MORTGAGES, NOTES AND LOANS PAYABLE

3 Months Ended

Mar. 31, 2012

MORTGAGES, NOTES AND LOANS PAYABLE

MORTGAGES, NOTES AND LOANS PAYABLE

NOTE 7MORTGAGES, NOTES AND LOANS PAYABLE

Mortgages, notes and loans payable are summarized as follows:

	March 31,		December 31,
	2012		2011
	(In thousands)
Fixed-rate debt:
Collateralized mortgages, notes and loans payable	$	82,374	$	83,164
Special Improvement District bonds	53,894		55,213
Variable-rate debt:
Collateralized mortgages, notes and loans payable (a)	462,019		468,100
Total mortgages, notes and loans payable	$	598,287	$	606,477

(a) As noted in the table 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
		Interest		Facility		March 31,		December 31,
Property	Final Maturity	Rate		Amount		2012		2011
						(In thousands)
110 N. Wacker (a)	October 2019	5.21	%			$	29,000	$	29,000
Bridgeland
Note #1	May 2026	6.50	%			14,976		15,138
Note #2	December 2017	6.50	%			3,071		3,180
Note #3	June 2033	6.50	%			2,044		2,053
Note #4	December 2021	6.50	%			213		233
Bridgeland Total						20,304		20,604
Special Improvement District
Summerlin South - S108	December 2016	5.95	%			1,302		1,302
Summerlin South - S124	December 2019	5.95	%			378		378
Summerlin South - S128	December 2020	7.30	%			862		862
Summerlin South - S128C	December 2030	6.05	%			5,956		5,956
Summerlin South - S132	December 2020	7.88	%			5,352		5,378
Summerlin South - S151	June 2025	6.00	%			12,183		12,293
Summerlin West - S808	April 2021	5.71	%			318		682
Summerlin West - S809	April 2023	6.65	%			468		1,000
Summerlin West - S810	April 2031	7.13	%			22,483		22,770
The Shops at Summerlin Centre - S128	December 2030	6.05	%			3,829		3,829
The Shops at Summerlin Centre - S108	December 2016	5.95	%			713		713
SID Payable to Nevada Cancer Institute	December 2019	5.95	%			50		50
Special Improvement District bonds Total						53,894		55,213
The Woodlands
Master Credit Facility (b)	March 2015	5.00	%	$	270,000	176,703		183,000
Resort and Conference Center (c)	October 2013	6.00	%			36,100		36,100
2201 Lake Woodlands Drive	November 2016	5.25	%			4,709		4,803
Weiner Tract	January 2013	6.25	%			1,436		1,479
Land in Montgomery Co.	December 2012	6.00	%			616		649
Land in Harris Co.	January 2013	6.00	%			370		381
Capital lease obligation	—	2.72	%			121		147
CVS	upon sale	3.25	%			101		101
4 Waterway Square	December 2023	4.88	%			40,789		41,000
9303 New Trails	December 2023	4.88	%			13,928		14,000
3 Waterway Square (d)	January 2017	3.25	%	$	43,295	216		—
The Woodlands Total						275,089		281,660
Ward Centers
Victoria Ward (e)	September 2016	3.43	%	$	250,000	220,000		220,000
Ward Centers Total						220,000		220,000
						$	598,287	$	606,477

(a)	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.
(b)	Loan bears interest at one-month LIBOR + 4.00% and has a 1.00% LIBOR floor.
(c)	Loan bears interest at one-month LIBOR + 5.00% and has a 1.00% LIBOR floor. The rate increased by 0.5% on September 23, 2011 and 0.5% on March 23, 2012, and increases by 0.5% every six months thereafter until maturity.
(d)	Loan bears interest at PRIME + 2.65% for a balance up to $0.5 million. For balance over $0.5 million, loan bears interest of LIBOR + 2.65%.
(e)	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 was 4.69% and 4.68% as of March 31, 2012 and December 31, 2011, respectively.

Collateralized Mortgages, Notes and Loans Payable

As of March 31, 2012, we had $598.3 million of collateralized mortgages, notes and loans payable. Approximately $275.1 million of the debt included in the table above 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 Loans which are 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 7,164 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 2012.  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 Woodlands Master Credit Facility is a $270.0 million facility consisting of a $170.0 million term loan and a $100.0 million revolving credit line (together, the “TWL Facility”). As of March 31, 2012, the TWL Facility had an outstanding balance of $176.7 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 or covenants 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.  We have not distributed and do not currently intend to distribute cash from The Woodlands; therefore, this distribution provision has had no impact on us. As of March 31, 2012, leverage was approximately 44.6%. There was $19.9 million of undrawn and available borrowing capacity under the TWL Facility based on the collateral underlying the facility and covenants as of March 31, 2012. The TWL Facility also requires mandatory principal amortization payments during its initial term and during the extension period, if exercised.  Repayments of $25.0 million and $30.0 million are required on March 29 of 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 March 31, 2012 matures on October 30, 2012 and may be extended for one year at our option. The loan bears interest at one-month LIBOR plus 5.0% as of March 31, 2012 and has a 1.0% LIBOR floor. The interest rate increased by 0.5% on September 23, 2011 and 0.5% on March 23, 2012, 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 February 2, 2012, we secured non-recourse financing totaling $43.3 million for 3 Waterway Square. Proceeds will be used to construct an eleven-story, 232,774-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 LIBOR plus 2.65%.

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

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 may be drawn to a maximum $250.0 million to fund capital expenditures at the property, provided that the outstanding principal balance cannot exceed 65.0% 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.

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. The loan has an interest-only period through April 2015 and, thereafter, amortizes ratably to $12.0 million through maturity. 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.

On April 26, 2012, we closed on a 10 year, fixed rate loan with interest at 4.79% secured by 20/25 Waterway Avenue. The proceeds from the loan were $13.6 million.

As of March 31, 2012, $1.1 billion of land, buildings and equipment and developments in progress (before accumulated depreciation) have been pledged as collateral for our mortgages, notes and loans payable of which $7.0 million is recourse to HHC.

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 included in mortgages, notes and loan payable on the condensed consolidated balance sheets.  They are tax exempt to the holders of the notes for federal income tax purposes.  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 and, accordingly, the unspent proceeds of the Special Improvement District bonds have been classified as a receivable. The Summerlin master planned community pays the debt service on the bonds semi-annually, but receives reimbursement of all principal paid from most of the purchasers of its land; therefore, the asset and liability balances relating to the Special Improvement District bonds offset.  In addition, as Summerlin sells land, the purchasers assume a proportionate share of the bond obligation.

As of March 31, 2012, the Company was in compliance with all of the financial covenants related to its debt agreements.