Federal Income Tax Considerations

12 Months Ended

Dec. 31, 2012

Income Tax Disclosure [Abstract]

Federal Income Tax Considerations

Federal Income Tax Considerations

We qualify as a REIT under the provisions of the Internal Revenue Code, and therefore, no tax is imposed on our taxable income distributed to shareholders. To maintain our REIT status, we must distribute at least 90% of our ordinary taxable income to our shareholders and meet certain income source and investment restriction requirements. Our shareholders must report their share of income distributed in the form of dividends.

Taxable income differs from net income for financial reporting purposes principally because of differences in the timing of recognition of depreciation, rental revenue, interest expense, compensation expense, impairment losses and gain from sales of property. As a result of these differences, the tax basis of our net fixed assets exceeds the book value by $7.0 million and $37.0 million at December 31, 2012 and 2011, respectively.

The following table reconciles net income adjusted for noncontrolling interests to REIT taxable income (in thousands):

	Year Ended December 31,
	2012			2011			2010
Net income adjusted for noncontrolling interests	$	146,640		$	15,621		$	46,206
Net loss of taxable REIT subsidiary included above	11,457			32,043			22,450
Net income from REIT operations	158,097			47,664			68,656
Book depreciation and amortization including discontinued operations	148,413			157,290			151,108
Tax depreciation and amortization	(92,797		)	(100,633		)	(95,848		)
Book/tax difference on gains/losses from capital transactions	(55,242		)	(13,398		)	1,233
Deferred/prepaid/above and below market rents, net	(4,264		)	(13,088		)	(5,076		)
Impairment loss from REIT operations including discontinued operations	11,396			58,353			28,376
Other book/tax differences, net	1,430			(3,652		)	(22,785		)
REIT taxable income	167,033			132,536			125,664
Dividends paid deduction	(173,202		)	(165,721		)	(125,664		)
Dividends paid in excess of taxable income	$	(6,169	)	$	(33,185	)	$	—

The dividends paid deduction in 2010 includes designated dividends of $3.8 million from 2011.

For federal income tax purposes, the cash dividends distributed to common shareholders are characterized as follows:

	Year Ended December 31,
	2012		2011		2010
Ordinary income	92.8	%	100.0	%	79.1	%
Capital gain distributions	7.2	%	—	%	20.9	%
Total	100.0	%	100.0	%	100.0	%

Our deferred tax assets and liabilities, including a valuation allowance, consisted of the following (in thousands):

	December 31,
	2012			2011
Deferred tax assets:
Impairment loss (1)	$	16,951		$	20,450
Allowance on other assets	1,519			1,528
Interest expense	11,417			8,318
Net operating loss carryforward	8,642			4,870
Book-tax basis differential	1,148			1,132
Other	173			182
Total deferred tax assets	39,850			36,480
Valuation allowance (2)	(28,376		)	(24,595		)
Total deferred tax assets, net of allowance	$	11,474		$	11,885
Deferred tax liabilities:
Straight-line rentals	$	977		$	1,612
Book-tax basis differential	2,339			3,553
Other	2			1
Total deferred tax liabilities	$	3,318		$	5,166

(1) Impairment losses will not be recognized until the related properties are sold and realization is dependent upon generating sufficient taxable income in the year the property is sold.

(2) Management believes it is more likely than not that a portion of the deferred tax assets, which primarily consists of impairment losses, interest expense and net operating losses, will not be realized and established a valuation allowance. However, the amount of the deferred tax asset considered realizable could be reduced if estimates of future taxable income are reduced.

We are subject to federal, state and local income taxes and have recorded an income tax (benefit) provision as follows (in thousands):

	Year Ended December 31,
	2012			2011			2010
Federal income tax benefit of taxable REIT subsidiary (1)	$	(1,437	)	$	(916	)	$	(1,181	)
Texas franchise tax (2)	1,784			1,373			1,422
Total	$	347		$	457		$	241

(1) All periods presented are open for examination by the IRS.

(2) For all periods presented, amounts include the effects that are reported in discontinued operations. See Note 15 for additional information.

Also, a current tax obligation of $1.9 million and $1.5 million has been recorded at December 31, 2012 and 2011, respectively, in association with these taxes.