5.	Income Taxes

Medical Properties Trust, Inc.

We have maintained and intend to maintain our election as a REIT under the Internal Revenue Code of 1986, as amended. To qualify as a REIT, we must meet a number of organizational and operational requirements, including a requirement to distribute at least 90% of our taxable income to our stockholders. As a REIT, we generally will not be subject to federal income tax if we distribute 100% of our taxable income to our stockholders and satisfy certain other requirements. Income tax is paid directly by our stockholders on the dividends distributed to them. If our taxable income exceeds our dividends in a tax year, REIT tax rules allow us to designate dividends from the subsequent tax year in order to avoid current taxation on undistributed income. If we fail to qualify as a REIT in any taxable year, we will be subject to federal income taxes at regular corporate rates, including any applicable alternative minimum tax. Taxable income from non-REIT activities managed through our taxable REIT subsidiaries is subject to applicable United States federal, state and local income taxes. Our international subsidiaries are also subject to income taxes in the jurisdictions in which they operate.

From our taxable REIT subsidiaries and our foreign operations (which realized a $12.9 million loss before income taxes in 2013 primarily due to the real estate transfer taxes), we incurred income tax expenses as follows (in thousands):


	For the Years Ended December 31,
	2013		2012		2011
Domestic	$	568	$	19	$	128
Foreign		158		—		—

	$	726	$	19	$	128

At December 31, 2013 and 2012, components of our deferred tax assets and liabilities were as follows (in thousands):


	2013			2012
Deferred tax liabilities:
Property and equipment	$	(2,870	)	$	(2,370	)
Other		(2,923	)		(1,673	)

Total deferred tax liabilities		(5,793	)		(4,043	)

Deferred tax assets:
Loan loss and other reserves		7,751			7,218
Operating loss and interest deduction carry forwards		2,283			3,938
Other		3,371			1,261

Total deferred tax assets		13,405			12,417
Valuation allowance		(7,843	)		(8,540	)

Net deferred tax (liability)	$	(231	)	$	(166	)

At December 31, 2013, we had U.S. federal and state NOLs of $0.2 million and $7.6 million, respectively, that expire in 2026 through 2032.

In 2013, our valuation allowance increased by $1.9 million as a result of book losses sustained by our German subsidiaries as the result of significant acquisition expenses incurred. This was offset by a $2.6 million decrease in the valuation allowance at one of the U.S. TRS entities (MDS), which generated income in 2013 (after having historical losses). We believe (based on cumulative losses) that we should reserve for our net deferred tax assets. We will continue to monitor this valuation allowance and, if circumstances change (such as entering into new transactions including working capital loans, equity investments, etc), we will adjust this valuation allowance accordingly.

We have met the annual REIT distribution requirements by payment of at least 90% of our estimated taxable income in 2013, 2012, and 2011. Earnings and profits, which determine the taxability of such distributions, will differ from net income reported for financial reporting purposes due primarily to differences in cost basis, differences in the estimated useful lives used to compute depreciation, and differences between the allocation of our net income and loss for financial reporting purposes and for tax reporting purposes.

A schedule of per share distributions we paid and reported to our stockholders is set forth in the following:


	For the Years Ended December 31,
	2013		2012		2011
Common share distribution	$	0.800000	$	0.800000	$	0.800000
Ordinary income		0.599384		0.601216		0.300844
Capital gains(1)		0.046380		0.117584		0.031396
Unrecaptured Sec. 1250 gain		0.026512		0.086976		0.031396
Return of capital		0.154236		0.081200		0.467760
Allocable to next year		—		—		—

(1)	Capital gains include unrecaptured Sec. 1250 gains.

MPT Operating Partnership, L.P.

As a partnership, the allocated share of income of the Operating Partnership is included in the income tax returns of the general and limited partners. Accordingly, no accounting for income taxes is generally required for such income of the Operating Partnership. However, the Operating Partnership has formed taxable REIT subsidiaries on behalf of Medical Properties Trust, Inc., which are subject to federal, state and local income taxes at regular corporate rates, and its international subsidiaries are subject to income taxes in the jurisdictions in which they operate. See discussion above under Medical Properties Trust, Inc. for more details of income taxes associated with our taxable REIT subsidiaries.