INCOME TAXES

The Company has elected to be taxed as a REIT under Sections 856 through 860 of the Code. 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 shareholders. It is the Company's current intention to adhere to these requirements and maintain the Company's qualification for taxation as a REIT. As a REIT, the Company generally is not subject to federal corporate income tax on that portion of its taxable income that is currently distributed to shareholders. However, as a REIT, the Company is still subject to certain state and local taxes on its income and property, and to federal income and excise taxes on its undistributed taxable income. In addition, taxable income from non-REIT activities managed through taxable-REIT subsidiaries is subject to federal, state and local income taxes. PHL is a TRS of the Company and as such is required to pay federal and state income taxes as a regular C Corporation.

For federal income tax purposes, the cash distributions paid to the Company’s common shareholders and preferred shareholders may be characterized as ordinary income, return of capital (generally non-taxable) or capital gains. Tax law permits certain characterization of distributions which could result in differences between cash basis and tax basis distribution amounts.

The following characterizes distributions paid per common share of beneficial interest and preferred share on a tax basis for the years ended December 31, 2014, 2013 and 2012:



	2014				2013				2012
	Amount		%		Amount		%		Amount		%
Common Shares:
Ordinary income	$	0.9108	100.00	%	$	0.6000	100.00	%	$	0.4391	91.49	%
Capital gain	0.0000		0.00	%	0.0000		0.00	%	0.0000		0.00	%
Return of capital	0.0000		0.00	%	0.0000		0.00	%	0.0409		8.51	%
Total	$	0.9108	100.00	%	$	0.6000	100.00	%	$	0.4800	100.00	%

Series A Preferred Shares:
Ordinary income	$	2.3948	100.00	%	$	2.0349	100.00	%	$	1.7622	100.00	%
Capital gain	0.0000		0.00	%	0.0000		0.00	%	0.0000		0.00	%
Return of capital	0.0000		0.00	%	0.0000		0.00	%	0.0000		0.00	%
Total	$	2.3948	100.00	%	$	2.0349	100.00	%	$	1.7622	100.00	%

Series B Preferred Shares
Ordinary income	$	2.4328	100.00	%	$	2.0672	100.00	%	$	1.7902	100.00	%
Capital gain	0.0000		0.00	%	0.0000		0.00	%	0.0000		0.00	%
Return of capital	0.0000		0.00	%	0.0000		0.00	%	0.0000		0.00	%
Total	$	2.4328	100.00	%	$	2.0672	100.00	%	$	1.7902	100.00	%

Series C Preferred Shares
Ordinary income	$	1.9767	100.00	%	$	0.9890	100.00	%	$	0.0000	0.00	%
Capital gain	0.0000		0.00	%	0.0000		0.00	%	0.0000		0.00	%
Return of capital	0.0000		0.00	%	0.0000		0.00	%	0.0000		0.00	%
Total	$	1.9767	100.00	%	$	0.9890	100.00	%	$	0.0000	0.00	%

The common and preferred share distributions declared on December 15, 2012 and paid on January 15, 2013 were treated as 2013 distributions for tax purposes.

The common distribution declared on December 13, 2013 and paid on January 15, 2014 was treated as a 2014 distribution for tax purposes. For tax purposes, $0.4261, $0.4328, and $0.3517 of the Series A, Series B, and Series C, respectively, of the preferred share distributions declared on December 13, 2013 and paid on January 15, 2014 were treated as 2014 distributions.

Of the common distribution declared on December 15, 2014 and paid on January 15, 2015, $0.1692 was treated as a 2015 distributions for tax purposes. The preferred share distributions declared on December 15, 2014 and paid on January 15, 2015, were treated as 2014 distributions for tax purposes.

For the years ended December 31, 2014, 2013, and 2012, the Operating Partnership income tax expense was $0.2 million, $0.2 million and $0.4 million, respectively.

The Company's TRS, PHL, is subject to federal and state corporate income taxes at statutory tax rates. PHL has an estimated combined federal and state statutory tax rate of 37.5% for the year ended December 31, 2014.

The Company's provision (benefit) for income taxes for PHL consists of the following (in thousands):



	For the year ended December 31,
	2014		2013		2012
Federal
Current	$	2,121	$	718	$	1,048
Deferred	317		—		—
State and local
Current	555		313		412
Deferred	25		—		—
Income tax expense (benefit)	$	3,018	$	1,031	$	1,460

A reconciliation of the statutory federal tax expense (benefit) to the Company's income tax expense (benefit) for PHL is as follows (in thousands):



	For the year ended December 31,
	2014		2013		2012
Statutory federal tax expense (benefit)	$	2,561	$	718	$	1,048
State income tax expense (benefit), net of federal tax (benefit) expense	457		313		412
Income tax expense (benefit)	$	3,018	$	1,031	$	1,460

The Company files tax returns as prescribed by the tax laws of the jurisdictions in which it operates. In the normal course of business, the Company is subject to examination by federal, state and local jurisdictions, where applicable. As of December 31, 2014 and December 31, 2013, the statute of limitations remains open for all major jurisdictions for tax years dating back to 2011 and 2010, respectively.