12. Commitments and Contingencies

We have two outstanding letters of credit issued for the benefit of certain insurance companies that provide workers’ compensation insurance to one of our operators. Our obligation to provide the letters of credit terminates in 2013. At June 30, 2011, our obligation under the letters of credit was $4,200,000.

We have an outstanding letter of credit issued for the benefit of certain insurance companies that provide liability and property insurance to one of our tenants. Our obligation to provide the letter of credit terminates in 2013. At June 30, 2011, our obligation under the letter of credit was $1,000,000.

We have an outstanding letter of credit issued for the benefit of a city in Wisconsin that secures the completion and installation of certain public improvements by one of our tenants in connection with the development of a property. Our obligation to provide the letter of credit terminates in October 2013. At June 30, 2011, our obligation under the letter of credit was $215,000.

We have an outstanding letter of credit issued for the benefit of a village in Illinois that secures the completion and installation of certain public improvements by one of our tenants in connection with the development of a property. Our obligation to provide the letter of credit terminates in August 2011. At June 30, 2011, our obligation under the letter of credit was $67,932.

At June 30, 2011, we had outstanding construction in process of $212,161,000 for leased properties and were committed to providing additional funds of approximately $219,306,000 to complete construction. At June 30, 2011, we had contingent purchase obligations totaling $80,151,000. These contingent purchase obligations relate to unfunded capital improvement obligations. Rents due from the tenant are increased to reflect the additional investment in the property.

We evaluate our leases for operating versus capital lease treatment in accordance with ASC Topic 840 “Leases.” A lease is classified as a capital lease if it provides for transfer of ownership of the leased asset at the end of the lease term, contains a bargain purchase option, has a lease term greater than 75% of the economic life of the leased asset, or if the net present value of the future minimum lease payments are in excess of 90% of the fair value of the leased asset. Certain leases contain bargain purchase options and have been classified as capital leases. At June 30, 2011, we had operating lease obligations of $220,688,000 relating to certain ground leases and company office space. We incurred rental expense relating to company office space of $615,000 and $1,130,000 for the three and six months ended June 30, 2011, respectively, as compared to $303,000 and $635,000 for the same period in 2010. Regarding the ground leases, we have sublease agreements with certain of our operators that require the operators to reimburse us for our monthly operating lease obligations. At June 30, 2011, aggregate future minimum rentals to be received under these noncancelable subleases totaled $30,354,000.

At June 30, 2011, future minimum lease payments due under operating and capital leases are as follows (in thousands):


	Operating Leases		Capital Leases⁽¹⁾
2011	$	2,662	$	3,803
2012		5,322		7,622
2013		5,333		73,003
2014		5,353		660
2015		5,100		8,425
Thereafter		196,918		—

Totals	$	220,688	$	93,513


(1)		Related to gross assets of $181,254,000 recorded in real property.