Commitments and Contingencies

Redevelopment Activity

The Company is in the process of redeveloping two medical office buildings in Tennessee and began constructing an expansion of one of the buildings during 2015. The Company spent approximately $21.8 million on the redevelopment of these properties through December 31, 2015, including the acquisition of a land parcel for $4.3 million on which the Company is building a parking garage. The total estimated budget of the redevelopment of these properties is expected to be $51.8 million and the project is expected to be completed in the first quarter of 2017.

The Company completed the redevelopment of a medical office building in Alabama, which included the construction of a parking garage. Construction of the garage was completed in the fourth quarter of 2015. The total redevelopment budget is expected to be $15.4 million, of which $6.9 million has been spent as of December 31, 2015. The remaining $8.5 million budgeted for the project is primarily related to a tenant improvement allowance that will be funded in 2016.

Development Activity

During 2015, the Company began development of a 12,900 square foot retail center in Texas, which is adjacent to two of the Company's existing medical office buildings associated with Baylor Scott & White Health. The total development budget is expected to be $5.6 million, of which $3.3 million has been spent as of December 31, 2015. These amounts include $1.5 million used by the Company to purchase land in 2006 and previously recorded as land held for development. Construction is expected to be completed in the second quarter of 2016.

The Company also began development of a 98,000 square foot medical office building in Colorado. The total development budget is expected to be $26.5 million, of which $0.2 million has been spent as of December 31, 2015. Construction is expected to be completed in the second quarter of 2017.

The table below details the Company’s construction activity as of December 31, 2015. The information included in the table below represents management’s estimates and expectations at December 31, 2015, which are subject to change. The Company’s disclosures regarding certain projections or estimates of completion dates may not reflect actual results.



			December 31, 2015
(Dollars in thousands)	Number of Properties	Estimated Completion Date	Construction in Progress Fundings During the Twelve Months Ended		Total Funded During the Twelve Months Ended		Total Amount Funded		Estimated Remaining Fundings (unaudited)		Estimated Total Investment (unaudited)		Approximate Square Feet
Construction Activity
Birmingham, AL	1	Q4 2015 ⁽¹⁾	$	—	$	6,880	$	6,880	$	8,520	$	15,400	138,000
Austin, TX	1	Q2 2016	3,316		3,316		3,316		2,259		5,575		12,900
Nashville, TN	2	Q1 2017	15,479		17,434		21,818		29,982		51,800		294,000
Denver, CO	1	Q2 2017	229		229		229		26,271		26,500		98,000
Total			$	19,024	$	27,859	$	32,243	$	67,032	$	99,275	542,900

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(1) Includes $5.9 million for the addition of a 400-space parking garage which was completed in November 2015 and $9.5 million in tenant improvement allowances and commissions, a portion of which has not been completed.

Tenant Improvements

The Company may provide a tenant improvement allowance in new or renewal leases for the purpose of refurbishing or renovating tenant space. As of December 31, 2015, the Company had commitments of approximately $28.8 million that is expected to be spent on tenant improvements throughout the portfolio.

Land Held for Development

Land held for development includes parcels of land owned by the Company, upon which the Company intends to develop and own outpatient healthcare facilities. The Company’s investment in land held for development totaled approximately $17.5 million and $17.1 million as of December 31, 2015 and 2014, respectively.

Operating Leases

As of December 31, 2015, the Company was obligated under operating lease agreements consisting primarily of the Company’s corporate office lease and ground leases related to 45 real estate investments with expiration dates through 2105. At December 31, 2015, the Company had 94 properties totaling 7.6 million square feet that were held under ground leases with a remaining weighted average term of 69.9 years, including renewal options, at December 31, 2015. These ground leases typically have initial terms of 50 to 75 years with one to two renewal options extending the terms to 75 to 100 years. These ground leases have initial term expiration dates through 2105.

The Company’s corporate office lease currently covers approximately 36,653 square feet of rented space and expires on October 31, 2020. Annual base rent on the corporate office lease increases approximately 3.25% annually. The Company’s ground leases generally increase annually based on increases in the Consumer Price Index. Rental expense relating to the operating leases for the years ended December 31, 2015, 2014 and 2013 was $5.1 million, $4.9 million and $4.4 million, respectively. The Company prepaid certain of its ground leases, which represented approximately $0.5 million of the Company’s rental expense for the years ended December 31, 2015, 2014, and 2013.

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, 2015 were as follows (in thousands):



2016	$	5,160
2017	5,225
2018	5,303
2019	5,399
2020	5,310
2021 and thereafter	289,686
	$	316,083

Casualty Loss

The Company owns a medical office building in Oklahoma that sustained damage from a tornado on May 6, 2015. As of December 31, 2015 the Company estimated its expenditures related to returning the property to its previous operating condition to be approximately $2.6 million. The Company estimates recoveries for restoration costs of approximately $2.5 million. In addition, as of December 31, 2015, the Company received insurance proceeds related to lost rental revenue, recorded in rental income, of approximately $0.4 million for the period of May 6, 2015 to December 31, 2015.

Environmental Matters

During 2015, the Company acquired a medical office building in Tacoma, Washington. During the due diligence period, the Company identified a specific area of the property that contains soils with above-tolerance levels of tetrachloroethylene (a dry cleaning solvent commonly known as perc) and recorded a $1.2 million liability upon acquisition. Remediation efforts are underway.