Income Taxes

12 Months Ended

Dec. 31, 2024

Income Tax Disclosure [Abstract]

Income Taxes

12. INCOME TAXES:

The Company elected to be taxed as a REIT under the Code. A REIT will generally not be subject to federal income taxation on that portion of its income that qualifies as REIT taxable income, to the extent that it distributes at least 90% of its taxable income to its stockholders and complies with certain other requirements. It is management’s intention to adhere to these requirements and maintain the Company’s REIT status. If the Company fails to qualify as a REIT in any taxable year, it will be subject to federal income taxes at regular corporate rates (including any applicable minimum tax and may not be able to qualify as a REIT for four subsequent taxable years). Even if the Company qualifies for taxation as a REIT, the Company may be subject to certain state and local taxes on its income and federal income and excise taxes on its undistributed taxable income. In addition, taxable income from non-REIT activities managed through taxable REIT subsidiaries are subject to federal, state, and local income taxes.

Income from “qualified dividends” payable to U.S. stockholders that are individuals, trusts and estates are generally subject to tax at preferential rates. Dividends payable by REITs, however, generally are not eligible for the preferential tax rates applicable to qualified dividend income. Although these rules do not adversely affect the taxation of REITs or dividends payable by REITs, to the extent that the preferential rates continue to apply to regular corporate qualified dividends, investors who are individuals, trusts and estates may perceive investments in REITs to be relatively less attractive than investments in the stocks of non-REIT corporations that pay dividends, which could materially and adversely affect the value of the shares of REITs, including the value of our common stock.

Reconciliation between GAAP Net Income and Federal Taxable Income:

The following table reconciles GAAP income from continuing operations to taxable income for the years ended December 31, 2024 and 2023 (in thousands):

	2024			2023
Net income	$	8,599		$	11,264
GAAP net (income) of taxable subsidiaries		(666	)		(605	)
GAAP net income from REIT operations		7,933			10,659
Operating expense book deductions greater than tax		8,258			4,099
Book depreciation in excess of tax depreciation		4,714			4,872
GAAP amortization of intangibles in excess of tax    amortization		674			821
Straight-line rent adjustments		(112	)		(1,054	)
(Income) allocable to noncontrolling interest		(3,600	)		(5,226	)
Estimated taxable income	$	17,867		$	14,171

We have determined for income tax purposes that the 2024 and 2023 regular dividends were considered ordinary dividend distributions. The total distributions paid in both 2024 and 2023 were the result of cash flows from operations.

Taxable REIT Subsidiaries:

The Company is subject to federal, state, and local income taxes on the income from its Taxable REIT subsidiaries (“TRS”) activities, which include all the discontinued operations of Shelter Express, Inc. and subsidiaries. There were no provisions for (benefit from) income taxes from discontinued operations for the years ended December 31, 2024 and 2023. The TRS entities have approximately $17.4 million of net operating loss carry-forwards at December 31, 2024, which begin to expire in 2027. The Company has recorded a full valuation allowance against the deferred income tax assets as it does not consider realization of such assets to be

more likely than not. The Company has determined that any changes in the value of the deferred income tax assets would have no impact on the Company’s consolidated financial statements inasmuch as it would be offset by a full valuation allowance.