Commitments and Contingencies

Development Activity

The Company had several development projects ongoing at June 30, 2012, including one construction project, two construction mortgage notes and eleven properties in the process of stabilization subsequent to construction as detailed in the following table.



(Dollars in thousands)	Number of Properties	Funded During Three Months Ended June 30, 2012		Total Amount Funded Through June 30, 2012		Estimated Remaining Budget		Estimated Total Budget		Approximate Square Feet
Construction in progress (1)	1	$	2,169	$	9,009	$	4,950	$	13,959	96,433
Construction mortgage notes	2	15,597		68,694		133,920		202,614		386,000
Stabilization in progress (1)	11	6,979		379,494		16,532		396,026		1,185,863
Land held for development	—	—		25,171		—		—		—
Total	14	$	24,745	$	482,368	$	155,402	$	612,599	1,668,296

⁽¹⁾ The estimated total budget for the development properties reflects the original budget including estimated tenant improvement allowances but does not include any estimate of excess tenant improvement cost financing by the Company. To the extent actual amounts funded for the development properties reflect excess tenant improvement costs financed by the Company, the estimated remaining fundings could be greater than the amount budgeted.

Construction in Progress

The Company had one construction project ongoing at June 30, 2012 with an estimated completion date during the third quarter of 2012. The project commenced in July 2011 and consists of a 96,433 square foot, on-campus medical office building in Texas with significant pre-leasing. The project has an estimated total budget of approximately $14.0 million and is adjacent to a medical office building that the Company acquired in late 2010. A $4.1 million parking structure associated with this project was completed and was placed into service in the second quarter of 2012.

The table below details the Company’s construction in progress and land held for development as of June 30, 2012. The information included in the table represents management’s estimates and expectations at June 30, 2012, which are subject to change. The Company’s disclosures regarding certain projections or estimates of completion dates may not reflect actual results.



State	Estimated Completion Date	Property Type (2)	Properties	Approximate Square Feet	CIP at June 30, 2012		Estimated Remaining Budget		Estimated Total Budget
(Dollars in thousands)
Under construction: ⁽¹⁾
Texas	3Q 2012	MOB	1	96,433	$	9,009	$	4,950	$	13,959
Land held for development:
Iowa			—		4,399
Texas			—		20,772
			1	96,433	$	34,180	$	4,950	$	13,959

⁽¹⁾ The estimated total budget for the development property reflects the original budget including estimated tenant improvement allowances but does not include any estimate of excess tenant improvement cost financing by the Company. To the extent actual amounts funded for the development property reflect excess tenant improvement costs financed by the Company, the estimated remaining fundings could be greater than the amount budgeted.

⁽²⁾ MOB-Medical office building.

Construction Mortgage Notes

The Company had two construction mortgage notes totaling $68.7 million at June 30, 2012 due from affiliates of the United Trust Fund, which is developing two build-to-suit facilities that are fully leased to Mercy Health. The Company expects that the remaining funding commitments totaling $133.9 million on these notes will be funded during the remainder of 2012 and 2013.

Stabilization in Progress

At June 30, 2012, the Company had 11 properties that it had previously developed that were in the process of stabilization. In the aggregate, the properties were approximately 51% leased and 33% occupied at June 30, 2012, with tenant improvement build-out occurring in suites that are leased but not yet occupied by the tenants. The Company’s remaining funding commitments on these properties at June 30, 2012 relates to tenant improvements.

Legal Proceedings

Two affiliates of the Company, HR Acquisition of Virginia Limited Partnership and HRT Holdings, Inc., are defendants in a lawsuit brought by Fork Union Medical Investors Limited Partnership, Goochland Medical Investors Limited Partnership, and Life Care Centers of America, Inc., as plaintiffs. The plaintiffs alleged that they overpaid rent between 1991 and 2003 under leases for two skilled nursing facilities in Virginia and sought a refund of such overpayments. Plaintiffs were seeking up to $2.0 million, plus pre- and post-judgment interest and attorneys’ fees. The two leases were terminated by agreement in 2003. The Company denied that it was liable to the plaintiffs and filed a motion for summary judgment seeking dismissal of the case. The Circuit Court of Davidson County, Tennessee granted the Company’s motion for summary judgment and the case was dismissed with prejudice by order entered on July 20, 2011. On August 11, 2011, the plaintiffs filed a notice of appeal with the Tennessee Court of Appeals. Briefs have been filed by all parties and oral arguments were heard before the Court of Appeals on May 23, 2012. The Company believes the trial court’s dismissal of the case should be affirmed but can provide no assurance as to the outcome of the appeal.

The Company is a co-defendant in a lawsuit initially filed June 28, 2011 in the District Court of Collin County, Texas captioned James P. Murphy, JPM Realty Property Management, Inc., and Rainier Medical Investments LLC v. LandPlan Development Corp., LandPlan Medical, L.P., Frisco Surgery Center Limited, Frisco POB I Limited, Frisco POB II Limited, Medland L.P., Texas Land Management, L.L.C., Jim Williams, Jr., Reed Williams, and Healthcare Realty Trust, Inc. The original plaintiffs, James P. Murphy and JPM Realty Property Management, Inc. (the “Murphy Plaintiffs”) allege they are due a real estate commission arising out of the sale of certain real property in Frisco, Texas (“the Frisco Property”). Certain affiliates of the Company purchased the Frisco Property in December 2010 from Frisco Surgery Center Limited, Frisco POB I Limited, Frisco POB II Limited, and Medland L.P. (collectively, the “Sellers”). The Murphy Plaintiffs assert breach of contract and common law business tort theories in pursuit of their claim for a commission in the amount of $1.34 million, as well as unspecified punitive damages. The Company denies any liability to the Murphy Plaintiffs and filed a motion for summary judgment with the court as to their claims. The Company’s motion for summary judgment was partially granted as to the Murphy Plaintiffs’ breach of contract claims and third party beneficiary claims on April 19, 2012. The Murphy Plaintiffs' remaining claims against the Company were dismissed on summary judgment on July 22, 2012. The Company was served with an amended complaint in the case on or about February 28, 2012 in which Rainier Medical Investments LLC (“Rainier”) joined as a plaintiff. Rainier alleges breach of contract, unfair competition, breach of fiduciary duty, and various common law business tort and equitable claims against the Company arising out of the Company’s alleged exclusion of Rainier from participation as an investor in the Frisco Property acquisition. Rainier seeks compensatory and punitive damages in excess of $10 million. The Company denies any liability to Rainier and will defend the claims vigorously. Discovery is ongoing and a trial date is expected in late 2012.

The Company is, from time to time, involved in litigation arising out of the ordinary course of business or which is expected to be covered by insurance. The Company is not aware of any other pending or threatened litigation that, if resolved against the Company, would have a material adverse effect on the Company’s consolidated financial position, results of operations, or cash flows.