Mortgages, Notes and Loans Payable

6 Months Ended

Jun. 30, 2011

Mortgages, Notes and Loans Payable [Abstract]

MORTGAGES, NOTES AND LOANS PAYABLE

NOTE 4 MORTGAGES, NOTES AND LOANS PAYABLE

Mortgages, notes and loans payable are summarized as follows:

	June 30,		December 31,
(In thousands)	2011		2010
Fixed-rate debt:
Collateralized mortgages, notes and loans payable	$	154,949	$	191,037
Special Improvement District bonds		57,817		62,105
Variable-rate debt:
Collateralized mortgages, notes and loans payable		93,902		65,518
Total mortgages, notes and loans payable	$	306,668	$	318,660

The following table presents our mortgages, notes, and loans payable by property:

	As of June 30, 2011
						Carrying		Interest
Property (In thousands)	Principal		Discount			Value		Rate			Maturity
Mortgages, notes and loans payable Ward Centers
Ward Gateway — Industrial — Village	$	86,823	$	(6,612	)	$	80,211		5.61	%	October 2016
Ward Entertainment Center — Ward Centre		55,584		(2,411	)		53,173		4.33	%	January 2014
Ward Village Shops		377		—			377		5.35	%	June 2025
Ward Warehouse — Ward Plaza		67,302		(2,400	)		64,902		2.69	% (a)	October 2016
111 N. Wacker		29,000		—			29,000		5.21	% (b)	November 2019
Bridgeland
Note #1		2,249		(180	)		2,069		6.50	%	June 2033
Note #2		3,394		—			3,394		6.50	%	December 2017
Note #3		15,452		—			15,452		6.50	%	May 2026
Note #4		273		—			273		6.50	%	December 2021
Total Mortgages, notes and loans payable		260,454		(11,603	)		248,851
Special Improvement District bonds
Summerlin West — S808		1,053		—			1,053		7.75	%	April 2021
Summerlin West — S809		1,518		—			1,518		6.65	%	April 2023
Summerlin West — S810		23,048		—			23,048		7.13	%	April 2031
Summerlin South — S108		1,426		—			1,426		5.95	%	December 2016
Summerlin South — S124		438		—			438		5.95	%	December 2019
Summerlin South — S128		898		—			898		7.30	%	December 2020
Summerlin South — S128C		6,060		—			6,060		6.05	%	December 2030
Summerlin South — S132		4,124		—			4,124		7.88	%	December 2020
Summerlin South — S151		14,243		—			14,243		6.00	%	June 2025
The Shops @ Summerlin Centre — S108		943		—			943		5.95	%	December 2016
The Shops @ Summerlin Centre — S128		4,066		—			4,066		6.05	%	December 2030
Total Special Improvement District bonds		57,817		—			57,817
	$	318,271	$	(11,603	)	$	306,668

(a)	Based on LIBOR of 0.1872% at June 30, 2011 plus the specified spread in the loan.
(b)	Based on the May 10, 2011 cash flow hedge described below.

The weighted average interest rate on our mortgages, notes and loans payable, inclusive of interest rate hedges, was 4.99% and 5.14% as of June 30, 2011 and December 31, 2010, respectively.

Collateralized Mortgages, Notes and Loans Payable

As of June 30, 2011, we had $248.9 million of collateralized mortgages, notes and loans payable. All of the debt is non-recourse and is secured by the individual properties as listed in the table above, except for a $7.0 million recourse guarantee associated with the 110 N. Wacker mortgage, which is more fully discussed below. The Bridgeland MPC loan is secured by approximately 7,615 acres of land within the Bridgelands MPC. In addition, certain of our loans contain provisions which grant the lender a security interest in the operating cash flow of the property that represents the collateral for the loan. Such provisions are not expected to materially impact our operations in 2011. Certain mortgage notes may be prepaid, but may be subject to a prepayment penalty equal to a yield-maintenance premium, defeasance or a percentage of the loan balance.

On May 10, 2011, the Company closed a $29.0 million first mortgage financing secured by its office building located at 110 N. Wacker Drive in Chicago, Illinois and bearing interest at LIBOR plus 2.25%. The loan matures on October 31, 2019 and its term is coterminous with the expiration of the first term of the existing tenant’s lease (Note 9). The loan has an interest-only period through April 2015 and, thereafter, amortizes ratably to $12.0 million through maturity. The proceeds from the financing were used to repay the existing $28.2 million mortgage and to pay closing costs and other expenses. The Company provided a $7.0 million repayment guarantee for the loan, which is reduced on a dollar for dollar basis during the amortization period.

In order to limit the Company’s exposure to interest rate fluctuations related to the variable rate debt disclosed above, the Company entered into an interest rate swap. This interest rate swap was designated as a cash flow hedge and fixed the interest rate at 5.21% per annum. The effective portion of the swap’s gains or losses due to changes in fair value are initially recorded in accumulated other comprehensive loss and are subsequently reclassified into earnings when the interest payments are remitted. The gross notional amount of the swap is $29.0 million and matures on October 31, 2019. The fixed pay rate is 2.96% and the variable receive rate is based on the monthly LIBOR rate. The fair value of the swap was estimated using Level 2 measurements based on the hedged variable cash flows and forward yield curves relating to the variable interest rates on which the cash flows are based. At June 30, 2011, the swap liability was $0.7 million and is recorded in accounts payable and accrued expenses. The swap was determined to be highly effective and as a result the impact to earnings for the three and six months ended June 30, 2011 due to ineffectiveness was immaterial.

Special Improvement District Bonds

The Summerlin master planned community uses Special Improvement District bonds to finance certain common infrastructure. These bonds are issued by the municipalities and, although unrated, are secured by the assessments on the land and approximately 1,971 acres of land within the Summerlin MPC. The majority of proceeds from each bond issued is held in a construction escrow and dispersed to us as infrastructure projects are completed, inspected by the municipalities and approved for reimbursement. Accordingly, the cash raised but not yet spent related to the Special Improvement District bonds has been classified as a receivable within Prepaid and other assets. We pay the debt service on the bonds semi-annually, but typically receive reimbursement of all principal amortization paid by us from certain purchasers of our land; therefore, the Special Improvement District receivable (included in Prepaid expenses and other assets) and Special Improvement District bonds (included in Mortgages, notes and loans payable) largely offset (Note 7). In addition, as the Summerlin master planned community sells land, the purchasers assume a proportionate share of the bond obligation.

Letters of Credit and Surety Bonds

We had outstanding letters of credit and surety bonds of $33.5 million as of June 30, 2011 and $38.7 million as of December 31, 2010. These letters of credit and bonds were issued primarily in connection with insurance requirements, special real estate assessments and construction obligations.