NOTE 8 MORTGAGES, NOTES AND LOANS PAYABLE, NET

Mortgages, notes and loans payable, net are summarized as follows:


	December 31,
(In thousands)	2017		2016
Fixed-rate debt:
Unsecured 5.375% Senior Notes	$	1,000,000	$	—
Unsecured 6.875% Senior Notes		—		750,000
Secured mortgages, notes and loans payable		499,299		390,118
Special Improvement District bonds		27,576		44,023
Variable-rate debt:
Mortgages, notes and loans payable (a)		1,350,914		1,524,319
Unamortized bond issuance costs		(6,898)		(5,779)
Deferred financing costs		(12,946)		(11,934)
Total mortgages, notes and loans payable, net	$	2,857,945	$	2,690,747

(a)

As more fully described below, $428.3 million and $182.1 million of variable rate debt has been swapped to a fixed rate for the term of the related debt as of December 31, 2017 and 2016, respectively.

The following table presents our mortgages, notes, and loans payable by property, presented within each segment in order of extended maturity date


					Maximum		Carrying Value
	Initial / Extended	Interest			Facility		December 31,		December 31,
($ in thousands)	Maturity (a)	Rate			Amount		2017		2016
Master Planned Communities
Summerlin South SID Bonds - S124	December 2019	5.95	%				$	84	$	123
Summerlin South SID Bonds - S128	December 2020	7.30	%					390		440
Summerlin South SID Bonds - S132	December 2020	6.00	%					912		1,268
The Woodlands Master Credit Facility	April 2020 / April 2021	4.24	%	(b)	$	180,000		150,000		150,000
Bridgeland Credit Facility	November 2020 / November 2022	4.76	%	(b)		65,000		65,000		65,000
Summerlin South SID Bonds - S151	June 2025	6.00	%					3,763		4,159
Summerlin South SID Bonds - S128C	December 2030	6.05	%					4,283		4,600
Summerlin South SID Bonds - S159	June 2035	6.00	%					139		2,389
Summerlin West SID Bonds - S812	October 2035	6.00	%					15,193		27,459
Master Planned Communities Total								239,764		255,438

Operating Assets
1701 Lake Robbins	April 2017	5.81	%					—		4,600
Outlet Collection at Riverwalk	October 2017 / October 2018	4.24	%	(b)		53,841		53,841		55,778
1725-35 Hughes Landing Boulevard	June 2018 / June 2019	3.14	%	(b)		143,000		117,417		105,647
The Westin at The Woodlands (c)	August 2018 / August 2019	4.14	%	(b)		57,946		57,946		58,077
110 North Wacker (d)	October 2019	5.21	%					18,926		22,704
Three Hughes Landing	January 2018 / December 2019	3.84	%	(b)		65,455		45,058		35,053
Lakeland Village Center at Bridgeland	May 2018 / May 2020	3.84	%	(b)		14,000		11,470		9,979
Embassy Suites at Hughes Landing	October 2018 / October 2020	3.99	%	(b)		37,100		31,245		29,461
The Woodlands Resort & Conference Center (c)	December 2018 / December 2020	4.74	%	(b)		65,500		65,500		70,000
One Merriweather	February 2020 / February 2021	3.64	%	(b)		49,929		42,332		23,588
Downtown Summerlin (e)	September 2020 / September 2021	4.69	%	(b)		274,088		274,088		302,981
Two Merriweather	October 2020 / October 2021	3.99	%	(b)		33,156		19,429		—
HHC 242 Self-Storage	October 2019 / October 2021	4.09	%	(b)		6,658		6,243		3,708
HHC 2978 Self-Storage Facility	January 2020 / January 2022	4.09	%	(b)		6,368		5,634		1,715
70 Columbia Corporate Center	May 2020 / May 2022	3.49	%	(b)(f)				20,000		20,000
One Mall North	May 2020 / May 2022	3.74	%	(b)(f)				14,463		—
10-60 Columbia Corporate Centers (g)	May 2020 / May 2022	3.33	%	(b)(f)				80,000		80,000
20/25 Waterway Avenue	May 2022	4.79	%					13,646		13,886
Millennium Waterway Apartments	June 2022	3.75	%					55,095		55,584
Ward Village (h)	September 2021 / September 2023	3.82	%	(b)				238,718		238,718
9303 New Trails	December 2023	4.88	%					12,003		12,378
4 Waterway Square	December 2023	4.88	%					35,151		36,249
3831 Technology Forest Drive	March 2026	4.50	%					21,954		22,383
Kewalo Basin Harbor	September 2027	4.24	%	(b)		11,562		—		—
Millennium Six Pines Apartments	August 2028	3.39	%					42,500		42,500
3 Waterway Square	August 2028	3.94	%					50,327		51,590
One Hughes Landing	December 2029	4.30	%					52,000		52,000
Downtown Summerlin SID Bonds - S128	December 2030	6.05	%					2,812		3,350
Two Hughes Landing	December 2030	4.20	%					48,000		48,000
One Lakes Edge	March 2029 / March 2031	4.50	%					69,440		68,874
Constellation Apartments	January 2033	4.07	%					24,200		—
Hughes Landing Retail	December 2036	3.50	%					35,000		35,000
Columbia Regional Building	February 2037	4.48	%					25,000		22,188
Other	Various	3.60	%					—		236
Operating Assets Total								1,589,438		1,526,227

Strategic Developments
Waiea and Anaha	November 2017 / November 2019	8.24	%	(b)				—		160,847
Ke Kilohana	December 2019 / December 2020	4.74	%	(b)		142,656		—		—
Ae`o	December 2019 / December 2021	5.49	%	(b)		230,000		33,603		—
100 Fellowship Drive	May 2022	2.99	%	(b)		51,426		1		—
Aristocrat	October 2022	4.90	%	(b)		31,118		—		—
Two Summerlin	October 2022	4.90	%	(b)		33,432		—		—
Strategic Developments Total								33,604		160,847

Other corporate financing arrangements	July 2018	3.00	%					14,983		15,948
Senior Notes	October 2021	6.88	%					—		750,000
Senior Notes	March 2025	5.38	%					1,000,000		—
Unamortized bond issuance costs								(6,898)		(5,779)
Deferred financing costs								(12,946)		(11,934)
Total mortgages, notes, and loans payable							$	2,857,945	$	2,690,747

(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, three month LIBOR or Prime rate, as applicable, which was 1.49%, 1.61% and 4.50%, respectively, at December 31, 2017.

(c)

Based on current performance of The Westin at The Woodlands and The Woodlands Resort and Conference Center, a paydown may be required in order to exercise the extension option.

(d)

LIBOR on the $18.9 million outstanding principal balance is swapped to a 2.96% fixed-rate through maturity resulting an overall fixed rate of 5.21%.

(e)

The forward starting swaps related to this debt became effective on December 31, 2017. LIBOR on the $100.0 million of the outstanding principal balance is swapped to a 2.68% fixed-rate through maturity, LIBOR on another $100.0 million of the outstanding principal balance is swapped to a 2.62% fixed-rate through maturity, and LIBOR on $50.0 million of the outstanding principal balance is swapped to a 2.65% fixed-rate through maturity resulting in an overall rate of 4.69%

(f)

These three notes are part of one master facility, with all three respective properties collateralizing the total $114.5 million indebtedness.

(g)

LIBOR on $40.0 million of the outstanding principal balance is swapped to a 1.66% fixed-rate through maturity resulting in an overall fixed rate of 3.33%.

(h)

LIBOR on $119.4 million of the outstanding principal balance is swapped to a 1.14% fixed-rate through maturity resulting in an overall fixed rate of 3.82%.

The weighted average interest rate on our mortgages, notes and loans payable, excluding interest rate hedges, was 4.61% and 4.71% as of December 31, 2017 and 2016, respectively.

Except for the items listed below, all of the mortgage debt is secured by the individual properties listed in the table above and is non-recourse to HHC:

$1.0 billion of Senior Notes due 2025;

ii.

$274.1 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 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, 2017, 35% of the outstanding loan balance remains recourse to HHC;

iii.

$26.9 million, or 50% of the Outlet Collection at Riverwalk outstanding loan balance is recourse to HHC;

iv.

$15.0 million of Other Corporate Financing Arrangements; and

$18.9 million of the 110 North 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 subject to a prepayment penalty equal to a yield maintenance premium, defeasance, or a percentage of the loan balance. As of December 31, 2017, land, buildings and equipment and developments with a net book value basis of $3.4 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, 2017 based on extended maturity dates:


	Mortgages, notes
	and loans payable
(In thousands)	principal payments
2018	$	78,207
2019		256,338
2020		178,836
2021		467,010
2022		251,086
Thereafter		1,646,312
Total principal payments		2,877,789
Deferred financing costs, net and unamortized underwriting fees		(19,844)
Total mortgages, notes and loans payable	$	2,857,945

As of December 31, 2017, we were in compliance with all financial covenants included in the debt agreements governing our indebtedness.

Master Planned Communities

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. On April 27, 2017, TWL Facility was refinanced to increase the facility by $30.0 million for a total of $180.0 million, providing the ability to fund the development of Creekside Park Apartments or for other corporate purposes. The new facility bears interest at one-month LIBOR plus 2.75% with an initial maturity date of April 27, 2020 and a one-year extension option.

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 years ended December 31, 2017 and 2016, no new SID bonds were issued and $13.9 million and $7.7 million in obligations were assumed by buyers, respectively.

Operating Assets

On January 19, 2018, we paid off the $18.9 million mortgage loan for 110 North Wacker and settled the related swap asset of $0.3 million.

On December 28, 2017, we closed on a $24.2 million non‑recourse financing for Constellation, a multi-family building located in Summerlin. The loan bears interest at 4.07% and matures on January 1, 2033.

On December 5, 2017, we executed a modification of our $65.5 million Three Hughes Landing facility to extend the maturity 30 days to January 5, 2018. On January 5, 2018, we modified and extended the loan which bears interest at one-month LIBOR plus 2.60% with an initial maturity of December 5, 2018, with two, one-year extension options.

On September 13, 2017, we modified and extended our $311.8 million Downtown Summerlin facility with a $30.0 million paydown. The modified loan has a maximum facility of $275.9 million and bears interest at one-month LIBOR plus 2.15% with a maturity of September 13, 2020, with one, one-year extension option.

On August 11, 2017, we closed on a construction loan totaling $11.6 million for Kewalo Harbor, located in Honolulu, Hawai‘i, to be used for improvements benefitting our Ward Village development. The loan bears interest at one-month LIBOR plus 2.75% with a maturity of September 1, 2027. As of December 31, 2017, we had not drawn any proceeds under this loan.

On April 6, 2017, we paid off a $4.6 million maturing mortgage loan that we assumed as part of the acquisition of 1701 Lake Robbins in July 2014.

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 June 27, 2017, we modified our $94.5 million non-recourse mortgage financing with a $114.5 million loan. This amendment added 70 Columbia Corporate Center, a 170,741 square foot office building in Columbia, Maryland, to the collateral pool and allowed us to draw $20.0 million and fully repay the outstanding balance of the existing indebtedness on the 70 Columbia Corporate Center note.

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 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 one, one–year extension option. On October 24, 2017, we exercised our one-year extension option on our $54.3 million Outlet Collection at Riverwalk facility which extended the maturity date to October 24, 2018. 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, 2017, 50% of the outstanding loan balance remains recourse to us.

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 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, 2017.

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.

Strategic Developments

On January 25, 2018, we closed on a financing totaling $15.5 million for Lake Woodlands Crossing Retail, a project located in The Woodlands, Texas. The loan bears interest at LIBOR plus 1.80%, matures on January 25, 2023, and has an initial maximum recourse of 50% of the outstanding balance prior to completion of construction, at which point the repayment guarantee will reduce to 15% provided the project is 90% leased.

On October 27, 2017, we repaid the $195.3 million outstanding on our construction loan relating to Waiea and Anaha in conjunction with closing on the sales of units at Anaha.

On October 19, 2017, we closed on a construction loan totaling $64.6 million, of which $31.1 million will be used for development of Aristocrat and $33.5 million will be used for development of Two Summerlin. The loan bears interest at Wall Street Journal Prime plus 0.40% with a maturity of October 19, 2022.

On May 31, 2017, we closed on a $51.4 million construction loan for 100 Fellowship Drive, located in The Woodlands. The loan bears interest at one-month LIBOR plus 1.50% with a maturity of May 31, 2022.

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.

Corporate

On March 16, 2017, we issued $800.0 million in aggregate principal amount of 5.375% senior notes due March 15, 2025 (the “2025 Notes”) and completed a tender offer and consent solicitation for any and all of our $750.0 million existing 6.875% senior notes due October 1, 2021. We recognized a loss on redemption of $46.4 million in conjunction with this transaction. On June 12, 2017, we issued an additional $200.0 million of the 2025 Notes at a premium to par of 2.25%. Interest on the 2025 Notes is paid semi-annually, on March 15th and September 15th of each year, beginning on September 15, 2017. At any time prior to March 15, 2020, we may redeem all or a portion of the 2025 Notes at a redemption price equal to 100% of the principal plus a “make-whole” declining call premium. At any time prior to March 15, 2020, we may also redeem up to 35% of the 2025 Notes at a price of 105.375% with net cash proceeds of certain equity offerings, plus accrued and unpaid interest. The 2025 Notes contain customary terms and covenants and have no financial maintenance covenants.