Mortgages, Notes and Loans Payable, Net

3 Months Ended

Mar. 31, 2022

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	March 31, 2022		December 31, 2021
Fixed-rate debt
Unsecured 5.375% Senior Notes due 2028	$	750,000	$	750,000
Unsecured 4.125% Senior Notes due 2029	650,000		650,000
Unsecured 4.375% Senior Notes due 2031	650,000		650,000
Secured mortgages, notes and loans payable	1,079,132		1,006,428
Special Improvement District bonds	68,590		69,131
Variable-rate debt (a)
Secured Bridgeland Notes due 2026	275,000		275,000
Mortgages, notes and loans payable	1,249,830		1,238,857
Unamortized deferred financing costs (b)	(47,602)		(48,259)
Total mortgages, notes and loans payable, net	$	4,674,950	$	4,591,157

(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 March 31, 2022, land, buildings and equipment and developments with a net book value of $4.8 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 or the Loans), which is included in Variable-rate debt above. 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 - Acquisitions and Dispositions for additional information. As of March 31, 2022, the Company had $242.2 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. As of March 31, 2022, the Company had no outstanding borrowings under the Revolver Loan. The Loans are secured by a first priority security interest in certain of the Company’s properties.

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. During the three months ended March 31, 2022, no new SID bonds were issued and no obligations were assumed by buyers.

Debt Compliance As of March 31, 2022, the Company did not meet the debt service coverage ratios for the Two Hughes Landing and 4 Waterway Square loans, which did not have a material impact on the Company’s liquidity.

Financing Activity During the Three Months Ended March 31, 2022

The Company’s borrowing activity is summarized as follows: 

thousands	Initial / Extended Maturity (a)	Interest Rate			Carrying Value
Balance at December 31, 2021					$	4,591,157
Borrowings:
Two Summerlin	February 2027 / February 2029	3.43	%	(b)	40,800
One Merriweather	February 2032	3.53	%	(c)	49,800
Two Merriweather	February 2032	3.83	%	(d)	25,600
Draws on existing mortgages, notes and loans payable					58,875
Repayments:
Senior Secured Credit Facility	September 2023	4.61	%	(c)	(74,482)
Repayments on existing mortgages, notes and loans payable					(17,457)
Other:
Deferred financing costs, net					657
Balance at March 31, 2022					$	4,674,950

(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 certain terms which 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)In February 2022, the Company closed on a $40.8 million non-recourse financing of Two Summerlin which was previously unencumbered. The loan bears interest at Secured Overnight Financing Rate (SOFR) plus 1.75% with an initial maturity of February 2027 and two one-year extension options. Concurrent with the funding of the loan, the Company entered into an interest rate swap agreement with a notional amount equal to the principal amount of the loan and an interest rate of 3.425%.

(c)In January 2022, the Company closed on a $49.8 million non-recourse, interest-only financing of One Merriweather. The loan bears interest at 3.525% with maturity in February 2032. Proceeds from this financing were used to repay a portion of the Senior Secured Credit Facility.

(d)In January 2022, the Company closed on a $25.6 million non-recourse, interest-only financing of Two Merriweather which was previously unencumbered. The loan bears interest at 3.825% with maturity in February 2032.

Additional Financing Activity In February 2022, the Company closed on a $12.8 million construction loan for two medical office building projects in The Woodlands, the Creekside Park Medical Plaza and the Memorial Hermann Health System Build-to-Suit. The three-year financing has two one-year extensions and bears interest at SOFR plus 2.05%, which reduces to SOFR plus 1.85% upon stabilization of both properties. There were no outstanding borrowings as of March 31, 2022.In April 2022, the Company closed on a $19.5 million non-recourse financing of 20/25 Waterway Avenue, replacing the existing loan, with $4.2 million withheld until the release of upcoming tenant expirations. The loan matures in April 2026 with a one-year extension option and bears interest at SOFR plus 2.50%, and is interest only for the first three years with 25-year amortization thereafter.