NOTE 8 MORTGAGES, NOTES AND LOANS PAYABLE

Mortgages, notes and loans payable are summarized as follows:


	December 31,
	2014		2013
	(In thousands)
Fixed-rate debt:
Collateralized mortgages, notes and loans payable	$	1,008,165	$	971,786
Special Improvement District bonds		22,389		33,100
Variable-rate debt:
Collateralized mortgages, notes and loans payable (a)		962,916		509,737
Total mortgages, notes and loans payable	$	1,993,470	$	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		December 31,		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	%	(b)	$	30,000		10		-
Summerlin South SID Bonds - S108	December 2016	5.95	%					563		823
Summerlin South SID Bonds - S124	December 2019	5.95	%					236		285
Summerlin South SID Bonds - S128	December 2020	6.05	%					623		707
Summerlin South SID Bonds - S128C	December 2030	6.05	%					5,274		5,511
Summerlin South SID Bonds - S132	December 2020	6.00	%					2,936		3,962
Summerlin South SID Bonds - S151	June 2025	6.00	%					6,211		6,623
Summerlin West SID Bonds - S808/S810	April 2031	6.00	%					2,805		11,168
The Woodlands Master Credit Facility	August 2018	2.91	%	(b)		250,000		176,663		176,663
Master Planned Communities Total								211,195		223,808

Operating Assets
70 Columbia Corporate Center (c)	July 2019	2.41	%	(b)				20,000		16,287
Columbia Regional Building	March 2018	2.16	%	(b)		23,008		20,513		9,207
Downtown Summerlin	July 2019	2.41	%	(b)		311,800		229,153		-
Downtown Summerlin SID Bonds - S108	December 2016	5.95	%					310		452
Downtown Summerlin SID Bonds - S128	December 2030	6.05	%					3,431		3,569
One Hughes Landing	December 2029	4.30	%					52,000		19,128
Two Hughes Landing	September 2018	2.81	%	(b)		41,230		19,992		10
1701 Lake Robbins	April 2017	5.81	%					4,600		-
Millennium Waterway Apartments	June 2022	3.75	%					55,584		55,584
110 N. Wacker (d)	October 2019	5.21	%	(b)				29,000		29,000
9303 New Trails	December 2023	4.88	%					13,074		13,398
Outlet Collection at Riverwalk	October 2018	2.91	%	(b)		64,400		47,118		-
The Woodlands Resort & Conference Center	February 2019	3.66	%	(b)		95,000		76,027		36,100
Victoria Ward	September 2016	3.35	%	(b)		250,000		238,716		238,716
20/25 Waterway Avenue	May 2022	4.79	%					14,330		14,450
3 Waterway Square	August 2028	3.94	%					52,000		52,000
4 Waterway Square	December 2023	4.88	%					38,289		39,237
Capital lease obligations	Various	3.60	%					135		205
Operating Assets Total								914,272		527,343

Strategic Developments
1725-35 Hughes Landing Boulevard	June 2019	2.06	%	(b)		143,000		47,513		-
Three Hughes Landing	December 2019	2.51	%			65,455		-		-
Hughes Landing Hotel	October 2020	2.66	%			37,100		-		-
Hughes Landing Retail	December 2018	2.11	%	(b)		36,575		17,424		913
One Lake's Edge	November 2018	2.66	%	(b)		73,525		40,787		-
Waiea and Anaha Condominiums	November 2019	6.91	%			600,000		-		-
Waterway Square Hotel	August 2019	2.81	%	(b)		69,300		-		-
Strategic Developments Total								105,724		913

Other Corporate Financing Arrangements	June 2018	3.00	%			22,700		19,968		21,309
Senior Notes	October 2021	6.88	%					750,000		750,000
Unamortized underwriting fees								(7,689)		(8,750)
Total mortgages, notes, and loans payable							$	1,993,470	$	1,514,623

(a)

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

(b)

The interest rate presented is based on the one month LIBOR rate, as applicable, at December 31, 2014 which was 0.1635%.

(c)

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 $20.0 million mortgage loan at one-month LIBOR plus 2.25%.

(d)

The $29.0 million outstanding principal balance is swapped to a 5.21% fixed rate through maturity.

The weighted average interest rate on our mortgages, notes and loans payable, excluding interest rate hedges, was 4.61% and 5.25% as of December 31, 2014 and 2013, respectively.

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)

$750.0 million of Senior Notes;

(ii)

$311.8 million financing for the Downtown Summerlin development which has an initial maximum recourse of 35.0% assuming the loan is fully drawn, which will reduce to 15.0% upon completion of the project and achievement of a 1.15:1.0 debt service coverage ratio. The recourse further reduces to 10% upon achievement of a 1.25:1.0 debt service coverage ratio, a 90% occupancy level, and average tenant sales of at least $500.00 per net rentable square foot;

(iii)

$64.4 million of construction financing for the Outlet Collection at Riverwalk with an initial maximum recourse of 50%, which 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;

(iv)

$20.4 million of Other Corporate Financing Arrangements; and

(v)

$7.0 million parent guarantee associated with the 110 N. Wacker mortgage.

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 2015. 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, 2014, land, buildings and equipment and developments with a cost basis of $2.3 billion have been pledged as collateral for our mortgages, notes and loans payable.

The following table summarizes the contractual obligations relating to our mortgages, notes and loans payable as of December 31, 2014 based on final maturity dates:


	Mortgages, notes
	and loans payable
	principal payments
	(In thousands)
2015	$	7,970
2016		247,655
2017		13,773
2018		348,294
2019		394,996
Thereafter		980,782
Total	$	1,993,470

As of December 31, 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 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, 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 $96.2 million has been utilized as of December 31, 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 November 10, 2014 we refinanced our $38.0 million loan and closed on a new $52.0 million loan for One Hughes Landing. The loan bears fixed interest at 4.30% and matures on December 1, 2029.

On July 18, 2014, we assumed a $4.6 million non-recourse mortgage loan at 1701 Lake Robbins. The loan bears fixed interest at 5.81% and has a maturity date of April 2017.

On July 15, 2014, we closed a $311.8 million financing for the construction of Downtown Summerlin development bearing interest at one-month LIBOR plus 2.25%. The loan has an initial maturity date of July 15, 2017, with two, one-year extension options. The loan has an initial maximum recourse of 35.0% assuming the loan is fully drawn, which will reduce to 15.0% upon completion of the project and achievement of a 1.15:1.0 debt service coverage ratio. The recourse further reduces to 10% upon achievement of a 1.25:1.0 debt service coverage ratio, a 90% occupancy level, and average tenant sales of at least $500.00 per net rentable square foot. 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 12 months, the recourse amount will decrease to 10.0% of the outstanding principal. Due to the recent opening, we have not met these criteria.

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 30.0% of the appreciation in the market value of the property after our 10.0% 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 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 12 months. Due to the recent opening, we have not met these criteria.

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. The loan bears interest at one-month LIBOR plus 2.65% due monthly, with an initial maturity date of September 11, 2016 with two, one-year extension options.

On August 2, 2013, we refinanced the existing $43.3 million construction loan on 3 Waterway Square, an 11-story, 232,000 square foot office building in The Woodlands, with a non-recourse first mortgage financing totaling $52.0 million. 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, a retail building located in Columbia, Maryland. The loan bears interest at one-month LIBOR plus 2.00%. The loan matures on March 15, 2016, and 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 extension options. The loan is currently secured by the rooms available for rent, 40-acre conference center and resort located within The Woodlands and requires the maintenance of specified financial ratios after completion of construction.

On May 31, 2012, we closed on a $55.6 million non‑recourse first mortgage loan for the Millennium Waterway Apartments. 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 has a fixed interest rate of 3.75% and matures on June 1, 2022.

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 loan had a weighted‑average interest rate of 3.35% as of December 31, 2014. The unused portion of this mortgage was $11.3 million as of December 31, 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 December 5, 2014 we closed on a $65.5 million non-recourse financing for the construction of Three Hughes Landing. The loan bears interest at one-month LIBOR plus 2.35%. The loan has an initial maturity date of December 5, 2017 with two, one-year extension options.

On November 6, 2014 we closed on a $600.0 million non-recourse construction loan for the Waiea and Anaha Condominium towers bearing interest at one-month LIBOR plus 6.75%. The loan has an initial maturity date of November 6, 2017, with two, one-year extension options.

On October 3, 2014, we closed on a $37.1 million construction financing for our Hughes Landing Hotel. The loan bears interest at one-month LIBOR plus 2.50%. The loan has an initial maturity of October 2018, with two, one-year extension options.

On August 6, 2014, we closed on a $69.3 million non-recourse construction financing for the Waterway Hotel bearing interest at one-month LIBOR plus 2.65%. The loan has an initial maturity of August 2018, with a one-year extension option. The development will be a 302-room Westin-branded hotel that will be owned and managed by us.

On June 30, 2014, we closed on a $143.0 million non-recourse construction financing for two office buildings bearing interest at one-month LIBOR plus 1.90%. The loan has an initial maturity date 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 bearing interest at one-month LIBOR plus 1.95%. The loan has 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. 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.

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 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.