Commitments and Contingencies

9 Months Ended

Sep. 30, 2011

Commitments and Contingencies [Abstract]

Commitments and Contingencies

13. Commitments and Contingencies

The Company currently leases the data center space under noncancelable operating lease agreements at 32 Avenue of the Americas, One Wilshire and 1275 K Street, and the Company leases its headquarters located in Denver, Colorado under a noncancelable operating lease agreement. The lease agreements provide for base rental rate increases at defined intervals during the term of the lease. In addition, the Company has negotiated rent abatement periods to better match the phased build-out of the data center space. The Company accounts for such abatements and increasing base rentals using the straight-line method over the noncancelable term of the lease. The difference between the straight-line expense and the cash payment is recorded as deferred rent payable.

Additionally, the Company has commitments related to telecommunications capacity used to connect data centers located within the same market or geographical area and power usage.

The following table summarizes our contractual obligations as of September 30, 2011 (in thousands):

	Remainder of
	2011		2012		2013		2014		2015		Thereafter		Total
Operating leases	$	4,218	$	17,044	$	17,457	$	17,742	$	17,620	$	44,255	$	118,336
Other(1)		2,478		4,750		1,384		261		157		1,029		10,059
Total	$	6,696	$	21,794	$	18,841	$	18,003	$	17,777	$	45,284	$	128,395

(1) Obligations for tenant improvement work at 55 S. Market Street, power contracts, telecommunications leases and insurance premiums.

Rent expense for the three months ended September 30, 2011 and 2010 was $4.6 million and $0.8 million, respectively, and for the nine months ended September 30, 2011 and 2010 rent expense was $13.7 million and $2.2 million, respectively.

Our properties require periodic investments of capital for general capital improvements and for tenant related capital expenditures. Additionally, the Company enters into various construction contracts with third parties for the development and redevelopment of our properties. At September 30, 2011, we had open commitments related to construction contracts of approximately $17.6 million.

As previously disclosed, the Company is involved in litigation in Colorado District Court in Denver with Ari Brumer, the former general counsel of its affiliate CoreSite, LLC, arising out of the termination of Mr. Brumer’s employment. The allegations made by Mr. Brumer against the Company in his complaint and the allegations by the Company against him in its counterclaims have also been previously reported. The Company continues to believe that this litigation will not have a material adverse effect on its business, financial position or liquidity.

One of our former customers, Add2Net, Inc., brought an action against us in April of 2009 before the American Arbitration Association in California asserting claims of breach of contract, unfair business practices, negligent misrepresentation and fraudulent inducement. Add2Net alleges that it has suffered damages of approximately $3.5 million, consisting of license and service fees paid to us, loss of business income and equipment damage, and seeks attorney’s fees and punitive damages. We have counterclaimed for breach of contract and bad faith dealing on account of $1.25 million in unpaid license and service fees, plus attorney’s fees. We believe that we have valid defenses to Add2Net’s claims and that our claims for unpaid license and service fees are valid and justified. We intend to vigorously defend the claims against us and pursue the counterclaims for our unpaid license and service fees.

Because the arbitration is still in the discovery stage, the cost of the litigations and its ultimate resolution are not estimable at this time. Based on the information currently available, however, we do not believe that it will have a material adverse effect on our business, financial position or liquidity.

From time to time, the Company may have certain contingent liabilities that arise in the ordinary course of its business activities. Management believes that the resolution of such matters will not have a material adverse effect on the financial position, results of operations or cash flows of the Company.