Mortgages, Notes and Loans Payable, Net

6 Months Ended

Jun. 30, 2021

Debt Disclosure [Abstract]

Mortgages, Notes and Loans Payable, Net

6. Mortgages, Notes and Loans Payable, Net

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

thousands	June 30, 2021		December 31, 2020
Fixed-rate debt:
Unsecured 5.375% Senior Notes due 2025	$	—	$	1,000,000
Unsecured 5.375% Senior Notes due 2028	750,000		750,000
Unsecured 4.125% Senior Notes due 2029	650,000		—
Unsecured 4.375% Senior Notes due 2031	650,000		—
Secured mortgages, notes and loans payable	643,315		590,517
Special Improvement District bonds	32,807		34,305
Variable-rate debt:
Mortgages, notes and loans payable (a)	1,768,062		1,945,344
Unamortized bond discounts	—		(4,355)
Unamortized deferred financing costs (b)	(44,850)		(28,442)
Total mortgages, notes and loans payable, net	$	4,449,333	$	4,287,369

(a)As of June 30, 2021, $650.5 million of variable‑rate debt has been swapped to a fixed rate for the term of the related debt. As of December 31, 2020, $649.9 million of variable‑rate debt had been swapped to a fixed rate for the term of the related debt. As of June 30, 2021, $124.2 million of variable-rate debt was capped at a maximum interest rate. As of December 31, 2020, $75.0 million of variable-rate debt was capped at a maximum interest rate. See Note 8 - Derivative Instruments and Hedging Activities for additional information.

(b)Deferred financing costs are amortized to interest expense over the terms of the respective financing agreements using the effective interest method (or other methods which approximate the effective interest method).

Debt Collateral 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 percentage of the loan balance. As of June 30, 2021, land, buildings and equipment and developments with a net book value of $4.4 billion have been pledged as collateral for HHC’s mortgages, notes and loans payable. 

Credit Facilities In 2018, the Company entered into a $700.0 million 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). The Company has a one-time right to request an increase of $50.0 million in the aggregate amount of the Revolver Loan commitment. As of June 30, 2021, the Company had no outstanding borrowings under the Revolver Loan.

In 2019, the Company closed on a $250.0 million credit facility secured by land and certain other collateral in The Woodlands and Bridgeland MPCs. The loan provides for a $100.0 million term loan and a $150.0 million revolver loan. As of June 30, 2021, the Company had $50.0 million of outstanding borrowings under the revolver portion of the loan.

Special Improvement District Bonds 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 six months ended June 30, 2021, no new SID bond was issued and obligations of $1.0 million were assumed by buyers.

Debt Compliance Due to the COVID-19 pandemic, the Company experienced a decline in operating results for certain retail and hospitality properties. As a result, as of December 31, 2020, and June 30, 2021, the Company did not meet the debt service coverage ratio for the $615.0 million Term Loan portion of the Senior Secured Credit Facility and as a result, $33.6 million of excess net cash flow after debt service from the underlying properties became restricted as of June 30, 2021. While the restricted cash cannot be used for general corporate purposes, it can continue to be used to fund operations of the underlying assets and does not have a material impact on the Company’s liquidity.

As of June 30, 2021, apart from the Term Loan portion of the Senior Secured Credit Facility described above, the Company was in compliance with all remaining financial covenants included in the agreements governing its indebtedness.

Financing Activity During the Six Months Ended June 30, 2021

The Company’s borrowing activity is summarized as follows: 

thousands	Initial / Extended Maturity (a)	Interest Rate			Carrying Value
Balance at December 31, 2020					$	4,287,369
Issuances:
Senior Notes due 2029	February 2029	4.13	%	(c)	650,000
Senior Notes due 2031	February 2031	4.38	%	(c)	650,000
Borrowings:
Victoria Place	September 2024/September 2026	5.25	%	(b),(d)	42,718
Tanager Apartments	May 2031	3.13	%	(e)	58,500
Draws on existing mortgages, notes and loans payable					101,864
Repayments:
1201 Lake Robbins	June 2021	2.49	%	(b),(f)	(273,070)
The Woodlands Warehouse	June 2021	2.49	%	(b),(f)	(7,230)
Tanager Apartments	October 2021 / October 2024	2.50	%	(b),(e)	(39,992)
Repayments on existing mortgages, notes and loans payable					(7,762)
Redemptions
Senior Notes due 2025	March 2025	5.38	%	(f)	(1,000,000)
Other:
Special Improvement District bond assumptions	April 2049	4.00	%		(1,010)
Deferred financing costs, net					(12,054)
Balance at June 30, 2021					$	4,449,333

(a)Maturity dates presented represent initial maturity dates and the extended or final maturity dates as contractually stated. HHC has the option to exercise extension periods at the initial maturity date, subject to extension terms that are based on current property performance projections. Extension terms may include 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 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 0.10%, 0.15% and 3.25%, respectively, at June 30, 2021. Interest rates associated with loans that have been paid off reflect the interest rate at December 31, 2020.

(c)In February 2021, the Company issued $650 million in 4.125% Senior Notes due 2029 and $650 million in 4.375% Senior Notes due 2031. These notes will pay interest semi-annually in February and August of each year, beginning in August 2021. These notes will be unsecured senior obligations of the Company and will be guaranteed by certain subsidiaries of the Company.

(d)In March 2021, the Company closed on a $368.2 million construction loan for the development of Victoria Place in Ward Village. The loan bears interest at one-month LIBOR plus 5.00%, subject to a LIBOR cap of 2.00% and a LIBOR floor of 0.25%, with an initial maturity of September 2024 and 2 one-year extension options. Concurrent with the funding of the loan, the Company entered into interest rate cap agreements with a total notional amount of $368.2 million and interest rate of 2.00%.

(e)In April 2021, the Company closed on a $58.5 million loan to replace the existing construction loan for Tanager Apartments in Downtown Summerlin. The loan bears interest at 3.13% fixed with a maturity of May 2031.

(f)The Company used the net proceeds from the February 2021 issuance of Senior Notes due 2029 and 2031, as well as available cash on hand, as follows: (1) repurchased its $1.0 billion 5.375% Senior Notes due 2025; resulting in a $35.1 million loss on extinguishment of debt and (2) repaid $280.3 million outstanding under its loans for 1201 Lake Robbins and The Woodlands Warehouse maturing June 2021, resulting in a $10.0 million loss on the settlement of the rate-lock agreement associated with these loans.

Additional Financing Activity In April 2021, the Company closed on an $82.6 million construction loan for the development of Marlow, a multi-family development in Columbia. The loan bears interest at LIBOR plus 2.95% with an initial maturity of April 2025 and a one-year extension option, with no amounts drawn as of June 30, 2021.

In April 2021, the Company closed on a $42.7 million construction loan for the development of Starling at Bridgeland. The loan bears interest at LIBOR plus 2.75%, subject to an overall interest rate floor of 3.75%, and an initial maturity date of May 2026, and a one-year extension option, with no amounts drawn as of June 30, 2021.

In June 2021, the Company closed on an extension of the $35.5 million loan for 8770 New Trails, extending the final maturity date to January 2032.

In July 2021, the Company closed on a $35.5 million loan to replace the existing construction loan for Lakeside Row in Bridgeland. The loan bears interest at 3.15% fixed with a maturity date of September 2031.