacity on the succession date.  As used in this Agreement, the “Company” means the Company as defined in the preamble to this Agreement and any successor to its business or assets which executes and delivers the agreement provided for in this Section 13 or which otherwise becomes bound by all the terms and provisions of this Agreement by operation of law or otherwise.

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(b)This Agreement shall be enforceable by the Executive’s personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees.

SECTION 14.   Nonassignability.  This Agreement is personal in nature and neither of the parties hereto shall, without the consent of the other, assign or transfer this Agreement or any rights or obligations hereunder, except as provided in Section 13.  Without limiting the foregoing, the Executive’s right to receive payments hereunder shall not be assignable or transferable, whether by pledge, creation of a security interest or otherwise, other than a transfer by his or her will or by the laws of descent or distribution and, in the event of any attempted assignment or transfer by the Executive contrary to this Section 14, the Company shall have no liability to pay any amount so attempted to be assigned or transferred.

SECTION 15.  Notices.  For the purpose of this Agreement, notices and all other communications provided for herein shall be in writing and shall be deemed to have been duly given when delivered by hand or mailed by United States registered or certified mail, return receipt requested, postage prepaid, addressed as follows:

If to the Executive - at the address included on the signature page.

If to the Company:

The Rouse Company
10275 Little Patuxent Parkway
Columbia, Maryland 21044

Attention: General Counsel

or to such other address as either party may have furnished to the other in writing in accordance herewith, except that notices of change of address shall be effective only upon receipt.

SECTION 16.  Governing Law.  The validity, interpretation, construction and performance of this Agreement shall be governed by the laws of the State of Maryland without reference to principles of conflict of laws.

SECTION 17.  Miscellaneous.

(a)This Agreement contains the entire understanding with the Executive with respect to the subject matter hereof and supersedes any and all prior agreements or understandings, written or oral, relating to such subject matter.  No provision of this Agreement may be modified, waived or discharged unless such modification, waiver or discharge is agreed to in a writing signed by the Executive and the Company.  The rights

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and obligations of the Company and the Executive hereunder shall survive the expiration of the Term.

(b)The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement.

(c)Except as provided herein, this Agreement shall not be construed to affect in any way any rights or obligations in relation to the Executive’s employment by the Company prior to the Operative Date or subsequent to the end of the Term.

(d)This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original but all of which together will constitute one and the same Agreement.

(e)The Company may withhold from any benefits payable under this Agreement all Federal, state, local or other taxes as shall be required by law.

(f)The captions of this Agreement are not part of the provisions hereof and shall have no force or effect.

IN WITNESS WHEREOF, the parties have caused this Agreement to be executed and delivered as of the day and year first above set forth.

THE ROUSE COMPANY
By:	/s/ Anthony W. Deering
Name:		Anthony W. Deering
Title:		Chairman and Chief Executive Officer
/s/ Duke S. Kassolis
Duke S. Kassolis
(Executive)
(Street Address)
(City, State, Zip Code)

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Attachment A
(for illustrative purposes only)

(Note:  All of the quoted terms in the following illustration have the meanings assigned to them in Section 280G of the Code and the final regulations promulgated thereunder.  All capitalized terms have the meanings set forth in the Agreement.)

Assumptions

•A “change in ownership or control” of the Company occurs in January 2005.

•Immediately following the change in ownership or control, the executive receives a single cash payment of $1.25 million, all of which is a “parachute payment.”

•The executive is a “disqualified individual” and his “base amount” is $400,000 at the time of the change in ownership or control.

•The $1.25 million payment is the only payment to which the executive is entitled by reason of the change in ownership or control.

Because the payment exceeds three times the executive’s base amount, the payment is subject to the excise tax imposed by Section 4999 of the Code.  However, if the payment were reduced by $50,001, no excise tax would be payable because the payment would not equal or exceed three times the executive’s base amount.  Because $50,001 is a 10% or less reduction of the payment, the Company is permitted to make the reduction pursuant to the second paragraph of Section 10 of the Agreement.

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Attachment B
(for illustrative purposes only)

(Note:  All capitalized terms have the meanings set forth in the Agreement.)

Assumptions

•10 executives of the Company are parties to Executive Agreements that are the same as the Agreement.

•The Company is acquired for $50 per share.

•The only equity outstanding at the time of the transaction is 50 million shares of common stock.

•The Total Executive Payments calculated in accordance with Section 12 of the Agreement as of immediately following the transaction are $60 million.

The Subject Amount in this illustration is $2.5 billion, and 2% of the Subject Amount is $50 million.  Because the Total Executive Payments exceed 2% of the Subject Amount, they are subject to reduction pursuant to Section 11 of the Agreement.  As to any executive, the reduction would be effected pursuant to the following formula:  (2% of $2.5 billion) times ((the Total Executive Payments allocable to him or her) divided by $60 million).  For example, if the Total Executive Payments allocable to an executive in the transaction were $15 million, his or her Reduced Amount would be $12,500,000.  If the Total Executive Payments allocable to another executive in the transaction were $1 million, that executive’s Total Executive Payments would be reduced to $833,333.33.  (Note that, as to each executive, the ratio of the Reduced Amount to the Total Executive Payments is the same (in this illustration, .83333).)  The effect of these reductions would be that the aggregate Reduced Amount for the ten executives equal $50,000,000.

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EX-10.2

Exhibit 10.2

EXECUTIVE AGREEMENT dated

July 14, 2004 (the “Effective Date”) between

THE ROUSE COMPANY

(together with its subsidiaries and affiliates, the “Company”)

and Robert Minutoli (the “Executive”)

The Company and the Executive agree as follows:

SECTION 1.  Definitions.  As used in this Agreement:

(a)“Accrued Obligations” means the sum of the amounts described in Section 6(a)(i)(A) and clause (2) of Section 6(a)(ii).

(b)“Annual Base Salary” means the Executive’s salary at a rate not less than the Executive’s annualized salary in effect (i) immediately prior to the Operative Date, (ii) on the date that is six months prior to the Operative Date or (iii) as of any date after the Operative Date (whichever date results in the highest salary).

(c)“Annual Bonus” in any year means an amount that is not less than annual cash bonus that would be paid to the Executive with respect to such year assuming that the Executive and the Company satisfied all applicable performance at the “target,” “satisfactory,” “acceptable” or other similar level.

(d)“Board” means the Board of Directors of the Company.

(e)“Cause” means (i) the willful and continued failure of the Executive to perform substantially the Executive’s duties owed to the Company after a written demand for substantial performance is delivered to the Executive which specifically identifies the nature of such non-performance (other than any such failure resulting from the Executive’s incapacity due to physical or mental illness or any such actual or anticipated failure after the issuance of a Notice of Termination by the Executive for Good Reason pursuant to Section 5(d)), (ii) willful gross misconduct by the Executive that is significantly and demonstrably injurious to the Company, or (iii) the Executive in the course of his or her employment (x) is convicted of a felony or (y) willfully engages in a fraud that results in material harm to the Company.  No act or omission on the part of the Executive shall be considered “willful” unless it is done or omitted in bad faith or without reasonable belief that the action or omission was in the best interests of the Company.  For purposes of this Section 1(e), any act or failure to act based upon authority given pursuant to a resolution duly adopted by the Board or upon the instructions of the Board, the Company’s Chief Executive Officer or other executive officer of the Company, or based upon the advice of counsel for the Company shall be conclusively presumed to be done, or omitted to be done, by the Executive in good faith and in the best interests of the Company.  Notwithstanding the foregoing, the Executive shall not be deemed to have been terminated for Cause without (1) reasonable notice to the Executive setting forth the

reasons for the Company’s intention to terminate for Cause, (2) an opportunity for the Executive, together with his or her counsel, to be heard before the Board, and (3) delivery to the Executive of a Notice of Termination from the Board finding that in the good faith opinion of three-quarters (3/4) of the Board the Executive was guilty of conduct set forth in clause (i), (ii) or (iii) above and specifying the particulars thereof in detail.

(f)A “Change in Control” shall mean the occurrence of any of the following after the Effective Date:

(a)An acquisition (other than directly from the Company) of any voting securities of the Company (the “Voting Securities”) by any “Person” (as the term “person” is used for purposes of Section 13(d) or 14(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)), immediately after which such Person has “Beneficial Ownership” (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of more than twenty percent (20%) of (1) the then-outstanding Common Shares (or any other securities into which the Common Shares are changed or for which the Common Shares are exchanged) or (2) the combined voting power of the Company’s then-outstanding Voting Securities, in either case unless such acquisition is expressly approved by resolution of the Board (x) adopted at a meeting of the Board held not later than the date of the next regularly scheduled or special meeting held following the date that the Company obtains actual knowledge of such acquisition or threatened acquisition and (y) passed upon affirmative vote of not less than a majority of the Board present at such meeting (which approval may be limited in purpose and effect solely to affecting the rights of the Executive under this Agreement); provided, however, that in determining whether a Change in Control has occurred pursuant to this paragraph (a), the acquisition of Common Shares or Voting Securities in a Non-Control Acquisition (as hereinafter defined) shall not constitute a Change in Control.  A “Non-Control Acquisition” shall mean an acquisition by (i) an employee benefit plan (or a trust forming a part thereof) maintained by (A) the Company or (B) any corporation or other Person the majority of the voting power, voting equity securities or equity interest of which is owned, directly or indirectly, by the Company (for purposes of this definition, a “Related Entity”), (ii) the Company or any Related Entity, or (iii) any Person in connection with a Non-Control Transaction (as hereinafter defined);

(b)The individuals who, as of the Effective Date, are members of the board of directors of the Company (the “Incumbent Board”), cease for any reason to constitute at least a majority of the members of the board of directors of the Company or, following a Merger (as hereinafter defined), the board of directors of (x) the corporation resulting from such Merger (the “Surviving Corporation”), if fifty percent (50%) or more of the combined voting power of the then-outstanding voting securities of the Surviving Corporation is not Beneficially Owned, directly or indirectly, by another Person (a “Parent Corporation”) or (y) if there is one or more than one Parent Corporation, the ultimate Parent Corporation; provided, however, that, if the election, or nomination for

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election by the Company’s common stockholders, of any new director was approved by a vote of at least two-thirds of the Incumbent Board, such new director shall, for purposes of the Plan, be considered a member of the Incumbent Board; and provided, further, however, that no individual shall be considered a member of the Incumbent Board if such individual initially assumed office as a result of an actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the board of directors of the Company (a “Proxy Contest”), including by reason of any agreement intended to avoid or settle any Proxy Contest; or

(c)The consummation of a merger, consolidation or reorganization (1) with or into the Company or (2) in which securities of the Company are issued (a “Merger”), unless such Merger is a Non-Control Transaction.  A “Non-Control Transaction” shall mean a Merger in which:

(A)the stockholders of the Company immediately before such Merger own directly or indirectly immediately following such Merger at least eighty percent (80%) of the combined voting power of the outstanding voting securities of (x) the Surviving Corporation, if there is no Parent Corporation or (y) if there is one or more than one Parent Corporation, the ultimate Parent Corporation; and

(B)the individuals who were members of the Incumbent Board immediately prior to the execution of the agreement providing for such Merger constitute at least a majority of the members of the board of directors of (x) the Surviving Corporation, if there is no Parent Corporation, or (y) if there is one or more than one Parent Corporation, the ultimate Parent Corporation; or

(d)the shareholders of the Company approve (a) the sale or disposition by the Company (other than to a subsidiary of the Company) of all or substantially all of the assets of the Company, or (b) a complete liquidation or dissolution of the Company.

If (i) the Executive’s employment is terminated by the Company without Cause prior to the date of a Change in Control or (ii) an action is taken with respect to the Executive prior to the date of a Change in Control that would constitute Good Reason if taken after a Change in Control, and the Executive reasonably demonstrates that such termination or action (A) was at the request of a third party that has indicated an intention or taken steps reasonably calculated to effect a Change in Control or (B) otherwise arose in connection with, or in anticipation of, a Change in Control that has been threatened or proposed, such termination or action shall be deemed to have occurred after such Change in Control for purposes of this Agreement, so long as such Change in Control actually occurs.

(g)“Common Shares” means the Common Stock of the Company.

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(h)“Date of Termination” means: (i) if the Executive’s employment is terminated by the Company for Cause or by the Executive for Good Reason, the date of receipt of the Notice of Termination or any later date specified therein, (ii) if the Executive’s employment is terminated by the Company other than for Cause or Incapacity, the Date of Termination shall be the date on which the Company notifies the Executive of such termination, and (iii) if the Executive’s employment is terminated by reason of death or Incapacity, the Date of Termination shall be the date of death of the Executive or the Incapacity Effective Date, as the case may be.

(i)“Dependents”, as of any date, means the members of the Executive’s family who under the most liberal eligibility rules (as in effect on a date that is six months prior to the Operative Date) of the plans or programs of the Company (or any successor) which provide medical benefits, would, be eligible for benefits under such plans or programs on such date.

(j)“Deering Retention Agreement” means that certain agreement between the Company and Anthony W. Deering dated September 24, 1998, as amended July 12, 1999 and March 31, 2003 and as the same may be further amended.

(k)“Good Reason” means any failure by the Company to comply with any of the provisions of this Agreement, other than an isolated, insubstantial and inadvertent failure not occurring in bad faith and which is remedied by the Company promptly after receipt of notice thereof from the Executive.

(l)“Incapacity” means, and shall be deemed the reason for the termination by the Company of the Executive’s employment, if, as a result of the Executive’s incapacity due to physical or mental illness, (i) the Executive shall have been absent from the full-time performance of the Executive’s duties with the company for a period of six (6) consecutive months, (ii) the Company gives the Executive a Notice of Termination for Incapacity, and (iii) the Executive does not return to the full-time performance of the Executive’s duties within thirty (30) days after such Notice of Termination is given.

(m)“Incapacity Effective Date” means the date on which the period described in Section 1(l)(iii) expires.

(n)“Multiple” means 3.

(o)“Notice of Termination” means a written notice which (i) to the extent applicable, indicates the specific termination provision in this Agreement relied upon, (ii) to the extent applicable, sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive’s employment under such provision, (iii) in the case of termination by the Company for Cause, confirms that such termination is pursuant to a resolution of the Board, and (iv) if the Date of Termination is

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other than the date of receipt of such notice, specifies the termination date (which date shall be not more than 30 calendar days after the giving of such notice).

(p)“Operative Date” means the date on which a Change in Control shall have occurred.

(q)“Other Benefits” means any other amounts or benefits required to be paid or provided or which the Executive is eligible to receive under any plan, program, policy or practice or contract or agreement of the Company, including earned but unpaid and stock and similar compensation, that is in effect on the date that is six months prior to the Operative Date.

(r)“Savings Plan (Excess)” means The Rouse Company Excess Savings Plan as it now exists or may hereafter be amended prior to the date that is six months prior to the Operative Date.

(s)“Term” means the term of this Agreement which shall begin as of the Effective Date and shall continue to and remain in effect until the fourth anniversary of the Effective Date (and any further extensions pursuant to Section 2) or, if later, three years following an Operative Date occurring prior to the later of (i) the fourth anniversary of the Effective Date, or (ii) such later date to which this Agreement has been extended pursuant to Section 2.

SECTION 2.  Extension of this Agreement.  If no Operative Date shall have occurred on or before the 365th calendar day preceding the date on which the Term is then scheduled to expire, then the Term shall automatically be extended for one year unless either party shall have given the other party written notice of its election not to extend the Term; provided, that an election by the Company not to extend the Term shall be void ab initio if, at the time of such election, the Company is a party to an agreement providing for a transaction or transactions that, if consummated, would constitute a Change in Control.

SECTION 3.  Terms of Employment prior to Operative Date.  Except as set forth in Section 12, prior to the Operative Date, the terms and conditions of the Executive’s employment, including the Executive’s rights upon termination of the Executive’s employment, shall be the same as they would have been had this Agreement not been entered into by the Executive and the Company.

SECTION 4.  Terms of Employment on and after Operative Date.

(a)Position and Duties.  (i)  On and after the Operative Date and during the Term of this Agreement, (A) the Executive’s position (including, without limitation, status, offices, titles, authority, duties and responsibilities) shall be at least commensurate in all material respects with the most significant of those held, exercised and assigned

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immediately prior to the Operative Date and (B) the Executive’s primary work location after the Operative Date shall not be changed from his or her primary work location immediately prior to the Operative Date, and the Company shall not require the Executive to travel on Company business to a substantially greater extent than required on the date that is six months prior to the Operative Date, except for travel and temporary assignments which are reasonably required for the full discharge of the Executive’s responsibilities and which are consistent with the Executive’s being based at his or her primary work location.

(ii)On and after the Operative Date and during the Term of this Agreement, but excluding any periods of vacation and sick leave to which the Executive is entitled, the Executive agrees to devote reasonable attention and time during normal business hours to the business and affairs of the Company and, to the extent necessary to discharge the responsibilities assigned to the Executive hereunder, to use the Executive’s reasonable best efforts to perform faithfully and efficiently such responsibilities.

(b)Compensation.  (i)  Salary.  On and after the Operative Date and during the Term of this Agreement, the Executive shall receive compensation at an annual rate not less than his or her Annual Base Salary.

(ii)Stock Incentive, Savings and Other Retirement and Supplemental Retirement Plans.  On and after the Operative Date and during the Term of this Agreement, the Executive will be entitled to participate in all stock incentive, 401(k) savings, pension and other retirement and supplemental retirement plans and programs that are generally available to full-time officers or employees of the Company at levels that have not materially decreased from the levels in effect on the date that is six months prior to the Operative Date.

(iii)Welfare Benefit Plans.  On and after the Operative Date and during the Term of this Agreement, the Executive and any persons who from time to time thereafter are his or her Dependents shall be eligible to participate in and shall receive (or, in the case of life insurance, shall be entitled to have the Executive’s beneficiary receive) all benefits under welfare benefit plans and programs that are generally available to full-time officers or employees of the Company at levels that have not materially decreased from the levels in effect on the date that is six months prior to the Operative Date.

(iv)Business Expenses.  On and after the Operative Date and during the Term of this Agreement, the Company shall, in accordance with policies in effect with respect to the payment of such expenses immediately prior to the Operative Date, pay or reimburse the Executive for all reasonable out-of-pocket travel and other expenses incurred by the Executive in performing services hereunder.  All such expenses shall be accounted for in such reasonable detail as the Company may require.

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(v)Vacations.  On and after the Operative Date and during the Term of this Agreement, the Executive shall be entitled to periods of vacation not less than those to which the Executive was entitled on the date that is six months prior to the Operative Date.

(vi)Other Benefits.  On and after the Operative Date and during the Term of this Agreement, the Executive shall be entitled to all Other Benefits not specifically provided for in subsections (i), (ii), (iii), (iv) and (v) of this Section 4(b) that are generally available to full-time officers or employees of the Company.

SECTION 5.  Termination of Employment.

(a)Death or Incapacity.  The Executive’s employment shall terminate automatically upon the Executive’s death.  On and after the Operative Date, the Executive’s employment shall also terminate automatically on his or her Incapacity Effective Date during the Term of this Agreement.

(b)Company Termination.  After the Operative Date, the Company may terminate the Executive’s employment for any reason, subject to the provisions of this Agreement establishing obligations of the Company that arise with respect to certain terminations.

(c)Executive Termination.  After the Operative Date, the Executive may terminate his or her employment for any reason.

(d)Notice of Termination.  On and after the Operative Date and during the Term of this Agreement, any termination by the Company for Cause or Incapacity, or by the Executive for Good Reason, shall be communicated by Notice of Termination to the other party hereto given in accordance with Section 15.  The failure by the Executive or the Company to set forth in the Notice of Termination any fact or circumstance which contributes to a showing of Good Reason, Incapacity or Cause shall not serve to waive any right of the Executive or the Company, respectively, hereunder or preclude the Executive or the Company, respectively, from asserting such fact or circumstance in enforcing the Executive’s or the Company’s rights hereunder.

SECTION 6.  Obligations of the Company upon Termination on or after the Operative Date.

(a)Termination for Good Reason or for Reasons other than for Cause, Death or Incapacity.  If, on or after the Operative Date and during the Term of this Agreement, (x) the Company shall terminate the Executive’s employment other than for Cause, death or Incapacity or (y) the Executive shall terminate his or her employment for Good Reason, then:

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(i)the Company shall pay to the Executive in a lump sum in cash within 30 calendar days after the Date of Termination the aggregate of the following amounts:

(A)the sum of (1) the Executive’s then Annual Base Salary through the Date of Termination to the extent not already paid, plus (2) the product of (x) an amount equal to his or her then Annual Bonus times (y) a fraction, the numerator of which is the number of days in the current fiscal year through the Date of Termination, and the denominator of which is 365 plus (3) any accrued vacation pay to the extent not already paid;

(B)an amount equal to the product of (1) the Multiple times (2) the sum of (x) the Executive’s then Annual Base Salary and (y) his or her then Annual Bonus;

(ii)the Company shall contribute, within 30 calendar days after the Date of Termination, under Section 3 of the Savings Plan (Excess) an amount equal to the sum of (1) the Multiple times the maximum amount that could be contributed by the Company under Section 3 of the Savings Plan (Excess) for a full calendar year based on the Executive’s Compensation (as defined in The Rouse Company Savings Plan) computed for the 12 months immediately preceding such Date of Termination, and (2) one times such maximum amount multiplied by a fraction, the numerator of which is the number of days transpired in the year of termination prior to and including the Date of Termination and the denominator of which is 365;

(iii)for a number of years after the Executive’s Date of Termination equal to the Multiple, or such longer period as may be provided by the terms of the appropriate plan, program, practice or policy, the Company shall continue benefits to the Executive and his or her Dependents at least equal to those which would have been provided to them in accordance with the plans, programs, practices and policies described in Section 4(b)(iii) if the Executive’s employment had not been terminated or, if more favorable to the Executive and his or her Dependents, as in effect generally at any time thereafter;

(iv)the Executive and his or her Dependents shall continue to be eligible to participate in and shall receive all benefits under any plan or program of the Company providing medical benefits as are in effect on the date six months prior to the Operative Date or under any plan or program of a successor to the Company which provides medical benefits that are not less favorable to the Executive and his or her Dependents than such plans or programs of the Company until the date the Executive and his or her Dependents are all eligible for Medicare benefits (by reason of attaining the minimum age for such benefits without regard to whether an application has been made therefor); provided, however, that (A) in no event will a Dependent be eligible for benefits as described in this clause (iv) after the date he or she ceases to be a Dependent and (B) at

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all times after the expiration of the period described in clause (iii) above, the Executive shall pay for such coverage at the same rate as is charged to other similarly situated individuals electing continuation coverage under Section 4980B of the Internal Revenue Code of 1986, as amended (the “Code”);

(v)all outstanding restricted shares and options granted to Executive to purchase Common Shares under the incentive plans of the Company or under any other option or equity incentive plan shall, to the extent not already vested, immediately become fully vested and, in the case of options, shall remain exercisable until the end of the original term of such option without regard to Executive’s termination of employment;

(vi)the Company will continue to pay any premiums due on any individual insurance policies in effect on the life of the Executive for a number of years following the Date of Termination equal to the Multiple, after which time the Company shall distribute such policy to the Executive without requiring the Executive to repay any premiums paid by the Company;

(vii)the Company shall transfer any car made available to the Executive for his or her use by the Company to the Executive for no consideration, provided that the Executive pays any and all transfer taxes and agrees to be solely responsible for insurance and the cost of insurance after the date of transfer;

(viii)the Executive shall be entitled to keep any computer and/or software provided to the Executive by the Company for home or travel use for no consideration;

(ix)the Company, at no cost to the Executive, shall provide the Executive with outplacement services at a firm selected by the Executive for the period commencing on the Date of Termination and ending on the first to occur of (i) the first anniversary of the Executive’s Date of Termination and (ii) the date on which the Executive obtains full-time employment as an employee;

(x)The Company shall make immediate payment of any deferred compensation balances not already paid to the Executive;

(xi)There shall be immediate vesting of any outstanding equity- and performance-based awards; and

(xii)to the extent not already paid or provided, the Company shall timely pay or provide to the Executive all Other Benefits to the extent accrued on the Date of Termination and not specifically provided for in subsections (i) through (xi) of this Section 6(a).

(b)Death or Incapacity.  If the Executive’s employment is terminated on or after the Operative Date by reason of the Executive’s death or Incapacity, the sole

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payments and benefits to which the Executive or the Executive’s legal representatives shall be entitled hereunder shall be (i) timely payment of Accrued Obligations and (ii) provision by the Company of death benefits or disability benefits for termination due to death or Incapacity, respectively, in accordance with Sections 4(b)(iii) and 6(a)(vi) as in effect at the Operative Date or, if more favorable to the Executive, at the Executive’s Date of Termination.

(c)Cause; Other than for Good Reason.  If the Executive’s employment shall be terminated on or after the Operative Date for Cause, the sole payments and benefits to which the Executive shall be entitled hereunder shall be (x) the Executive’s then Annual Base Salary through the Date of Termination and (y) Other Benefits, but in each case only to the extent unpaid as of the Date of Termination.  If the Executive voluntarily terminates employment during the Term of this Agreement, excluding a termination for Good Reason on or after the Operative Date, the sole payments and benefits to which the Executive shall be entitled hereunder shall be the timely payment of Accrued Obligations and Other Benefits.

SECTION 7.  Non-exclusivity of Rights.  Nothing in this Agreement shall prevent or limit the Executive’s continuing or future participation in any plan, program, policy or practice provided by the Company and for which the Executive may qualify, nor, subject to Section 17(c), shall anything herein limit or otherwise affect such rights as the Executive may have under any contract or agreement with the Company.  Amounts which are vested benefits or which the Executive is otherwise entitled to receive under any plan, policy, practice or program of, or any contract or agreement with, the Company at or subsequent to the Date of Termination shall be payable in accordance with such plan, policy, practice, program, contract or agreement except as explicitly modified by this Agreement.

SECTION 8.  No Mitigation.  The Company agrees that, if the Executive’s employment is terminated on or after the Operative Date and during the Term of this Agreement for any reason, the Executive is not required to seek other employment or to attempt in any way to reduce any amounts payable to the Executive hereunder.  Further, the amount of any payment or benefit provided hereunder on or after the Operative Date shall not be reduced by any compensation earned by the Executive as the result of employment with another employer, by retirement benefits, by offset against any amount claimed to be owed by the Executive to the Company, or otherwise; provided that, notwithstanding the foregoing, the Company shall have the right to offset any amounts earned by the Executive in violation of Section 12 against any amounts otherwise due the Executive hereunder.

SECTION 9.  Resolution of Disputes.

(a)Negotiation.  Subject to the rights of the Company pursuant to Section 12(d), the parties shall attempt in good faith to resolve any dispute arising out of or

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relating to this Agreement promptly by negotiations between the Executive and an executive officer of the Company or member of the Board as may be designated by the Board who has authority to settle the controversy.  Any party may give the other party written notice of any dispute not resolved in the normal course of business.  Within 10 days after the effective date of such notice, the Executive and an executive officer of the Company shall meet at a mutually acceptable time and place within the Baltimore-Washington metropolitan area, and thereafter as often as they reasonably deem necessary, to exchange relevant information and to attempt to resolve the dispute.  If the matter has not been resolved within 30 days of the disputing party’s notice, or if the parties fail to meet within 10 days, either party may initiate arbitration of the controversy or claim as provided hereinafter.  If a negotiator intends to be accompanied at a meeting by an attorney, the other negotiator shall be given at least three business days notice of such intention and may also be accompanied by an attorney.  All negotiations pursuant to this Section 9(a) shall be treated as compromise and settlement negotiations for the purposes of the federal and state rules of evidence and procedure.

(b)Arbitration.  Subject to the rights of the Company pursuant to Section 12(d), any dispute arising out of or relating to this Agreement or the breach, termination or validity thereof, which has not been resolved by nonbinding means as provided in Section 9(a) within 60 days of the initiation of such procedure, shall be finally settled by arbitration conducted expeditiously in accordance with the Center for Public Resources, Inc.  (“CPR”) Rules for Non-Administered Arbitration of Business Disputes by three independent and impartial arbitrators, of whom each party shall appoint one, provided that if one party has requested the other to participate in a non-binding procedure and the other has failed to participate, the requesting party may initiate arbitration before the expiration of such period.  Any such party shall be appointed from the CPR Panels of Neutrals.  The arbitration shall be governed by the United States Arbitration Act and any judgment upon the award decided upon the arbitrators may be entered by any court having jurisdiction thereof.  The arbitrators are not empowered to award damages in excess of compensatory damages and each party hereby irrevocably waives any damages in excess of compensatory damages.  Each party hereby acknowledges that compensatory damages include (without limitation) any benefit or right of indemnification given by another party to the other under this Agreement.

(c)Expenses.  The Company shall promptly pay or reimburse the Executive for all costs and expenses, including, without limitation, court costs and attorneys fees, incurred by the Executive as a result of any claim, action or proceeding (including, without limitation a claim action or proceeding by the Executive against the Company) arising out of, or challenging the validity or enforceability of, this Agreement or any provision hereof or any other agreement or entitlement referred to herein.

SECTION 10.  Certain Additional Payments by the Company.  Subject only to the next following paragraph, in the event that it shall be determined that any payment or

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distribution by the Company to or for the benefit of the Executive, whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise (a “Payment”), would be subject to the excise tax imposed by Section 4999 of the Code (or any successor provision of the Code) or any interest or penalties with respect to such excise tax (such excise tax, together with any such interest and penalties, are hereinafter collectively referred to as the “Excise Tax”), then the Executive shall be entitled to receive an additional payment (an “Excise Gross-Up Payment”) in an amount such that after payment by the Executive of all taxes (including any interest or penalties imposed with respect to such taxes), including any Excise Tax imposed upon the Excise Gross-Up Payment, the Executive retains an amount of the Excise Gross-Up Payment equal to the Excise Tax imposed upon the Payments.  Subject to the provisions of this Section 10, all determinations required to be made hereunder, including whether an Excise Gross-Up Payment is required and the amount of such Excise Gross-Up Payment, shall be made by KPMG LLP or such other nationally recognized accounting firm as may be designated by the Company (the “Accounting Firm”) at the sole expense of the Company, which shall provide detailed supporting calculations both to the Company and the Executive within 15 business days of the date of termination of the Executive’s employment under this Agreement, if applicable, or such earlier time as is requested by the Company.  If the Accounting Firm determines that no Excise Tax is payable by the Executive, the Accounting Firm shall furnish the Executive with an opinion that he or she has substantial authority not to report any Excise Tax on his or her federal income tax return.  Any determination by the Accounting Firm shall be binding upon the Company and the Executive.  As a result of the uncertainty in the application of Section 4999 of the Code (or any successor provision of the Code) at the time of the initial determination by the Accounting Firm hereunder, it is possible that Excise Gross-Up Payments which will not have been made by the Company should have been made (an “Underpayment”), consistent with the calculations required to be made hereunder.  If the Company exhausts its remedies pursuant hereto and the Executive thereafter is required to make a payment of any Excise Tax, the Accounting Firm shall determine the amount of the Underpayment that has occurred and any such Underpayment shall be promptly paid by the Company to or for the benefit of the Executive.

Notwithstanding the immediately preceding paragraph, in the event that a reduction to the Payments in respect of the Executive of 10% or less would cause no Excise Tax to be payable, the Executive will not be entitled to a Gross-Up Payment and the Payments shall be reduced to the extent necessary so that the Payments shall not be subject to the Excise Tax.  Unless the Executive shall have given prior written notice to the Company specifying a different order by which to effectuate the foregoing, the Company shall reduce or eliminate the Payments by first reducing or eliminating the portion of the Payments which are not payable in cash and then by reducing or eliminating cash payments, in each case in reverse order beginning with payments or benefits which are to be paid the farthest in time from the date of the Change in Control.  Any notice given by the Executive pursuant to the preceding sentence shall take

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precedence over the provisions of any other plan, arrangement or agreement governing the Executive’s rights and entitlements to any benefits or compensation.  An illustration of the reduction permitted by this paragraph is set forth on Attachment A to this Agreement.

The Executive shall notify the Company in writing of any claim by the Internal Revenue Service that, if successful, would require the payment by the Company of the Excise Gross-Up Payment.  Such notification shall be given as soon as practicable but no later than 10 business days after the Executive knows of such claim and shall apprise the Company of the nature of such claim and the date on which such claim is requested to be paid.  The Executive shall not pay such claim prior to the expiration of the 30-day period following the date on which he or she gives such notice to the Company (or such shorter period ending on the date that any payment of taxes with respect to such claim is due).  If the Company notifies the Executive in writing prior to the expiration of such period that it desires to contest such claim, the Executive shall:

(i)give the Company any information reasonably requested by the Company relating to such claim;

(ii)take such action in connection with contesting such claim as the Company shall reasonably request in writing from time to time, including (without limitation) accepting legal representation with respect to such claim by an attorney reasonably selected by the Company;

(iii)cooperate with the Company in good faith to contest effectively such claim; and

(iv)permit the Company to participate in any proceedings relating to such claim;

provided that the Company shall bear and pay directly all costs and expenses (including additional interest and penalties) incurred in connection with such contest and shall indemnify and hold the Executive harmless, on an after-tax basis, for any Excise Tax or income tax, including interest and penalties with respect thereto, imposed as a result of such representation and payment of costs and expenses.  Without limitation on the foregoing provisions hereof, the Company shall control all proceedings taken in connection with such contest and, at its sole option, may pursue or forgo any and all administrative appeals, proceedings, hearings and conferences with the taxing authority in respect of such claim and may, at its sole option and to the maximum extent permitted by applicable law, either direct the Executive to pay the tax claimed and sue for a refund or contest the claim in any permissible manner, and the Executive agrees to prosecute such contest to a determination before any administrative tribunal, in a court of initial jurisdiction and in one or more appellate courts as the Company shall determine, provided that if the Company directs the Executive to pay such claim and sue for a

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refund, the Company shall advance the amount of such payment to the Executive, on an interest-free basis and shall indemnify and hold the Executive harmless, on an after-tax basis, from any Excise Tax or income tax, including interest or penalties with respect thereto, imposed with respect to such advance or with respect to any imputed income with respect to such advance, and further provided that any extension of the statute of limitations relating to payment of taxes for the taxable year of the Executive with respect to which such contested amount is claimed to be due is limited solely to such contested amount.  Furthermore, the Company’s control of the contest shall be limited to issues with respect to which an Excise Gross-Up Payment would be payable hereunder, and the Executive shall be entitled to settle or contest, as the case may be, any other issue raised by the Internal Revenue Service or any other taxing authority.

If, after the receipt by the Executive of an amount advanced by the Company pursuant hereto, the Executive becomes entitled to receive any refund with respect to such claim, the Executive shall (subject to the Company’s complying with the requirements hereof) promptly pay to the Company the amount of such refund (together with any interest paid or credited thereon after taxes applicable thereto).  If, after the receipt by the Executive of an amount advanced by the Company pursuant hereto, a determination is made that the Executive shall not be entitled to any refund with respect to such claim and the Company does not notify the Executive in writing of its intent to contest such denial of refund prior to the expiration of 30 days after such determination, then such advance shall be forgiven and shall not be required to be repaid and the amount of such advance shall offset, to the extent thereof, the amount of Excise Gross-Up Payment required to be paid.

SECTION 11.  Reduction of Payments and Benefits.  Notwithstanding any provision of this Agreement to the contrary, in the event that the Total Executive Parachute Payments (as hereinafter defined) exceed 2% of the Subject Amount (as hereinafter defined), then the payments and benefits to be paid and provided to the Executive hereunder shall be reduced to the Reduced Amount (as hereinafter defined).  Unless the Executive shall have given prior written notice to the Company specifying a different order by which to effectuate such reduction, those payments and benefits that are not payable in cash shall be reduced or eliminated first, and those payments and benefits that are payable in cash shall be reduced or eliminated only after all non-cash payments and benefits have been eliminated and, in each case payments and benefits shall be reduced in reverse order beginning with those that are to be paid the farthest in time from the date of the Change in Control.  Any notice given by the Executive pursuant to the preceding sentence shall take precedence over the provisions of any other plan, arrangement or agreement governing the Executive’s rights and entitlements to any benefits or compensation.  An illustration of the reduction permitted by this Section 11 is set forth on Attachment B to this Agreement.

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For purposes of this Section 11, the following terms shall have the following meanings:

“Total Executive Parachute Payments” means the total aggregate cash value of all payments in the nature of compensation that are contingent on a change in ownership or control of the Company (as determined under Treasury Regulation § 1.280G-1 or successor regulation thereto) to be paid or provided to Anthony W. Deering pursuant to the Deering Retention Agreement and to all executives who are parties to Executive Agreements with the Company that provide the same (or substantially similar) payments and benefits as those payments and benefits to be paid or provided pursuant to Section 6(a) (and, if applicable, Section 10) of this Agreement (it being understood that the application of different multiples or formulas in calculating substantially similar types of payments or benefits shall not cause such payments or benefits not to be substantially similar), determined immediately following the Change in Control and assuming that Mr. Deering’s employment and all such Executives’ employment have been terminated immediately following the Change in Control under circumstances that entitle them to such payments and benefits.

“Reduced Amount” means the product of (i) 2% of the Subject Amount times (ii) a fraction, the numerator of which is the portion of the Total Executive Parachute Payments allocable to the Executive and the denominator of which is the Total Executive Parachute Payments.

“Subject Amount” means the amount determined by multiplying (i) the total number of outstanding Common Shares immediately prior to the Change in Control (assuming, for this purpose, that all securities convertible into Common Shares have been so converted, other than stock options and warrants as to which the per share exercise price exceeds the last publicly available trading price of a Common Share prior to the Change in Control (or, if higher, the per share cash value of the consideration to be paid to holders of the Common Shares as a result of the Change in Control)) times (ii) the last publicly available trading price of a Common Share prior to the Change in Control (or, if higher, the per share cash value of the consideration to be paid to holders of the Common Shares as a result of the Change in Control); provided, that there shall be subtracted therefrom the aggregate exercise price of all stock options and warrants not so excluded.

SECTION 12.  Executive Covenants.

(a)Non-competition.  During the Non-Competition Period (as hereinafter defined), the Executive shall not, except with the Company’s permission (which may be withheld in the Company’s sole discretion) be, or be connected in any manner with, a Competitor (as hereinafter defined) (whether directly as an individual or in the capacity of a director, officer or employee of, debt or equity investor in, or consultant or other

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independent contractor to, a Competitor, or indirectly through direct or indirect ownership, management, operation or control of a person that is a Competitor); provided that in no event shall ownership of not more than 5% or less of the outstanding equity securities of any issuer whose securities are registered under the Exchange Act, standing alone, be prohibited by this Section 12(a), so long as the Executive does not have, or exercise, any rights to manage, operate or control the business of such issuer.  For purposes of this Section 12(a), a “Competitor” shall mean any person that is engaged, directly or indirectly, in any business or activity which is competitive with any activity or business in which the Company or any its affiliates is engaged as of the Date of Termination (including, without limitation, any business or activity which has, as a principal line of business, broad scale long term community development (e.g., broad scale long term community development/land sale projects like Columbia, Maryland and Summerlin, Nevada) and/or the development, ownership or management of regional retail shopping centers in the United States (specifically including, without limitation, Simon Property Group, Inc., Westfield America Trust, The Taubman Centers, Inc., General Growth Properties, Inc., The Macerich Company, CBL & Associates Properties, Inc., Federal Realty Investment Trust, or any of their subsidiaries or affiliates)).  For purposes of this Agreement, the “Non-Competition Period” shall mean the period beginning on the Effective Date and ending on the Date of Termination; provided, however, that if the Executive’s employment is terminated following the Effective Date by the Company for Cause or by the Executive other than for Good Reason, the Non-Competition Period shall continue following the Date of Termination for a period of 2 years.

(b)Non-solicitation.  During the Non-Competition Period, the Executive shall not, other than on behalf of the Company or any of its affiliates or with the Company’s permission (which may be withheld in the Company’s sole discretion), (1) contact, induce or solicit (or assist any person to contact, induce or solicit) any person which has a business relationship with the Company or any of its affiliates to terminate, curtail or otherwise limit such business relationship, or (2) contact, induce or solicit (or assist any person to contact, induce or solicit) for employment (whether as an employee or consultant or other independent contractor) any person who is, or within 12 months prior to the date of such action was, an employee of the Company or any of its affiliates.

(c)Cooperation.  In the event of termination of the Executive’s employment, for whatever reason (other than death), the Executive agrees for a period of 12 months thereafter to cooperate with the Company and its affiliates and to be reasonably available to the Company and its affiliates for a reasonable period of time thereafter with respect to matters arising out of the Executive’s employment by or any other relationship with the Company and its affiliates, whether such matters are business-related or otherwise.  The Company shall reimburse the Executive for all expenses reasonably incurred by the Executive during such period in connection with such cooperation.

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(d)Remedies.  The Executive agrees that any breach of the terms of this Section 12 would result in irreparable injury and damage to the Company for which the Company would have no adequate remedy at law; the Executive therefore also agrees that in the event of said breach or any threat of breach, the Company shall be entitled to an immediate injunction and restraining order to prevent such breach and/or threatened breach and/or continued breach by the Executive and/or any and all persons and/or entities acting for and/or with the Executive, without having to prove damages, in addition to any other remedies to which the Company may be entitled at law or in equity.  The terms of this paragraph shall not prevent the Company from pursuing any other available remedies for any breach or threatened breach hereof, including, without limitation, the recovery of damages from the Executive.  The Executive and the Company further agree that the provisions of the covenants contained in this Section 12 are reasonable and necessary to protect the businesses of the Company and its affiliates because of the Executive’s access to confidential information and his or her material participation in the operation of such businesses.  Should a court or arbitrator determine, however, that any provision of the covenants contained in this Section 12 is not reasonable or valid, either in period of time, geographical area, or otherwise, the parties hereto agree that such provision should be interpreted and enforced to the maximum extent which such court or arbitrator deems reasonable or valid.

The existence of any claim or cause of action by the Executive against the Company or any of its affiliates, whether predicated on this Agreement or otherwise, shall not constitute a defense to the enforcement by the Company of the covenants contained in this Section 12.

SECTION 13.  Successors; Binding Agreement.

(a)The Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business or assets of the Company, by agreement, in form and substance satisfactory to the Executive, expressly to assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform if no such succession had taken place.  Failure of the Company to obtain such assumption and agreement prior to the effectiveness of any such succession will be a breach of this Agreement and entitle the Executive to compensation from the Company in the same amount and on the same terms as the Executive would be entitled to hereunder had the Company terminated the Executive for reason other than Cause or Incapacity on the succession date.  As used in this Agreement, the “Company” means the Company as defined in the preamble to this Agreement and any successor to its business or assets which executes and delivers the agreement provided for in this Section 13 or which otherwise becomes bound by all the terms and provisions of this Agreement by operation of law or otherwise.

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(b)This Agreement shall be enforceable by the Executive’s personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees.

SECTION 14.   Nonassignability.  This Agreement is personal in nature and neither of the parties hereto shall, without the consent of the other, assign or transfer this Agreement or any rights or obligations hereunder, except as provided in Section 13.  Without limiting the foregoing, the Executive’s right to receive payments hereunder shall not be assignable or transferable, whether by pledge, creation of a security interest or otherwise, other than a transfer by his or her will or by the laws of descent or distribution and, in the event of any attempted assignment or transfer by the Executive contrary to this Section 14, the Company shall have no liability to pay any amount so attempted to be assigned or transferred.

SECTION 15.  Notices.  For the purpose of this Agreement, notices and all other communications provided for herein shall be in writing and shall be deemed to have been duly given when delivered by hand or mailed by United States registered or certified mail, return receipt requested, postage prepaid, addressed as follows:

If to the Executive - at the address included on the signature page.

If to the Company:

The Rouse Company

10275 Little Patuxent Parkway

Columbia, Maryland 21044

Attention: General Counsel

or to such other address as either party may have furnished to the other in writing in accordance herewith, except that notices of change of address shall be effective only upon receipt.

SECTION 16.  Governing Law.  The validity, interpretation, construction and performance of this Agreement shall be governed by the laws of the State of Maryland without reference to principles of conflict of laws.

SECTION 17.  Miscellaneous.

(a)This Agreement contains the entire understanding with the Executive with respect to the subject matter hereof and supersedes any and all prior agreements or understandings, written or oral, relating to such subject matter.  No provision of this Agreement may be modified, waived or discharged unless such modification, waiver or discharge is agreed to in a writing signed by the Executive and the Company.  The rights

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and obligations of the Company and the Executive hereunder shall survive the expiration of the Term.

(b)The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement.

(c)Except as provided herein, this Agreement shall not be construed to affect in any way any rights or obligations in relation to the Executive’s employment by the Company prior to the Operative Date or subsequent to the end of the Term.

(d)This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original but all of which together will constitute one and the same Agreement.

(e)The Company may withhold from any benefits payable under this Agreement all Federal, state, local or other taxes as shall be required by law.

(f)The captions of this Agreement are not part of the provisions hereof and shall have no force or effect.

IN WITNESS WHEREOF, the parties have caused this Agreement to be executed and delivered as of the day and year first above set forth.

THE ROUSE COMPANY
By:	/s/ Anthony W. Deering
Name:		Anthony W. Deering
Title:		Chairman and Chief Executive Officer
/s/ Robert Minutoli
Robert Minutoli
(Executive)
(Street Address)
(City, State, Zip Code)

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Attachment A

(for illustrative purposes only)

(Note:  All of the quoted terms in the following illustration have the meanings assigned to them in Section 280G of the Code and the final regulations promulgated thereunder.  All capitalized terms have the meanings set forth in the Agreement.)

Assumptions

•A “change in ownership or control” of the Company occurs in January 2005.

•Immediately following the change in ownership or control, the executive receives a single cash payment of $1.25 million, all of which is a “parachute payment.”

•The executive is a “disqualified individual” and his “base amount” is $400,000 at the time of the change in ownership or control.

•The $1.25 million payment is the only payment to which the executive is entitled by reason of the change in ownership or control.

Because the payment exceeds three times the executive’s base amount, the payment is subject to the excise tax imposed by Section 4999 of the Code.  However, if the payment were reduced by $50,001, no excise tax would be payable because the payment would not equal or exceed three times the executive’s base amount.  Because $50,001 is a 10% or less reduction of the payment, the Company is permitted to make the reduction pursuant to the second paragraph of Section 10 of the Agreement.

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Attachment B
(for illustrative purposes only)

(Note:  All capitalized terms have the meanings set forth in the Agreement.)

Assumptions

•10 executives of the Company are parties to Executive Agreements that are the same as the Agreement.

•The Company is acquired for $50 per share.

•The only equity outstanding at the time of the transaction is 50 million shares of common stock.

•The Total Executive Payments calculated in accordance with Section 12 of the Agreement as of immediately following the transaction are $60 million.

The Subject Amount in this illustration is $2.5 billion, and 2% of the Subject Amount is $50 million.  Because the Total Executive Payments exceed 2% of the Subject Amount, they are subject to reduction pursuant to Section 11 of the Agreement.  As to any executive, the reduction would be effected pursuant to the following formula:  (2% of $2.5 billion) times ((the Total Executive Payments allocable to him or her) divided by $60 million).  For example, if the Total Executive Payments allocable to an executive in the transaction were $15 million, his or her Reduced Amount would be $12,500,000.  If the Total Executive Payments allocable to another executive in the transaction were $1 million, that executive’s Total Executive Payments would be reduced to $833,333.33.  (Note that, as to each executive, the ratio of the Reduced Amount to the Total Executive Payments is the same (in this illustration, .83333).)  The effect of these reductions would be that the aggregate Reduced Amount for the ten executives equal $50,000,000.

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EX-10.3

Exhibit 10.3

The Rouse Company

10275 Little Patuxent Parkway

Columbia, MD 21044

August 9, 2004

Anthony W. Deering

The Rouse Company

10275 Little Patuxent Parkway

Columbia, MD 21044

Dear Mr. Deering:

As authorized by the Board of Directors of The Rouse Company (the “Company”), the Employment Agreement, dated as of September 24, 1998, as amended, to which you and the Company are parties (the “Employment Agreement”), is hereby amended as follows:

1.The payments and benefits to be paid and provided pursuant to Sections 4.3, 4.6 and 4.7 of the Employment Agreement following a Change in Control (as defined in the Employment Agreement) of the Company shall be subject to Exhibit A attached hereto and accordingly may be reduced upon application of the formula set forth therein.

2.As you know, accruals under the Company’s tax-qualified Pension Plan (the “Pension Plan”) and Supplemental Benefit Retirement Plan (the “SERP”) have been frozen, and these plans are in the process of being terminated.  Accordingly, in full satisfaction of the Company’s obligation under the Employment Agreement to pay you the “Retirement Supplement” (as defined in Section 2.4 thereof), the Company shall contribute [$1,696,102] to your account maintained under the Company’s Savings Plan in a direct rollover, and the Company shall credit [$12,313,764] to your notional account maintained under the Company’s Excess Savings Plan.  This contribution and this credit shall be made on the date on which distributions and credits are made in respect of other participants in the Pension Plan and the SERP.  You acknowledge and agree that this contribution and this credit equal, in the aggregate, the present value of your frozen accrued benefit under the Pension Plan and the SERP.

3.The references to “the SERP” in Section 4.3(h)(A) of your Employment Agreement shall be deemed to refer to the Company’s Excess Savings Plan, and Section 4.3(h)(B) of your Employment Agreement is hereby deleted.

In all respects other than as amended by this letter, the Employment Agreement shall remain in full force and effect.

Please acknowledge your agreement to the above amendment by signing this letter below and returning a copy to me.

	Very truly yours,
	THE ROUSE COMPANY
	/s/	Gordon H. Glenn
	By:	Gordon H. Glenn
	Its:	Senior Vice President,
		General Counsel and Secretary
ACKNOWLEDGED AND AGREED
/s/ Anthony W. Deering
Anthony W. Deering

Exhibit A

Reduction of Payments and Benefits

Notwithstanding any provision of the Employment Agreement to the contrary, in the event that the Total Executive Parachute Payments (as hereinafter defined) exceed 2% of the Subject Amount (as hereinafter defined), then the payments and benefits to be paid and provided to you hereunder shall be reduced to the Reduced Amount (as hereinafter defined). Unless you shall have given prior written notice to the Company specifying a different order by which to effectuate such reduction, those payments and benefits that are not payable in cash shall be reduced or eliminated first, and those payments and benefits that are payable in cash shall be reduced or eliminated only after all non-cash payment and benefits have been eliminated and, in each case payments and benefits shall be reduced in reverse order beginning with those that are to be paid the farthest in time from the date of the Change in Control.  Any notice given by you pursuant to the preceding sentence shall take precedence over the provisions of any other plan, arrangement or agreement governing your rights and entitlements to any benefits or compensation.

For purposes of this Exhibit A, the following terms shall have the following meanings:

“Total Executive Parachute Payments” means the total aggregate cash value of all payments in the nature of compensation that are contingent on a change in ownership or control of the Company (as determined under Treasury Regulation § 1.280G-1 or successor regulation thereto) to be paid or provided to you pursuant to Sections 4.3 and 4.6 (and, if applicable, Section 4.7) of the Employment Agreement and to all executives who are parties to Executive Agreements with the Company that provide the same (or substantially similar) payments and benefits as those payments and benefits to be paid or provided to you pursuant to Sections 4.3 and 4.6 (and, if applicable, Section 4.7) of the Employment Agreement (it being understood that the application of different multiples or formulas in calculating substantially similar types of payments or benefits shall not cause such payments or benefits not to be substantially similar), determined immediately following the Change in Control and assuming that your employment and the employment of all executives who are parties to Executive Agreements have been terminated immediately following the Change in Control under circumstances that entitle you and them to such payments and benefits.

“Reduced Amount” means the product of (i) 2% of the Subject Amount times (ii) a fraction, the numerator of which is the portion of the Total Executive Parachute Payments allocable to you and the denominator of which is the Total Executive Parachute Payments.

“Subject Amount” means the amount determined by multiplying (i) the total number of outstanding shares of common stock of the Company (the “Common Shares”) immediately prior to the Change in Control (assuming, for this purpose, that all securities convertible into Common Shares have been so converted, other than

stock options and warrants as to which the per share exercise price exceeds the last publicly available trading price of a Common Share prior to the Change in Control (or, if higher, the per share cash value of the consideration to be paid to holders of the Common Shares as a result of the Change in Control) times (ii) the last publicly available trading price of a Common Share prior to the Change in Control (or, if higher, the per share cash value of the consideration to be paid to holders of the Common Shares as a result of the Change in Control); provided, that there shall be subtracted therefrom the aggregate exercise price of all stock options and warrants not so excluded.

EX-10.4

Exhibit 10.4

EXECUTIVE AGREEMENT dated

August 19, 2004 (the “Effective Date”) between

THE ROUSE COMPANY

(together with its subsidiaries and affiliates, the “Company”)

and Thomas J. DeRosa (the “Executive”)

The Company and the Executive agree as follows:

SECTION 1.  Definitions.  As used in this Agreement:

(a)“Accrued Obligations” means the sum of the amounts described in Section 6(a)(i)(A) and clause (2) of Section 6(a)(ii).

(b)“Annual Base Salary” means the Executive’s salary at a rate not less than the Executive’s annualized salary in effect (i) immediately prior to the Operative Date, (ii) on the date that is six months prior to the Operative Date or (iii) as of any date after the Operative Date (whichever date results in the highest salary).

(c)“Annual Bonus” in any year means an amount that is not less than annual cash bonus that would be paid to the Executive with respect to such year assuming that the Executive and the Company satisfied all applicable performance at the “target,” “satisfactory,” “acceptable” or other similar level.

(d)“Board” means the Board of Directors of the Company.

(e)“Cause” means (i) the willful and continued failure of the Executive to perform substantially the Executive’s duties owed to the Company after a written demand for substantial performance is delivered to the Executive which specifically identifies the nature of such non-performance (other than any such failure resulting from the Executive’s incapacity due to physical or mental illness or any such actual or anticipated failure after the issuance of a Notice of Termination by the Executive for Good Reason pursuant to Section 5(d)), (ii) willful gross misconduct by the Executive that is significantly and demonstrably injurious to the Company, or (iii) the Executive in the course of his or her employment (x) is convicted of a felony or (y) willfully engages in a fraud that results in material harm to the Company.  No act or omission on the part of the Executive shall be considered “willful” unless it is done or omitted in bad faith or without reasonable belief that the action or omission was in the best interests of the Company.  For purposes of this Section 1(e), any act or failure to act based upon authority given pursuant to a resolution duly adopted by the Board or upon the instructions of the Board, the Company’s Chief Executive Officer or other executive officer of the Company, or based upon the advice of counsel for the Company shall be conclusively presumed to be done, or omitted to be done, by the Executive in good faith and in the best interests of the Company.  Notwithstanding the foregoing, the Executive shall not be deemed to have been terminated for Cause without (1) reasonable notice to the Executive setting forth the

reasons for the Company’s intention to terminate for Cause, (2) an opportunity for the Executive, together with his or her counsel, to be heard before the Board, and (3) delivery to the Executive of a Notice of Termination from the Board finding that in the good faith opinion of three-quarters (3/4) of the Board the Executive was guilty of conduct set forth in clause (i), (ii) or (iii) above and specifying the particulars thereof in detail.

(f)A “Change in Control” shall mean the occurrence of any of the following after the Effective Date:

(a)An acquisition (other than directly from the Company) of any voting securities of the Company (the “Voting Securities”) by any “Person” (as the term “person” is used for purposes of Section 13(d) or 14(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)), immediately after which such Person has “Beneficial Ownership” (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of more than twenty percent (20%) of (1) the then-outstanding Common Shares (or any other securities into which the Common Shares are changed or for which the Common Shares are exchanged) or (2) the combined voting power of the Company’s then-outstanding Voting Securities, in either case unless such acquisition is expressly approved by resolution of the Board (x) adopted at a meeting of the Board held not later than the date of the next regularly scheduled or special meeting held following the date that the Company obtains actual knowledge of such acquisition or threatened acquisition and (y) passed upon affirmative vote of not less than a majority of the Board present at such meeting (which approval may be limited in purpose and effect solely to affecting the rights of the Executive under this Agreement); provided, however, that in determining whether a Change in Control has occurred pursuant to this paragraph (a), the acquisition of Common Shares or Voting Securities in a Non-Control Acquisition (as hereinafter defined) shall not constitute a Change in Control.  A “Non-Control Acquisition” shall mean an acquisition by (i) an employee benefit plan (or a trust forming a part thereof) maintained by (A) the Company or (B) any corporation or other Person the majority of the voting power, voting equity securities or equity interest of which is owned, directly or indirectly, by the Company (for purposes of this definition, a “Related Entity”), (ii) the Company or any Related Entity, or (iii) any Person in connection with a Non-Control Transaction (as hereinafter defined);

(b)The individuals who, as of the Effective Date, are members of the board of directors of the Company (the “Incumbent Board”), cease for any reason to constitute at least a majority of the members of the board of directors of the Company or, following a Merger (as hereinafter defined), the board of directors of (x) the corporation resulting from such Merger (the “Surviving Corporation”), if fifty percent (50%) or more of the combined voting power of the then-outstanding voting securities of the Surviving Corporation is not Beneficially Owned, directly or indirectly, by another Person (a “Parent Corporation”) or (y) if there is one or more than one Parent Corporation, the ultimate Parent Corporation; provided, however, that, if the election, or nomination for

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election by the Company’s common stockholders, of any new director was approved by a vote of at least two-thirds of the Incumbent Board, such new director shall, for purposes of the Plan, be considered a member of the Incumbent Board; and provided, further, however, that no individual shall be considered a member of the Incumbent Board if such individual initially assumed office as a result of an actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the board of directors of the Company (a “Proxy Contest”), including by reason of any agreement intended to avoid or settle any Proxy Contest; or

(c)The consummation of a merger, consolidation or reorganization (1) with or into the Company or (2) in which securities of the Company are issued (a “Merger”), unless such Merger is a Non-Control Transaction.  A “Non-Control Transaction” shall mean a Merger in which:

(A)the stockholders of the Company immediately before such Merger own directly or indirectly immediately following such Merger at least eighty percent (80%) of the combined voting power of the outstanding voting securities of (x) the Surviving Corporation, if there is no Parent Corporation or (y) if there is one or more than one Parent Corporation, the ultimate Parent Corporation; and

(B)the individuals who were members of the Incumbent Board immediately prior to the execution of the agreement providing for such Merger constitute at least a majority of the members of the board of directors of (x) the Surviving Corporation, if there is no Parent Corporation, or (y) if there is one or more than one Parent Corporation, the ultimate Parent Corporation; or

(d)the shareholders of the Company approve (a) the sale or disposition by the Company (other than to a subsidiary of the Company) of all or substantially all of the assets of the Company, or (b) a complete liquidation or dissolution of the Company.

If (i) the Executive’s employment is terminated by the Company without Cause prior to the date of a Change in Control or (ii) an action is taken with respect to the Executive prior to the date of a Change in Control that would constitute Good Reason if taken after a Change in Control, and the Executive reasonably demonstrates that such termination or action (A) was at the request of a third party that has indicated an intention or taken steps reasonably calculated to effect a Change in Control or (B) otherwise arose in connection with, or in anticipation of, a Change in Control that has been threatened or proposed, such termination or action shall be deemed to have occurred after such Change in Control for purposes of this Agreement, so long as such Change in Control actually occurs.

(g)“Common Shares” means the Common Stock of the Company.

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(h)“Date of Termination” means: (i) if the Executive’s employment is terminated by the Company for Cause or by the Executive for Good Reason, the date of receipt of the Notice of Termination or any later date specified therein, (ii) if the Executive’s employment is terminated by the Company other than for Cause or Incapacity, the Date of Termination shall be the date on which the Company notifies the Executive of such termination, and (iii) if the Executive’s employment is terminated by reason of death or Incapacity, the Date of Termination shall be the date of death of the Executive or the Incapacity Effective Date, as the case may be.

(i)“Dependents”, as of any date, means the members of the Executive’s family who under the most liberal eligibility rules (as in effect on a date that is six months prior to the Operative Date) of the plans or programs of the Company (or any successor) which provide medical benefits, would, be eligible for benefits under such plans or programs on such date.

(j)“Deering Retention Agreement” means that certain agreement between the Company and Anthony W. Deering dated September 24, 1998, as amended July 12, 1999 and March 31, 2003 and as the same may be further amended.

(k)“Good Reason” means any failure by the Company to comply with any of the provisions of this Agreement, other than an isolated, insubstantial and inadvertent failure not occurring in bad faith and which is remedied by the Company promptly after receipt of notice thereof from the Executive.

(l)“Incapacity” means, and shall be deemed the reason for the termination by the Company of the Executive’s employment, if, as a result of the Executive’s incapacity due to physical or mental illness, (i) the Executive shall have been absent from the full-time performance of the Executive’s duties with the company for a period of six (6) consecutive months, (ii) the Company gives the Executive a Notice of Termination for Incapacity, and (iii) the Executive does not return to the full-time performance of the Executive’s duties within thirty (30) days after such Notice of Termination is given.

(m)“Incapacity Effective Date” means the date on which the period described in Section 1(l)(iii) expires.

(n)“Multiple” means 3.

(o)“Notice of Termination” means a written notice which (i) to the extent applicable, indicates the specific termination provision in this Agreement relied upon, (ii) to the extent applicable, sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive’s employment under such provision, (iii) in the case of termination by the Company for Cause, confirms that such termination is pursuant to a resolution of the Board, and (iv) if the Date of Termination is

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other than the date of receipt of such notice, specifies the termination date (which date shall be not more than 30 calendar days after the giving of such notice).

(p)“Operative Date” means the date on which a Change in Control shall have occurred.

(q)“Other Benefits” means any other amounts or benefits required to be paid or provided or which the Executive is eligible to receive under any plan, program, policy or practice or contract or agreement of the Company, including earned but unpaid and stock and similar compensation, that is in effect on the date that is six months prior to the Operative Date.

(r)“Savings Plan (Excess)” means The Rouse Company Excess Savings Plan as it now exists or may hereafter be amended prior to the date that is six months prior to the Operative Date.

(s)“Term” means the term of this Agreement which shall begin as of the Effective Date and shall continue to and remain in effect until the fourth anniversary of the Effective Date (and any further extensions pursuant to Section 2) or, if later, three years following an Operative Date occurring prior to the later of (i) the fourth anniversary of the Effective Date, or (ii) such later date to which this Agreement has been extended pursuant to Section 2.

SECTION 2.  Extension of this Agreement.  If no Operative Date shall have occurred on or before the 365th calendar day preceding the date on which the Term is then scheduled to expire, then the Term shall automatically be extended for one year unless either party shall have given the other party written notice of its election not to extend the Term; provided, that an election by the Company not to extend the Term shall be void ab initio if, at the time of such election, the Company is a party to an agreement providing for a transaction or transactions that, if consummated, would constitute a Change in Control.

SECTION 3.  Terms of Employment prior to Operative Date.  Except as set forth in Section 12, prior to the Operative Date, the terms and conditions of the Executive’s employment, including the Executive’s rights upon termination of the Executive’s employment, shall be the same as they would have been had this Agreement not been entered into by the Executive and the Company.

SECTION 4.  Terms of Employment on and after Operative Date.

(a)Position and Duties.  (i)  On and after the Operative Date and during the Term of this Agreement, (A) the Executive’s position (including, without limitation, status, offices, titles, authority, duties and responsibilities) shall be at least commensurate in all material respects with the most significant of those held, exercised and assigned

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immediately prior to the Operative Date and (B) the Executive’s primary work location after the Operative Date shall not be changed from his or her primary work location immediately prior to the Operative Date, and the Company shall not require the Executive to travel on Company business to a substantially greater extent than required on the date that is six months prior to the Operative Date, except for travel and temporary assignments which are reasonably required for the full discharge of the Executive’s responsibilities and which are consistent with the Executive’s being based at his or her primary work location.

(ii)On and after the Operative Date and during the Term of this Agreement, but excluding any periods of vacation and sick leave to which the Executive is entitled, the Executive agrees to devote reasonable attention and time during normal business hours to the business and affairs of the Company and, to the extent necessary to discharge the responsibilities assigned to the Executive hereunder, to use the Executive’s reasonable best efforts to perform faithfully and efficiently such responsibilities.

(b)Compensation.  (i)  Salary.  On and after the Operative Date and during the Term of this Agreement, the Executive shall receive compensation at an annual rate not less than his or her Annual Base Salary.

(ii)Stock Incentive, Savings and Other Retirement and Supplemental Retirement Plans.  On and after the Operative Date and during the Term of this Agreement, the Executive will be entitled to participate in all stock incentive, 401(k) savings, pension and other retirement and supplemental retirement plans and programs that are generally available to full-time officers or employees of the Company at levels that have not materially decreased from the levels in effect on the date that is six months prior to the Operative Date.

(iii)Welfare Benefit Plans.  On and after the Operative Date and during the Term of this Agreement, the Executive and any persons who from time to time thereafter are his or her Dependents shall be eligible to participate in and shall receive (or, in the case of life insurance, shall be entitled to have the Executive’s beneficiary receive) all benefits under welfare benefit plans and programs that are generally available to full-time officers or employees of the Company at levels that have not materially decreased from the levels in effect on the date that is six months prior to the Operative Date.

(iv)Business Expenses.  On and after the Operative Date and during the Term of this Agreement, the Company shall, in accordance with policies in effect with respect to the payment of such expenses immediately prior to the Operative Date, pay or reimburse the Executive for all reasonable out-of-pocket travel and other expenses incurred by the Executive in performing services hereunder.  All such expenses shall be accounted for in such reasonable detail as the Company may require.

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(v)Vacations.  On and after the Operative Date and during the Term of this Agreement, the Executive shall be entitled to periods of vacation not less than those to which the Executive was entitled on the date that is six months prior to the Operative Date.

(vi)Other Benefits.  On and after the Operative Date and during the Term of this Agreement, the Executive shall be entitled to all Other Benefits not specifically provided for in subsections (i), (ii), (iii), (iv) and (v) of this Section 4(b) that are generally available to full-time officers or employees of the Company.

SECTION 5.  Termination of Employment.

(a)Death or Incapacity.  The Executive’s employment shall terminate automatically upon the Executive’s death.  On and after the Operative Date, the Executive’s employment shall also terminate automatically on his or her Incapacity Effective Date during the Term of this Agreement.

(b)Company Termination.  After the Operative Date, the Company may terminate the Executive’s employment for any reason, subject to the provisions of this Agreement establishing obligations of the Company that arise with respect to certain terminations.

(c)Executive Termination.  After the Operative Date, the Executive may terminate his or her employment for any reason.

(d)Notice of Termination.  On and after the Operative Date and during the Term of this Agreement, any termination by the Company for Cause or Incapacity, or by the Executive for Good Reason, shall be communicated by Notice of Termination to the other party hereto given in accordance with Section 15.  The failure by the Executive or the Company to set forth in the Notice of Termination any fact or circumstance which contributes to a showing of Good Reason, Incapacity or Cause shall not serve to waive any right of the Executive or the Company, respectively, hereunder or preclude the Executive or the Company, respectively, from asserting such fact or circumstance in enforcing the Executive’s or the Company’s rights hereunder.

SECTION 6.  Obligations of the Company upon Termination on or after the Operative Date.

(a)Termination for Good Reason or for Reasons other than for Cause, Death or Incapacity.  If, on or after the Operative Date and during the Term of this Agreement, (x) the Company shall terminate the Executive’s employment other than for Cause, death or Incapacity or (y) the Executive shall terminate his or her employment for Good Reason, then:

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(i)the Company shall pay to the Executive in a lump sum in cash within 30 calendar days after the Date of Termination the aggregate of the following amounts:

(A)the sum of (1) the Executive’s then Annual Base Salary through the Date of Termination to the extent not already paid, plus (2) the product of (x) an amount equal to his or her then Annual Bonus times (y) a fraction, the numerator of which is the number of days in the current fiscal year through the Date of Termination, and the denominator of which is 365 plus (3) any accrued vacation pay to the extent not already paid;

(B)an amount equal to the product of (1) the Multiple times (2) the sum of (x) the Executive’s then Annual Base Salary and (y) his or her then Annual Bonus;

(ii)the Company shall contribute, within 30 calendar days after the Date of Termination, under Section 3 of the Savings Plan (Excess) an amount equal to the sum of (1) the Multiple times the maximum amount that could be contributed by the Company under Section 3 of the Savings Plan (Excess) for a full calendar year based on the Executive’s Compensation (as defined in The Rouse Company Savings Plan) computed for the 12 months immediately preceding such Date of Termination, and (2) one times such maximum amount multiplied by a fraction, the numerator of which is the number of days transpired in the year of termination prior to and including the Date of Termination and the denominator of which is 365;

(iii)for a number of years after the Executive’s Date of Termination equal to the Multiple, or such longer period as may be provided by the terms of the appropriate plan, program, practice or policy, the Company shall continue benefits to the Executive and his or her Dependents at least equal to those which would have been provided to them in accordance with the plans, programs, practices and policies described in Section 4(b)(iii) if the Executive’s employment had not been terminated or, if more favorable to the Executive and his or her Dependents, as in effect generally at any time thereafter;

(iv)the Executive and his or her Dependents shall continue to be eligible to participate in and shall receive all benefits under any plan or program of the Company providing medical benefits as are in effect on the date six months prior to the Operative Date or under any plan or program of a successor to the Company which provides medical benefits that are not less favorable to the Executive and his or her Dependents than such plans or programs of the Company until the date the Executive and his or her Dependents are all eligible for Medicare benefits (by reason of attaining the minimum age for such benefits without regard to whether an application has been made therefor); provided, however, that (A) in no event will a Dependent be eligible for benefits as described in this clause (iv) after the date he or she ceases to be a Dependent and (B) at

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all times after the expiration of the period described in clause (iii) above, the Executive shall pay for such coverage at the same rate as is charged to other similarly situated individuals electing continuation coverage under Section 4980B of the Internal Revenue Code of 1986, as amended (the “Code”);

(v)all outstanding restricted shares and options granted to Executive to purchase Common Shares under the incentive plans of the Company or under any other option or equity incentive plan shall, to the extent not already vested, immediately become fully vested and, in the case of options, shall remain exercisable until the end of the original term of such option without regard to Executive’s termination of employment;

(vi)the Company will continue to pay any premiums due on any individual insurance policies in effect on the life of the Executive for a number of years following the Date of Termination equal to the Multiple, after which time the Company shall distribute such policy to the Executive without requiring the Executive to repay any premiums paid by the Company;

(vii)the Company shall transfer any car made available to the Executive for his or her use by the Company to the Executive for no consideration, provided that the Executive pays any and all transfer taxes and agrees to be solely responsible for insurance and the cost of insurance after the date of transfer;

(viii)the Executive shall be entitled to keep any computer and/or software provided to the Executive by the Company for home or travel use for no consideration;

(ix)the Company, at no cost to the Executive, shall provide the Executive with outplacement services at a firm selected by the Executive for the period commencing on the Date of Termination and ending on the first to occur of (i) the first anniversary of the Executive’s Date of Termination and (ii) the date on which the Executive obtains full-time employment as an employee;

(x)The Company shall make immediate payment of any deferred compensation balances not already paid to the Executive;

(xi)There shall be immediate vesting of any outstanding equity- and performance-based awards; and

(xii)to the extent not already paid or provided, the Company shall timely pay or provide to the Executive all Other Benefits to the extent accrued on the Date of Termination and not specifically provided for in subsections (i) through (xi) of this Section 6(a).

(b)Death or Incapacity.  If the Executive’s employment is terminated on or after the Operative Date by reason of the Executive’s death or Incapacity, the sole

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payments and benefits to which the Executive or the Executive’s legal representatives shall be entitled hereunder shall be (i) timely payment of Accrued Obligations and (ii) provision by the Company of death benefits or disability benefits for termination due to death or Incapacity, respectively, in accordance with Sections 4(b)(iii) and 6(a)(vi) as in effect at the Operative Date or, if more favorable to the Executive, at the Executive’s Date of Termination.

(c)Cause; Other than for Good Reason.  If the Executive’s employment shall be terminated on or after the Operative Date for Cause, the sole payments and benefits to which the Executive shall be entitled hereunder shall be (x) the Executive’s then Annual Base Salary through the Date of Termination and (y) Other Benefits, but in each case only to the extent unpaid as of the Date of Termination.  If the Executive voluntarily terminates employment during the Term of this Agreement, excluding a termination for Good Reason on or after the Operative Date, the sole payments and benefits to which the Executive shall be entitled hereunder shall be the timely payment of Accrued Obligations and Other Benefits.

SECTION 7.  Non-exclusivity of Rights.  Nothing in this Agreement shall prevent or limit the Executive’s continuing or future participation in any plan, program, policy or practice provided by the Company and for which the Executive may qualify, nor, subject to Section 17(c), shall anything herein limit or otherwise affect such rights as the Executive may have under any contract or agreement with the Company.  Amounts which are vested benefits or which the Executive is otherwise entitled to receive under any plan, policy, practice or program of, or any contract or agreement with, the Company at or subsequent to the Date of Termination shall be payable in accordance with such plan, policy, practice, program, contract or agreement except as explicitly modified by this Agreement.

SECTION 8.  No Mitigation.  The Company agrees that, if the Executive’s employment is terminated on or after the Operative Date and during the Term of this Agreement for any reason, the Executive is not required to seek other employment or to attempt in any way to reduce any amounts payable to the Executive hereunder.  Further, the amount of any payment or benefit provided hereunder on or after the Operative Date shall not be reduced by any compensation earned by the Executive as the result of employment with another employer, by retirement benefits, by offset against any amount claimed to be owed by the Executive to the Company, or otherwise; provided that, notwithstanding the foregoing, the Company shall have the right to offset any amounts earned by the Executive in violation of Section 12 against any amounts otherwise due the Executive hereunder.

SECTION 9.  Resolution of Disputes.

(a)Negotiation.  Subject to the rights of the Company pursuant to Section 12(d), the parties shall attempt in good faith to resolve any dispute arising out of or

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relating to this Agreement promptly by negotiations between the Executive and an executive officer of the Company or member of the Board as may be designated by the Board who has authority to settle the controversy.  Any party may give the other party written notice of any dispute not resolved in the normal course of business.  Within 10 days after the effective date of such notice, the Executive and an executive officer of the Company shall meet at a mutually acceptable time and place within the Baltimore-Washington metropolitan area, and thereafter as often as they reasonably deem necessary, to exchange relevant information and to attempt to resolve the dispute.  If the matter has not been resolved within 30 days of the disputing party’s notice, or if the parties fail to meet within 10 days, either party may initiate arbitration of the controversy or claim as provided hereinafter.  If a negotiator intends to be accompanied at a meeting by an attorney, the other negotiator shall be given at least three business days notice of such intention and may also be accompanied by an attorney.  All negotiations pursuant to this Section 9(a) shall be treated as compromise and settlement negotiations for the purposes of the federal and state rules of evidence and procedure.

(b)Arbitration.  Subject to the rights of the Company pursuant to Section 12(d), any dispute arising out of or relating to this Agreement or the breach, termination or validity thereof, which has not been resolved by nonbinding means as provided in Section 9(a) within 60 days of the initiation of such procedure, shall be finally settled by arbitration conducted expeditiously in accordance with the Center for Public Resources, Inc.  (“CPR”) Rules for Non-Administered Arbitration of Business Disputes by three independent and impartial arbitrators, of whom each party shall appoint one, provided that if one party has requested the other to participate in a non-binding procedure and the other has failed to participate, the requesting party may initiate arbitration before the expiration of such period.  Any such party shall be appointed from the CPR Panels of Neutrals.  The arbitration shall be governed by the United States Arbitration Act and any judgment upon the award decided upon the arbitrators may be entered by any court having jurisdiction thereof.  The arbitrators are not empowered to award damages in excess of compensatory damages and each party hereby irrevocably waives any damages in excess of compensatory damages.  Each party hereby acknowledges that compensatory damages include (without limitation) any benefit or right of indemnification given by another party to the other under this Agreement.

(c)Expenses.  The Company shall promptly pay or reimburse the Executive for all costs and expenses, including, without limitation, court costs and attorneys fees, incurred by the Executive as a result of any claim, action or proceeding (including, without limitation a claim action or proceeding by the Executive against the Company) arising out of, or challenging the validity or enforceability of, this Agreement or any provision hereof or any other agreement or entitlement referred to herein.

SECTION 10.  Certain Additional Payments by the Company.  Subject only to the next following paragraph, in the event that it shall be determined that any payment or

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distribution by the Company to or for the benefit of the Executive, whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise (a “Payment”), would be subject to the excise tax imposed by Section 4999 of the Code (or any successor provision of the Code) or any interest or penalties with respect to such excise tax (such excise tax, together with any such interest and penalties, are hereinafter collectively referred to as the “Excise Tax”), then the Executive shall be entitled to receive an additional payment (an “Excise Gross-Up Payment”) in an amount such that after payment by the Executive of all taxes (including any interest or penalties imposed with respect to such taxes), including any Excise Tax imposed upon the Excise Gross-Up Payment, the Executive retains an amount of the Excise Gross-Up Payment equal to the Excise Tax imposed upon the Payments.  Subject to the provisions of this Section 10, all determinations required to be made hereunder, including whether an Excise Gross-Up Payment is required and the amount of such Excise Gross-Up Payment, shall be made by KPMG LLP or such other nationally recognized accounting firm as may be designated by the Company (the “Accounting Firm”) at the sole expense of the Company, which shall provide detailed supporting calculations both to the Company and the Executive within 15 business days of the date of termination of the Executive’s employment under this Agreement, if applicable, or such earlier time as is requested by the Company.  If the Accounting Firm determines that no Excise Tax is payable by the Executive, the Accounting Firm shall furnish the Executive with an opinion that he or she has substantial authority not to report any Excise Tax on his or her federal income tax return.  Any determination by the Accounting Firm shall be binding upon the Company and the Executive.  As a result of the uncertainty in the application of Section 4999 of the Code (or any successor provision of the Code) at the time of the initial determination by the Accounting Firm hereunder, it is possible that Excise Gross-Up Payments which will not have been made by the Company should have been made (an “Underpayment”), consistent with the calculations required to be made hereunder.  If the Company exhausts its remedies pursuant hereto and the Executive thereafter is required to make a payment of any Excise Tax, the Accounting Firm shall determine the amount of the Underpayment that has occurred and any such Underpayment shall be promptly paid by the Company to or for the benefit of the Executive.

Notwithstanding the immediately preceding paragraph, in the event that a reduction to the Payments in respect of the Executive of 10% or less would cause no Excise Tax to be payable, the Executive will not be entitled to a Gross-Up Payment and the Payments shall be reduced to the extent necessary so that the Payments shall not be subject to the Excise Tax.  Unless the Executive shall have given prior written notice to the Company specifying a different order by which to effectuate the foregoing, the Company shall reduce or eliminate the Payments by first reducing or eliminating the portion of the Payments which are not payable in cash and then by reducing or eliminating cash payments, in each case in reverse order beginning with payments or benefits which are to be paid the farthest in time from the date of the Change in Control.  Any notice given by the Executive pursuant to the preceding sentence shall take

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precedence over the provisions of any other plan, arrangement or agreement governing the Executive’s rights and entitlements to any benefits or compensation.  An illustration of the reduction permitted by this paragraph is set forth on Attachment A to this Agreement.

The Executive shall notify the Company in writing of any claim by the Internal Revenue Service that, if successful, would require the payment by the Company of the Excise Gross-Up Payment.  Such notification shall be given as soon as practicable but no later than 10 business days after the Executive knows of such claim and shall apprise the Company of the nature of such claim and the date on which such claim is requested to be paid.  The Executive shall not pay such claim prior to the expiration of the 30-day period following the date on which he or she gives such notice to the Company (or such shorter period ending on the date that any payment of taxes with respect to such claim is due).  If the Company notifies the Executive in writing prior to the expiration of such period that it desires to contest such claim, the Executive shall:

(i)give the Company any information reasonably requested by the Company relating to such claim;

(ii)take such action in connection with contesting such claim as the Company shall reasonably request in writing from time to time, including (without limitation) accepting legal representation with respect to such claim by an attorney reasonably selected by the Company;

(iii)cooperate with the Company in good faith to contest effectively such claim; and

(iv)permit the Company to participate in any proceedings relating to such claim;

provided that the Company shall bear and pay directly all costs and expenses (including additional interest and penalties) incurred in connection with such contest and shall indemnify and hold the Executive harmless, on an after-tax basis, for any Excise Tax or income tax, including interest and penalties with respect thereto, imposed as a result of such representation and payment of costs and expenses.  Without limitation on the foregoing provisions hereof, the Company shall control all proceedings taken in connection with such contest and, at its sole option, may pursue or forgo any and all administrative appeals, proceedings, hearings and conferences with the taxing authority in respect of such claim and may, at its sole option and to the maximum extent permitted by applicable law, either direct the Executive to pay the tax claimed and sue for a refund or contest the claim in any permissible manner, and the Executive agrees to prosecute such contest to a determination before any administrative tribunal, in a court of initial jurisdiction and in one or more appellate courts as the Company shall determine, provided that if the Company directs the Executive to pay such claim and sue for a

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refund, the Company shall advance the amount of such payment to the Executive, on an interest-free basis and shall indemnify and hold the Executive harmless, on an after-tax basis, from any Excise Tax or income tax, including interest or penalties with respect thereto, imposed with respect to such advance or with respect to any imputed income with respect to such advance, and further provided that any extension of the statute of limitations relating to payment of taxes for the taxable year of the Executive with respect to which such contested amount is claimed to be due is limited solely to such contested amount.  Furthermore, the Company’s control of the contest shall be limited to issues with respect to which an Excise Gross-Up Payment would be payable hereunder, and the Executive shall be entitled to settle or contest, as the case may be, any other issue raised by the Internal Revenue Service or any other taxing authority.

If, after the receipt by the Executive of an amount advanced by the Company pursuant hereto, the Executive becomes entitled to receive any refund with respect to such claim, the Executive shall (subject to the Company’s complying with the requirements hereof) promptly pay to the Company the amount of such refund (together with any interest paid or credited thereon after taxes applicable thereto).  If, after the receipt by the Executive of an amount advanced by the Company pursuant hereto, a determination is made that the Executive shall not be entitled to any refund with respect to such claim and the Company does not notify the Executive in writing of its intent to contest such denial of refund prior to the expiration of 30 days after such determination, then such advance shall be forgiven and shall not be required to be repaid and the amount of such advance shall offset, to the extent thereof, the amount of Excise Gross-Up Payment required to be paid.

SECTION 11.  Reduction of Payments and Benefits.  Notwithstanding any provision of this Agreement to the contrary, in the event that the Total Executive Parachute Payments (as hereinafter defined) exceed 2% of the Subject Amount (as hereinafter defined), then the payments and benefits to be paid and provided to the Executive hereunder shall be reduced to the Reduced Amount (as hereinafter defined).  Unless the Executive shall have given prior written notice to the Company specifying a different order by which to effectuate such reduction, those payments and benefits that are not payable in cash shall be reduced or eliminated first, and those payments and benefits that are payable in cash shall be reduced or eliminated only after all non-cash payments and benefits have been eliminated and, in each case payments and benefits shall be reduced in reverse order beginning with those that are to be paid the farthest in time from the date of the Change in Control.  Any notice given by the Executive pursuant to the preceding sentence shall take precedence over the provisions of any other plan, arrangement or agreement governing the Executive’s rights and entitlements to any benefits or compensation.  An illustration of the reduction permitted by this Section 11 is set forth on Attachment B to this Agreement.

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For purposes of this Section 11, the following terms shall have the following meanings:

“Total Executive Parachute Payments” means the total aggregate cash value of all payments in the nature of compensation that are contingent on a change in ownership or control of the Company (as determined under Treasury Regulation § 1.280G-1 or successor regulation thereto) to be paid or provided to Anthony W. Deering pursuant to the Deering Retention Agreement and to all executives who are parties to Executive Agreements with the Company that provide the same (or substantially similar) payments and benefits as those payments and benefits to be paid or provided pursuant to Section 6(a) (and, if applicable, Section 10) of this Agreement (it being understood that the application of different multiples or formulas in calculating substantially similar types of payments or benefits shall not cause such payments or benefits not to be substantially similar), determined immediately following the Change in Control and assuming that Mr. Deering’s employment and all such Executives’ employment have been terminated immediately following the Change in Control under circumstances that entitle them to such payments and benefits.

“Reduced Amount” means the product of (i) 2% of the Subject Amount times (ii) a fraction, the numerator of which is the portion of the Total Executive Parachute Payments allocable to the Executive and the denominator of which is the Total Executive Parachute Payments.

“Subject Amount” means the amount determined by multiplying (i) the total number of outstanding Common Shares immediately prior to the Change in Control (assuming, for this purpose, that all securities convertible into Common Shares have been so converted, other than stock options and warrants as to which the per share exercise price exceeds the last publicly available trading price of a Common Share prior to the Change in Control (or, if higher, the per share cash value of the consideration to be paid to holders of the Common Shares as a result of the Change in Control)) times (ii) the last publicly available trading price of a Common Share prior to the Change in Control (or, if higher, the per share cash value of the consideration to be paid to holders of the Common Shares as a result of the Change in Control); provided, that there shall be subtracted therefrom the aggregate exercise price of all stock options and warrants not so excluded.

SECTION 12.  Executive Covenants.

(a)Non-competition.  During the Non-Competition Period (as hereinafter defined), the Executive shall not, except with the Company’s permission (which may be withheld in the Company’s sole discretion) be, or be connected in any manner with, a Competitor (as hereinafter defined) (whether directly as an individual or in the capacity of a director, officer or employee of, debt or equity investor in, or consultant or other

15

independent contractor to, a Competitor, or indirectly through direct or indirect ownership, management, operation or control of a person that is a Competitor); provided that in no event shall ownership of not more than 5% or less of the outstanding equity securities of any issuer whose securities are registered under the Exchange Act, standing alone, be prohibited by this Section 12(a), so long as the Executive does not have, or exercise, any rights to manage, operate or control the business of such issuer.  For purposes of this Section 12(a), a “Competitor” shall mean any person that is engaged, directly or indirectly, in any business or activity which is competitive with any activity or business in which the Company or any its affiliates is engaged as of the Date of Termination (including, without limitation, any business or activity which has, as a principal line of business, broad scale long term community development (e.g., broad scale long term community development/land sale projects like Columbia, Maryland and Summerlin, Nevada) and/or the development, ownership or management of regional retail shopping centers in the United States (specifically including, without limitation, Simon Property Group, Inc., Westfield America Trust, The Taubman Centers, Inc., General Growth Properties, Inc., The Macerich Company, CBL & Associates Properties, Inc., Federal Realty Investment Trust, or any of their subsidiaries or affiliates)).  For purposes of this Agreement, the “Non-Competition Period” shall mean the period beginning on the Effective Date and ending on the Date of Termination; provided, however, that if the Executive’s employment is terminated following the Effective Date by the Company for Cause or by the Executive other than for Good Reason, the Non-Competition Period shall continue following the Date of Termination for a period of 2 years.

(b)Non-solicitation.  During the Non-Competition Period, the Executive shall not, other than on behalf of the Company or any of its affiliates or with the Company’s permission (which may be withheld in the Company’s sole discretion), (1) contact, induce or solicit (or assist any person to contact, induce or solicit) any person which has a business relationship with the Company or any of its affiliates to terminate, curtail or otherwise limit such business relationship, or (2) contact, induce or solicit (or assist any person to contact, induce or solicit) for employment (whether as an employee or consultant or other independent contractor) any person who is, or within 12 months prior to the date of such action was, an employee of the Company or any of its affiliates.

(c)Cooperation.  In the event of termination of the Executive’s employment, for whatever reason (other than death), the Executive agrees for a period of 12 months thereafter to cooperate with the Company and its affiliates and to be reasonably available to the Company and its affiliates for a reasonable period of time thereafter with respect to matters arising out of the Executive’s employment by or any other relationship with the Company and its affiliates, whether such matters are business-related or otherwise.  The Company shall reimburse the Executive for all expenses reasonably incurred by the Executive during such period in connection with such cooperation.

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(d)Remedies.  The Executive agrees that any breach of the terms of this Section 12 would result in irreparable injury and damage to the Company for which the Company would have no adequate remedy at law; the Executive therefore also agrees that in the event of said breach or any threat of breach, the Company shall be entitled to an immediate injunction and restraining order to prevent such breach and/or threatened breach and/or continued breach by the Executive and/or any and all persons and/or entities acting for and/or with the Executive, without having to prove damages, in addition to any other remedies to which the Company may be entitled at law or in equity.  The terms of this paragraph shall not prevent the Company from pursuing any other available remedies for any breach or threatened breach hereof, including, without limitation, the recovery of damages from the Executive.  The Executive and the Company further agree that the provisions of the covenants contained in this Section 12 are reasonable and necessary to protect the businesses of the Company and its affiliates because of the Executive’s access to confidential information and his or her material participation in the operation of such businesses.  Should a court or arbitrator determine, however, that any provision of the covenants contained in this Section 12 is not reasonable or valid, either in period of time, geographical area, or otherwise, the parties hereto agree that such provision should be interpreted and enforced to the maximum extent which such court or arbitrator deems reasonable or valid.

The existence of any claim or cause of action by the Executive against the Company or any of its affiliates, whether predicated on this Agreement or otherwise, shall not constitute a defense to the enforcement by the Company of the covenants contained in this Section 12.

SECTION 13.  Successors; Binding Agreement.

(a)The Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business or assets of the Company, by agreement, in form and substance satisfactory to the Executive, expressly to assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform if no such succession had taken place.  Failure of the Company to obtain such assumption and agreement prior to the effectiveness of any such succession will be a breach of this Agreement and entitle the Executive to compensation from the Company in the same amount and on the same terms as the Executive would be entitled to hereunder had the Company terminated the Executive for reason other than Cause or Incapacity on the succession date.  As used in this Agreement, the “Company” means the Company as defined in the preamble to this Agreement and any successor to its business or assets which executes and delivers the agreement provided for in this Section 13 or which otherwise becomes bound by all the terms and provisions of this Agreement by operation of law or otherwise.

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(b)This Agreement shall be enforceable by the Executive’s personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees.

SECTION 14.   Nonassignability.  This Agreement is personal in nature and neither of the parties hereto shall, without the consent of the other, assign or transfer this Agreement or any rights or obligations hereunder, except as provided in Section 13.  Without limiting the foregoing, the Executive’s right to receive payments hereunder shall not be assignable or transferable, whether by pledge, creation of a security interest or otherwise, other than a transfer by his or her will or by the laws of descent or distribution and, in the event of any attempted assignment or transfer by the Executive contrary to this Section 14, the Company shall have no liability to pay any amount so attempted to be assigned or transferred.

SECTION 15.  Notices.  For the purpose of this Agreement, notices and all other communications provided for herein shall be in writing and shall be deemed to have been duly given when delivered by hand or mailed by United States registered or certified mail, return receipt requested, postage prepaid, addressed as follows:

If to the Executive - at the address included on the signature page.

If to the Company:

The Rouse Company
10275 Little Patuxent Parkway
Columbia, Maryland 21044

Attention: General Counsel

or to such other address as either party may have furnished to the other in writing in accordance herewith, except that notices of change of address shall be effective only upon receipt.

SECTION 16.  Governing Law.  The validity, interpretation, construction and performance of this Agreement shall be governed by the laws of the State of Maryland without reference to principles of conflict of laws.

SECTION 17.  Miscellaneous.

(a)This Agreement contains the entire understanding with the Executive with respect to the subject matter hereof and supersedes any and all prior agreements or understandings, written or oral, relating to such subject matter.  No provision of this Agreement may be modified, waived or discharged unless such modification, waiver or discharge is agreed to in a writing signed by the Executive and the Company.  The rights

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and obligations of the Company and the Executive hereunder shall survive the expiration of the Term.

(b)The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement.

(c)Except as provided herein, this Agreement shall not be construed to affect in any way any rights or obligations in relation to the Executive’s employment by the Company prior to the Operative Date or subsequent to the end of the Term.

(d)This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original but all of which together will constitute one and the same Agreement.

(e)The Company may withhold from any benefits payable under this Agreement all Federal, state, local or other taxes as shall be required by law.

(f)The captions of this Agreement are not part of the provisions hereof and shall have no force or effect.

IN WITNESS WHEREOF, the parties have caused this Agreement to be executed and delivered as of the day and year first above set forth.

THE ROUSE COMPANY
By:	/s/ Anthony W. Deering
Name:		Anthony W. Deering
Title:		Chairman and Chief Executive Officer
/s/ Thomas J. DeRosa
Thomas J. DeRosa
(Executive)
(Street Address)
(City, State, Zip Code)

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Attachment A

(for illustrative purposes only)

(Note:  All of the quoted terms in the following illustration have the meanings assigned to them in Section 280G of the Code and the final regulations promulgated thereunder.  All capitalized terms have the meanings set forth in the Agreement.)

Assumptions

•A “change in ownership or control” of the Company occurs in January 2005.

•Immediately following the change in ownership or control, the executive receives a single cash payment of $1.25 million, all of which is a “parachute payment.”

•The executive is a “disqualified individual” and his “base amount” is $400,000 at the time of the change in ownership or control.

•The $1.25 million payment is the only payment to which the executive is entitled by reason of the change in ownership or control.

Because the payment exceeds three times the executive’s base amount, the payment is subject to the excise tax imposed by Section 4999 of the Code.  However, if the payment were reduced by $50,001, no excise tax would be payable because the payment would not equal or exceed three times the executive’s base amount.  Because $50,001 is a 10% or less reduction of the payment, the Company is permitted to make the reduction pursuant to the second paragraph of Section 10 of the Agreement.

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Attachment B

(for illustrative purposes only)

(Note:  All capitalized terms have the meanings set forth in the Agreement.)

Assumptions

•10 executives of the Company are parties to Executive Agreements that are the same as the Agreement.

•The Company is acquired for $50 per share.

•The only equity outstanding at the time of the transaction is 50 million shares of common stock.

•The Total Executive Payments calculated in accordance with Section 12 of the Agreement as of immediately following the transaction are $60 million.

The Subject Amount in this illustration is $2.5 billion, and 2% of the Subject Amount is $50 million.  Because the Total Executive Payments exceed 2% of the Subject Amount, they are subject to reduction pursuant to Section 11 of the Agreement.  As to any executive, the reduction would be effected pursuant to the following formula:  (2% of $2.5 billion) times ((the Total Executive Payments allocable to him or her) divided by $60 million).  For example, if the Total Executive Payments allocable to an executive in the transaction were $15 million, his or her Reduced Amount would be $12,500,000.  If the Total Executive Payments allocable to another executive in the transaction were $1 million, that executive’s Total Executive Payments would be reduced to $833,333.33.  (Note that, as to each executive, the ratio of the Reduced Amount to the Total Executive Payments is the same (in this illustration, .83333).)  The effect of these reductions would be that the aggregate Reduced Amount for the ten executives equal $50,000,000.

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EX-10.5

Exhibit 10.5

EXECUTIVE AGREEMENT dated

August 19, 2004 (the “Effective Date”) between

THE ROUSE COMPANY

(together with its subsidiaries and affiliates, the “Company”)

and Alton J. Scavo (the “Executive”)

The Company and the Executive agree as follows:

SECTION 1.  Definitions.  As used in this Agreement:

(a)“Accrued Obligations” means the sum of the amounts described in Section 6(a)(i)(A) and clause (2) of Section 6(a)(ii).

(b)“Annual Base Salary” means the Executive’s salary at a rate not less than the Executive’s annualized salary in effect (i) immediately prior to the Operative Date, (ii) on the date that is six months prior to the Operative Date or (iii) as of any date after the Operative Date (whichever date results in the highest salary).

(c)“Annual Bonus” in any year means an amount that is not less than annual cash bonus that would be paid to the Executive with respect to such year assuming that the Executive and the Company satisfied all applicable performance at the “target,” “satisfactory,” “acceptable” or other similar level.

(d)“Board” means the Board of Directors of the Company.

(e)“Cause” means (i) the willful and continued failure of the Executive to perform substantially the Executive’s duties owed to the Company after a written demand for substantial performance is delivered to the Executive which specifically identifies the nature of such non-performance (other than any such failure resulting from the Executive’s incapacity due to physical or mental illness or any such actual or anticipated failure after the issuance of a Notice of Termination by the Executive for Good Reason pursuant to Section 5(d)), (ii) willful gross misconduct by the Executive that is significantly and demonstrably injurious to the Company, or (iii) the Executive in the course of his or her employment (x) is convicted of a felony or (y) willfully engages in a fraud that results in material harm to the Company.  No act or omission on the part of the Executive shall be considered “willful” unless it is done or omitted in bad faith or without reasonable belief that the action or omission was in the best interests of the Company.  For purposes of this Section 1(e), any act or failure to act based upon authority given pursuant to a resolution duly adopted by the Board or upon the instructions of the Board, the Company’s Chief Executive Officer or other executive officer of the Company, or based upon the advice of counsel for the Company shall be conclusively presumed to be done, or omitted to be done, by the Executive in good faith and in the best interests of the Company.  Notwithstanding the foregoing, the Executive shall not be deemed to have been terminated for Cause without (1) reasonable notice to the Executive setting forth the

reasons for the Company’s intention to terminate for Cause, (2) an opportunity for the Executive, together with his or her counsel, to be heard before the Board, and (3) delivery to the Executive of a Notice of Termination from the Board finding that in the good faith opinion of three-quarters (3/4) of the Board the Executive was guilty of conduct set forth in clause (i), (ii) or (iii) above and specifying the particulars thereof in detail.

(f)A “Change in Control” shall mean the occurrence of any of the following after the Effective Date:

(a)An acquisition (other than directly from the Company) of any voting securities of the Company (the “Voting Securities”) by any “Person” (as the term “person” is used for purposes of Section 13(d) or 14(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)), immediately after which such Person has “Beneficial Ownership” (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of more than twenty percent (20%) of (1) the then-outstanding Common Shares (or any other securities into which the Common Shares are changed or for which the Common Shares are exchanged) or (2) the combined voting power of the Company’s then-outstanding Voting Securities, in either case unless such acquisition is expressly approved by resolution of the Board (x) adopted at a meeting of the Board held not later than the date of the next regularly scheduled or special meeting held following the date that the Company obtains actual knowledge of such acquisition or threatened acquisition and (y) passed upon affirmative vote of not less than a majority of the Board present at such meeting (which approval may be limited in purpose and effect solely to affecting the rights of the Executive under this Agreement); provided, however, that in determining whether a Change in Control has occurred pursuant to this paragraph (a), the acquisition of Common Shares or Voting Securities in a Non-Control Acquisition (as hereinafter defined) shall not constitute a Change in Control.  A “Non-Control Acquisition” shall mean an acquisition by (i) an employee benefit plan (or a trust forming a part thereof) maintained by (A) the Company or (B) any corporation or other Person the majority of the voting power, voting equity securities or equity interest of which is owned, directly or indirectly, by the Company (for purposes of this definition, a “Related Entity”), (ii) the Company or any Related Entity, or (iii) any Person in connection with a Non-Control Transaction (as hereinafter defined);

(b)The individuals who, as of the Effective Date, are members of the board of directors of the Company (the “Incumbent Board”), cease for any reason to constitute at least a majority of the members of the board of directors of the Company or, following a Merger (as hereinafter defined), the board of directors of (x) the corporation resulting from such Merger (the “Surviving Corporation”), if fifty percent (50%) or more of the combined voting power of the then-outstanding voting securities of the Surviving Corporation is not Beneficially Owned, directly or indirectly, by another Person (a “Parent Corporation”) or (y) if there is one or more than one Parent Corporation, the ultimate Parent Corporation; provided, however, that, if the election, or nomination for

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election by the Company’s common stockholders, of any new director was approved by a vote of at least two-thirds of the Incumbent Board, such new director shall, for purposes of the Plan, be considered a member of the Incumbent Board; and provided, further, however, that no individual shall be considered a member of the Incumbent Board if such individual initially assumed office as a result of an actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the board of directors of the Company (a “Proxy Contest”), including by reason of any agreement intended to avoid or settle any Proxy Contest; or

(c)The consummation of a merger, consolidation or reorganization (1) with or into the Company or (2) in which securities of the Company are issued (a “Merger”), unless such Merger is a Non-Control Transaction.  A “Non-Control Transaction” shall mean a Merger in which:

(A)the stockholders of the Company immediately before such Merger own directly or indirectly immediately following such Merger at least eighty percent (80%) of the combined voting power of the outstanding voting securities of (x) the Surviving Corporation, if there is no Parent Corporation or (y) if there is one or more than one Parent Corporation, the ultimate Parent Corporation; and

(B)the individuals who were members of the Incumbent Board immediately prior to the execution of the agreement providing for such Merger constitute at least a majority of the members of the board of directors of (x) the Surviving Corporation, if there is no Parent Corporation, or (y) if there is one or more than one Parent Corporation, the ultimate Parent Corporation; or

(d)the shareholders of the Company approve (a) the sale or disposition by the Company (other than to a subsidiary of the Company) of all or substantially all of the assets of the Company, or (b) a complete liquidation or dissolution of the Company.

If (i) the Executive’s employment is terminated by the Company without Cause prior to the date of a Change in Control or (ii) an action is taken with respect to the Executive prior to the date of a Change in Control that would constitute Good Reason if taken after a Change in Control, and the Executive reasonably demonstrates that such termination or action (A) was at the request of a third party that has indicated an intention or taken steps reasonably calculated to effect a Change in Control or (B) otherwise arose in connection with, or in anticipation of, a Change in Control that has been threatened or proposed, such termination or action shall be deemed to have occurred after such Change in Control for purposes of this Agreement, so long as such Change in Control actually occurs.

(g)“Common Shares” means the Common Stock of the Company.

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(h)“Date of Termination” means: (i) if the Executive’s employment is terminated by the Company for Cause or by the Executive for Good Reason, the date of receipt of the Notice of Termination or any later date specified therein, (ii) if the Executive’s employment is terminated by the Company other than for Cause or Incapacity, the Date of Termination shall be the date on which the Company notifies the Executive of such termination, and (iii) if the Executive’s employment is terminated by reason of death or Incapacity, the Date of Termination shall be the date of death of the Executive or the Incapacity Effective Date, as the case may be.

(i)“Dependents”, as of any date, means the members of the Executive’s family who under the most liberal eligibility rules (as in effect on a date that is six months prior to the Operative Date) of the plans or programs of the Company (or any successor) which provide medical benefits, would, be eligible for benefits under such plans or programs on such date.

(j)“Deering Retention Agreement” means that certain agreement between the Company and Anthony W. Deering dated September 24, 1998, as amended July 12, 1999 and March 31, 2003 and as the same may be further amended.

(k)“Good Reason” means any failure by the Company to comply with any of the provisions of this Agreement, other than an isolated, insubstantial and inadvertent failure not occurring in bad faith and which is remedied by the Company promptly after receipt of notice thereof from the Executive.

(l)“Incapacity” means, and shall be deemed the reason for the termination by the Company of the Executive’s employment, if, as a result of the Executive’s incapacity due to physical or mental illness, (i) the Executive shall have been absent from the full-time performance of the Executive’s duties with the company for a period of six (6) consecutive months, (ii) the Company gives the Executive a Notice of Termination for Incapacity, and (iii) the Executive does not return to the full-time performance of the Executive’s duties within thirty (30) days after such Notice of Termination is given.

(m)“Incapacity Effective Date” means the date on which the period described in Section 1(l)(iii) expires.

(n)“Multiple” means 3.

(o)“Notice of Termination” means a written notice which (i) to the extent applicable, indicates the specific termination provision in this Agreement relied upon, (ii) to the extent applicable, sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive’s employment under such provision, (iii) in the case of termination by the Company for Cause, confirms that such termination is pursuant to a resolution of the Board, and (iv) if the Date of Termination is

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other than the date of receipt of such notice, specifies the termination date (which date shall be not more than 30 calendar days after the giving of such notice).

(p)“Operative Date” means the date on which a Change in Control shall have occurred.

(q)“Other Benefits” means any other amounts or benefits required to be paid or provided or which the Executive is eligible to receive under any plan, program, policy or practice or contract or agreement of the Company, including earned but unpaid and stock and similar compensation, that is in effect on the date that is six months prior to the Operative Date.

(r)“Savings Plan (Excess)” means The Rouse Company Excess Savings Plan as it now exists or may hereafter be amended prior to the date that is six months prior to the Operative Date.

(s)“Term” means the term of this Agreement which shall begin as of the Effective Date and shall continue to and remain in effect until the fourth anniversary of the Effective Date (and any further extensions pursuant to Section 2) or, if later, three years following an Operative Date occurring prior to the later of (i) the fourth anniversary of the Effective Date, or (ii) such later date to which this Agreement has been extended pursuant to Section 2.

SECTION 2.  Extension of this Agreement.  If no Operative Date shall have occurred on or before the 365th calendar day preceding the date on which the Term is then scheduled to expire, then the Term shall automatically be extended for one year unless either party shall have given the other party written notice of its election not to extend the Term; provided, that an election by the Company not to extend the Term shall be void ab initio if, at the time of such election, the Company is a party to an agreement providing for a transaction or transactions that, if consummated, would constitute a Change in Control.

SECTION 3.  Terms of Employment prior to Operative Date.  Except as set forth in Section 12, prior to the Operative Date, the terms and conditions of the Executive’s employment, including the Executive’s rights upon termination of the Executive’s employment, shall be the same as they would have been had this Agreement not been entered into by the Executive and the Company.

SECTION 4.  Terms of Employment on and after Operative Date.

(a)Position and Duties.  (i)  On and after the Operative Date and during the Term of this Agreement, (A) the Executive’s position (including, without limitation, status, offices, titles, authority, duties and responsibilities) shall be at least commensurate in all material respects with the most significant of those held, exercised and assigned

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immediately prior to the Operative Date and (B) the Executive’s primary work location after the Operative Date shall not be changed from his or her primary work location immediately prior to the Operative Date, and the Company shall not require the Executive to travel on Company business to a substantially greater extent than required on the date that is six months prior to the Operative Date, except for travel and temporary assignments which are reasonably required for the full discharge of the Executive’s responsibilities and which are consistent with the Executive’s being based at his or her primary work location.

(ii)On and after the Operative Date and during the Term of this Agreement, but excluding any periods of vacation and sick leave to which the Executive is entitled, the Executive agrees to devote reasonable attention and time during normal business hours to the business and affairs of the Company and, to the extent necessary to discharge the responsibilities assigned to the Executive hereunder, to use the Executive’s reasonable best efforts to perform faithfully and efficiently such responsibilities.

(b)Compensation.  (i)  Salary.  On and after the Operative Date and during the Term of this Agreement, the Executive shall receive compensation at an annual rate not less than his or her Annual Base Salary.

(ii)Stock Incentive, Savings and Other Retirement and Supplemental Retirement Plans.  On and after the Operative Date and during the Term of this Agreement, the Executive will be entitled to participate in all stock incentive, 401(k) savings, pension and other retirement and supplemental retirement plans and programs that are generally available to full-time officers or employees of the Company at levels that have not materially decreased from the levels in effect on the date that is six months prior to the Operative Date.

(iii)Welfare Benefit Plans.  On and after the Operative Date and during the Term of this Agreement, the Executive and any persons who from time to time thereafter are his or her Dependents shall be eligible to participate in and shall receive (or, in the case of life insurance, shall be entitled to have the Executive’s beneficiary receive) all benefits under welfare benefit plans and programs that are generally available to full-time officers or employees of the Company at levels that have not materially decreased from the levels in effect on the date that is six months prior to the Operative Date.

(iv)Business Expenses.  On and after the Operative Date and during the Term of this Agreement, the Company shall, in accordance with policies in effect with respect to the payment of such expenses immediately prior to the Operative Date, pay or reimburse the Executive for all reasonable out-of-pocket travel and other expenses incurred by the Executive in performing services hereunder.  All such expenses shall be accounted for in such reasonable detail as the Company may require.

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(v)Vacations.  On and after the Operative Date and during the Term of this Agreement, the Executive shall be entitled to periods of vacation not less than those to which the Executive was entitled on the date that is six months prior to the Operative Date.

(vi)Other Benefits.  On and after the Operative Date and during the Term of this Agreement, the Executive shall be entitled to all Other Benefits not specifically provided for in subsections (i), (ii), (iii), (iv) and (v) of this Section 4(b) that are generally available to full-time officers or employees of the Company.

SECTION 5.  Termination of Employment.

(a)Death or Incapacity.  The Executive’s employment shall terminate automatically upon the Executive’s death.  On and after the Operative Date, the Executive’s employment shall also terminate automatically on his or her Incapacity Effective Date during the Term of this Agreement.

(b)Company Termination.  After the Operative Date, the Company may terminate the Executive’s employment for any reason, subject to the provisions of this Agreement establishing obligations of the Company that arise with respect to certain terminations.

(c)Executive Termination.  After the Operative Date, the Executive may terminate his or her employment for any reason.

(d)Notice of Termination.  On and after the Operative Date and during the Term of this Agreement, any termination by the Company for Cause or Incapacity, or by the Executive for Good Reason, shall be communicated by Notice of Termination to the other party hereto given in accordance with Section 15.  The failure by the Executive or the Company to set forth in the Notice of Termination any fact or circumstance which contributes to a showing of Good Reason, Incapacity or Cause shall not serve to waive any right of the Executive or the Company, respectively, hereunder or preclude the Executive or the Company, respectively, from asserting such fact or circumstance in enforcing the Executive’s or the Company’s rights hereunder.

SECTION 6.  Obligations of the Company upon Termination on or after the Operative Date.

(a)Termination for Good Reason or for Reasons other than for Cause, Death or Incapacity.  If, on or after the Operative Date and during the Term of this Agreement, (x) the Company shall terminate the Executive’s employment other than for Cause, death or Incapacity or (y) the Executive shall terminate his or her employment for Good Reason, then:

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(i)the Company shall pay to the Executive in a lump sum in cash within 30 calendar days after the Date of Termination the aggregate of the following amounts:

(A)the sum of (1) the Executive’s then Annual Base Salary through the Date of Termination to the extent not already paid, plus (2) the product of (x) an amount equal to his or her then Annual Bonus times (y) a fraction, the numerator of which is the number of days in the current fiscal year through the Date of Termination, and the denominator of which is 365 plus (3) any accrued vacation pay to the extent not already paid;

(B)an amount equal to the product of (1) the Multiple times (2) the sum of (x) the Executive’s then Annual Base Salary and (y) his or her then Annual Bonus;

(ii)the Company shall contribute, within 30 calendar days after the Date of Termination, under Section 3 of the Savings Plan (Excess) an amount equal to the sum of (1) the Multiple times the maximum amount that could be contributed by the Company under Section 3 of the Savings Plan (Excess) for a full calendar year based on the Executive’s Compensation (as defined in The Rouse Company Savings Plan) computed for the 12 months immediately preceding such Date of Termination, and (2) one times such maximum amount multiplied by a fraction, the numerator of which is the number of days transpired in the year of termination prior to and including the Date of Termination and the denominator of which is 365;

(iii)for a number of years after the Executive’s Date of Termination equal to the Multiple, or such longer period as may be provided by the terms of the appropriate plan, program, practice or policy, the Company shall continue benefits to the Executive and his or her Dependents at least equal to those which would have been provided to them in accordance with the plans, programs, practices and policies described in Section 4(b)(iii) if the Executive’s employment had not been terminated or, if more favorable to the Executive and his or her Dependents, as in effect generally at any time thereafter;

(iv)the Executive and his or her Dependents shall continue to be eligible to participate in and shall receive all benefits under any plan or program of the Company providing medical benefits as are in effect on the date six months prior to the Operative Date or under any plan or program of a successor to the Company which provides medical benefits that are not less favorable to the Executive and his or her Dependents than such plans or programs of the Company until the date the Executive and his or her Dependents are all eligible for Medicare benefits (by reason of attaining the minimum age for such benefits without regard to whether an application has been made therefor); provided, however, that (A) in no event will a Dependent be eligible for benefits as described in this clause (iv) after the date he or she ceases to be a Dependent and (B) at

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all times after the expiration of the period described in clause (iii) above, the Executive shall pay for such coverage at the same rate as is charged to other similarly situated individuals electing continuation coverage under Section 4980B of the Internal Revenue Code of 1986, as amended (the “Code”);

(v)all outstanding restricted shares and options granted to Executive to purchase Common Shares under the incentive plans of the Company or under any other option or equity incentive plan shall, to the extent not already vested, immediately become fully vested and, in the case of options, shall remain exercisable until the end of the original term of such option without regard to Executive’s termination of employment;

(vi)the Company will continue to pay any premiums due on any individual insurance policies in effect on the life of the Executive for a number of years following the Date of Termination equal to the Multiple, after which time the Company shall distribute such policy to the Executive without requiring the Executive to repay any premiums paid by the Company;

(vii)the Company shall transfer any car made available to the Executive for his or her use by the Company to the Executive for no consideration, provided that the Executive pays any and all transfer taxes and agrees to be solely responsible for insurance and the cost of insurance after the date of transfer;

(viii)the Executive shall be entitled to keep any computer and/or software provided to the Executive by the Company for home or travel use for no consideration;

(ix)the Company, at no cost to the Executive, shall provide the Executive with outplacement services at a firm selected by the Executive for the period commencing on the Date of Termination and ending on the first to occur of (i) the first anniversary of the Executive’s Date of Termination and (ii) the date on which the Executive obtains full-time employment as an employee;

(x)The Company shall make immediate payment of any deferred compensation balances not already paid to the Executive;

(xi)There shall be immediate vesting of any outstanding equity- and performance-based awards; and

(xii)to the extent not already paid or provided, the Company shall timely pay or provide to the Executive all Other Benefits to the extent accrued on the Date of Termination and not specifically provided for in subsections (i) through (xi) of this Section 6(a).

(b)Death or Incapacity.  If the Executive’s employment is terminated on or after the Operative Date by reason of the Executive’s death or Incapacity, the sole

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payments and benefits to which the Executive or the Executive’s legal representatives shall be entitled hereunder shall be (i) timely payment of Accrued Obligations and (ii) provision by the Company of death benefits or disability benefits for termination due to death or Incapacity, respectively, in accordance with Sections 4(b)(iii) and 6(a)(vi) as in effect at the Operative Date or, if more favorable to the Executive, at the Executive’s Date of Termination.

(c)Cause; Other than for Good Reason.  If the Executive’s employment shall be terminated on or after the Operative Date for Cause, the sole payments and benefits to which the Executive shall be entitled hereunder shall be (x) the Executive’s then Annual Base Salary through the Date of Termination and (y) Other Benefits, but in each case only to the extent unpaid as of the Date of Termination.  If the Executive voluntarily terminates employment during the Term of this Agreement, excluding a termination for Good Reason on or after the Operative Date, the sole payments and benefits to which the Executive shall be entitled hereunder shall be the timely payment of Accrued Obligations and Other Benefits.

SECTION 7.  Non-exclusivity of Rights.  Nothing in this Agreement shall prevent or limit the Executive’s continuing or future participation in any plan, program, policy or practice provided by the Company and for which the Executive may qualify, nor, subject to Section 17(c), shall anything herein limit or otherwise affect such rights as the Executive may have under any contract or agreement with the Company.  Amounts which are vested benefits or which the Executive is otherwise entitled to receive under any plan, policy, practice or program of, or any contract or agreement with, the Company at or subsequent to the Date of Termination shall be payable in accordance with such plan, policy, practice, program, contract or agreement except as explicitly modified by this Agreement.

SECTION 8.  No Mitigation.  The Company agrees that, if the Executive’s employment is terminated on or after the Operative Date and during the Term of this Agreement for any reason, the Executive is not required to seek other employment or to attempt in any way to reduce any amounts payable to the Executive hereunder.  Further, the amount of any payment or benefit provided hereunder on or after the Operative Date shall not be reduced by any compensation earned by the Executive as the result of employment with another employer, by retirement benefits, by offset against any amount claimed to be owed by the Executive to the Company, or otherwise; provided that, notwithstanding the foregoing, the Company shall have the right to offset any amounts earned by the Executive in violation of Section 12 against any amounts otherwise due the Executive hereunder.

SECTION 9.  Resolution of Disputes.

(a)Negotiation.  Subject to the rights of the Company pursuant to Section 12(d), the parties shall attempt in good faith to resolve any dispute arising out of or

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relating to this Agreement promptly by negotiations between the Executive and an executive officer of the Company or member of the Board as may be designated by the Board who has authority to settle the controversy.  Any party may give the other party written notice of any dispute not resolved in the normal course of business.  Within 10 days after the effective date of such notice, the Executive and an executive officer of the Company shall meet at a mutually acceptable time and place within the Baltimore-Washington metropolitan area, and thereafter as often as they reasonably deem necessary, to exchange relevant information and to attempt to resolve the dispute.  If the matter has not been resolved within 30 days of the disputing party’s notice, or if the parties fail to meet within 10 days, either party may initiate arbitration of the controversy or claim as provided hereinafter.  If a negotiator intends to be accompanied at a meeting by an attorney, the other negotiator shall be given at least three business days notice of such intention and may also be accompanied by an attorney.  All negotiations pursuant to this Section 9(a) shall be treated as compromise and settlement negotiations for the purposes of the federal and state rules of evidence and procedure.

(b)Arbitration.  Subject to the rights of the Company pursuant to Section 12(d), any dispute arising out of or relating to this Agreement or the breach, termination or validity thereof, which has not been resolved by nonbinding means as provided in Section 9(a) within 60 days of the initiation of such procedure, shall be finally settled by arbitration conducted expeditiously in accordance with the Center for Public Resources, Inc.  (“CPR”) Rules for Non-Administered Arbitration of Business Disputes by three independent and impartial arbitrators, of whom each party shall appoint one, provided that if one party has requested the other to participate in a non-binding procedure and the other has failed to participate, the requesting party may initiate arbitration before the expiration of such period.  Any such party shall be appointed from the CPR Panels of Neutrals.  The arbitration shall be governed by the United States Arbitration Act and any judgment upon the award decided upon the arbitrators may be entered by any court having jurisdiction thereof.  The arbitrators are not empowered to award damages in excess of compensatory damages and each party hereby irrevocably waives any damages in excess of compensatory damages.  Each party hereby acknowledges that compensatory damages include (without limitation) any benefit or right of indemnification given by another party to the other under this Agreement.

(c)Expenses.  The Company shall promptly pay or reimburse the Executive for all costs and expenses, including, without limitation, court costs and attorneys fees, incurred by the Executive as a result of any claim, action or proceeding (including, without limitation a claim action or proceeding by the Executive against the Company) arising out of, or challenging the validity or enforceability of, this Agreement or any provision hereof or any other agreement or entitlement referred to herein.

SECTION 10.  Certain Additional Payments by the Company.  Subject only to the next following paragraph, in the event that it shall be determined that any payment or

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distribution by the Company to or for the benefit of the Executive, whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise (a “Payment”), would be subject to the excise tax imposed by Section 4999 of the Code (or any successor provision of the Code) or any interest or penalties with respect to such excise tax (such excise tax, together with any such interest and penalties, are hereinafter collectively referred to as the “Excise Tax”), then the Executive shall be entitled to receive an additional payment (an “Excise Gross-Up Payment”) in an amount such that after payment by the Executive of all taxes (including any interest or penalties imposed with respect to such taxes), including any Excise Tax imposed upon the Excise Gross-Up Payment, the Executive retains an amount of the Excise Gross-Up Payment equal to the Excise Tax imposed upon the Payments.  Subject to the provisions of this Section 10, all determinations required to be made hereunder, including whether an Excise Gross-Up Payment is required and the amount of such Excise Gross-Up Payment, shall be made by KPMG LLP or such other nationally recognized accounting firm as may be designated by the Company (the “Accounting Firm”) at the sole expense of the Company, which shall provide detailed supporting calculations both to the Company and the Executive within 15 business days of the date of termination of the Executive’s employment under this Agreement, if applicable, or such earlier time as is requested by the Company.  If the Accounting Firm determines that no Excise Tax is payable by the Executive, the Accounting Firm shall furnish the Executive with an opinion that he or she has substantial authority not to report any Excise Tax on his or her federal income tax return.  Any determination by the Accounting Firm shall be binding upon the Company and the Executive.  As a result of the uncertainty in the application of Section 4999 of the Code (or any successor provision of the Code) at the time of the initial determination by the Accounting Firm hereunder, it is possible that Excise Gross-Up Payments which will not have been made by the Company should have been made (an “Underpayment”), consistent with the calculations required to be made hereunder.  If the Company exhausts its remedies pursuant hereto and the Executive thereafter is required to make a payment of any Excise Tax, the Accounting Firm shall determine the amount of the Underpayment that has occurred and any such Underpayment shall be promptly paid by the Company to or for the benefit of the Executive.

Notwithstanding the immediately preceding paragraph, in the event that a reduction to the Payments in respect of the Executive of 10% or less would cause no Excise Tax to be payable, the Executive will not be entitled to a Gross-Up Payment and the Payments shall be reduced to the extent necessary so that the Payments shall not be subject to the Excise Tax.  Unless the Executive shall have given prior written notice to the Company specifying a different order by which to effectuate the foregoing, the Company shall reduce or eliminate the Payments by first reducing or eliminating the portion of the Payments which are not payable in cash and then by reducing or eliminating cash payments, in each case in reverse order beginning with payments or benefits which are to be paid the farthest in time from the date of the Change in Control.  Any notice given by the Executive pursuant to the preceding sentence shall take

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precedence over the provisions of any other plan, arrangement or agreement governing the Executive’s rights and entitlements to any benefits or compensation.  An illustration of the reduction permitted by this paragraph is set forth on Attachment A to this Agreement.

The Executive shall notify the Company in writing of any claim by the Internal Revenue Service that, if successful, would require the payment by the Company of the Excise Gross-Up Payment.  Such notification shall be given as soon as practicable but no later than 10 business days after the Executive knows of such claim and shall apprise the Company of the nature of such claim and the date on which such claim is requested to be paid.  The Executive shall not pay such claim prior to the expiration of the 30-day period following the date on which he or she gives such notice to the Company (or such shorter period ending on the date that any payment of taxes with respect to such claim is due).  If the Company notifies the Executive in writing prior to the expiration of such period that it desires to contest such claim, the Executive shall:

(i)give the Company any information reasonably requested by the Company relating to such claim;

(ii)take such action in connection with contesting such claim as the Company shall reasonably request in writing from time to time, including (without limitation) accepting legal representation with respect to such claim by an attorney reasonably selected by the Company;

(iii)cooperate with the Company in good faith to contest effectively such claim; and

(iv)permit the Company to participate in any proceedings relating to such claim;

provided that the Company shall bear and pay directly all costs and expenses (including additional interest and penalties) incurred in connection with such contest and shall indemnify and hold the Executive harmless, on an after-tax basis, for any Excise Tax or income tax, including interest and penalties with respect thereto, imposed as a result of such representation and payment of costs and expenses.  Without limitation on the foregoing provisions hereof, the Company shall control all proceedings taken in connection with such contest and, at its sole option, may pursue or forgo any and all administrative appeals, proceedings, hearings and conferences with the taxing authority in respect of such claim and may, at its sole option and to the maximum extent permitted by applicable law, either direct the Executive to pay the tax claimed and sue for a refund or contest the claim in any permissible manner, and the Executive agrees to prosecute such contest to a determination before any administrative tribunal, in a court of initial jurisdiction and in one or more appellate courts as the Company shall determine, provided that if the Company directs the Executive to pay such claim and sue for a

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refund, the Company shall advance the amount of such payment to the Executive, on an interest-free basis and shall indemnify and hold the Executive harmless, on an after-tax basis, from any Excise Tax or income tax, including interest or penalties with respect thereto, imposed with respect to such advance or with respect to any imputed income with respect to such advance, and further provided that any extension of the statute of limitations relating to payment of taxes for the taxable year of the Executive with respect to which such contested amount is claimed to be due is limited solely to such contested amount.  Furthermore, the Company’s control of the contest shall be limited to issues with respect to which an Excise Gross-Up Payment would be payable hereunder, and the Executive shall be entitled to settle or contest, as the case may be, any other issue raised by the Internal Revenue Service or any other taxing authority.

If, after the receipt by the Executive of an amount advanced by the Company pursuant hereto, the Executive becomes entitled to receive any refund with respect to such claim, the Executive shall (subject to the Company’s complying with the requirements hereof) promptly pay to the Company the amount of such refund (together with any interest paid or credited thereon after taxes applicable thereto).  If, after the receipt by the Executive of an amount advanced by the Company pursuant hereto, a determination is made that the Executive shall not be entitled to any refund with respect to such claim and the Company does not notify the Executive in writing of its intent to contest such denial of refund prior to the expiration of 30 days after such determination, then such advance shall be forgiven and shall not be required to be repaid and the amount of such advance shall offset, to the extent thereof, the amount of Excise Gross-Up Payment required to be paid.

SECTION 11.  Reduction of Payments and Benefits.  Notwithstanding any provision of this Agreement to the contrary, in the event that the Total Executive Parachute Payments (as hereinafter defined) exceed 2% of the Subject Amount (as hereinafter defined), then the payments and benefits to be paid and provided to the Executive hereunder shall be reduced to the Reduced Amount (as hereinafter defined).  Unless the Executive shall have given prior written notice to the Company specifying a different order by which to effectuate such reduction, those payments and benefits that are not payable in cash shall be reduced or eliminated first, and those payments and benefits that are payable in cash shall be reduced or eliminated only after all non-cash payments and benefits have been eliminated and, in each case payments and benefits shall be reduced in reverse order beginning with those that are to be paid the farthest in time from the date of the Change in Control.  Any notice given by the Executive pursuant to the preceding sentence shall take precedence over the provisions of any other plan, arrangement or agreement governing the Executive’s rights and entitlements to any benefits or compensation.  An illustration of the reduction permitted by this Section 11 is set forth on Attachment B to this Agreement.

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For purposes of this Section 11, the following terms shall have the following meanings:

“Total Executive Parachute Payments” means the total aggregate cash value of all payments in the nature of compensation that are contingent on a change in ownership or control of the Company (as determined under Treasury Regulation § 1.280G-1 or successor regulation thereto) to be paid or provided to Anthony W. Deering pursuant to the Deering Retention Agreement and to all executives who are parties to Executive Agreements with the Company that provide the same (or substantially similar) payments and benefits as those payments and benefits to be paid or provided pursuant to Section 6(a) (and, if applicable, Section 10) of this Agreement (it being understood that the application of different multiples or formulas in calculating substantially similar types of payments or benefits shall not cause such payments or benefits not to be substantially similar), determined immediately following the Change in Control and assuming that Mr. Deering’s employment and all such Executives’ employment have been terminated immediately following the Change in Control under circumstances that entitle them to such payments and benefits.

“Reduced Amount” means the product of (i) 2% of the Subject Amount times (ii) a fraction, the numerator of which is the portion of the Total Executive Parachute Payments allocable to the Executive and the denominator of which is the Total Executive Parachute Payments.

“Subject Amount” means the amount determined by multiplying (i) the total number of outstanding Common Shares immediately prior to the Change in Control (assuming, for this purpose, that all securities convertible into Common Shares have been so converted, other than stock options and warrants as to which the per share exercise price exceeds the last publicly available trading price of a Common Share prior to the Change in Control (or, if higher, the per share cash value of the consideration to be paid to holders of the Common Shares as a result of the Change in Control)) times (ii) the last publicly available trading price of a Common Share prior to the Change in Control (or, if higher, the per share cash value of the consideration to be paid to holders of the Common Shares as a result of the Change in Control); provided, that there shall be subtracted therefrom the aggregate exercise price of all stock options and warrants not so excluded.

SECTION 12.  Executive Covenants.

(a)Non-competition.  During the Non-Competition Period (as hereinafter defined), the Executive shall not, except with the Company’s permission (which may be withheld in the Company’s sole discretion) be, or be connected in any manner with, a Competitor (as hereinafter defined) (whether directly as an individual or in the capacity of a director, officer or employee of, debt or equity investor in, or consultant or other

15

independent contractor to, a Competitor, or indirectly through direct or indirect ownership, management, operation or control of a person that is a Competitor); provided that in no event shall ownership of not more than 5% or less of the outstanding equity securities of any issuer whose securities are registered under the Exchange Act, standing alone, be prohibited by this Section 12(a), so long as the Executive does not have, or exercise, any rights to manage, operate or control the business of such issuer.  For purposes of this Section 12(a), a “Competitor” shall mean any person that is engaged, directly or indirectly, in any business or activity which is competitive with any activity or business in which the Company or any its affiliates is engaged as of the Date of Termination (including, without limitation, any business or activity which has, as a principal line of business, broad scale long term community development (e.g., broad scale long term community development/land sale projects like Columbia, Maryland and Summerlin, Nevada) and/or the development, ownership or management of regional retail shopping centers in the United States (specifically including, without limitation, Simon Property Group, Inc., Westfield America Trust, The Taubman Centers, Inc., General Growth Properties, Inc., The Macerich Company, CBL & Associates Properties, Inc., Federal Realty Investment Trust, or any of their subsidiaries or affiliates)).  For purposes of this Agreement, the “Non-Competition Period” shall mean the period beginning on the Effective Date and ending on the Date of Termination; provided, however, that if the Executive’s employment is terminated following the Effective Date by the Company for Cause or by the Executive other than for Good Reason, the Non-Competition Period shall continue following the Date of Termination for a period of 2 years.

(b)Non-solicitation.  During the Non-Competition Period, the Executive shall not, other than on behalf of the Company or any of its affiliates or with the Company’s permission (which may be withheld in the Company’s sole discretion), (1) contact, induce or solicit (or assist any person to contact, induce or solicit) any person which has a business relationship with the Company or any of its affiliates to terminate, curtail or otherwise limit such business relationship, or (2) contact, induce or solicit (or assist any person to contact, induce or solicit) for employment (whether as an employee or consultant or other independent contractor) any person who is, or within 12 months prior to the date of such action was, an employee of the Company or any of its affiliates.

(c)Cooperation.  In the event of termination of the Executive’s employment, for whatever reason (other than death), the Executive agrees for a period of 12 months thereafter to cooperate with the Company and its affiliates and to be reasonably available to the Company and its affiliates for a reasonable period of time thereafter with respect to matters arising out of the Executive’s employment by or any other relationship with the Company and its affiliates, whether such matters are business-related or otherwise.  The Company shall reimburse the Executive for all expenses reasonably incurred by the Executive during such period in connection with such cooperation.

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(d)Remedies.  The Executive agrees that any breach of the terms of this Section 12 would result in irreparable injury and damage to the Company for which the Company would have no adequate remedy at law; the Executive therefore also agrees that in the event of said breach or any threat of breach, the Company shall be entitled to an immediate injunction and restraining order to prevent such breach and/or threatened breach and/or continued breach by the Executive and/or any and all persons and/or entities acting for and/or with the Executive, without having to prove damages, in addition to any other remedies to which the Company may be entitled at law or in equity.  The terms of this paragraph shall not prevent the Company from pursuing any other available remedies for any breach or threatened breach hereof, including, without limitation, the recovery of damages from the Executive.  The Executive and the Company further agree that the provisions of the covenants contained in this Section 12 are reasonable and necessary to protect the businesses of the Company and its affiliates because of the Executive’s access to confidential information and his or her material participation in the operation of such businesses.  Should a court or arbitrator determine, however, that any provision of the covenants contained in this Section 12 is not reasonable or valid, either in period of time, geographical area, or otherwise, the parties hereto agree that such provision should be interpreted and enforced to the maximum extent which such court or arbitrator deems reasonable or valid.

The existence of any claim or cause of action by the Executive against the Company or any of its affiliates, whether predicated on this Agreement or otherwise, shall not constitute a defense to the enforcement by the Company of the covenants contained in this Section 12.

SECTION 13.  Successors; Binding Agreement.

(a)The Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business or assets of the Company, by agreement, in form and substance satisfactory to the Executive, expressly to assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform if no such succession had taken place.  Failure of the Company to obtain such assumption and agreement prior to the effectiveness of any such succession will be a breach of this Agreement and entitle the Executive to compensation from the Company in the same amount and on the same terms as the Executive would be entitled to hereunder had the Company terminated the Executive for reason other than Cause or Incapacity on the succession date.  As used in this Agreement, the “Company” means the Company as defined in the preamble to this Agreement and any successor to its business or assets which executes and delivers the agreement provided for in this Section 13 or which otherwise becomes bound by all the terms and provisions of this Agreement by operation of law or otherwise.

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(b)This Agreement shall be enforceable by the Executive’s personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees.

SECTION 14.   Nonassignability.  This Agreement is personal in nature and neither of the parties hereto shall, without the consent of the other, assign or transfer this Agreement or any rights or obligations hereunder, except as provided in Section 13.  Without limiting the foregoing, the Executive’s right to receive payments hereunder shall not be assignable or transferable, whether by pledge, creation of a security interest or otherwise, other than a transfer by his or her will or by the laws of descent or distribution and, in the event of any attempted assignment or transfer by the Executive contrary to this Section 14, the Company shall have no liability to pay any amount so attempted to be assigned or transferred.

SECTION 15.  Notices.  For the purpose of this Agreement, notices and all other communications provided for herein shall be in writing and shall be deemed to have been duly given when delivered by hand or mailed by United States registered or certified mail, return receipt requested, postage prepaid, addressed as follows:

If to the Executive - at the address included on the signature page.

If to the Company:

The Rouse Company

10275 Little Patuxent Parkway

Columbia, Maryland 21044

Attention: General Counsel

or to such other address as either party may have furnished to the other in writing in accordance herewith, except that notices of change of address shall be effective only upon receipt.

SECTION 16.  Governing Law.  The validity, interpretation, construction and performance of this Agreement shall be governed by the laws of the State of Maryland without reference to principles of conflict of laws.

SECTION 17.  Miscellaneous.

(a)This Agreement contains the entire understanding with the Executive with respect to the subject matter hereof and supersedes any and all prior agreements or understandings, written or oral, relating to such subject matter.  No provision of this Agreement may be modified, waived or discharged unless such modification, waiver or discharge is agreed to in a writing signed by the Executive and the Company.  The rights

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and obligations of the Company and the Executive hereunder shall survive the expiration of the Term.

(b)The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement.

(c)Except as provided herein, this Agreement shall not be construed to affect in any way any rights or obligations in relation to the Executive’s employment by the Company prior to the Operative Date or subsequent to the end of the Term.

(d)This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original but all of which together will constitute one and the same Agreement.

(e)The Company may withhold from any benefits payable under this Agreement all Federal, state, local or other taxes as shall be required by law.

(f)The captions of this Agreement are not part of the provisions hereof and shall have no force or effect.

IN WITNESS WHEREOF, the parties have caused this Agreement to be executed and delivered as of the day and year first above set forth.

THE ROUSE COMPANY
By:	/s/ Anthony W. Deering
Name:		Anthony W. Deering
Title:		Chairman and Chief Executive Officer
/s/ Alton J. Scavo
Alton J. Scavo
(Executive)
(Street Address)
(City, State, Zip Code)

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Attachment A

(for illustrative purposes only)

(Note:  All of the quoted terms in the following illustration have the meanings assigned to them in Section 280G of the Code and the final regulations promulgated thereunder.  All capitalized terms have the meanings set forth in the Agreement.)

Assumptions

•A “change in ownership or control” of the Company occurs in January 2005.

•Immediately following the change in ownership or control, the executive receives a single cash payment of $1.25 million, all of which is a “parachute payment.”

•The executive is a “disqualified individual” and his “base amount” is $400,000 at the time of the change in ownership or control.

•The $1.25 million payment is the only payment to which the executive is entitled by reason of the change in ownership or control.

Because the payment exceeds three times the executive’s base amount, the payment is subject to the excise tax imposed by Section 4999 of the Code.  However, if the payment were reduced by $50,001, no excise tax would be payable because the payment would not equal or exceed three times the executive’s base amount.  Because $50,001 is a 10% or less reduction of the payment, the Company is permitted to make the reduction pursuant to the second paragraph of Section 10 of the Agreement.

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Attachment B

(for illustrative purposes only)

(Note:  All capitalized terms have the meanings set forth in the Agreement.)

Assumptions

•10 executives of the Company are parties to Executive Agreements that are the same as the Agreement.

•The Company is acquired for $50 per share.

•The only equity outstanding at the time of the transaction is 50 million shares of common stock.

•The Total Executive Payments calculated in accordance with Section 12 of the Agreement as of immediately following the transaction are $60 million.

The Subject Amount in this illustration is $2.5 billion, and 2% of the Subject Amount is $50 million.  Because the Total Executive Payments exceed 2% of the Subject Amount, they are subject to reduction pursuant to Section 11 of the Agreement.  As to any executive, the reduction would be effected pursuant to the following formula:  (2% of $2.5 billion) times ((the Total Executive Payments allocable to him or her) divided by $60 million).  For example, if the Total Executive Payments allocable to an executive in the transaction were $15 million, his or her Reduced Amount would be $12,500,000.  If the Total Executive Payments allocable to another executive in the transaction were $1 million, that executive’s Total Executive Payments would be reduced to $833,333.33.  (Note that, as to each executive, the ratio of the Reduced Amount to the Total Executive Payments is the same (in this illustration, .83333).)  The effect of these reductions would be that the aggregate Reduced Amount for the ten executives equal $50,000,000.

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EX-10.6

Exhibit 10.6

Anthony W. Deering

c/o The Rouse Company

10275 Little Patuxent Parkway

Columbia, MD  21044

August 19, 2004

The Rouse Company

10275 Little Patuxent Parkway

Columbia, MD  21044

Dear Sirs:

Reference is made to the Employment Agreement, dated as of September 24, 1998, as amended by amendments dated July 12, 1999, March 31, 2003 and August 9, 2004, to which The Rouse Company and I am parties (the “Employment Agreement”).  I hereby agree to the addition of the following paragraph as the second paragraph of Section 4.7 of the Employment Agreement:

“Notwithstanding the immediately preceding paragraph, in the event that a reduction to the Payments in respect of the Executive of 10% or less would cause no Excise Tax to be payable, the Executive will not be entitled to an Excise Gross-Up Payment and the Payments shall be reduced to the extent necessary so that the Payments shall not be subject to the Excise Tax. Unless the Executive shall have given prior written notice to the Company specifying a different order by which to effectuate the foregoing, the Company shall reduce or eliminate the Payments by first reducing or eliminating the portion of the Payments which are not payable in cash and then by reducing or eliminating cash payments, in each case in reverse order beginning with payments or benefits which are to be paid the farthest in time from the date of the Change of Control. Any notice given by the Executive pursuant to the preceding sentence shall take precedence over the provisions of any other plan, arrangement or agreement governing the Executive’s rights and entitlements to any benefits or compensation.”

In all respects other than as amended by this letter, the Employment Agreement shall remain in full force and effect.

Please acknowledge your agreement to the above amendment by signing this letter below and returning a copy to me.

		Very truly yours,
		/s/ Anthony W. Deering
		Anthony W. Deering
ACKNOWLEDGED AND AGREED
THE ROUSE COMPANY
/s/	Gordon H. Glenn
By:	Gordon H. Glenn
Its:	Senior Vice President,
	General Counsel and Secretary

EX-31.1

EXHIBIT 31.1

I, Anthony W. Deering, certify that:

1.I have reviewed this report on Form 10-Q of The Rouse Company;

2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e), for the registrant and (omitted pursuant to SEC Release No. 33-8238) and have:

a)designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b)[omitted pursuant to SEC Release No. 33-8238];

c)evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d)disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a)all significant deficiencies in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b)any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date:	November 12, 2004	By	/s/ Anthony W. Deering
			Anthony W. Deering
			Chairman of the Board, President and
			Chief Executive Officer

EX-31.2

EXHIBIT 31.2

I, Thomas J. DeRosa, certify that:

1.I have reviewed this report on Form 10-Q of The Rouse Company;

2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e), for the registrant and (omitted pursuant to SEC Release No. 33-8238) and have:

a)designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b)[omitted pursuant to SEC Release No. 33-8238];

c)evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d)disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a)all significant deficiencies in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b)any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date:	November 12, 2004	By	/s/ Thomas J. DeRosa
			Thomas J. DeRosa
			Vice Chairman and Chief Financial Officer

EX-32.1

EXHIBIT 32.1

Certification Pursuant

to 18 U.S.C. Section 1350

In connection with the Quarterly Report of The Rouse Company (the “Company”) on Form 10-Q for the period ended September 30, 2004 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Anthony W. Deering, Chief Executive Officer of the Company, certify to the best of my knowledge after a review of the Report, and pursuant to 18 U.S.C. § 1350, that:

(1)The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2)The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

By	/s/ Anthony W. Deering
	Anthony W. Deering
	Chairman of the Board,
	President and Chief Executive Officer
	November 12, 2004

EX-32.2

EXHIBIT 32.2

Certification Pursuant

to 18 U.S.C. Section 1350

In connection with the Quarterly Report of The Rouse Company (the “Company”) on Form 10-Q for the period ended September 30, 2004 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Thomas J. DeRosa, Chief Financial Officer of the Company, certify to the best of my knowledge after a review of the Report, and pursuant to 18 U.S.C. § 1350, that:

(1)The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2)The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

By	/s/ Thomas J. DeRosa
	Thomas J. DeRosa
	Vice Chairman and Chief Financial Officer
	November 12, 2004

EX-99.1

EXHIBIT 99.1

FACTORS AFFECTING FUTURE OPERATING RESULTS

Our Forms 10-Q, our Form 10-K, our Annual Report to Shareholders and any Form 8-K of ours or any other written or oral statements made by or on behalf of us may include forward-looking statements that reflect our current views with respect to future events and financial performance. These forward-looking statements are subject to certain risks and uncertainties, including, but not limited to, those discussed below that could cause actual results to differ materially from historical results or anticipated results. The words “will,” “plan,” “believe,” “expect,” “anticipate,” “target,” and similar expressions identify forward-looking statements. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of their dates. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. As a result of the risks and uncertainties attendant to the forward-looking statements and their underlying assumptions, investors should not rely upon our forward-looking statements as predictions of actual results. The following are among the factors that could cause our actual results to differ materially from historical results or anticipated results. In addition, various risks related to an investment in our common stock are described below.

Risks Related to OurBusiness

Our real property portfolio is affected by economic conditions, local real estate considerations and other factors.

The revenues and cash flows generated by, and the value of, our properties may be adversely affected by general economic conditions and local economic and real estate conditions.  These conditions manifest themselves in, among other things:

•       levels of consumer spending;

•       the willingness of prospective tenants to lease space in our shopping centers and office and industrial buildings;

•       the willingness of prospective buyers to purchase home sites and other properties in our master-planned communities;

•       the cost and availability both to us, as well as to developers and homebuilders, of resources and materials for construction and development; and

•       our operating costs.

Other factors, including changes in tax laws, interest rates and the availability of financing, also may negatively affect revenues, cash flows and values.

For example, decreases in consumer spending because of recessionary economic conditions, tight consumer credit policies or other factors could adversely affect our results of operations and cash flows.  A portion of our rental revenue is derived from our tenant leases in retail centers which provide for rental payments based upon tenant sales in excess of specified levels.  Decreases in consumer spending could also reduce this rental revenue.

An increase in interest rates will affect the interest payable on our outstanding variable-rate debt, as well as amounts payable on certain interest rate swap agreements, and may also result in increased interest expense if fixed-rate debt is refinanced at higher interest rates.  In addition, increases in mortgage interest rates could reduce land sales and adversely affect operating results from our community development activities.  Further, domestic or international incidents, such as terrorist attacks, could affect our business and general economic conditions.

We are dependent upon rental income from our retail centers and office and industrial buildings.

Our results of operations and cash flows are substantially dependent upon rental income from tenants in our retail centers and office and industrial buildings.  We would be adversely affected if a significant number of our tenants were unable to meet their obligations or if we were unable to lease a significant amount of space in our properties on economically favorable terms.  When a tenant defaults, we may experience delays in enforcing our rights as a landlord and may incur substantial costs in protecting our investment.  In addition, the bankruptcy or insolvency or departure of a major tenant at one or more of our properties may have an adverse effect on those properties and could, among other things, make those properties less attractive to consumers or prospective tenants.

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Our properties, some of which are geographically concentrated, are sensitive to local economic and real estate conditions.

Some of our properties are geographically concentrated.  As a result, our results of operations from our office and industrial buildings and land sales depend on local economic and real estate conditions, including the availability of comparable, competing buildings and land.  Most of our office and industrial buildings are located in the Baltimore-Washington region, including Columbia, Maryland, and in the Las Vegas, Nevada metropolitan area.  Currently, our land sales relate primarily to land in and around Columbia, Maryland, Las Vegas, Nevada and in the Houston, Texas metropolitan area.  These office and industrial buildings and land sales are affected by economic developments in the Baltimore-Washington region, the greater Las Vegas, Nevada metropolitan area and the greater Houston, Texas metropolitan area.  They also are and will be affected by local real estate conditions and factors such as applicable zoning laws and the availability of financing for residential and commercial development.  Further, they may be affected by domestic or international incidents, such as terrorist attacks, in these areas.

Customer traffic, tenant sales and rents at South Street Seaport, a retail center in lower Manhattan that we own and operate, are generally affected by the area’s level of pedestrian and other traffic and other commercial activity which has been lighter than historical levels following the terrorist attacks of September 11, 2001.  It is difficult to predict with certainty when, if ever, customer traffic, tenants sales and rents at South Street Seaport will return to historical levels.

We are subject to extensive environmental regulation, which could impose higher costs or liabilities on us.

We, as an owner, operator and manager of real property, are subject to extensive regulation under federal, state and local environmental laws.  These laws are subject to change from time to time and could impose higher costs or liabilities on us.

Under various environmental laws, a current or previous owner or operator of real property may become liable for the costs of the investigation, removal and remediation of hazardous or toxic substances on, under, in or migrating from that property.  These laws often impose liability without regard to whether the owner or operator knew of, or was responsible for, the presence of the hazardous or toxic substances.  The presence of hazardous or toxic substances, or the failure to remediate hazardous or toxic substances when present, may impair our ability to sell or rent the real property or to borrow money using that property as collateral on terms acceptable to us or at all.

Persons who arrange for the disposal or treatment of hazardous or toxic wastes may also be liable for the costs of the investigation, removal and remediation of such wastes at the disposal or treatment facility, regardless of whether the facility is owned or operated by that person.  Other environmental laws require abatement or removal of asbestos-containing materials when demolishing, renovating or remodeling, impose worker protection and notification requirements and govern emissions of and exposure to asbestos fibers in the air.

Environmental laws also strictly regulate underground storage tanks to prevent leakage or other releases of hazardous substances into the environment.  We could be held liable for costs associated with the release of regulated substances or related claims because of our ownership, operation and/or management of properties containing underground storage tanks.  In addition to remediation actions brought by governmental agencies, the presence of hazardous substances on a property could result in personal injury or similar claims by private plaintiffs.  These claims could result in costs or liabilities that could exceed the value of that property.

We generally conduct environmental reviews of properties that we acquire and develop.  However, these reviews may fail to identify all environmental or similar problems prior to acquisition.  We are not aware of any environmental condition or notification by any private party or governmental authority of any non-compliance, liability or other claim related to any environmental condition at any of our properties that would require material expenditures by us.  However, we could become subject to such claims or liabilities in the future.

Our Nevada properties are vulnerable to special local economic and environmental conditions.

We own significant properties in Nevada, including the following:  approximately 1.0 million rentable square feet of office and industrial space in the Las Vegas area; Fashion Show, an approximately 1.9 million square foot regional shopping center located on “the Strip” in Las Vegas and approximately 6,500 saleable acres of development and investment land located primarily in Summerlin.

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Lack of water and air quality issues could adversely affect our development activities.

The Las Vegas metropolitan area is a desert environment where the ability to develop real estate is largely dependent on the continued availability of water.  The Las Vegas metropolitan area has a limited supply of water to service future development, and it may not be successful in obtaining new sources of water.  If new sources of water prove to be inadequate, our development activities could be adversely affected.

The Las Vegas Valley is classified as a serious PM-10 and serious carbon monoxide nonattainment area by the U.S. Environmental Protection Agency, or EPA.  Both PM-10 and carbon monoxide are pollutants for which the EPA has established National Ambient Air Quality Standards.  The EPA has approved State Implementation Plans (“SIPs”) submitted by the Clark County Air Quality Management Board for each pollutant, describing measures to be required to bring the region’s air into attainment for these pollutants.  The SIPs will affect the cost of development, but are not expected to have a material impact on us.

Location of a radioactive waste repository at Yucca Mountain could have an adverse effect on our properties in the Las Vegas area.

In 2002, the President and Congress approved the Yucca Mountain site in Nevada for development of a repository site for highly radioactive materials.  Yucca Mountain is located approximately 100 miles from Las Vegas.  For the project to proceed, 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 site at Yucca Mountain by 2010 as a major goal.  In July 2004, the United States Court of Appeals for the D.C. Circuit rejected a number of challenges brought by the State of Nevada, local governmental units, environmental groups and trade associations with respect to the proposed Yucca Mountain repository and invalidated a portion of the EPA’s and NRC’s regulations governing the proposed repository.   The location of a repository site at Yucca Mountain could have an adverse effect on the Las Vegas economy and on our properties in the Las Vegas area.

If necessary infrastructure is not developed or maintained in the Las Vegas area, our development efforts may be materially delayed or our development costs may materially increase.

The rate of growth in the Las Vegas metropolitan area has been straining the capacity of the existing infrastructure, particularly schools, water delivery systems, transportation systems, flood control programs and sewage treatment facilities.  Federal, state and local government agencies finance the construction of infrastructure improvements through various means, including general obligation bond issues, some of which require voter approval.  The failure of these agencies to obtain financing for, or to complete, infrastructure improvements could materially delay our development efforts in the area or materially increase our development costs through the imposition of impact fees and other fees and taxes, or by requiring us to construct or fund portions of the infrastructure.

Nevada Power Company is the electric utility provider in Southern Nevada.  On September 26, 2003, the U.S. Bankruptcy Court for the Southern District of New York, the court with jurisdiction over Enron Corp.’s Chapter 11 proceedings, entered a judgment in favor of Enron against Nevada Power, its parent company and an affiliate (collectively, the "Utilities") for damages in an amount of $338 million in a dispute involving early termination of electricity supply contracts.  On November 6, 2003, the court stayed execution of this judgment pending appeal by the Utilities.  The court required the Utilities to deposit in escrow during the stay $338 million of bonds secured by its assets plus cash to secure payment of the judgment.  On October 10, 2004, the U.S. District Court for the Southern District of New York rendered a decision in the Utilities appeal and vacated the prior judgment entered by the Bankruptcy Court against the Utilities in favor of Enron and remanded the case to the Bankruptcy Court for fact-finding on several issues.

Nevada Power’s parent has stated that an adverse development with respect to a combination of uncertainties, including the Enron dispute mentioned above and various other matters, could adversely affect Nevada Power's financial position, results of operations and liquidity, and could make it difficult for Nevada Power to continue to operate outside of bankruptcy.  In addition to providing electricity, Nevada Power constructs infrastructure, such as transformer substations and distribution lines that serve development and investment land located in Summerlin.  Any delay or failure of Nevada Power to construct infrastructure improvements or provide other utility services could materially delay our development efforts in the area and materially increase our development costs.

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Increased availability of gambling outside of Las Vegas could adversely affect our properties in the Las Vegas area.

A number of other states have legalized casino gaming and other forms of gambling.  A number of states have also negotiated compacts with Indian tribes under the U.S. Indian Gaming Regulatory Act of 1988 that permits gaming on Indian lands.  These additional gaming venues create alternative destinations for gamblers and tourists who might otherwise visit Las Vegas.  These gaming venues could have an adverse effect on the Las Vegas economy and on our properties in the Las Vegas area.

Our development projects are dependent on financing and governmental approvals and are vulnerable to unforeseen costs, delays and uncertain revenue streams.

Our development projects are dependent on:

•       the availability of financing; and

•       the receipt of zoning, occupancy and other required governmental permits and authorizations.

These projects may be vulnerable to:

•       construction delays or cost overruns that may increase project costs;

•       the failure to achieve anticipated occupancy or sales levels or to sustain anticipated occupancy or sales levels; and

•       decisions not to proceed with projects, which will result in the write-off of costs.

Our development properties are subject to various risks.

In connection with any development or expansion, we will be subject to various risks, including the following:

•       we may abandon development or expansion opportunities that we explore;

•       construction costs of a project may exceed original estimates or available financing, possibly making the project unprofitable;

•       we may not be able to obtain financing or to refinance construction loans, which generally have full recourse against us;

•       we may not be able to obtain zoning, occupancy and other required governmental permits and authorizations;

•       rents and operating costs at a completed project may not meet projections and, therefore, the project may not be profitable; and

•       we may not be able to obtain anchor, mortgage lender and property partner approvals, if applicable, for expansion activities.

If a development project is unsuccessful, our loss could exceed our investment in the project.

Our properties are uninsured against various catastrophic losses.

We carry liability, fire, flood, extended coverage and rental loss insurance on our properties with insurance limits and policy specifications that we believe are customary for similar properties.  However, various losses of a catastrophic nature, such as wars, earthquakes or other similar catastrophic events, may be either uninsurable or, in our judgment, not insurable on a financially reasonable basis.  Since September 11, 2001, losses related to terrorism have become harder and more expensive to insure against.  Effective February 1, 2004, we obtained all risk insurance policies covering our real estate through December 31, 2005 that include general coverage for terrorist acts up to $500 million per occurrence and up to $150 million for non-certified terrorism events.  In addition, Congress passed the Terrorism Risk Insurance Act (“TRIA”) of 2002, which reinsures insurance carriers for their losses under a formula established by TRIA.  TRIA, by its terms, expires on December 31, 2005.  Should an uninsured loss occur, we could lose both our invested capital in and anticipated profits from the affected property.

Many of our debt instruments, including mortgage loans secured by our properties and our revolving credit agreement, contain customary covenants requiring us to maintain insurance.  The lenders under these instruments may take the position that our coverage for losses due to terrorist acts fails to meet covenant requirements and, therefore, a breach of these debt instruments exists that would allow the lenders to declare an event of default and accelerate repayment of the debt.  In addition, lenders’ requirements regarding coverage for these risks could adversely affect our ability to finance or refinance our properties and to expand our portfolio.

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Our real estate investments may be illiquid; they also require us to make payments to maintain an interest in the property.

Real estate investments are relatively illiquid, and some of our properties are subject to restrictions on transfer.  This illiquidity tends to limit our ability to vary our portfolio promptly in response to changes in economic or other conditions.  In addition, significant expenditures associated with each real estate investment, such as mortgage payments, real estate taxes and maintenance costs, are generally not reduced when circumstances cause a reduction in revenue from the investment.  If revenue from a property declines while the related expenses do not decline, our earnings, cash flow from operations and cash flow available for distribution to our stockholders would be adversely affected.  A significant portion of our properties is mortgaged to secure payment of indebtedness, and if we were unable to meet our mortgage payments, we could lose money as a result of foreclosure on the properties by the various mortgagees.  In addition, if it becomes necessary or desirable for us to dispose of one or more of the mortgaged properties, we might not be able to obtain the necessary lender consent or a release of the lien on the mortgaged property, or we may be required to make substantial payments to the lender(s) to obtain such release or consent.  We own several of our properties jointly with other partners.  Contractual arrangements with joint owners may also limit our ability to transfer, sell or refinance these properties without the consent of third parties.

We are subject to competition from other participants in the real estate industry.

We face considerable competition from other developers, managers and owners of real estate in pursuing leasing and management revenues, land for development, property acquisitions and tenants for properties.  We may not be successful in responding to or addressing competitive conditions.  If we fail to compete successfully, our financial condition and results of operations could be materially adversely affected.

We acquired partnership interests with existing partners who have tax protection arrangements in place.

In our 2002 acquisition of various assets from Rodamco North America N.V., we acquired our interests in some of the former Rodamco properties by acquiring interests in existing partnerships.  These existing partnerships have arrangements in place that protect the deferred tax situation of existing third party limited partners.  Violation of these arrangements could impose costs on us.  As a result, we may be restricted with respect to decisions such as financing, encumbering, expanding or selling these properties.

We do not have exclusive control over our joint venture investments, so we are unable to ensure that our objectives will be pursued.

We own some of our properties in joint ventures or partnerships with other parties.  These investments involve risks not present in a wholly owned structure.  In these investments, we do not have exclusive control over the development, financing, leasing, management, sale and other aspects of these investments.  As a result, the co-venturer or partner could have interests or goals that are inconsistent with our interests or goals, including our policy with respect to maintaining our qualification as a REIT, take action contrary to our interests or otherwise impede our objectives.  The co-venturer or partner also might become insolvent or bankrupt.

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