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MORTGAGES, NOTES AND LOANS PAYABLE

6 Months Ended

Jun. 30, 2012

NOTE 8 MORTGAGES, NOTES AND LOANS PAYABLE

Mortgages, notes and loans payable are summarized as follows:

	June 30,		December 31,
	2012		2011
	(In thousands)
Fixed-rate debt:
Collateralized mortgages, notes and loans payable	$	142,624	$	83,164
Special Improvement District bonds	51,727		55,213
Variable-rate debt:
Collateralized mortgages, notes and loans payable	465,046		468,100
Total mortgages, notes and loans payable	$	659,397	$	606,477

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

				Maximum		Carrying Value
		Interest		Facility		June 30,		December 31,
Property	Final Maturity (a)	Rate		Amount		2012		2011
						(In thousands)

110 N. Wacker (b)	October 2019	5.21	%			$	29,000	$	29,000

Bridgeland

Note #1 - #4	various dates December 2017 - May 2033	6.50	%			—		20,604
Land Loan (c)	June 2022	5.50	%			18,066		—
Development Loan (d)	June 2015	5.00	%	$	30,000	3,026		—
Bridgeland Total						21,092		20,604

Special Improvement District
Summerlin South - S108	December 2016	5.95	%			1,183		1,302
Summerlin South - S124	December 2019	5.95	%			342		378
Summerlin South - S128	December 2020	7.30	%			825		862
Summerlin South - S128C	December 2030	6.05	%			5,847		5,956
Summerlin South - S132	December 2020	7.88	%			5,079		5,378
Summerlin South - S151	June 2025	6.00	%			11,378		12,293
Summerlin West - S808	April 2021	5.71	%			71		682
Summerlin West - S809	April 2023	6.65	%			104		1,000
Summerlin West - S810	April 2031	7.13	%			22,483		22,770
The Shops at Summerlin Centre - S128	December 2030	6.05	%			3,765		3,829
The Shops at Summerlin Centre - S108	December 2016	5.95	%			650		713
SID Payable to Nevada Cancer Institute	December 2019	5.95	%			—		50
Special Improvement District bonds Total						51,727		55,213

The Woodlands
Master Credit Facility (e)	March 2015	5.00	%	$	270,000	176,703		183,000
Resort and Conference Center (f)	October 2013	6.00	%			36,100		36,100
2201 Lake Woodlands Drive	November 2016	5.25	%			—		4,803
Weiner Tract	January 2013	6.25	%			—		1,479
Land in Montgomery Co.	December 2012	6.00	%			—		649
Land in Harris Co.	January 2013	6.00	%			—		381
Capital lease obligation	—	2.72	%			95		147
CVS	upon sale	3.25	%			—		101
4 Waterway Square	December 2023	4.88	%			40,575		41,000
9303 New Trails	December 2023	4.88	%			13,855		14,000
3 Waterway Square (g)	January 2017	3.25	%	$	43,295	216		—
20/25 Waterway	May 2022	4.79	%			14,450		—
Millennium Waterway Apartments (h)	June 2022	3.75	%			55,584		—
The Woodlands Total						337,578		281,660

Ward Centers
Victoria Ward (i)	September 2016	3.43	%	$	250,000	220,000		220,000
Ward Centers Total						220,000		220,000
						$	659,397	$	606,477

(a) Maturity date includes any extension option periods which are within our control.

(b) 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.

(c) Loan is for ten year term. First five years interest is fixed at 5.50% and for second five years interest rate is floating based on three-month LIBOR +2.75%.

(d) Revolving development loan provides for a maximum of $30.0 million outstanding balance at any time with all draws not exceeding $140.0 million. The loan bears interest at three-month LIBOR + 3.25% and has a 5% minimum rate.

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

(f) Loan currently bears interest at one-month LIBOR + 5.00% and has a 1.00% LIBOR floor. The rate increases by 0.5% every six months after March 23, 2012 until maturity.

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

(h) Loan payments are interest only until June 2017, then monthly principal and interest payment of $257,418 with unpaid balance due at maturity.

(i) 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.

The weighted average interest rate on our mortgages, notes and loans payable was 4.57% and 4.68% as of June 30, 2012 and December 31, 2011, respectively.

Collateralized Mortgages, Notes and Loans Payable

As of June 30, 2012, we had $659.4 million of collateralized mortgages, notes and loans payable. Approximately $337.6 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 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 June 30, 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 June 30, 2012, leverage was approximately 38.4%. There was $19.1 million of undrawn and available borrowing capacity under the TWL Facility based on the collateral underlying the facility and covenants as of June 30, 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, 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 June 30, 2012 that 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 June 30, 2012 and has a 1.0% LIBOR floor. The rate increases by 0.5% every six months after March 23, 2012 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.

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% 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 and which has a $30.0 million maximum outstanding loan amount. The revolving loan bears interest at the greater of 5.00% or 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. We also may not make cash distributions from Bridgeland unless the revolver has no outstanding balance and one year of real estate taxes and debt service on the term loan are escrowed with the lender.

On May 31, 2012, as part of our acquisition of the partner’s interest in Millennium Waterway Apartments, 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 as well as 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 June 2017, then monthly principal and interest payments of $257,418 with unpaid principal balance due at maturity.

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.

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, 232,021-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, we 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 3.80% fixed rate for the term of the loan. The loan had a weighted-average interest rate of 3.43% as of June 30, 2012. 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, we closed a $29.0 million first mortgage financing secured by our office building located at 110 N. Wacker Drive in Chicago, Illinois and bears 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. We provided a $7.0 million repayment guarantee for the loan, which is reduced on a dollar for dollar basis during the amortization period.

As of June 30, 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.

Special Improvement District Bonds

The Summerlin master planned community uses Special Improvement District 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. The Summerlin master planned community pays the debt service on the bonds semi-annually. However, our residential land sales contracts provide for the reimbursement of the principal amounts included in these debt service payments. In addition, as Summerlin sells land, the purchasers assume a proportionate share of the bond obligation.

As of June 30, 2012, we were in compliance with all of the financial covenants related to our debt agreements.

- Definition

The entire disclosure for information about short-term and long-term debt arrangements, which includes amounts of borrowings under each line of credit, note payable, commercial paper issue, bonds indenture, debenture issue, own-share lending arrangements and any other contractual agreement to repay funds, and about the underlying arrangements, rationale for a classification as long-term, including repayment terms, interest rates, collateral provided, restrictions on use of assets and activities, whether or not in compliance with debt covenants, and other matters important to users of the financial statements, such as the effects of refinancing and noncompliance with debt covenants.

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