DEBT

On May 1, 2012, we entered into a $320,000,000 unsecured credit facility that includes $175,000,000 of combined 5-year and 7-year term loans that were drawn immediately at closing to pay down our revolving credit borrowings and for other corporate purposes. The facility also includes an uncommitted incremental facility feature allowing for an additional $130,000,000 of borrowings, making a total of $450,000,000 available on the facility. The credit facility was provided by Wells Fargo, Bank of Montreal, KeyBank, and Bank of America, with Pinnacle National Bank as a participating bank. The credit facility provides for (1) unsecured, revolving borrowings of up to $200,000,000 with interest at 140 basis points over LIBOR and a maturity of 5 years, (inclusive of an embedded 1 year extension option); (2) an $80,000,000 unsecured, 5-year term loan with interest at 140 basis points over LIBOR; and (3) a $40,000,000 unsecured, 7-year term loan with interest at 150 basis points over LIBOR. The unused commitment fee is 35 basis points per annum. The credit facility amended a 4-year $200,000,000 unsecured revolving credit facility entered into on November 1, 2011, that provided for interest at 150 basis points over LIBOR and an unused commitment fee of 35 basis points per annum. In connection with the modification of our credit facility, we paid $753,000 in debt issuance costs which is amortized over the life of the amended facility. At September 30, 2012, we had bank term loan borrowings of $120,000,000 and $55,000,000 outstanding on our revolving credit facility, and we had $145,000,000 available to draw on the facility. Quoted 30-day LIBOR was 22 basis points on September 30, 2012.

As part of the joint venture transaction described in Note 3, Bickford contributed an 85% interest in two facilities subject to a $19,250,000 mortgage with KeyBank. The loan, which matures on November 22, 2013, provides for interest at 300 basis points over LIBOR (effective interest rate was at 3.22% at September 30, 2012). There is an interest rate swap agreement to fix the interest rate paid to KeyBank at 4.5% which is set to expire on December 1, 2012.

Interest Rate Swap Agreements

In conjunction with the closing of the credit facility on May 1, 2012, we entered into an interest rate swap agreement to fix the interest rate at 3.04% on the $40,000,000 7-year term loan. The critical terms of this swap agreement are essentially identical to those of the seven-year term loan and thus, in accordance with ASC Topic 815 Derivative Instruments and Hedging Activities, is considered a perfectly effective “cash-flow hedge". Accordingly, changes in the fair value of this cash-flow hedge are included in other comprehensive income rather than net income in our Condensed Consolidated Statements of Comprehensive Income. In the Condensed Consolidated Balance Sheets, if an asset, the fair value of the hedge is included in deferred costs and other assets, and, if a liability, as a component of accrued expenses.

At September 30, 2012, the fair value of the swap agreement of $1,343,000 is included as a component of our accrued expenses in the Condensed Consolidated Balance Sheets, and that amount is included in our Condensed Consolidated Statements of Comprehensive Income for the nine months ended September 30, 2012. Because no amounts related to the cash-flow hedge were excluded from the test of effectiveness and no ineffectiveness is assumed, no changes related to the hedge are expected to be subject to reclassification from other comprehensive income into earnings. Information about the estimate of fair value of this interest rate swap agreement is described in Note 8. On November 1, 2011, we terminated a previous interest rate swap agreement. Interest expense in 2011 reflected the reclassification into earnings in the period that the hedged forecasted transaction affected earnings and is shown in the table below.

The following table summarizes interest expense (in thousands):



	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2012		2011		2012		2011
Interest expense	$	772	$	561	$	1,938	$	1,597
Amortization of loan costs	82		32		238		109
Change in fair value of interest rate swap agreement	—		1,188		—		922
Total interest expense	$	854	$	1,781	$	2,176	$	2,628