Mortgages, Notes and Loans Payable

9 Months Ended

Sep. 30, 2011

Mortgages, Notes and Loans Payable [Abstract]

NOTE 5 MORTGAGES, NOTES AND LOANS PAYABLE

Mortgages, notes and loans payable are summarized as follows:


	September 30,			December 31,
(In thousands)	2011			2010
Fixed-rate debt:
Fixed-rate debt	$	138,219		$	191,037
Variable-rate debt		512,609	(a)		65,518
Special Improvement District bonds		57,344			62,105

Total mortgages, notes and loans payable	$	708,172		$	318,660


(a)		As more fully described below, $172.0 million of variable-rate debt has been swapped to a fixed rate for the term of the related debt.

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


	Maximum		Carrying Value
	Facility		September 30,		Interest
Property (In thousands)	Amount		2011		Rate			Final Maturity
Mortgages, notes and loans payable
110 N. Wacker			$	29,000		5.21	%(a)	November 2019
Bridgeland
Note #1				15,295		6.50	%	May 2026
Note #2				3,288		6.50	%	December 2017
Note #3				2,062		6.50	%	June 2033
Note #4				253		6.50	%	December 2021

Bridgeland Total				20,898
Special Improvement District bonds
Summerlin South — S108				1,424		5.95	%	December 2016
Summerlin South — S124				436		5.95	%	December 2019
Summerlin South — S128				898		7.30	%	December 2020
Summerlin South — S128C				6,060		6.05	%	December 2030
Summerlin South — S132				5,604		7.88	%	December 2020
Summerlin South — S151				12,772		6.00	%	June 2025
Summerlin West — S808				1,013		5.71	%	April 2021
Summerlin West — S809				1,476		6.65	%	April 2023
Summerlin West — S810				22,771		7.13	%	April 2031
The Shops @ Summerlin Centre — S128				4,005		6.05	%	December 2030
The Shops @ Summerlin Centre — S108				885		5.95	%	December 2016

Total Special Improvement District bonds				57,344
The Woodlands
Master credit facility	$	270,000		235,000		5.00	%(b)	March 2015
Acquisition note				96,500		—	(c)	December 2011
Resort and Conference Center				36,100		5.50	%(d)	October 2012
9303 New Trails				13,142		1.37	%	December 2011
WCA Building				4,875		6.50	%(e)	November 2011
Weiner Tract				1,520		6.25	%	January 2013
Land in Montgomery Co.				683		6.00	%	December 2012
Land in Harris Co.				393		6.00	%	January 2013
Capital lease obligation				107
CVS				101		3.25	%	upon sale

The Woodlands Total				388,421

Ward Centers	$	250,000		212,509		3.46	%(f)	September 2016


			$	708,172


(a)		Loan has a stated interest rate of one-month LIBOR + 2.50%. The $29.0 million outstanding principal balance is swapped to a 5.21% fixed rate through maturity.

(b)		Loan bears interest at one-month LIBOR + 4.00% and has a 1.00% LIBOR floor.

(c)		Acquisition Note has a $97.5 million outstanding principal balance, bears no interest, and is due on December 1, 2011 to our former partner in The Woodlands. The note is secured by The Woodlands partnership interests acquired, and was recorded at a $1.0 million discount to reflect in imputed interest cost during its term.

(d)		Loan bears interest at one-month LIBOR + 4.00% and has a 1.00% LIBOR floor. The rate increased by 0.5% on September 23, 2011 and increases by 0.5% every six months thereafter until maturity.

(e)		The Company is negotiating a five-year extension with lender.

(f)		Loan has a stated interest rate of one-month LIBOR + 2.50%. $143.0 million of the outstanding principal balance is swapped to a 3.81% fixed rate through maturity.

The weighted average interest rate on our mortgages, notes and loans payable, inclusive of interest rate hedges but excluding the acquisition note and capital lease obligation, was 4.65% and 5.14% as of September 30, 2011 and December 31, 2010, respectively.

The following table summarizes the principal payment obligations relating to our long-term debt:


	Long-term debt
	principal payments
	(In thousands)
4th Quarter 2011	$	115,109
2012		48,211
2013		27,966
2014		201,391
2015		4,241
Thereafter		311,254

Total	$	708,172

Collateralized Mortgages, Notes and Loans Payable

As of September 30, 2011, we had $708.2 million of collateralized mortgages, notes and loans payable. Approximately $388.4 million of the debt included in the table above, including the $97.5 million Acquisition note, is related to The Woodlands, which was consolidated on July 1, 2011. All of the debt is non-recourse and is secured by the individual properties as listed in the table above, except for The Woodlands Master Credit Facility and Resort and Conference Center Loan which is recourse to the partnerships that directly own The Woodlands operations, and a $7.0 million corporate 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 Bridgeland MPC and a security interest in its Municipal Utility District receivables. 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 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.

The Acquisition note has a $97.5 million outstanding principal balance, is non-interest bearing and matures on December 1, 2011. The note was recorded at its approximate $96.5 million fair value on July 1, 2011, is non-recourse to us and is secured by the acquired Woodlands interests acquired on July 1, 2011. We intend to repay the note at maturity with cash on hand.

The Woodlands Master Credit Facility is a $270 million facility consisting of a $170 million term loan and a $100 million revolving credit line (together, the “TWL Facility”). As of September 30, 2011, the facility had an outstanding balance of $235.0 million. The TWL Facility bears interest at one-month LIBOR plus 4.0% with a 1.0% LIBOR floor, has a March 29, 2014 initial maturity date and a one-year extension at borrower’s option. The TWL Facility also contains certain restrictions that, among other things, require the maintenance of specified financial ratios, restrict the incurrence of additional indebtedness at The Woodlands, and limit distributions from The Woodlands to us. Until The Woodlands leverage, as defined by the credit agreement, is less than a 40.0% loan to value ratio, we must amortize the debt on a dollar for dollar basis for any distributions that we make from The Woodlands. As of September 30, 2011, leverage was approximately 51.9% and there was $35.0 million of undrawn and available borrowing capacity under TWL Facility.

The TWL Facility also requires mandatory principal amortization payments during its initial term and during the extension period, if exercised. Repayments of $10.0 million, $25.0 million and $30.0 million are required on March 29 of 2012, 2013 and, if extended, 2014, respectively. Furthermore, $10.0 million is due on each of June 29, September 29 and December 29, 2014 during the extension period.

The Woodlands Resort and Conference Center loan has a $36.1 million outstanding balance as of September 30, 2011, matures on October 30, 2012 and has an option for a one year extension. The loan bears interest at one-month LIBOR plus 4.5% as of September 30, 2011 and has a 1.0% LIBOR floor. The interest rate increased by 0.5% on September 23, 2011 and increases by 0.5% every six months thereafter until maturity. The loan is secured by a 440 room and 40 acre conference center and resort located within The Woodlands, and requires the maintenance of specified financial ratios.

On September 30, 2011, the Company closed on a $250.0 million first mortgage financing secured by the Ward Centers in Honolulu, Hawaii, that bears interest at LIBOR plus 2.50%. The loan matures on September 29, 2016, and $143.0 million of the principal balance was swapped to a 3.81% fixed rate for the term of the loan. The loan proceeds were used to repay approximately $209.5 million of mortgage debt and to fund closing costs. The loan may be drawn to a maximum $250.0 million to fund capital expenditures at the property, provided that the outstanding principal balance cannot exceed 65% of the property’s appraised value and the borrowers are required to have a minimum 10.0% debt yield in order to draw additional loan proceeds under the facility. The loan also permits partial repayment during its term in connection with property releases for development. The repayment of three mortgages previously secured by Ward Centers resulted in an $11.3 million pre-tax loss on early repayment of debt. The mortgages had been recorded at discounts to their outstanding principal balances because they were recorded at their fair values as part of the reorganization transactions in 2010.

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%. At closing, the interest rate on the loan was swapped to a 5.21% fixed rate for the term of the loan. 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.

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.

As of September 30, 2011, the Company was in compliance with all of the financial covenants related to its debt agreements.

Letters of Credit and Surety Bonds

We had outstanding letters of credit and surety bonds of $36.8 million as of September 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.