The release is a tax disclosure, not an operating update, so there are no revenue, profit, or balance-sheet figures to compare with the prior period. The only concrete changes it highlights are in the company’s REIT status and the tax consequences tied to that status.
The company says it elected to be taxed as a REIT beginning with its short taxable year ending Dec. 31, 2009, and says it believes it has operated in a way that should allow it to remain qualified. If it does qualify, it generally will not owe U.S. federal income tax on taxable income it distributes to stockholders, but income kept back at the company level remains taxable.
The release lays out the tax hits that would apply if the company misses REIT tests. Those include: tax on undistributed taxable income, including net capital gain; tax at the highest corporate rate on income from foreclosure property in certain cases; a 100% tax on net income from property held primarily for sale to customers; a 100% tax on income tied to failures of the 75% or 95% gross income tests; a penalty of the greater of $50,000 or corporate tax on net income from non-qualifying assets if asset tests are missed by more than a de minimis amount; a $50,000 penalty for other REIT qualification failures caused by reasonable cause rather than willful neglect; a 4% excise tax if required annual distributions fall short of the required threshold; a 100% excise tax on non-arm’s-length transactions with taxable REIT subsidiaries.
The release also says the company has received a private letter ruling from the IRS on certain hedging matters, but not on other items discussed. It adds that the company believes it has always had enough ownership diversity to satisfy the REIT ownership tests, and that its charter restricts stock ownership and transfers to help maintain that status. As a result of these announcements, the company's shares have moved 0.87% on the market, and are now trading at a price of $16.27. Check out the company's full 8-K submission here.
