NOTE 12—INCOME TAXES

The Company elected to be taxed as a REIT under the Internal Revenue Code, commencing with its taxable year ended December 31, 1983. To qualify as a REIT, the Company must meet a number of organizational and operational requirements, including a requirement that it currently distribute at least 90% of its adjusted taxable income to its stockholders. 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 corporate level federal, state and local income tax on taxable income it distributes currently to its stockholders. If the Company fails to qualify as a REIT in any taxable year, it will be subject to federal, state and local 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. Even though the Company qualifies for taxation as a REIT, the Company is subject to certain state and local taxes on its income and property, and to federal income and excise taxes on its undistributed taxable income.

Reconciliation between Financial Statement Net Income and Federal Taxable Income (Unaudited):

The following table reconciles financial statement net income to federal taxable income for the years indicated (amounts in thousands):

	2014 Estimate			2013 Actual			2012 Actual
Net income	$	22,116		$	17,875		$	32,320
Straight line rent adjustments		(1,473	)		(1,025	)		(919	)
Book gain on sale—less than (in excess of) tax gain		10,504			1,391			(445	)
Rent received in advance, net		(172	)		691			97
Adjustments for above/below market leases		(217	)		(144	)		6
Restricted stock expense-tax (in excess of) book		(149	)		357			341
Federal excise tax, non-deductible		302			45			290
Book depreciation in excess of tax depreciation		2,901			1,686			(208	)
Property acquisition costs—capitalized for tax purposes		425			850			836
Impairment charge		1,093			62			—
Other adjustments		(19	)		(111	)		(201	)

Federal taxable income	$	35,311		$	21,677		$	32,117

Reconciliation between Cash Dividends Paid and Dividends Paid Deduction (Unaudited):

The following table reconciles cash dividends paid with the dividends paid deduction for the years indicated (amounts in thousands):

	2014 Estimate			2013 Actual			2012 Actual
Dividends paid	$	24,117		$	21,999		$	24,252
Dividend reinvestment plan(a)		197			230			256

		24,314			22,229			24,508
Less: Spillover dividends designated to previous year		(7,107	)		(7,659	)		—
Plus: Dividends designated from following year		18,104			7,107			7,659

Dividends paid deduction(b)	$	35,311		$	21,677		$	32,167

(a)	Reflects the up to 5% discount on common stock purchased through the dividend reinvestment plan.
(b)	Dividends paid deduction is slightly higher than federal taxable income in 2012 to account for an adjustment made to federal taxable income as a result of the impact of the alternative minimum tax.