9.	INCOME TAXES

The Company has elected to be taxed as a REIT under the Internal Revenue Code of 1986, as amended (the “Code”). To qualify as a REIT, the Company must distribute annually at least 90% of its adjusted taxable income, as defined in the Code, to its shareholders and satisfy certain other organizational and operating requirements. It is management’s current intention to adhere to these requirements and maintain the Company’s REIT status. As a REIT, the Company generally will not be subject to federal income tax at the corporate level on the taxable income it distributes to its shareholders. Should the Company fail to qualify as a REIT in any tax year, it may be subject to federal income taxes at regular corporate rates (including any applicable alternative minimum tax) and may not be able to qualify as a REIT for four subsequent taxable years. The Company may be subject to certain state and local taxes on its income and property, and to federal income taxes and excise taxes on its undistributed taxable income.

The Operating Partnership files tax returns as a limited partnership under the Code. As a partnership, the income and losses of the Operating Partnership are allocated to its partners, including the Company, for inclusion in their respective income tax returns. Accordingly, no provision or benefit for income taxes has been in the accompanying Operating Partnership financial statements. The Operating Partnership intends to make sufficient cash distributions to the Company to enable it to meet its annual REIT distribution requirements.

In the preparation of income tax returns in federal and state jurisdictions, the Company, the Operating Partnership and its taxable REIT subsidiaries assert certain tax positions based on their understanding and interpretation of the income tax law. The taxing authorities may challenge such positions and the resolution of such matters could result in the payment and recognition of additional income tax expense. Management believes it has used reasonable judgments and conclusions in the preparation of its income tax returns. The Company and its subsidiaries’ (including the Company’s taxable REIT subsidiaries (“TRSs”)) income tax returns are subject to examination by federal and state tax jurisdictions for years 2009 through 2011. Net income tax loss carryforwards and other tax attributes generated in years prior to 2009 are also subject to challenge in any examination of the 2009 to 2011 tax years.

As of December 31, 2012 and 2011, the Company’s TRSs had unrecognized tax benefits of approximately $797 which primarily related to uncertainty regarding the sustainability of certain deductions taken on prior year income tax returns of the TRS with respect to the amortization of certain intangible assets. The uncertainty surrounding this unrecognized tax benefit will generally be clarified in future periods as income tax loss carryforwards are utilized. To the extent these unrecognized tax benefits are ultimately recognized, they may affect the effective tax rate in a future period. The Company’s policy is to recognize interest and penalties, if any, related to unrecognized tax benefits as income tax expense. Accrued interest and penalties for 2012, 2011 and 2010 were not material to the Company’s results of operations, cash flows or financial position.

Reconciliation of net income (loss) available to the Company to taxable income

As discussed in note 1, the Company conducts substantially all of its operations through its majority-owned subsidiary, the Operating Partnership. For income tax reporting purposes, the Company receives an allocable share of the Operating Partnership’s ordinary income (loss) and capital gains based on its weighted average ownership, adjusted for certain specially allocated items. All adjustments to net income (loss) in the table below are net of amounts attributable to minority interests and taxable REIT subsidiaries. A reconciliation of net income (loss) available to the Company to taxable income for 2012, 2011 and 2010 is detailed below:


	2012 (Estimate)			2011 (Actual)			2010 (Actual)
Net income (loss) available to the Company	$	83,939		$	25,466		$	(6,960	)
Add (subtract) net loss (income) of taxable REIT subsidiaries		(33,956	)		(739	)		11,145

Adjusted net income (loss) available to the Company		49,983			24,727			4,185
Book/tax depreciation difference		(2,555	)		(3,863	)		(1,693	)
Book/tax difference on gains from real estate sales		1,718			-			(4,264	)
Book/tax difference on stock-based compensation		(15,706	)		(5,108	)		(2,784	)
Book/tax difference relating to real estate asset carrying values		-			-			(10,848	)
Other book/tax differences, net		(1,090	)		(3,761	)		(1,707	)

Taxable income of the Company before allocation of taxable capital gains		32,350			11,995			(17,111	)
Income taxable as capital gains		(7,757	)		-			-

Taxable ordinary income (loss) of the Company	$	24,593		$	11,995		$	(17,111	)

Income tax characterization of dividends

For income tax purposes, dividends to common shareholders are characterized as ordinary income, capital gains or as a return of a shareholder’s invested capital. A summary of the income tax characterization of the Company’s dividends paid per common share is as follows for 2012, 2011 and 2010:


	2012					2011					2010
	Amount (1)		% (1)			Amount (1)		% (1)			Amount (1)		% (1)
Ordinary income	$	0.53		56.6	%	$	0.23		28.0	%	$	-		-	%
Capital gains		0.07		7.0			-		-			-		-
Unrecaptured Section 1250 gains		0.06		6.9			-		-			-		-
Return of capital		0.28		29.5			0.59		72.0			0.80		100.0

	$	0.94		100.0	%	$	0.82		100.0	%	$	0.80		100.0	%

(1)	The amounts and percentages detailed in the table above represent average amounts for the years presented. Actual quarterly amounts may differ.

The income tax characterization of dividends to common shareholders is based on the calculation of Taxable Earnings and Profits, as defined in the Code. Taxable Earnings and Profits differ from regular taxable income due primarily to differences in the estimated useful lives and methods used to compute depreciation and in the recognition of gains and losses on the sale of real estate assets.

As of December 31, 2012, the net basis for federal income tax purposes, taking into account the special allocation of gain to the partners contributing property to the Operating Partnership and including minority interest in the Operating Partnership, was higher than the net assets as reported in the Company’s consolidated financial statements by $21,393.

Taxable REIT subsidiaries

The Company utilizes TRSs principally to perform such non-REIT activities as asset and property management, for-sale housing (condominiums) sales and other services. These TRSs are subject to federal and state income taxes. In 2012, the TRSs recognized an income tax benefit of $612 related to the recovery of income taxes paid in prior years. In 2011, the TRSs recognized an income tax benefit of $470 resulting from adjustments of prior year state tax provisions based on filed tax returns. In 2010, the TRSs recognized an income tax provision of $503 primarily related to state income taxes. No additional tax provision (benefit) was recognized for temporary differences originating or reversing in 2012, 2011 and 2010 based on a determination that aggregate deferred tax assets were not realizable through carryback claims to prior years or through expectations of future earnings at the TRS level.

At December 31, 2012 and 2011, the TRS’s net deferred tax assets totaled $38,559 and $60,197, respectively. The TRS’s net deferred tax assets primarily reflect real estate asset basis differences between carrying amounts for financial and income tax reporting purposes, income tax loss carryforwards and the timing of income and expense recognition for certain accrued liabilities and transactions. At December 31, 2012 and 2011, management had established valuation allowances to offset such net deferred tax assets due primarily to historical losses at the TRSs’ in prior years and the variability of the income (loss) of these subsidiaries. The tax benefits associated with such unused valuation allowances may be recognized in future periods, if the TRSs generate sufficient taxable income to utilize such amounts or if the TRSs determine that it is more likely than not that the related deferred tax assets are realizable.

Other than the impact of state income taxes and the change in valuation allowances for all net deferred tax asset temporary differences, the income tax expense of the TRSs for 2012, 2011 and 2010 was consistent with the federal statutory rate of 35%.