NOTE 8 MORTGAGES, NOTES AND LOANS PAYABLE

Mortgages, notes and loans payable are summarized as follows:

	June 30,		December 31,
	2013		2012
	(In thousands)
Fixed-rate debt:
Collateralized mortgages, notes and loans payable	$	158,310	$	158,636
Special Improvement District bonds	41,723		49,712
Variable-rate debt:
Collateralized mortgages, notes and loans payable (a)	515,497		479,964
Total mortgages, notes and loans payable	$	715,530	$	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:

				Maximum		Carrying Value
		Interest		Facility		June 30,		December 31,
$ In thousands	Maturity (a)	Rate		Amount		2013		2012
						(In thousands)
Master Planned Communities
The Woodlands Master Credit Facility (b)	March 2015	5.00	%	$	270,000	$	176,663	$	176,704
Bridgeland Land Loan (c)	June 2022	5.50	%			18,066		18,066
Bridgeland Development Loan (d)	June 2015	5.00	%	30,000		10,388		—
Summerlin West - S808/S810	April 2031	7.13	%			18,432		22,185
Summerlin South - S151	June 2025	6.00	%			7,034		10,501
Summerlin South - S128C	December 2030	6.05	%			5,625		5,739
Summerlin South - S132	December 2020	6.00	%			4,478		4,822
Summerlin South - S108	December 2016	5.95	%			947		1,067
Summerlin South - S128	December 2020	7.30	%			747		787
Summerlin South - S124	December 2019	5.95	%			305		324
Master Planned Communities Total						242,685		240,195

Operating Assets
Victoria Ward (e)	September 2016	3.39	%	250,000		229,000		229,000
Millennium Waterway Apartments	June 2022	3.75	%			55,584		55,584
4 Waterway Square	December 2023	4.88	%			39,695		40,140
The Woodlands Resort and Conference Center (f)	February 2019	3.69	%	95,000		36,100		36,100
110 N. Wacker (g)	October 2019	5.21	%			29,000		29,000
3 Waterway Square (h)	January 2017	2.84	%	43,295		26,713		9,150
70 Columbia Corporate Center	August 2017	4.25	%			16,287		16,037
20/25 Waterway Avenue	May 2022	4.79	%			14,450		14,450
9303 New Trails	December 2023	4.88	%			13,554		13,706
Columbia Regional Building (i)	March 2018	2.25	%	23,008		1,266		—
Capital lease obligation	various	3.82	%			13		41
Operating Assets Total						461,662		443,208

Strategic Developments
One Hughes Landing (j)	November 2017	2.84	%	38,000		6,367		10
The Shops at Summerlin - S128	December 2030	6.05	%			3,635		3,701
The Shops at Summerlin - S108	December 2016	5.95	%			520		586
Strategic Developments Total						10,522		4,297

Other Financing Arrangements	July 2015	—				661		612

						$	715,530	$	688,312

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

(b) Loan bears interest at one-month LIBOR + 4.00% and has a 5.00% minimum rate.

(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 the greater of 5.00% or LIBOR + 3.25%.

(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 3.80% fixed rate through maturity.

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

(g) 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.

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

(i) Loan bears interest at prime rate for draws less than $0.5 million. For draws over $0.5 million, we may elect to use LIBOR + 2.00% or the prime rate.

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

The weighted average interest rate on our mortgages, notes and loans payable was 4.25% and 4.49% as of June 30, 2013 and December 31, 2012, respectively.

Mortgages, Notes and Loans Payable

As of June 30, 2013, we had $715.5 million of mortgages, notes and loans payable. All of the debt is secured by the individual properties as listed in the table above and is non-recourse to HHC, except for a $7.0 million parent guarantee associated with the 110 N. Wacker mortgage. The Woodlands Master Credit Facility and Resort and Conference Center loans are also recourse to the partnerships 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 2013. 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 June 30, 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 $22.5 million loan to acquire a company airplane. The loan bears interest at 3.0 %, requires $1.0 million annual amortization and matures in July 2018.

As of June 30, 2013, we were in compliance with all of the financial covenants related to our debt agreements.

Master Planned Communities

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, 2013, the TWL Facility had an outstanding balance of $176.7 million. The TWL Facility bears interest at one-month LIBOR plus 4.00% with a 5.00% 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, limit the incurrence of additional recourse 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 June 30, 2013, leverage was approximately 25.5%. There was $58.3 million of undrawn and available borrowing capacity under the TWL Facility based on the collateral underlying the facility and covenants as of June 30, 2013. The TWL Facility also requires mandatory principal amortization payments during its initial term and during the extension period, if exercised. Repayments of $30.0 million are required on March 29, 2014. Furthermore, $10.0 million is due on each of June 29, September 29 and December 29, 2014 during the extension period.

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. 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 in order 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 revolver 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 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.

Operating Assets

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 August 15, 2012, we assumed a $16.0 million loan as part of the acquisition of 70 Columbia Corporate Center (“70 CCC”). 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 change in fair value is recorded through interest expense. For the six months ended June 30, 2013, $2.7 million relating to the increase in value of the participation due to increased leasing of the property was recorded as interest expense. Virtually all of the interest was capitalized due to our development activities.

On May 31, 2012, as part of the acquisition of our former 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 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 June 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 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 closed on a non-recourse financing totaling $43.3 million for the construction of 3 Waterway Square, an eleven-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 in August 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. 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 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 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 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 3.39% as of June 30, 2013. The unused portion of this mortgage was $21.0 million as of June 30, 2013.

Strategic Developments

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 15, 2015 and has two, one-year extension options. The loan bears interest at LIBOR plus 2.65%.