Income Taxes

12 Months Ended

Dec. 31, 2016

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 REIT taxable income (determined without regard to the deduction for dividends paid and excluding net capital gains) 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 of TRSs 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 and preferred share on a tax basis for the years ended December 31, 2016, 2015 and 2014:



	2016				2015				2014
	Amount		%		Amount		%		Amount		%
Common Shares:
Ordinary non-qualified income	$	1.3794	95.14	%	$	1.1715	98.21	%	$	0.9108	100.00	%
Qualified dividend	0.0704		4.86	%	0.0213		1.79	%	—		—	%
Capital gain	—		—	%	—		—	%	—		—	%
Return of capital	—		—	%	—		—	%	—		—	%
Total	$	1.4498	100.00	%	$	1.1928	100.00	%	$	0.9108	100.00	%

Series A Preferred Shares:
Ordinary non-qualified income	$	0.2914	95.14	%	$	1.9336	98.21	%	$	2.3948	100.00	%
Qualified dividend	0.0149		4.86	%	0.0352		1.79	%	—		—	%
Capital gain	—		—	%	—		—	%	—		—	%
Return of capital	—		—	%	—		—	%	—		—	%
Total	$	0.3063	100.00	%	$	1.9688	100.00	%	$	2.3948	100.00	%

Series B Preferred Shares:
Ordinary non-qualified income	$	1.3109	95.14	%	$	1.9643	98.21	%	$	2.4328	100.00	%
Qualified dividend	0.0669		4.86	%	0.0357		1.79	%	—		—	%
Capital gain	—		—	%	—		—	%	—		—	%
Return of capital	—		—	%	—		—	%	—		—	%
Total	$	1.3778	100.00	%	$	2.0000	100.00	%	$	2.4328	100.00	%

Series C Preferred Shares:
Ordinary non-qualified income	$	1.5461	95.14	%	$	1.5960	98.22	%	$	1.9767	100.00	%
Qualified dividend	0.0789		4.86	%	0.0290		1.78	%	—		—	%
Capital gain	—		—	%	—		—	%	—		—	%
Return of capital	—		—	%	—		—	%	—		—	%
Total	$	1.6250	100.00	%	$	1.6250	100.00	%	$	1.9767	100.00	%

Series D Preferred Shares:
Ordinary non-qualified income	$	0.9099	95.15	%	$	—	—	%	$	—	—	%
Qualified dividend	0.0464		4.85	%	—		—	%	—		—	%
Capital gain	—		—	%	—		—	%	—		—	%
Return of capital	—		—	%	—		—	%	—		—	%
Total	$	0.9563	100.00	%	$	—	—	%	$	—	—	%

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 distribution 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.

Of the common distribution declared on December 15, 2015 and paid on January 15, 2016, $0.2164 was treated as a 2016 distribution for tax purposes. The preferred share distributions declared on December 15, 2015 and paid on January 15, 2016 were treated as 2015 distributions for tax purposes.

Of the common distribution declared on December 15, 2016 and paid on January 17, 2017, $0.2866 was treated as a 2017 distribution for tax purposes. The preferred share distributions declared on December 15, 2016 and paid on January 17, 2017, were treated as 2016 distributions for tax purposes.

For the years ended December 31, 2016, 2015 and 2014, the Operating Partnership income tax expenses was $0.5 million, $0.9 million and $0.2 million, respectively.

The Company's TRS, PHL, is subject to federal and state corporate income taxes at statutory tax rates. The Company's provision (benefit) for income taxes for PHL consists of the following (in thousands):



	For the year ended December 31,
	2016			2015			2014
Federal
Current	$	(27	)	$	1,389		$	2,121
Deferred	(353		)	55			317
State and local
Current	93			287			555
Deferred	(171		)	(72		)	25
Income tax expense (benefit)	$	(458	)	$	1,659		$	3,018

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,
	2016			2015		2014
Statutory federal tax expense (benefit)	$	(618	)	$	1,367	$	2,561
State income tax expense (benefit), net of federal tax (benefit) expense	(110		)	111		457
Other	270			181		—
Income tax expense (benefit)	$	(458	)	$	1,659	$	3,018

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, 2016 and December 31, 2015, the statute of limitations remains open for all major jurisdictions for tax years dating back to 2013 and 2012, respectively.