Note 12 — Mortgage Notes Payable

The Company’s mortgage notes payable consist of the following as of September 30, 2014 and December 31, 2013 (dollar amounts in thousands):


	Encumbered Properties		Outstanding Loan Amount		Weighted Average Effective Interest Rate ⁽²⁾			Weighted Average Maturity ⁽³⁾
September 30, 2014 ⁽¹⁾		806	$	4,237,464		4.80	%		6.27
December 31, 2013		177	$	1,258,661		3.42	%		3.41

(1)	Includes $542.8 million of mortgage notes held for sale.

(2)	Mortgage notes payable primarily have fixed rates or are fixed by way of interest rate swap arrangements. Effective interest rates range from 2.43% to 7.20% at September 30, 2014 and 1.83% to 6.28% at December 31, 2013.

(3)	Weighted average remaining years until maturity as of September 30, 2014 and December 31, 2013, respectively.

In conjunction with the various mergers and portfolio acquisitions, as described in Note 3 — Mergers and Acquisitions, aggregate net premiums totaling $137.4 million were recorded upon the assumption of the mortgages for above-market interest rates. Amortization of these net premiums is recorded as a reduction to interest expense over the remaining term of the respective mortgages using the effective-interest method. As of September 30, 2014, there was $87.8 million in unamortized net premiums included in mortgage notes payable, net on the consolidated balance sheet.

The following table summarizes the scheduled aggregate principal repayments subsequent to September 30, 2014 (in thousands):


Year	Total
October 1, 2014 - December 31, 2014	$	101,258
2015		162,126
2016		263,679
2017		506,980
2018		260,654
Thereafter		2,942,767

Total	$	4,237,464

The Company’s mortgage loan agreements generally require restrictions on corporate guarantees and the maintenance of financial covenants including maintenance of certain financial ratios (such as specified debt to equity and debt service coverage ratios). As of September 30, 2014, the Company was in compliance with the debt covenants under the mortgage loan agreements.

During the three and nine months ended September 30, 2014, the Company paid off $173.3 million and $1.0 billion, respectively, of mortgage notes payable, including notes that were subject to interest rate swap agreements. In connection with the debt repayments, the Company paid prepayment fees totaling $3.0 million and $35.9 million for the three and nine months ended September 30, 2014, respectively, which are included in Extinguishment of debt, net in the accompanying consolidated statements of operations. In addition, the Company paid $0.1 million and $10.2 million during the three and nine months ended September 30, 2014 for the settlement of interest rate swaps that were associated with certain mortgage notes, which approximated the fair value of the interest rate swaps. The Company wrote off the deferred financing costs and premiums and discounts associated with these mortgages, which resulted in a gain of $1.9 million and $18.9 million during the three and nine months ended September 30, 2014, respectively, which is included in Extinguishment of debt, net in the accompanying consolidated statements of operations. The mortgages repaid during the nine months ended September 30, 2014 had a weighted average remaining interest rate of 5.00% and a weighted average remaining term of 2.45 years.

National Institute of Health

The Company acquired the National Institute of Health (“NIH”) office building in Bethesda, Maryland with a historical cost approximating $40.0 million on November 5, 2013 as part of the acquisition of CapLease, Inc. As of September 30, 2014, 9,133 of the 207,055 square feet (4.4%) were leased by certain divisions of the NIH, with the remainder of the building substantially vacated since November 1, 2013.

On June 12, 2014, the lender of the $65.2 million mortgage loan, with a current balance outstanding of $53.8 million, collateralized by the property located in Bethesda, Maryland placed our loan with them in default due to non-payment. The Company decided not to make the debt service payment since cash flows generated from the property were insufficient to fund debt service payments and capital improvements necessary to lease and operate the property. The Company was not prepared to fund any further cash shortfalls. We are currently accruing interest at the default interest rate of 5.32% per annum.