Federal Income Tax Considerations

6 Months Ended

Jun. 30, 2011

Federal Income Tax Considerations

Federal Income Tax Considerations

Note 14. 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.

Our taxable REIT subsidiary is subject to federal, state and local income taxes. We have recorded a federal income tax benefit of $.2 million and $.7 million during the three months ended June 30, 2011 and 2010, respectively. For the six months ended June 30, 2011 and 2010, we have recorded a federal income tax benefit of $.9 million and $.6 million, respectively. Also, we did not have a current tax obligation as of both June 30, 2011 and December 31, 2010 in association with this tax.

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

	June 30, 2011		December 31, 2010
Deferred tax assets:
Impairment loss	$	14,761	$	13,584
Allowance on other assets		1,443		1,423
Interest expense		8,977		7,256
Net operating loss carryforward		5,119		4,684
Other		1,073		672
Total deferred tax assets		31,373		27,619
Valuation allowance		(19,262)		(15,818)
Total deferred tax assets, net of allowance	$	12,111	$	11,801
Deferred tax liabilities:
Straight-line rentals	$	1,450	$	1,290
Book-tax basis differential		3,977		4,708
Other		3		-
Total deferred tax liabilities	$	5,430	$	5,998

At June 30, 2011 and December 31, 2010, we have recorded a net deferred tax asset of $12.1 million and $11.8 million; including the benefit of $14.8 million and $13.6 million of impairment losses, respectively, which will not be recognized until the related properties are sold. Realization is dependent on generating sufficient taxable income in the year the property is sold. Management believes it is more likely than not that a portion of these deferred tax assets, which primarily consists of impairment losses, will not be realized and established a valuation allowance totaling $19.3 million and $15.8 million as of June 30, 2011 and December 31, 2010, respectively. However, the amount of the deferred tax asset considered realizable could be reduced if estimates of future taxable income are reduced.