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Income Taxes | 12 Months Ended
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Dec. 31, 2011
Income Taxes |
Income Taxes |
17. Income Taxes We elected to be treated as a REIT under Sections 856 through 860 of the Internal Revenue Code. To qualify as a REIT, we must meet a number of organizational and operational requirements, including a requirement that we distribute at least 90% of our adjusted taxable income to our shareholders. As a REIT, we generally will not be subject to Federal income tax on taxable income that we distribute to our shareholders. If we fail to qualify as a REIT in any tax year, we will be subject to Federal income tax on our taxable income at regular corporate rates and may not be able to qualify as a REIT for four subsequent tax years. The differences between taxable income reported on our income tax return (estimated 2011 and actual 2010 and 2009) and net income as reported on our consolidated statements of operations are set forth below (in thousands):
|  | For the Years Ended December 31, |
--- | --- | --- | ---
|  | 2011 |  | 2010 |  | 2009 |
|  | (Estimated) |  |  |  |  |
Net (loss) income |  | $ | (124,318 | ) | $ | 45,504 |  | $ | 61,299 |
Adjustments: |  |  |  |  |  |  |  |  |  |
Rental revenue recognition |  |  | (10,708 | ) |  | (9,192 | ) |  | (1,646 | )
Compensation expense recognition |  |  | (1,298 | ) |  | (4,820 | ) |  | (5,240 | )
Operating expense recognition |  |  | 751 |  |  | 280 |  |  | 1,061 |
Gain on sales of properties |  |  | 1,154 |  |  | 6,548 |  |  | — |
Impairment losses |  |  | 151,021 |  |  | — |  |  | — |
Loss on interest rate derivatives |  |  | 29,805 |  |  | — |  |  | — |
Gains from non-real estate investments |  |  | 4,447 |  |  | (6,994 | ) |  | (1,029 | )
Income from service operations |  |  | (16,047 | ) |  | (1,628 | ) |  | 303 |
Income tax expense |  |  | 10,679 |  |  | 119 |  |  | 196 |
Depreciation and amortization |  |  | 44,070 |  |  | 42,365 |  |  | 36,031 |
Discounts/premiums included in interest expense |  |  | 5,540 |  |  | 5,841 |  |  | 3,412 |
Income from unconsolidated entities |  |  | (374 | ) |  | (244 | ) |  | (12 | )
Noncontrolling interests, gross |  |  | (4,891 | ) |  | (3,288 | ) |  | (5,813 | )
Other |  |  | 88 |  |  | 2,173 |  |  | (1,947 | )
Taxable income |  | $ | 89,919 |  | $ | 76,664 |  | $ | 86,615 |
For Federal income tax purposes, dividends to shareholders may be characterized as ordinary income, capital gains or return of capital. The characterization of dividends declared on our common and preferred shares during each of the last three years was as follows:
|  | Common Shares |  | Preferred Shares |
--- | --- | --- | --- | --- | ---
|  | For the Years Ended December 31, |  | For the Years Ended December 31, |
|  | 2011 |  | 2010 |  | 2009 |  | 2011 |  | 2010 |  | 2009 |
Ordinary income |  |  | 56.9 | % |  | 59.7 | % |  | 87.5 | % |  | 85.9 | % |  | 88.3 | % |  | 100.0 | %
Long term capital gain |  |  | 9.4 | % |  | 8.0 | % |  | 0.0 | % |  | 14.1 | % |  | 11.7 | % |  | 0.0 | %
Return of capital |  |  | 33.7 | % |  | 32.3 | % |  | 12.5 | % |  | 0.0 | % |  | 0.0 | % |  | 0.0 | %
We distributed all of our REIT taxable income in 2011, 2010 and 2009 and, as a result, did not incur Federal income tax in those years on such income. The net basis of our assets and liabilities for tax reporting purposes is approximately $369 million lower than the amount reported on our consolidated balance sheet at December 31, 2011, which is primarily related to differences in basis for net properties, intangible assets on property acquisitions and deferred rent receivable. We own a taxable REIT subsidiary ("TRS") that is subject to Federal and state income taxes. Our TRS had (loss) income before income taxes under GAAP of $(27.7) million in 2011, $345,000 in 2010 and $506,000 in 2009. Our TRS' provision for income tax consisted of the following (in thousands):
|  | For the Years Ended December 31, |
--- | --- | --- | ---
|  | 2011 |  | 2010 |  | 2009 |
Deferred |  |  |  |  |  |  |  |  |  |
Federal |  | $ | (8,760 | ) | $ | (64 | ) | $ | 115 |
State |  |  | (1,938 | ) |  | (14 | ) |  | 25 |
|  |  | (10,698 | ) |  | (78 | ) |  | 140 |
Current |  |  |  |  |  |  |  |  |  |
Federal |  |  | 16 |  |  | 161 |  |  | 46 |
State |  |  | 3 |  |  | 36 |  |  | 10 |
|  |  | 19 |  |  | 197 |  |  | 56 |
Total income tax (benefit) expense |  | $ | (10,679 | ) | $ | 119 |  | $ | 196 |
Reported on line entitled income tax (benefit) expense |  | $ | (10,679 | ) | $ | 108 |  | $ | 196 |
Reported on line entitled gain on sales of real estate, net |  |  | — |  |  | 11 |  |  | — |
Total income tax (benefit) expense |  | $ | (10,679 | ) | $ | 119 |  | $ | 196 |
A reconciliation of our TRS' Federal statutory rate to the effective tax rate for income tax reported on our statements of operations is set forth below:
|  | For the Years Ended December 31, |
--- | --- | --- | ---
|  | 2011 |  | 2010 |  | 2009 |
Income taxes at U.S. statutory rate |  |  | 34.0 | % |  | 34.0 | % |  | 34.0 | %
State and local, net of U.S. Federal tax benefit |  |  | 4.6 | % |  | 4.2 | % |  | 4.6 | %
Other |  |  | 0.0 | % |  | (3.5 | )% |  | 0.1 | %
Effective tax rate |  |  | 38.6 | % |  | 34.7 | % |  | 38.7 | %
Items in our TRS contributing to temporary differences that lead to deferred taxes include depreciation and amortization, share-based compensation, certain accrued compensation, compensation paid in the form of contributions to a deferred nonqualified compensation plan, impairment losses and net operating losses that are not deductible until future periods. We are subject to certain state and local income and franchise taxes. The expense associated with these state and local taxes is included in general and administrative expense and property operating expenses on our consolidated statements of operations. We did not separately state these amounts on our consolidated statements of operations because they are insignificant.

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- Definition The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32537-109319 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 109 -Paragraph 136, 172 -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy. Reference 3: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 109 -Paragraph 43, 44, 45, 46, 47, 48, 49 -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy. Reference 4: http://www.xbrl.org/2003/role/presentationRef -Publisher SEC -Name Regulation S-X (SX) -Number 210 -Section 08 -Paragraph h -Article 4 Reference 5: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 3 -URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32559-109319 Reference 6: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 9 -URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32639-109319 Reference 7: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 15 -URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32718-109319 Reference 8: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 235 -SubTopic 10 -Section S99 -Paragraph 1 -Subparagraph (SX 210.4-08.(h)) -URI http://asc.fasb.org/extlink&oid=6881521&loc=d3e23780-122690 + Details
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