Commitments and Contingencies

12 Months Ended

Dec. 31, 2012

Commitments and Contingencies Disclosure [Abstract]

Commitments and Contingencies

Commitments and Contingencies

Development Activity

As of December 31, 2012, the Company had two construction mortgage loans and twelve properties in the process of stabilization subsequent to construction.

(Dollars in thousands)	Number of Properties	Approximate Square Feet	Funded During Year  Ended December 31, 2012		Total Amount Funded Through December 31,  2012		Estimated Remaining Budget
Construction mortgage notes	2	386,000	$	77,985	$	118,441	$	84,173
Stabilization in progress	12	1,282,716	38,459		405,941		$35,000 - $45,000
Construction in progress	0	—	—		—		—
Total	14	1,668,716	$	116,444	$	524,382

Construction in Progress

During 2012, one building located in Colorado and one building and garage located in Texas that were previously under construction commenced operations. The Company expects that its total investments in the buildings and garage will be approximately $39.7 million upon completion of tenant improvements. The Company is in the process of leasing the buildings which are approximately 92% leased and 74% leased, respectively, as of December 31, 2012.

Construction Mortgage Loans

The Company expects that the remaining funding commitments totaling $84.2 million on the two construction loans affiliated with Mercy Health as of December 31, 2012 will be funded during 2013.

Stabilization in Progress

As of December 31, 2012 and 2011, the Company had twelve and ten properties, respectively, that it had previously developed that are in the process of stabilization. In the aggregate, the properties were approximately 60% leased and 41% occupied as of December 31, 2012 and 40% leased and 21% occupied as of December 31, 2011, with tenant improvement build-out occurring in suites that were leased but not yet occupied by the tenants. The Company’s estimated remaining budget on these properties as of December 31, 2012 relates to tenant improvements.

As discussed above, the Company completed construction of two properties and a garage with aggregate budgets totaling approximately $39.7 million during 2012. The properties are now in the process of stabilization. The Company also deconsolidated a construction project as discussed in more detail in "Principles of Consolidation" in Note 1.

Operating Leases

As of December 31, 2012, the Company was obligated under operating lease agreements consisting primarily of the Company’s corporate office lease and ground leases related to 43 real estate investments with expiration dates through 2101. The Company’s corporate office lease covers approximately 30,934 square feet of rented space and expires on October 31, 2020. Annual base rent on the corporate office lease increases approximately 3.25% annually with an additional base rental increase possible in the fifth year depending on changes in CPI. The Company’s ground leases generally increase annually based on increases in CPI. Rental expense relating to the operating leases for the years ended December 31, 2012, 2011 and 2010 was $4.3 million, $4.3 million and $4.0 million, respectively. The Company prepaid certain of its ground leases which represented approximately $0.5 million, $0.4 million and $0.3 million of the Company’s rental expense for the years ended December 31, 2012, 2011, and 2010, respectively. The Company’s future minimum lease payments for its operating leases, excluding leases that the Company has prepaid and leases in which an operator pays or fully reimburses the Company, as of December 31, 2012 were as follows (in thousands):

2013	$	4,390
2014	4,466
2015	4,535
2016	4,591
2017	4,634
2018 and thereafter	245,453
	$	268,069

Legal Proceedings

The Company accrued $950,000 in general and administrative expenses during the fourth quarter of 2012 in connection with the settlement of one litigation matter, which amount was subsequently paid in January 2013. The Company is not aware of any 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.