MORTGAGES, NOTES AND LOANS PAYABLE, NET

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



	December 31,
(In thousands)	2018			2017
Fixed-rate debt:
Unsecured 5.375% Senior Notes	$	1,000,000		$	1,000,000
Secured mortgages, notes and loans payable	648,707			499,299
Special Improvement District bonds	15,168			27,576
Variable-rate debt:
Mortgages, notes and loans payable (a)	1,551,336			1,350,914
Unamortized bond issuance costs	(6,096		)	(6,898		)
Deferred financing costs	(27,902		)	(12,946		)
Total mortgages, notes and loans payable, net	$	3,181,213		$	2,857,945

(a)

As more fully described below, $615.0 million and $428.3 million of variable rate debt has been swapped to a fixed rate for the term of the related debt as of December 31, 2018 and 2017, respectively. An additional $50.0 million of variable rate debt was subject to interest rate collars as of December 31, 2018. As of December 31, 2018 and 2017, $75.0 million and $108.6 million, respectively, of variable rate debt was capped at a maximum interest rate.

The following table presents the Company's 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		2018		2017
Master Planned Communities
Summerlin South SID Bonds - S124	December 2019	5.95	%				$	—	$	84
Summerlin South SID Bonds - S128	December 2020	7.30	%				213		390
Summerlin South SID Bonds - S132	December 2020	6.00	%				562		912
The Woodlands Master Credit Facility	April 2020 / April 2021	5.25	%	(b)	$	180,000	150,000		150,000
Bridgeland Credit Facility	November 2020 / November 2022	5.96	%	(b)	65,000		65,000		65,000
Summerlin South SID Bonds - S151	June 2025	6.00	%				913		3,763
Summerlin South SID Bonds - S128C	December 2030	6.05	%				3,211		4,283
Summerlin South SID Bonds - S159	June 2035	6.00	%				—		139
Summerlin West SID Bonds - S812	October 2035	6.00	%				6,709		15,193
Master Planned Communities Total							226,608		239,764
Operating Assets
1725-1735 Hughes Landing Boulevard	June 2018 / June 2019	3.14	%	(b), (c)	143,000		—		117,417
The Westin at The Woodlands	August 2018 / August 2019	4.14	%	(b), (c)	57,946		—		57,946
Outlet Collection at Riverwalk	October 2019 / October 2020	5.00	%	(b)			47,552		53,841
Three Hughes Landing	December 2019 / December 2020	5.10	%	(b)	62,000		55,759		45,058
Lakeland Village Center at Bridgeland	May 2018 / May 2020	3.84	%	(b), (c)	14,000		—		11,470
Embassy Suites at Hughes Landing	October 2018 / October 2020	3.99	%	(b), (c)	37,100		—		31,245
The Woodlands Resort & Conference Center	February 2019 / February 2021	5.75	%	(b)			62,500		65,500



One Merriweather	February 2020 / February 2021	3.64	%	(b), (c)	49,929	—			42,332
Downtown Summerlin	September 2020 / September 2021	4.65	%	(b)		266,755			274,088
Two Merriweather	October 2020 / October 2021	5.00	%	(b)	33,156	24,000			19,429
HHC 242 Self-Storage	October 2019 / October 2021	5.10	%	(b)	6,658	6,604			6,243
HHC 2978 Self-Storage Facility	January 2020 / January 2022	5.10	%	(b)	6,368	6,042			5,634
70 Columbia Corporate Center	May 2020 / May 2022	3.49	%	(b), (c)		—			20,000
One Mall North	May 2020 / May 2022	3.74	%	(b), (c)		—			14,463
10-60 Columbia Corporate Centers	May 2020 / May 2022	3.33	%	(b), (c)		—			80,000
20/25 Waterway Avenue	May 2022	4.79	%			13,395			13,646
Millennium Waterway Apartments	June 2022	3.75	%			54,083			55,095
Aristocrat	October 2022	5.90	%	(b)	31,118	21,296			—
Two Summerlin	October 2022	5.90	%	(b)	33,432	14,431			—
Lake Woodlands Crossing Retail	January 2023	4.30	%	(b)	15,523	9,539			—
Ward Village	September 2021 / September 2023	3.82	%	(b), (c)		—			238,718
Lakefront North	December 2022 / December 2023	4.50	%	(b)	51,821	21,120			—
Senior Secured Credit Facility	September 2023	4.61	%	(f)	700,000	615,000			—
9303 New Trails	December 2023	4.88	%			11,610			12,003
4 Waterway Square	December 2023	4.88	%			33,998			35,151
3831 Technology Forest Drive	March 2026	4.50	%			21,571			21,954
Kewalo Basin Harbor	September 2027	5.25	%	(b)	11,562	3,499			—
Millennium Six Pines Apartments	August 2028	3.39	%			42,500			42,500
3 Waterway Square	August 2028	3.94	%			49,013			50,327
One Hughes Landing	December 2029	4.30	%			52,000			52,000
Two Hughes Landing	December 2030	4.20	%			48,000			48,000
Hockey Ground Lease SIDS	December 2020 - December 2030	6.05% - 7.30%				141			—
Downtown Summerlin SID Bonds - S128	December 2030	6.05	%			2,652			2,812
One Lakes Edge	March 2029	4.50	%			69,440			69,440
Constellation Apartments	January 2033	4.07	%			24,200			24,200
Hughes Landing Retail	December 2036	3.50	%			35,000			35,000
Columbia Regional Building	February 2037	4.48	%			25,000			25,000
Operating Assets Total						1,636,700			1,570,512
Strategic Developments
250 Water Street	December 2018 / June 2020	6.00	%			129,723			—
Ke Kilohana	December 2019 / December 2020	5.75	%	(b)	142,656	96,757			—
Ae‘o	December 2019 / December 2021	5.49	%	(b)	215,000	—			33,603
100 Fellowship Drive	May 2022	4.00	%	(b)	51,426	35,481			1
Lakeside Row	July 2022 / July 2023	4.75	%	(b)	34,231	—			—
Two Lakes Edge	October 2022 / October 2023	4.65	%	(b)	74,000	—			—
110 North Wacker (d)	April 2022 / April 2024	5.50	%	(b), (d)	512,573	50,000			18,926
6100 Merriweather	September 2022 / September 2024	5.25	%	(b)	89,844	—			—
Columbia Multi-family	September 2022 / September 2024	5.25	%	(b)	85,657	—			—
Tanager Apartments	October 2021 / October 2024	4.75	%	(b)	44,100	—			—
Other SID Bonds	December 2020 - December 2030	6.00% - 7.30%		(e)		767			—
Summerlin Ballpark	December 2039	4.92	%		51,231	26,766			—
Strategic Developments Total						339,494			52,530
Other corporate financing arrangements	May 2023	4.33	%			12,409			14,983
Senior Notes	March 2025	5.38	%			1,000,000			1,000,000
Unamortized bond issuance costs						(6,096		)	(6,898		)
Deferred financing costs						(27,902		)	(12,946		)
Total mortgages, notes, and loans payable						$	3,181,213		$	2,857,945

(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 HHC's 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, HHC may have to pay down 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 2.50%, 2.81% and 5.50%, respectively, at December 31, 2018.


(c)	Rates and maturities were not changed as the line is retained for prior year presentation purposes only. Property is collateral for the Senior Secured Credit Facility, and their prior balances were repaid upon execution of the Senior Secured Credit Facility agreement on September 18, 2018.


(d)	100.0% of the outstanding principal of $50.0 million is subject to fixed interest rate collar contracts for the remaining term of the debt.


(e)	Includes SID Bonds related to Two Summerlin, Aristocrat, Tanager Apartments, and Summerlin Ballpark. Maturity dates range between December 2020 and December 2030 and interest rates range between 6.00% and 7.30%.


(f)	100.0% of the outstanding principal of the $615.0 million Term Loan is swapped to a fixed rate equal to 4.61%.

The weighted average interest rate on the Company's mortgages, notes and loans payable, excluding interest rate hedges, was 5.06% and 4.61% as of December 31, 2018 and 2017, respectively.

HHC's mortgages, notes and loans payable are secured by the properties listed in the table above and are non-recourse to HHC except for:


i.	$1.0 billion of Senior Notes due 2025;

ii.

$266.8 million financing for the Downtown Summerlin development which has an initial maximum recourse of 35% of the outstanding balance, which will reduce to 15% 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, 2018, 35% of the outstanding loan balance remains recourse to HHC;


iii.	30% or $29.0 million of the Ke Kilohana outstanding loan balance;


iv.	50%, or $23.8 million, of the Outlet Collection at Riverwalk outstanding loan balance;


v.	100%, or $12.4 million, of the Other Corporate Financing Arrangements outstanding loan balance;


vi.	18%, or $9.0 million, of the 110 North Wacker outstanding loan balance;


vii.	25% of the Tanager outstanding loan balance;


viii.	25% of the Lakeside Row outstanding loan balance;


ix.	25% of the Columbia Multi-family outstanding loan balance and;


x.	25% of the 6100 Merriweather outstanding loan balance.

The Woodlands Land Development Company has recourse loans totaling $72.3 million for 100 Fellowship Drive, Lakefront North, Three Hughes Landing, The Woodlands Resort & Conference Center and Lake Woodlands Crossing. The debt is not recourse to HHC, however, it is partially recourse to The Woodlands Land Development Company, which is a subsidiary of HHC.

Certain of the Company's 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, 2018, land, buildings and equipment and developments with a net book value basis of $4.2 billion have been pledged as collateral for HHC's mortgages, notes and loans payable.

The following table summarizes the contractual obligations relating to the Company's mortgages, notes and loans payable as of December 31, 2018 based on extended maturity dates:



	Mortgages, notes
	and loans payable
(In thousands)	principal payments
2019	$	93,358
2020	357,246
2021	419,697
2022	216,471
2023	696,248
Thereafter	1,432,191
Total principal payments	3,215,211
Deferred financing costs, net and unamortized underwriting fees	(33,998		)
Total mortgages, notes and loans payable	$	3,181,213

As of December 31, 2018, the Company was in compliance with all financial covenants included in the debt agreements governing its indebtedness.

Master Planned Communities

The Woodlands Master Credit Facility was amended and restated on April 27, 2017 to a $180.0 million maximum facility amount consisting of a $100.0 million term loan and an $80.0 million revolver (together, the "TWL Facility"). The TWL 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 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 HHC based on a loan‑to‑value test.

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 the Company 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 the Company previously paid with respect to such proportionate share of the bond. In the years ended December 31, 2018 and 2017, no new SID bonds were issued and $10.9 million and $13.9 million in obligations were assumed by buyers, respectively.

Operating Assets

On December 20, 2018, the Company amended the $62.5 million Woodlands Resort & Conference Center financing to extend the initial maturity date to February 28, 2019. The financing bears interest at one-month LIBOR plus 3.25% and has two, one-year extension options.

On December 17, 2018, the Company closed on a $51.8 million construction loan for Lakefront North. The loan bears interest at one-month LIBOR plus 2.00% with an initial maturity of December 17, 2022, and a one-year extension option.

On December 5, 2018, the Company modified and extended the Three Hughes Landing facility. The total commitment was reduced from $65.5 million to $62.0 million. The loan bears interest at one-month LIBOR plus 2.60% with an initial maturity of December 5, 2019, and a one-year extension option. The Company had previously extended the facility on January 5, 2018.

On October 29, 2018, the Company modified and extended the Outlet Collection at Riverwalk loan. The total commitment was reduced from $56.1 million to $47.9 million. The loan bears interest at one-month LIBOR plus 2.50% with two, six-month extension options.

On September 18, 2018, certain wholly-owned subsidiaries (the “Borrowers”) of the Company entered into a $700.0 million loan agreement (the “Loan Agreement”), which provides for a $615.0 million term loan (the “Term Loan”) and an $85.0 million revolver loan (the “Revolver Loan” and together with the Term Loan, the “Senior Secured Credit Facility” or the "Loans"), with Wells Fargo Bank, National Association, as administrative agent and a lender, as well as other lenders. The Loans bear interest at one-month LIBOR plus 1.65% and mature September 18, 2023. The Borrowers have a one-time right to request an increase of $50.0 million in the aggregate amount of the Revolver Loan commitment. Concurrent with the funding of the Term Loan on September 21, 2018, the Company entered into a swap agreement to fix 100% of the outstanding principal of the Term Loan to an overall rate equal to 4.61%.

The Loans are secured by a first priority security interest in certain of the Company’s properties which are directly owned by the Borrowers (the “Mortgaged Properties”). In connection with the Loans, the Company provided the administrative agent, on behalf of the lenders, a non-recourse carve-out guarantee and a hazardous materials indemnity agreement.

The Borrowers drew $615.0 million under the Term Loan at closing. All the net proceeds after costs and fees related to the Loans were used to repay all outstanding indebtedness encumbering the Mortgaged Properties, including debt held by lenders not party to the Loan Agreement. The total debt repaid was approximately $608.7 million and was associated with the following Mortgaged Properties: 10-60 Columbia Corporate Centers, 70 Columbia Corporate Center, One Mall North, One Merriweather, Embassy Suites at Hughes Landing, The Westin at The Woodlands, 1725-1735 Hughes Landing Boulevard and Ward Village. The Mortgaged Properties also include Creekside Village Green and 1701 Lake Robbins. The Company has not made any draws under the Revolver Loan.

The Company evaluated the terms of the Loans to determine if the new debt instruments should be accounted for as modifications or extinguishments on a lender-by-lender basis, per Mortgaged Property subject to refinancing. The majority of the transaction was accounted for as a debt modification. As a result, the Company capitalized $8.6 million in related fees and costs and recognized a $0.7 million loss on debt extinguishment and modification, which was primarily related to third-party fees incurred in procuring the Loans. The $0.7 million loss is included in Interest expense in the Consolidated Statements of Operations.

On April 13, 2018, the Company repaid the $11.8 million loan for Lakeland Village Center at Bridgeland.

On January 25, 2018, the Company closed on a $15.5 million construction loan for Lake Woodlands Crossing Retail. The loan bears interest at one-month 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 December 28, 2017, the Company closed on a $24.2 million non‑recourse financing for Constellation. The loan bears interest at 4.07% and matures on January 1, 2033.

On October 19, 2017, the Company closed on a construction loan totaling $64.6 million, of which $31.1 million will be used for development of Aristocrat and $33.4 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 September 13, 2017, the Company modified and extended its $311.8 million Downtown Summerlin facility with a $30.0 million pay down. 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 and a one-year extension option.

On August 11, 2017, the Company closed on a construction loan totaling $11.6 million for Kewalo Basin Harbor. The loan bears interest at one-month LIBOR plus 2.75% with a maturity of September 1, 2027.

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

On February 23, 2017, the Company 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.

Strategic Developments

In December 2018, the Company repaid the $174.0 million outstanding balance on the construction loan relating to Ae‘o. Three repayments were made in conjunction with closing on the sales of units at the property.

On October 11, 2018, the Company closed on a $74.0 million construction loan for Two Lakes Edge, bearing interest at one-month LIBOR plus 2.15% with an initial maturity date of October 11, 2022 and a one-year extension option.

On September 11, 2018, the Company closed on an $89.8 million construction loan for 6100 Merriweather and an $85.7 million construction loan for Columbia Multi-family. Each loan bears interest at one-month LIBOR plus 2.75%, has an initial maturity date of September 11, 2022, has two, one-year extension options and is cross-collateralized.

On July 27, 2018, the Company closed on a $34.2 million construction loan for Lakeside Row, bearing interest at one-month LIBOR plus 2.25% with an initial maturity date of July 27, 2022 and a one-year extension option.

On July 20, 2018, the Company closed on a $51.2 million construction note for Summerlin Ballpark, bearing interest at 4.92% per annum and maturing on December 15, 2039. The note is secured by the ballpark and by the proceeds of the Naming Rights and Marketing agreement between the Company and the Las Vegas Convention and Visitors Authority, which provides an annual payment of $4.0 million to the Company in each of the next 20 years.

On June 8, 2018, the Company closed on a $129.7 million note payable for 250 Water Street. The loan has an initial interest-free term of six months with an initial maturity date of December 8, 2018, and three, six-month extension options at a rate of 6.00%. The second and third extension options each require a $30.0 million pay down. The Company exercised its first extension option on December 3, 2018.

On April 30, 2018, the Company and its joint venture partners closed on a $494.5 million construction loan for 110 North Wacker, of which the Company guaranteed approximately $89.0 million. The loan initially bears interest at one-month LIBOR plus 3.00% and steps up or down based on various leasing thresholds. The loan has an initial maturity date of April 30, 2022, and two, one-year extension options. On September 25, 2018, the Company and its joint venture partners closed on an amendment to increase the $494.5 million construction loan to $512.6 million, modify the lenders and commitments included in the loan syndication and increase the Company's guarantee to approximately $92.3 million.

On March 26, 2018, the Company closed on a $44.1 million construction loan for Tanager Apartments, bearing interest at one-month LIBOR plus 2.25% with an initial maturity date of October 1, 2021 and a three-year extension option.

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

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

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

Corporate

On March 16, 2017, the Company 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 its $750.0 million existing 6.875% senior notes due October 1, 2021. The Company recognized a loss on redemption of $46.4 million in conjunction with this transaction. On June 12, 2017, the Company 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, the Company 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, the Company may also redeem up to 35% of the 2025 Notes at a price of 105.38% 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.