MORTGAGES, NOTES AND LOANS PAYABLE

12 Months Ended

Dec. 31, 2013

MORTGAGES, NOTES AND LOANS PAYABLE

MORTGAGES, NOTES AND LOANS PAYABLE

NOTE 8    MORTGAGES, NOTES AND LOANS PAYABLE

Mortgages, notes and loans payable are summarized as follows:

	December 31,
	2013		2012
	(In thousands)
Fixed-rate debt:
Collateralized mortgages, notes and loans payable	$	971,786	$	158,636
Special Improvement District bonds		33,100		49,712
Variable-rate debt:
Collateralized mortgages, notes and loans payable (a)		509,737		479,964
Total mortgages, notes and loans payable	$	1,514,623	$	688,312

(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:

							Carrying Value
							December 31,			December 31,
		Interest Rate			Maximum Facility Amount
$ In thousands	Maturity (a)						2013			2012
							(In thousands)
Master Planned Communities
Bridgeland Land Loan (b)	June 2022		5.50	%			$	18,066		$	18,066
Bridgeland Development Loan (c)	June 2015		5.00	%	$	30,000		—			—
Summerlin West SID Bonds – S808/S810	April 2031		7.13	%				11,168			22,185
Summerlin South SID Bonds – S151	June 2025		6.00	%				6,623			10,501
Summerlin South SID Bonds – S128C	December 2030		6.05	%				5,511			5,739
Summerlin South SID Bonds – S132	December 2020		6.00	%				3,962			4,822
Summerlin South SID Bonds – S108	December 2016		5.95	%				823			1,067
Summerlin South SID Bonds – S128	December 2020		7.30	%				707			787
Summerlin South SID Bonds – S124	December 2019		5.95	%				285			324
The Woodlands Master Credit Facility (d)	August 2018		2.92	%		250,000		176,663			176,704
Master Planned Communities Total								223,808			240,195
Operating Assets
110 N. Wacker (e)	October 2019		5.21	%				29,000			29,000
20/25 Waterway Avenue	May 2022		4.79	%				14,450			14,450
3 Waterway Square (f)	August 2028		3.94	%				52,000			9,150
4 Waterway Square	December 2023		4.88	%				39,237			40,140
70 Columbia Corporate Center	August 2017		4.25	%				16,287			16,037
9303 New Trails	December 2023		4.88	%				13,398			13,706
Columbia Regional Building (g)	March 2018		2.17	%		23,008		9,207			—
Millennium Waterway Apartments	June 2022		3.75	%				55,584			55,584
One Hughes Landing (h)	November 2017		2.82	%		38,000		19,128			10
Riverwalk Marketplace (i)	October 2018		2.92	%		64,400		—			—
The Woodlands Resort & Conference Center (j)	February 2019		3.67	%		95,000		36,100			36,100
Victoria Ward (k)	September 2016		3.35	%		250,000		238,716			229,000
Capital lease obligation	various		3.60	%				205			41
Operating Assets Total								523,312			443,218
Strategic Developments
Hughes Landing Retail (m)	December 2018		2.12	%		36,575		913			—
One Lake's Edge (l)	November 2018		2.67	%		73,525		—			—
The Shops at Summerlin SID Bonds – S128	December 2030		6.05	%				3,569			3,701
The Shops at Summerlin SID Bonds – S108	December 2016		5.95	%				452			586
Two Hughes Landing (h)	September 2018		2.82	%		41,230		10			—
Strategic Developments Total								4,944			4,287
Other Corporate Financing Arrangements (n)	Various		3.00	%		22,700		21,309			612
Senior Notes (o)	October 2021		6.88	%				750,000			—
Unamortized underwriting fees	n/a		n/a					(8,750	)		—
Total mortgages, notes, and loans payable							$	1,514,623		$	688,312

(a)

Maturity date includes any extension periods which can be exercised at our option.

(b)

Loan is fixed at 5.50% through June 2017 and is floating based on three-month LIBOR +2.75% thereafter.

(c)

Revolving development loan provides for a maximum of $30.0 million outstanding balance at any one time with all draws not exceeding $140.0 million. The loan bears interest at the greater of 5.00% or LIBOR + 3.25%.

(d)

On August 8, 2013, the loan was modified and extended to a August 2018 final maturity date. The interest rate was reduced from one-month LIBOR + 4.00%, with a 5.00% minimum rate to a LIBOR + 2.75% with no floor. The maximum available balance was reduced to $250.0 million from $270.0 million.

(e)

Loan has a stated interest rate of one-month LIBOR + 2.25%. The $29.0 million outstanding principal balance is swapped to a 5.21% fixed rate through maturity.

(f)

On August 2, 2013, the loan was refinanced with a $52.0 million loan bearing interest at 3.94% and maturity in August 2028.

(g)

Loan bears interest at prime rate for draws less than $0.5 million. For draws over $0.5 million, we elect to use one-month LIBOR + 2.00% or the prime rate.

(h)

Loan bears interest at one-month LIBOR + 2.65%.

(i)

On October 24, 2013, we closed on a $64.4 million partial-recourse construction loan bearing interest at one-month LIBOR plus 2.75% with an initial maturity date of October 24, 2016, with two, one-year extension options.

(j)

Loan was refinanced in February 2013 and bears interest at one-month LIBOR + 3.50%.

(k)

Loan has a stated interest rate of one-month LIBOR + 2.50%. $143.0 million of the outstanding principal balance is swapped to a 3.80% fixed rate through maturity.

(l)

On November 25, 2013, we closed on a $73.5 million non-recourse loan bearing interest at one-month LIBOR plus 2.50% with an initial maturity date of November 25, 2016, with two, one-year extension options.

(m)

On December 20, 2013, we closed on a $36.6 million non-recourse loan bearing interest at one-month LIBOR plus 1.95% with an initial maturity date of December 20, 2016, with two, one-year extension options.

(n)

Includes the partial funding of a $22.7 million loan used to acquire a company airplane, of which $21.3 million is drawn as of December 31, 2013. The loan bears interest at 3.00% and requires approximately $1.0 million annual amortization through maturity in July 2018.

(o)

On October 2, 2013, we issued $750.0 million in aggregate principal amount of 6.875% Senior Notes due 2021 (the "Senior Notes"). Interest is payable semiannually, on April 1 and October 1 of each year starting in April 2014. At any time prior to October 1, 2016, we may redeem up to 35% of the Notes using the proceeds from equity offerings or we may redeem some or all of the Notes at a price equal to 106.875% of the principal amount. We may redeem all or part of the Notes at any time on or after October 1, 2016 with a declining call premium thereafter to maturity.

The weighted average interest rate on our mortgages, notes and loans payable excluding interest rate hedges was 5.25% and 4.49% as of December 31, 2013 and 2012, respectively.

The following table summarizes the contractual obligations relating to our mortgages, notes and loans payable as of December 31, 2013 based on initial maturity dates:

	Mortgages, notes and loans payable principal payments
	(In thousands)
2014	$	5,462
2015		26,958
2016		470,784
2017		25,885
2018		26,683
Thereafter		958,851
Total	$	1,514,623

All of our mortgage debt is secured by the individual properties as listed in the table above and is non-recourse to us, except for a $7.0 million parent guarantee associated with the 110 N. Wacker mortgage. The $750.0 million of Senior Notes and $21.3 million of Other Corporate Financing arrangements are also recourse to us. In addition, we have $32.2 million of recourse guarantees associated with undrawn construction financing commitments as of December 31, 2013. The Woodlands Master Credit Facility and Resort & Conference Center loans are recourse to the entities that directly own The Woodlands operations. 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 2014. 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. As of December 31, 2013, land, buildings and equipment and developments in progress with a cost basis of $1.6 billion have been pledged as collateral for our mortgages, notes and loans payable. On July 26, 2013, we closed on a $22.7 million loan to acquire an airplane, which is recourse to us as noted above. The loan bears interest at 3.00%, requires approximately $1.0 million annual amortization and matures in July 2018.

As of December 31, 2013, we were in compliance with all of the financial covenants related to our debt agreements.

Master Planned Communities

On August 8, 2013, The Woodlands refinanced its existing Master Credit Facility with a $250.0 million credit facility consisting of a $125.0 million term loan and a $125.0 million revolver (together, the "TWL Facility"). The TWL Facility bears interest at one-month LIBOR plus 2.75% and has an initial three-year term with two one-year extension options. The extension options require a reduction of the total commitment to $220.0 million for the first extension and $185.0 million for the second extension. The TWL Facility also contains certain covenants that, among other things, require the maintenance of specified financial ratios, limit the incurrence of additional recourse indebtedness at The Woodlands, and limit distributions from The Woodlands to us based on a loan-to-value test. There was $73.3 million of undrawn and available borrowing capacity under the TWL Facility based on the collateral underlying the facility and covenants as of December 31, 2013.

During the second quarter of 2012, we refinanced $18.1 million of existing debt related to our Bridgeland Master Planned Community with a ten-year term loan facility at a fixed interest rate of 5.50% for the first five years and three-month LIBOR plus 2.75% for the remaining term and maturing on June 29, 2022. Beginning on June 29, 2014, annual principal payments are required in the amount of 5.00% of the then outstanding principal balance. In addition, we simultaneously entered into a three-year revolving credit facility with aggregate borrowing capacity of $140.0 million of which $39.2 million has been utilized and which has a $30.0 million maximum outstanding loan amount at any time. New residential lot development was delayed while we pursued a permit from the U.S. Army Corps of Engineers to develop an additional 806 acres of land in Bridgeland. Due to the delayed lot development and low level of lot inventory, we can no longer draw upon the revolving credit facility until we develop new finished lots. The revolving loan bears interest at the greater of 5.00% or one-month LIBOR plus 3.25% and matures on June 29, 2015. This loan is intended to provide working capital at Bridgeland to accelerate development efforts to meet the demand of homebuilders for finished lots in the community. The Bridgeland loans are cross-collateralized and cross-defaulted and the Bridgeland Master Planned Community serves as collateral for the loans. The loans also require that Bridgeland maintain a minimum $3.0 million cash balance and a minimum net worth of $250.0 million. Additionally, we are restricted from making cash distributions from Bridgeland unless the revolving credit facility has no outstanding balance and one year of real estate taxes and debt service on the term loan have been escrowed with the lender.

The Summerlin Master Planned Community uses Special Improvement District ("SID") bonds to finance certain common infrastructure improvements. These bonds are issued by the municipalities and, although unrated, are secured by the assessments on the land. The majority of proceeds from each bond issued is held in a construction escrow and disbursed to us as infrastructure projects are completed, inspected by the municipalities and approved for reimbursement. Accordingly, the Special Improvement District bonds have been classified as debt, and the Summerlin Master Planned Community pays the debt service on the bonds semi-annually. As Summerlin sells land, the buyers assume a proportionate share of the bond obligation at closing, and the residential sales contracts provide for the reimbursement of the principal amounts that we previously paid with respect to such proportionate share of the bond.

Operating Assets

On October 24, 2013, we closed on a $64.4 million partial recourse construction loan for Riverwalk Marketplace. The loan bears interest at one-month LIBOR plus 2.75%, with an initial maturity date of October 24, 2016 with two, one-year extension options.

On March 15, 2013, we closed on a non-recourse financing totaling $23.0 million for the redevelopment of The Columbia Regional Building (also known as The Rouse Building), an office building located in Columbia, Maryland. The loan bears interest at one-month LIBOR plus 2.00% and is interest only through the initial maturity date of March 15, 2016. The loan has two, one-year extension options.

On February 8, 2013, we closed on a $95.0 million non-recourse construction loan which repaid the existing $36.1 million mortgage and provides funding for the redevelopment of The Woodlands Resort and Conference Center. The loan bears interest at one-month LIBOR plus 3.50% and has an initial maturity of February 8, 2016, with three one-year extensions at our option. 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 after completion of construction.

On November 14, 2012, we closed on a non-recourse financing totaling $38.0 million for the construction of One Hughes Landing, an eight-story, 197,000 square foot office building in The Woodlands. The loan matures on November 14, 2015 and has two, one-year extension options. The loan bears interest at one-month LIBOR plus 2.65%.

On August 15, 2012, we assumed a $16.0 million loan as part of the acquisition of 70 Columbia Corporate Center ("70 CCC"), located in Columbia, MD. The non-recourse, interest only promissory note matures on August 31, 2017, has a fixed rate of 4.25% and is secured by the property. The loan includes a participation right to the lender for 30% of the appreciation in the market value of the property after our 10% cumulative preferred return and repayment of the outstanding debt and our contributed equity. The fair value of the participation obligation is remeasured each quarter and the resulting change in the fair value of the participation right is recorded through interest expense. For the year ended December 31, 2013, $1.4 million relating to the estimated increase in value of the participation right is due to increased leasing of the property and was recorded in interest expense.

On May 31, 2012, as part of the acquisition of our former partner's interest in Millennium Waterway Apartments, located within The Woodlands, we consolidated a $55.6 million non-recourse first mortgage loan. The proceeds from the mortgage were used to refinance the joint venture's existing debt and to fund our acquisition of the partner's interest in the property. The loan matures on June 1, 2022 and has a fixed interest rate of 3.75%. Payments are interest only until September 2017, then monthly principal and interest payments of $257,418 with the unpaid principal balance due at maturity.

On April 26, 2012, we closed on a $14.5 million non-recourse financing secured by 20/25 Waterway Avenue, located within The Woodlands. The loan bears interest at 4.79% and matures on May 1, 2022.

On February 2, 2012, we closed on a non-recourse financing totaling $43.3 million for the construction of 3 Waterway Square, an 11-story, 232,000 square foot office building in The Woodlands. The loan matures on January 31, 2015 and has two, one-year extension options. The loan bears interest at one-month LIBOR plus 2.65%. On August 2, 2013, we refinanced the loan with a $52.0 million non-recourse first mortgage financing bearing interest at 3.94% and maturing on August 11, 2028.

On December 5, 2011, we obtained a $41.0 million loan for 4 Waterway Square and a $14.0 million loan for 9303 New Trails, both located within The Woodlands. These non-recourse mortgages mature on December 11, 2023 and have fixed interest rates of 4.88%.

On September 30, 2011, we closed on a $250.0 million non-recourse first mortgage financing secured by Ward Centers in Honolulu, Hawaii, that bears interest at one-month LIBOR plus 2.50%. 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 to draw additional loan proceeds under the facility. The loan permits partial repayment during its term in connection with property releases for development. In the third quarter of 2013, certain properties securing the loan were approved for condominium development. As a result, the properties were removed from the collateral pool and a minor principal paydown of the loan was required. The loan matures on September 29, 2016, and $143.0 million of the principal balance was swapped to a 3.80% fixed rate for the term of the loan. The loan had a weighted-average interest rate of 3.35% as of December 31, 2013. The unused portion of this mortgage was $11.3 million as of December 31, 2013.

On May 10, 2011, we closed a $29.0 million first mortgage financing secured by our office building located at 110 N. Wacker Drive in Chicago, IL. The loan term is coterminous with the expiration of the first term of the existing tenant's lease. The loan has an interest-only period through April 2015 and, thereafter, amortizes ratably to $12.0 million through maturity. We provided a $7.0 million repayment guarantee for the loan, which is reduced on a dollar for dollar basis during the amortization period.

Strategic Developments

On December 20, 2013, we closed on a $36.6 million non-recourse loan for the construction of Hughes Landing Retail, a 123,000 square foot retail component of Hughes Landing. The loan bears interest at one-month LIBOR plus 1.95% with an initial maturity date of December 20, 2016, with two, one-year extension options.

On November 25, 2013, we closed on a $73.5 million non-recourse loan for the construction of an eight-story, Class A, multi-family project within Hughes Landing called One Lake's Edge. One Lake's Edge will be comprised of 390 multi-family units (averaging 984 square feet per unit), 22,289 square feet of retail and an approximately 750 space parking garage, all situated on 2.92 acres of land. The loan bears interest at one-month LIBOR plus 2.50% with an initial maturity date of November 25, 2016, with two, one-year extension options.

On September 11, 2013, we closed on a non-recourse financing totaling $41.2 million for the construction of Two Hughes Landing, the second Class A office building in the 66-acre mixed-use development of Hughes Landing on Lake Woodlands, located in The Woodlands. Two Hughes Landing will be a 197,000 square foot, eight-story office building with an adjacent parking garage containing approximately 630 spaces and is the second of up to 11 office buildings planned for Hughes Landing. The loan matures on September 11, 2016 and has two, one-year extension options. The loan bears interest at one-month LIBOR plus 2.65% due monthly.

Corporate

On October 2, 2013, we issued $750.0 million in aggregate principal amount of 6.875% Senior Notes due 2021 (the "Senior Notes") and received net cash proceeds of $739.6 million. We intend to use the net proceeds for development, acquisitions and other general corporate purposes. Interest is payable semiannually, on April 1 and October 1 of each year starting in April 2014. At any time prior to October 1, 2016, we may redeem up to 35% of the Notes at a price equal to 106.875% using the proceeds from equity offerings. We may redeem all or part of the Notes at any time on or after October 1, 2016 with a declining call premium thereafter to maturity. The Notes contain customary terms and covenants for non-investment grade senior notes and have no maintenance covenants.