8. Notes Payable

Notes payable were $144.2 million ($143.8 million, net of premium) and $145.4 million ($145.0 million, net of premium) as of June 30, 2013 and December 31, 2012, respectively. As of June 30, 2013, we had fixed and variable rate secured mortgage loans with effective interest rates ranging from 2.80% to 6.50% per annum and a weighted average effective interest rate of 5.45% per annum. As of June 30, 2013, notes payable consisted of $112.9 million of fixed rate debt, or approximately 79% of notes payable, at a weighted average interest rate of 5.35% per annum and $30.9 million of variable rate debt, or approximately 21% of notes payable, at a weighted average interest rate of 5.83% per annum. As of December 31, 2012, we had fixed and variable rate secured mortgage loans with effective interest rates ranging from 2.80% to 6.50% per annum and a weighted-average effective interest rate of 5.45% per annum. As of December 31, 2012, notes payable consisted of $113.8 million of fixed rate debt, or 79% of notes payable, at a weighted average interest rate of 5.35% per annum and $31.1 million of variable rate debt, or 21% of notes payable, at a weighted average interest rate of 5.83% per annum.

We are required by the terms of the applicable loan documents to meet certain financial covenants, such as debt service coverage ratios, rent coverage ratios and reporting requirements. As of June 30, 2013, we were in compliance with all such covenants and requirements.

Principal payments due on our notes payable for July 1, 2013 to December 31, 2013 and each of the subsequent years is as follows:

Year	Principal amount
July 1, 2013 to December 31, 2013	$	1,186,000
2014		8,597,000
2015		25,420,000
2016		9,023,000
2017		2,098,000
2018 and thereafter		97,446,000
	$	143,770,000

Interest Expense and Deferred Financing Cost

For the three months ended June 30, 2013 and 2012, the Company incurred interest expense, including amortization of deferred financing costs of, $2.1 million and $1.6 million, respectively. For the six months ended June 30, 2013 and 2012, the Company incurred interest expense, including amortization of deferred financing costs of, $4.1 million and $3.0 million, respectively. As of June 30, 2013 and December 31, 2012, the Company’s net deferred financing costs were approximately $1.5 million and $1.7 million, respectively. All deferred financing costs are capitalized and amortized over the life of the respective loan agreement.