NOTE 8 MORTGAGES, NOTES AND LOANS PAYABLE

Mortgages, notes and loans payable are summarized as follows:

	June 30,		December 31,
	2014		2013
	(In thousands)
Fixed-rate debt:
Collateralized mortgages, notes and loans payable	$	952,491	$	971,786
Special Improvement District bonds	26,585		33,100
Variable-rate debt:
Collateralized mortgages, notes and loans payable (a)	660,057		509,737
Total mortgages, notes and loans payable	$	1,639,133	$	1,514,623

(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		2014			2013
Master Planned Communities
Bridgeland Land Loan	June 2022	5.50	%			$	15,874		$	18,066
Bridgeland Development Loan	June 2015	5.00	%(d)	$	30,000	16,447			—
Summerlin South SID Bonds - S108	December 2016	5.95	%			696			823
Summerlin South SID Bonds - S124	December 2019	5.95	%			263			285
Summerlin South SID Bonds - S128	December 2020	7.30	%			665			707
Summerlin South SID Bonds - S128C	December 2030	6.05	%			5,392			5,511
Summerlin South SID Bonds - S132	December 2020	6.00	%			3,272			3,962
Summerlin West SID Bonds - S808/S810	April 2031	7.13	%			5,982			11,168
Summerlin South SID Bonds - S151	June 2025	6.00	%			6,421			6,623
The Woodlands Master Credit Facility	August 2018	2.90	%(d)	250,000		176,663			176,663
Master Planned Communities Total						231,675			223,808

Operating Assets
70 Columbia Corporate Center (b)	July 2019	2.40	%(d)			20,000			16,287
Columbia Regional Building	March 2018	2.15	%(d)	23,008		18,037			9,207
One Hughes Landing	November 2017	2.80	%(d)	38,000		32,884			19,128
Millennium Waterway Apartments	June 2022	3.75	%			55,584			55,584
110 N. Wacker (c)	October 2019	5.21	%(d)			29,000			29,000
9303 New Trails	December 2023	4.88	%			13,238			13,398
Outlet Collection at Riverwalk	October 2018	2.90	%(d)	64,400		35,555			—
The Woodlands Resort & Conference Center	February 2019	3.65	%(d)	95,000		54,222			36,100
Victoria Ward	September 2016	3.35	%(d)	250,000		238,716			238,716
20/25 Waterway Avenue	May 2022	4.79	%			14,434			14,450
3 Waterway Square	August 2028	3.94	%			52,000			52,000
4 Waterway Square	December 2023	4.88	%			38,768			39,237
Capital lease obligations	Various	3.60	%			168			205
Operating Assets Total						602,606			523,312

Strategic Developments
Downtown Summerlin SID Bonds - S108	December 2016	5.95	%			388			452
Downtown Summerlin SID Bonds - S128	December 2030	6.05	%			3,506			3,569
ExxonMobil	June 2019	2.05	%(d)	143,000		7,512			—
Two Hughes Landing	September 2018	2.80	%(d)	41,230		16,937			10
Hughes Landing Retail	December 2018	2.10	%(d)	36,575		11,145			913
One Lake’s Edge	November 2018	2.65	%(d)	73,525		2,939			—
Strategic Developments Total						42,427			4,944

Other Corporate Financing Arrangements	Various	3.00	%	22,700		20,620			21,309
Senior Notes	October 2021	6.88	%			750,000			750,000

Unamortized underwriting fees						(8,195		)	(8,750		)
						$	1,639,133		$	1,514,623

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

(b) The note we assumed on August 15, 2012 was fully paid with cash on hand on April 15, 2014. On June 30, 2014, we entered into a new loan agreement for $20.0 million at one-month LIBOR plus 2.25%.

(d) The interest rate presented is based on the one or three month LIBOR rate at June 30, 2014.

The weighted average interest rate on our mortgages, notes and loans payable was 5.05% and 5.25% as of June 30, 2014 and December 31, 2013, respectively.

As of June 30, 2014, we had $1.6 billion of mortgages, notes and loans payable. All of the mortgage debt is secured by the individual properties as listed in the table above and is non-recourse to HHC, except for: (i) the $750.0 million of Senior Notes; (ii) $35.6 million of construction financing for the Outlet Collection at Riverwalk which will be reduced to 25% upon completion of the project and the achievement of an 11% debt yield and a certain level of tenant sales per square foot for twelve months, (iii) $20.6 million of Other Corporate Financing Arrangements; and (iv) a $7.0 million parent guarantee associated with the 110 N. Wacker mortgage. Furthermore, as more fully explained below under Strategic Developments on July 15, 2014, we closed on a $311.8 million financing for the Downtown Summerlin development (formerly known as The Shops at Summerlin) which has a maximum recourse to us of 35% assuming the loan is fully drawn. The Woodlands Master Credit Facility and The Woodlands 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 June 30, 2014, land, buildings and equipment and developments in progress with a cost basis of $2.1 billion have been pledged as collateral for our mortgages, notes and loans payable.

As of June 30, 2014, 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 through August 2016 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 loan covenants as of June 30, 2014.

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 $65.7 million has been utilized as of June 30, 2014 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 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 SID 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 April 15, 2014, we paid $17.0 million cash in full satisfaction of the $16.0 million participating loan that we assumed as part of the acquisition of 70 CCC in August 2012. The non-recourse, interest only promissory note was due to mature on August 31, 2017 and included 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 final payment included approximately $0.7 million for this participation right based upon the appraised value of the property. On June 27, 2014, we closed on a new $20.0 million loan for the 70 Columbia Corporate Center (“70 CCC”) that bears interest at one-month LIBOR plus 2.25% and has an initial maturity date of July 2017 with two, one-year extension options.

On October 24, 2013, we closed on a $64.4 million partial recourse construction loan for the Outlet Collection at Riverwalk. 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. The initial recourse amount of 50.0% will be reduced to 25.0% upon completion of the project and the achievement of an 11.0% debt yield and a minimum level of tenant sales per square foot for twelve months.

On August 2, 2013, we refinanced a non-recourse first mortgage financing totaling $52.0 million for the construction of 3 Waterway Square, an 11-story, 232,000 square foot office building in The Woodlands. The loan bears interest at 3.94% and matures on August 11, 2028.

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 prime rate for borrowings of less than $0.5 million. For borrowings over $0.5 million, we elect to use one-month LIBOR plus 2.00%. The loan 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 & 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 May 31, 2012, as part of the acquisition of our former partner’s interest in Millennium Waterway Apartments, located within The Woodlands, we closed on 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%.

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 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 Village 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 unused portion of this mortgage was $11.3 million as of June 30, 2014.

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 on October 31, 2019. 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 July 15, 2014, we closed a $311.8 million financing for the construction of Downtown Summerlin development. The loan has an initial rate of one-month LIBOR plus 2.25% with an initial maturity date of July 15, 2017, with two one-year extension options. The loan agreement contains a number of customary covenants and events of default. The loan contains a maximum recourse to the Company of 35% of the outstanding principal plus all unpaid interest. Upon completion of the project and achievement of a 1.25x debt service coverage ratio, 90.0% occupancy and a minimum level of tenant sales per square foot for twelve months, the recourse amount will decrease to 10% of the outstanding principal.

On June 30, 2014, we closed on a $143.0 million construction financing for two office buildings substantially pre-leased to ExxonMobil. The loan bears interest at one-month LIBOR plus 1.90% and has an initial maturity of June 30, 2018, with a one-year extension option.

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 raised approximately $741.3 million of net cash proceeds. 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 Senior Notes at a price equal to 106.875% using the proceeds from equity offerings. We may redeem all or part of the Senior Notes at any time on or after October 1, 2016 with a declining call premium thereafter to maturity. The Senior Notes contain customary terms and covenants for non-investment grade senior notes and have no maintenance covenants.