DEBT

Mortgage Indebtedness

The Company’s mortgage notes payable consist of the following (dollars in thousands):



Interest Rate Type	Book Value as of March 31, 2015		Book Value as of December 31, 2014		Weighted Average Effective Interest Rate at March 31, 2015 ⁽¹⁾		Maturity Date
Fixed Rate	$	123,325	$	124,022	3.77	%	May 2031 - August 2051

⁽¹⁾Weighted average effective rate includes private mortgage insurance.

Mortgage Debt Modification. In March 2015, the Company modified six existing mortgage notes insured by the United States Department of Housing and Urban Development (“HUD”) totaling $59.2 million. The Company maintained the original maturity dates and reduced the weighted average interest rate from 4.39% to 3.98% per annum.

Mortgage Debt Refinancing. On January 21, 2014, the Company refinanced $44.8 million of existing variable rate mortgage indebtedness due August 2015 with mortgages guaranteed by HUD at an interest rate of 4.25% with maturities between 2039 and 2044. In connection with these refinancings, the Company wrote off $0.5 million in unamortized deferred financing costs during the three months ended March 31, 2014 and included this amount in loss on extinguishment of debt on the accompanying condensed consolidated statements of income (loss).

Senior Unsecured Notes

2021 Notes and 2023 Notes

The Company’s senior unsecured notes consist of the following (dollars in thousands):



		Principal Balance as of
Title	Maturity Date	March 31, 2015 ⁽¹⁾		December 31, 2014 ⁽¹⁾

5.5% senior unsecured notes due 2021 (“2021 Notes”)	February 1, 2021	$	500,000	$	500,000
5.375% senior unsecured notes due 2023 (“2023 Notes”)	June 1, 2023	200,000		200,000

		$	700,000	$	700,000

⁽¹⁾ Outstanding principal balance for Senior Notes does not include discount of $0.7 million as of March 31, 2015 and December 31, 2014.

The 2021 Notes and the 2023 Notes (collectively, the “Senior Notes”) were issued by the Operating Partnership and Sabra Capital Corporation, wholly owned subsidiaries of the Company (the “Issuers”). The 2021 Notes accrue interest at a rate of 5.5% per annum payable semiannually on February 1 and August 1 of each year and the 2023 Notes accrue interest at a rate of 5.375% per annum payable semiannually on June 1 and December 1 of each year.

The obligations under the Senior Notes are fully and unconditionally guaranteed, jointly and severally, on an unsecured basis, by Sabra and certain of Sabra’s other existing and, subject to certain exceptions, future material subsidiaries; provided, however, that such guarantees are subject to release under certain customary circumstances. See Note 10, “Summarized Condensed Consolidating Information” for additional information concerning the circumstances pursuant to which the guarantors will be automatically and unconditionally released from their obligations under the guarantees.

The indentures governing the Senior Notes (the “Senior Notes Indentures”) include customary events of default and require us to comply with specified restrictive covenants. As of March 31, 2015, the Company was in compliance with all applicable covenants under the Senior Notes Indentures.

2018 Notes

On January 8, 2014, the Company commenced a cash tender offer with respect to the remaining $211.3 million aggregate principal amount of 8.125% senior unsecured notes due 2018 (the “2018 Notes”) then outstanding that were originally issued by the Issuers in October 2010 and July 2012. Pursuant to the tender offer, the Company retired $210.9 million of the 2018 Notes at a premium of 109.837%, plus accrued and unpaid interest, on January 23, 2014. Pursuant to the terms of the indenture governing the 2018 Notes, the remaining $0.4 million of the 2018 Notes were called and were retired on February 11, 2014 at a redemption price of 109.485% plus accrued and unpaid interest. The tender offer and redemption resulted in $21.6 million of tender offer and redemption related costs and write-offs for the three months ended March 31, 2014, including $20.8 million in payments made to noteholders for early redemption and $0.8 million of write-offs associated with unamortized deferred financing and premium costs. These amounts are included in loss on extinguishment of debt on the accompanying condensed consolidated statements of income (loss) for the three months ended March 31, 2014.

Revolving Credit Facility

The Operating Partnership has entered into an unsecured revolving credit facility (the “Revolving Credit Facility”) that provides for a borrowing capacity of $650.0 million and an accordion feature allowing for an additional $100.0 million of capacity, subject to terms and conditions. On October 10, 2014, the Operating Partnership converted $200.0 million of the outstanding borrowings under the Revolving Credit Facility to a term loan. Concurrent with the term loan conversion, the Company entered into a five-year interest rate cap contract that caps LIBOR at 2.0%.

The Revolving Credit Facility, including amounts that are converted into a term loan, has a maturity date of September 10, 2018, and includes a one year extension option. In addition to the $200.0 million term loan, as of March 31, 2015, there was $26.0 million outstanding under the Revolving Credit Facility and $424.0 million available for borrowing.

Borrowings under the Revolving Credit Facility bear interest on the outstanding principal amount at a rate equal to an applicable percentage plus, at the Operating Partnership's option, either (a) LIBOR or (b) the Base Rate, with such percentage varying based on the Consolidated Leverage Ratio, each term as defined in the credit agreement for the Revolving Credit Facility. As of March 31, 2015, the interest rate on the Revolving Credit Facility was 2.28%. In addition, the Operating Partnership pays a fee to the lenders equal to 0.25% or 0.35% per annum based on the amount of unused borrowings under the Revolving Credit Facility. During the three months ended March 31, 2015, the Company incurred $0.2 million in interest expense on amounts outstanding under the Revolving Credit Facility and $0.4 million of unused facility fees.

The obligations of the Operating Partnership under the Revolving Credit Facility are guaranteed by Sabra and certain subsidiaries of Sabra. The Revolving Credit Facility contains customary restrictive covenants as well as customary events of default. The Revolving Credit Facility also requires Sabra, through the Operating Partnership, to comply with specified financial covenants, which include a maximum leverage ratio, a minimum fixed charge coverage ratio and a minimum tangible net worth requirement. As of March 31, 2015, the Company was in compliance with all applicable financial covenants under the Revolving Credit Facility.

Interest Expense

During the three months ended March 31, 2015 and 2014, the Company incurred interest expense of $13.9 million and $11.1 million, respectively. Included in interest expense for the three months ended March 31, 2015 and 2014 was $1.3 million and $0.9 million, respectively, of deferred financing costs amortization. As of March 31, 2015 and December 31, 2014, the Company had $9.0 million and $13.2 million, respectively, of accrued interest included in accounts payable and accrued liabilities on the accompanying condensed consolidated balance sheets.

Maturities

The following is a schedule of maturities for the Company’s outstanding debt as of March 31, 2015 (in thousands):



	Mortgage Indebtedness		Senior Notes ⁽¹⁾		Revolving Credit Facility and Term Loan⁽²⁾		Total
April 1, 2015 through December 31, 2015	$	2,102	$	—	$	—	$	2,102
2016	2,987		—		—		2,987
2017	3,083		—		—		3,083
2018	3,182		—		226,000		229,182
2019	3,284		—		—		3,284
Thereafter	108,687		700,000		—		808,687
	$	123,325	$	700,000	$	226,000	$	1,049,325

⁽¹⁾ Outstanding principal balance for Senior Notes does not include discount of $0.7 million as of March 31, 2015.

⁽²⁾ Subject to a one-year extension option.