Mortgages, Notes and Loans Payable, Net

9 Months Ended

Sep. 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	September 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	676,210		590,517
Special Improvement District bonds	69,622		34,305
Variable-rate debt (a)
Mortgages, notes and loans payable	1,397,881		1,945,344
Secured Bridgeland Notes due 2026	275,000		—
Unamortized bond discounts	—		(4,355)
Unamortized deferred financing costs (b)	(45,078)		(28,442)
Total mortgages, notes and loans payable, net	$	4,423,635	$	4,287,369

(a)The Company has entered into derivative instruments to manage a portion of the variable interest rate exposure. 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 September 30, 2021, land, buildings and equipment and developments with a net book value of $4.2 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 provided 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). Concurrent with the sale of The Westin at The Woodlands and Embassy Suites at Hughes Landing in September 2021, $181.8 million was repaid on the Term Loan, of which $69.8 million was directly associated with the properties sold. Refer to Note 3 - Dispositions for additional information. As of September 30, 2021, the Company had $433.2 million of outstanding borrowings on the Term Loan. 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 September 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 MUD receivables, land and certain other collateral in both The Woodlands and Bridgeland MPCs. The loan provided for a $100.0 million term loan and a $150.0 million revolver loan. In September 2021, the Company repaid the $100.0 million term loan and the $50.0 million outstanding borrowings under the revolver portion of the loan. As a result, the Company no longer has access to the $150.0 million revolver loan. These borrowings were replaced by a $275.0 million loan for Bridgeland. See the table below for additional detail.

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 nine months ended September 30, 2021, $45.4 million in SID bonds were issued and obligations of $8.5 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, 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, the excess net cash flow after debt service from the underlying properties became restricted. As a result of the $181.8 million payment on the Term Loan in the third quarter, the Company met the debt service coverage ratio as of September 30, 2021. However, two consecutive quarters of compliance are required to release the restricted cash requirement, and $58.8 million of cash was restricted as of September 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 during the third quarter of 2021, the Company submitted reimbursement for $33.1 million related to operating expenses. This does not have a material impact on the Company’s liquidity.

As of September 30, 2021, the Company was in compliance with all financial covenants included in the agreements governing its indebtedness.

Financing Activity During the Nine Months Ended September 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
Bridgeland Notes due 2026	September 2026	2.40	%	(d)	275,000
Special Improvement District bonds	April 2051	4.13	%		45,425
Borrowings:
Victoria Place	September 2024/September 2026	5.25	%	(b),(e)	42,718
Tanager Apartments	May 2031	3.13	%	(f)	58,500
Lakeside Row	September 2031	3.15	%	(g)	35,500
Draws on existing mortgages, notes and loans payable					158,661
Repayments:
1201 Lake Robbins	June 2021	2.49	%	(b),(h)	(273,070)
The Woodlands Warehouse	June 2021	2.49	%	(b),(h)	(7,230)
Tanager Apartments	October 2021 / October 2024	2.50	%	(b),(e)	(39,992)
Lakeside Row	July 2022 / July 2023	2.39	%	(b),(g)	(31,940)
Senior Secured Credit Facility	September 2023	4.61	%	(i)	(181,817)
The Woodlands Resort	December 2021 / December 2023	3.00	%	(b),(i)	(62,500)
The Woodlands Master Credit Facility	October 2022 / October 2024	2.64	%	(b),(d)	(75,000)
Bridgeland Credit Facility	October 2022 / October 2024	2.64	%	(b),(d)	(75,000)
Repayments on existing mortgages, notes and loans payable					(12,223)
Redemptions
Senior Notes due 2025	March 2025	5.38	%	(h)	(1,000,000)
Other:
Special Improvement District bond assumptions	April 2049	4.00	%		(8,484)
Deferred financing costs, net					(12,282)
Balance at September 30, 2021					$	4,423,635

(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 September 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 September 2021, the Company closed on a $275.0 million financing secured by MUD receivables and land in Bridgeland, retiring an existing $250.0 million credit facility secured by MUD receivables, land and certain other collateral in both The Woodlands and Bridgeland MPCs. The loan required a $27.5 million fully refundable deposit and has a net effective interest rate of Secured Overnight Financing Rate (SOFR) plus 2.30%, subject to a SOFR floor of 0.10%, with maturity in September 2026.

(e)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 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%.

(f)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.

(g)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.

(h)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.

(i)Concurrent with the sale of the Company’s Hospitality properties in September 2021, the entire $62.5 million loan on The Woodlands Resort was repaid and $69.8 million of debt associated with The Westin at The Woodlands and Embassy Suites at Hughes Landing was repaid on the Senior Secured Credit Facility. See Note 3 - Dispositions for additional detail.

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 September 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 September 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 September 2021, the Company closed on a $59.5 million construction loan for the development of Tanager Echo, a multi-family development in Summerlin. The loan bears interest at LIBOR, with a floor of 0.10%, plus 2.90% with an initial maturity of September 2025 and 2 one-year extension options and an immaterial amount drawn as of September 30, 2021. In October 2021, the Company entered into an interest rate cap agreement with a notional amount equal to the loan amount and an interest rate of 2.50%.

In September 2021, the Company closed on a $75.0 million construction loan for the development of 1700 Pavilion, an office development in Summerlin. The loan bears interest at LIBOR, with a floor of 0.10%, plus 3.80% with an initial maturity of September 2025 and 2 one-year extension options and an immaterial amount drawn as of September 30, 2021. In October 2021, the Company entered into an interest rate cap agreement with a notional amount equal to the loan amount and an interest rate of 2.50%.

In October 2021, the Company closed on an extension of the $27.2 million loan for Outlet Collection at Riverwalk, extending the initial maturity date to October 2022 with a one-year extension option and modifying the interest rate to SOFR plus 3.00%.

In October 2021, the Company closed on a $250.0 million loan for 1201 Lake Robbins. The non-recourse, interest-only loan bears interest at 3.83% with a maturity date of October 2031.

The outstanding balance on the construction loan for ‘A‘ali‘i was $229.6 million as of September 30, 2021. Subsequent to quarter end, the total outstanding balance was repaid in conjunction with closing on the sales of units at the property.