NOTE 8 MORTGAGES, NOTES AND LOANS PAYABLE

Mortgages, notes and loans payable are summarized as follows:


	December 31,		December 31,
(In thousands)	2016		2015
Fixed-rate debt:
Collateralized mortgages, notes and loans payable	$	1,134,339	$	1,087,642
Special Improvement District bonds		44,023		53,739
Variable-rate debt:
Collateralized mortgages, notes and loans payable (a)		1,524,319		1,314,973
Deferred Financing Costs, net of accumulated amortization of $14.3 million and $12.7 million, respectively		(11,934)		(12,392)
Total mortgages, notes and loans payable	$	2,690,747	$	2,443,962

(a)

As more fully described below, $182.1 million and $209.5 million of variable rate debt has been swapped to a fixed rate for the term of the related debt as of December 31, 2016 and 2015, respectively.

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


					Maximum		Carrying Value
	Initial / Extended	Interest			Facility		December 31,		December 31,
($ in thousands)	Maturity (a)	Rate			Amount		2016		2015
Master Planned Communities
Bridgeland Credit Facility	November 2020 / November 2022	4.60	%	(b)	$	65,000	$	65,000	$	40,072
Summerlin South SID Bonds - S124	December 2019	5.95	%					123		159
Summerlin South SID Bonds - S128	December 2020	7.30	%					440		534
Summerlin South SID Bonds - S128C	December 2030	6.05	%					4,600		4,856
Summerlin South SID Bonds - S132	December 2020	6.00	%					1,268		1,676
Summerlin South SID Bonds - S151	June 2025	6.00	%					4,159		4,534
Summerlin South SID Bonds - S159	June 2035	6.00	%					2,389		9,020
Summerlin West SID Bonds - S808/S810	April 2031	6.00	%					—		1,047
Summerlin West SID Bonds - S812	October 2035	6.00	%					27,459		28,328
The Woodlands Master Credit Facility	August 2018	3.47	%	(b)		150,000		150,000		192,663
Master Planned Communities Total								255,438		282,889

Operating Assets
10-60 Columbia Corporate Centers	May 2020 / May 2022	2.94	%	(b)(c)				80,000		80,000
70 Columbia Corporate Center	July 2017 / July 2019	2.97	%	(b)				20,000		20,000
Columbia Regional Building	March 2019	2.72	%	(b)		23,008		22,188		22,188
Downtown Summerlin (d)	July 2017 / July 2019	2.97	%	(b)		311,800		302,981		289,804
Downtown Summerlin SID Bonds - S108	December 2016	5.95	%					—		235
Downtown Summerlin SID Bonds - S128	December 2030	6.05	%					3,350		3,350
Embassy Suites at Hughes Landing	October 2018 / October 2020	3.22	%	(b)		37,100		29,461		20,064
One Hughes Landing	December 2029	4.30	%					52,000		52,000
Two Hughes Landing	December 2030	4.20	%					48,000		48,000
Three Hughes Landing (d)	December 2017 / December 2019	3.07	%	(b)		65,455		35,053		23,268
1725-35 Hughes Landing Boulevard	June 2018 / June 2019	2.37	%	(b)		143,000		105,647		89,677
Hughes Landing Retail	December 2036	3.50	%			35,000		35,000		28,726
1701 Lake Robbins	April 2017	5.81	%					4,600		4,600
Lakeland Village Center at Bridgeland	May 2018 / May 2020	3.07	%	(b)		14,000		9,979		—
Millennium Waterway Apartments	June 2022	3.75	%					55,584		55,584
Millennium Six Pines Apartments	August 2028	3.39	%					42,500		—
110 N. Wacker	October 2019	5.21	%	(e)				22,704		26,481
9303 New Trails	December 2023	4.88	%					12,378		12,734
One Lakes Edge	February 2017 / February 2019	4.22	%	(b)		73,525		68,874		67,517
Outlet Collection at Riverwalk	October 2017 / October 2019	3.47	%	(b)		56,100		55,778		56,100
3831 Technology Forest Drive	March 2026	4.50	%					22,383		22,759
The Westin at The Woodlands (d)	August 2018 / August 2019	3.37	%	(b)		69,300		58,077		33,361
The Woodlands Resort & Conference Center	December 2018 / December 2020	3.97	%	(b)				70,000		85,000
Ward Village	September 2021 / September 2023	3.43	%	(b)(f)				238,718		238,716
20/25 Waterway Avenue	May 2022	4.79	%					13,886		14,112
3 Waterway Square	August 2028	3.94	%					51,590		52,000
4 Waterway Square	December 2023	4.88	%					36,249		37,293
Other								235		—
Capital lease obligations	various	3.60	%					1		52
Operating Assets Total								1,497,216		1,383,621

Strategic Developments
Ae`o	December 2019 / December 2021	4.72	%	(b)		230,000		—		—
HHC 242 Self Storage Facility	October 2019 / October 2021	3.32	%	(b)		6,658		3,708		—
HHC 2978 Self Storage Facility	January 2020 / January 2022	3.32	%	(b)		6,368		1,715		—
Ke Kilohana	December 2019 / December 2020	3.97	%	(b)		142,656		—		—
One Merriweather	February 2020 / February 2021	2.87	%	(b)		49,900		23,588		—
Two Merriweather	October 2020 / October 2021	3.22	%	(b)		33,156		—		—
Waiea and Anaha (g)	November 2017 / November 2019	7.47	%	(b)		410,000		160,847		27,817
Strategic Developments Total								189,858		27,817

Other Corporate Financing Arrangements	June 2018	3.00	%					15,948		18,794
Senior Notes	October 2021	6.88	%					750,000		750,000
Unamortized underwriting fees								(5,779)		(6,767)
Deferred Financing Costs, net								(11,934)		(12,392)

Total mortgages, notes, and loans payable							$	2,690,747	$	2,443,962

(a)

Maturity dates presented include initial maturity date as well as the extended or final maturity date as contractually stated. Extension periods generally can be exercised at our option at the initial maturity date, subject to customary extension terms that are based on current property performance projections. Such extension terms may include, but are not limited to, minimum debt service coverage, minimum occupancy levels or condominium sales levels, as applicable and other performance criteria. In certain cases due to property performance not meeting covenants, we may have to paydown a portion of the loan in order to obtain the extension.

(b)

The interest rate presented is based on the one month LIBOR rate, which was 0.72% at December 31, 2016.

(c)

$40.0 million of the outstanding principal balance is swapped to a 3.41% fixed-rate through maturity.

(d)

Based on current performance of Downtown Summerlin, Three Hughes Landing and The Westin at The Woodlands, a paydown may be required in order to exercise the extension option.

(e)

The $22.7 million outstanding principal balance is swapped to a 5.21% fixed-rate through maturity.

(f)

$119.4 million of the outstanding principal balance is swapped to a 3.64% fixed-rate through maturity.

(g)

The Waiea and Anaha facility originally provided available financing of up to $600 million and is now reduced to $410 million subsequent to paydowns made on the loan in fourth quarter 2016. The facility is a non-recourse construction loan cross-collateralized by the condominium towers bearing interest at one-month LIBOR plus 6.75% with an initial maturity date of November 6, 2017, and two, one-year extension options. In August 2016, the original financing agreement was modified. The modification allowed for an immediate advance on the loan of $50 million, returning a substantial portion of the project’s prior cash equity contribution to us and provided for an additional distribution of up to $113 million from Waiea’s initial bulk closing in November 2016. The balance of Waiea sales proceeds are to be applied to the loan balance as well as fund any construction costs remaining for Waiea. The interest rate and maturity date remained unchanged.

The weighted average interest rate on our mortgages, notes and loans payable, excluding interest rate hedges, was 4.71% and 4.44% as of December 31, 2016 and 2015, 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:

$750.0 million of Senior Notes;

ii.

$311.8 million financing for the Downtown Summerlin development which has an initial maximum recourse of 35% of the outstanding balance, 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. As of December 31, 2016, 35% of the outstanding loan balance remains recourse to HHC;

iii.

$142.7 million of construction financing for Ke Kilohana with an initial maximum recourse of 30% of the outstanding balance;

iv.

$56.1 million of construction financing for the Outlet Collection at Riverwalk with an initial maximum recourse of 50% of the outstanding balance, which will be reduced to 25.0% upon the achievement of an 11.0% debt yield and a minimum level of tenant sales per square foot for twelve months. As of December 31, 2016, 50% of the outstanding loan balance remains recourse to HHC;

$15.9 million of Other Corporate Financing Arrangements; and

vi.

$7.0 million of the 110 N. Wacker mortgage.

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. 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, 2016, land, buildings and equipment and developments with a net book value basis of $3.1 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, 2016 based on final maturity dates:


	Mortgages, notes
	and loans payable
(In thousands)	principal payments
2017	$	66,539
2018		126,541
2019		850,263
2020		121,626
2021		789,101
Thereafter		754,390
Total principal payments		2,708,460
Deferred financing costs, net and unamortized underwriting fees		(17,713)
Total mortgages, notes and loans payable	$	2,690,747

As of December 31, 2016, we were in compliance with all of the financial covenants related to our debt agreements.

Master Planned Communities

On November 9, 2015, we refinanced $15.2 million of existing debt in connection with closing on a modification which increased the Bridgeland Credit Facility to $65.0 million. The facility bears interest at three-month LIBOR plus 3.15%, with a 4.60% floor, and has an initial maturity date of November 2020 with two, one-year extension options. The proceeds are providing working capital at Bridgeland for development efforts necessary to meet the demand of homebuilders for finished lots in the community.

The Woodlands Master Credit Facility was amended and restated on July 31, 2015 to a $200.0 million maximum facility amount consisting of a $100.0 million term loan and a $100.0 million revolver (together, the “TWL Facility”). The TWL Facility bears interest at one-month LIBOR plus 2.75% and had an August 2016 initial maturity date with two, one–year extension options. In July 2016, we exercised our first one-year extension option, which reduced the total commitment to $175.0 million. Semi-annual principal payments of $25.0 million began on December 31, 2016 and continue through the second, optional one-year extension period. The TWL Facility and The Woodlands Resort & Conference Center loans are recourse to the entities that directly own The Woodlands operations. 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. The amendment also modified certain covenants to allow for more construction loan guarantees by the entities that directly own The Woodlands than would otherwise have been permitted by the prior facility.

The Summerlin MPC uses SID bonds to finance certain common infrastructure improvements. These bonds are issued by the municipalities and 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 MPC 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. In the year ended December 31, 2016, no new SID bonds were issued and $7.7 million in obligations were assumed by buyers.

Operating Assets

On January 19, 2017, we closed on a non‑recourse financing totaling $25.0 million replacing the $23.0 million construction loan on the Columbia Regional Building, a retail building located in Columbia, Maryland. The loan bears interest at 4.48% and matures on February 11, 2037.

On January 17, 2017, we amended and restated our $80.0 million non-recourse mortgage financing for the 10-60 Columbia Corporate Center office buildings with a $94.5 million loan. Contemporaneously with this amendment, we received $14.5 million to purchase One Mall North, a 97,500 square foot office building in Columbia, Maryland. The loan bears interest at LIBOR plus 1.75% and has an initial maturity date of May 6, 2020, with two, one-year extension options.

On December 30, 2016, we amended and restated our $85.0 million mortgage financing for The Woodlands Resort & Conference Center with a $70.0 million mortgage. Contemporaneously with this amendment, we made a $15.0 million principal reduction payment as required by the loan agreement. The loan bears interest at LIBOR plus 3.25% and has an initial maturity date of December 30, 2018, with two, one-year extension options.

On December 8, 2016, we modified the $36.6 million construction financing to $35.0 million for Hughes Landing Retail. The loan bears fixed interest at 3.50% and has an initial maturity date of December 8, 2036.

On November 25, 2016, we amended and extended our $73.5 million construction loan for One Lakes Edge with a $71.9 million mortgage. Contemporaneously with this amendment, we made a $3.0 million principal reduction payment as required by the loan agreement. The loan bears interest at one-month LIBOR plus 3.50%. On February 23, 2017, we refinanced the One Lakes Edge construction loan with a 12 year Fannie Mae loan. The new loan amount is $69.4 million with a fixed rate of 4.50%. The loan is interest only for four years then begins amortizing on a 30 year basis.

On October 24, 2016, we modified the $64.4 million construction financing to $56.1 million for Outlet Collection at Riverwalk. The loan bears interest at one-month LIBOR plus 2.75% and has an initial maturity date of October 24, 2017 with two, one–year extension options. The initial recourse amount of 50.0% will be reduced to 25.0% upon the achievement of an 11.0% debt yield and a minimum level of tenant sales per square foot for 12 months. As of December 31, 2016, 50% of the outstanding loan balance remains recourse to us.

On September 12, 2016, we amended and restated the $238.7 million first mortgage secured by Ward Village. The non-recourse term loan bears interest at one-month LIBOR plus 2.50% with an initial maturity date of September 12, 2021, with two, one year extension options. $119.4 million of the outstanding principal balance is swapped at a 3.64% fixed-rate through maturity. There was no undrawn availability on this loan as of December 31, 2016.

On November 24, 2015, we refinanced a $41.2 million construction financing and closed on a new $48.0 million loan for Two Hughes Landing. The loan bears fixed interest at 4.20% and matures in December 2030.

On March 25, 2015, we closed on a $23.0 million non-recourse mortgage financing for 3831 Technology Forest Drive. The loan bears fixed interest at 4.50% and matures on March 24, 2026.

On November 10, 2014, we closed on a refinance for a $52.0 million loan for One Hughes Landing. The loan bears fixed interest at 4.30% and matures on December 1, 2029.

On October 3, 2014, we closed on a $37.1 million construction financing for the Embassy Suites at Hughes Landing. 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 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 June 30, 2014, we closed on a $143.0 million non-recourse construction financing for 1725 & 1735 Hughes Landing Boulevard bearing interest at one-month LIBOR plus 1.65%. The loan has an initial maturity date of June 30, 2018, with a one-year extension option.

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 Columbia Corporate Center (“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.

Strategic Developments

On December 23, 2016, we closed on a $142.7 million partial recourse construction loan for Ke Kilohana, bearing interest at one-month LIBOR plus 3.25% with an initial maturity date of December 23, 2019 and a one-year extension option.

On December 23, 2016, we closed on a $230.0 million non-recourse construction loan for Ae`o, bearing interest at one-month LIBOR plus 4.00% with a 4.50% floor and 2.50% LIBOR cap. The initial maturity date is December 23, 2019 with two, one-year extension options.

On October 7, 2016, we closed on a $33.2 million non-recourse construction loan for Two Merriweather, bearing interest at one-month LIBOR plus 2.50% with an initial maturity date of October 7, 2020 and a one-year extension option.

On February 25, 2016, we closed on a $49.9 million non-recourse construction loan for One Merriweather, bearing interest at one-month LIBOR plus 2.15% with an initial maturity date of February 25, 2020, with a one-year extension option.

On January 27, 2016, we closed on a $6.4 million non-recourse construction loan for the HHC 2978 Self-Storage Facility, bearing interest at one-month LIBOR plus 2.60% with an initial maturity date of January 2020, with two, one-year extension options.

On October 23, 2015, we closed on a $6.7 million non-recourse construction loan for the HHC 242 Self-Storage Facility, bearing interest at one-month LIBOR plus 2.60% with an initial maturity date of October 2019, with two, one-year extension options.

On May 15, 2015, we closed on a $14.0 million non-recourse construction loan for Lakeland Village Center, bearing interest at one-month LIBOR plus 2.35% with an initial maturity date of May 2018, with two, one-year extension options.

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 August 6, 2014, we closed on a $69.3 million non-recourse construction financing for the Westin at The Woodlands 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.

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. 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.