Note 6 — Leases

Capital Leases

We lease office space and certain office equipment under capital lease arrangements. The gross carrying value by major asset class and accumulated depreciation as of December 31, 2012 and 2011 are as follows (in thousands):


	December 31,
	2012			2011
Building and leasehold improvements	$	2,117		$	2,117
Furniture, fixtures and other equipment		195			195

Total assets recorded under capital leases		2,312			2,312
Less: accumulated depreciation		(882	)		(464	)

Net assets recorded under capital leases	$	1,430		$	1,848

We lease office space at 201 Industrial Road in San Carlos, California under capital lease arrangements. Under the terms of the lease, rent increases up to 3% annually and the lease termination date is October 5, 2016. As of November 29, 2010, we ceased use of this space as a result of the relocation of our San Carlos operations and corporate headquarters to San Francisco, California. We have subleased portions of the San Carlos facility and are currently seeking one or more subtenants for the remaining space, but have not been relieved of any obligations under the terms of this lease. As a result of our relocation, an impairment test was performed for the building and related leasehold improvements located in San Carlos. As a result of this impairment test, we recorded an impairment charge of $12.6 million in November 2010 (see Note 11).

Future minimum payments for our capital leases at December 31, 2012 are as follows (in thousands):


Years ending December 31,
2013	$	5,129
2014		5,191
2015		5,280
2016		4,034

Total minimum payments required	$	19,634
Less: amount representing interest		(5,057	)

Present value of future minimum lease payments	$	14,577
Less: current portion		(2,970	)

Capital lease obligation, less current portion	$	11,607

Operating Lease

On September 30, 2009, we entered into an operating sublease (Sublease) with Pfizer, Inc. for a 102,283 square foot facility located in San Francisco, California (Mission Bay Facility). Upon completion of construction of the Mission Bay Facility, we moved in on November 29, 2010. The Mission Bay Facility includes a research and development center with biology, chemistry, pharmacology, and clinical development capabilities, as well as all of the functions previously located in San Carlos, California, including our corporate headquarters.

Under the terms of the Sublease, we will begin making non-cancelable lease payments in 2014, after the expiration of our free rent period on August 1, 2014. The Sublease term is 114 months, commencing in August 2010 and terminating on January 31, 2020. Monthly base rent will start at $2.95 per square foot and will escalate over the term of the sublease at various intervals to $3.42 per square foot in the final period of the Sublease term. Rent expense is being recognized ratably from April 2010, the inception of our tenant improvement construction period, through the end of the Sublease term. In addition, throughout the term of the Sublease, we are responsible for paying certain costs and expenses specified in the Sublease, including insurance costs and a pro rata share of operating expenses and applicable taxes for the Mission Bay Facility.

On December 28, 2011, we amended the Sublease to include an additional 24,002 square feet of space. The amendment term commenced on December 28, 2011 and ends on January 31, 2020. However, we retain the right to terminate the amendment on or prior to May 31, 2013. Under the terms of the amendment, beginning January 1, 2012, we began making lease payments of $40,000 per month which will continue until the termination option expires.

Our future minimum lease payments for our operating lease at December 31, 2012 are as follows (in thousands):


Years ending December 31,
2013	$	200
2014		1,509
2015		3,667
2016		3,777
2017		3,888
2018 and thereafter		8,479

Total future minimum lease payments	$	21,520

We recognize rent expense on a straight-line basis over the lease period. For the years ended December 31, 2012, 2011, and 2010, rent expense for all our operating leases, including our Mission Bay Facility, was approximately $2.8 million, $2.4 million, and $2.2 million, respectively.