INCOME TAXES

12 Months Ended

Dec. 31, 2013

Income Tax Disclosure [Abstract]

INCOME TAXES

9. INCOME TAXES

The Company (excluding CII) qualifies as a real estate investment trust and distributes its taxable ordinary income to stockholders in conformity with requirements of the Internal Revenue Code and is not required to report deferred items due to its ability to distribute all taxable income. In addition, net operating losses can be carried forward to reduce future taxable income but cannot be carried back. Distributed capital gains on sales of real estate as they relate to REIT activities are not subject to taxes; however, undistributed capital gains may be subject to corporate tax.

As previously reported, in November 2013, the Company paid a cash dividend of $4.2 million (or $4.00 per share) to shareholders of record as of November 1, 2013. This dividend reduced 2013 REIT taxable income and was a distribution of REIT tax capital gains primarily from gain on sales of real estate interests in 2013. The Company’s undistributed tax capital gains for the year ended December 31, 2013 were approximately $3.8 million (or $3.67 per share), after giving effect for the utilization of $5.1 net operating loss carryover. The Company (REIT only, excluding CII) has federal and state tax liability of $1.35 million and $250,000, respectively as of December 31, 2013. The $1.6 million federal and state liability is netted in gain from sale of discontinued operations.

The Company’s 95%-owned subsidiary, CII, files a separate income tax return and its operations are not included in the REIT’s income tax return.

The Company accounts for income taxes in accordance with ASC Topic 740, “Accounting for Income Taxes”. ASC Topic 740 requires a Company to use the asset and liability method of accounting for income taxes. Under this method, deferred income taxes are recognized for the tax consequences of “temporary differences” by applying enacted statutory tax rates applicable to future years to differences between the financial statement carrying amounts and the tax bases of existing assets and liabilities. The effect on deferred income taxes of a change in tax rates is recognized in income in the period that includes the enactment date. Deferred taxes only pertain to CII. As of December 31, 2013 the Company has recorded a net deferred tax liability of $217,000 as a result of timing differences associated with the carrying value of the investment in affiliate (TGIF) and other investments. The increase from deferred tax asset of $698,000 as of December 31, 2012 to a deferred tax liability of $217,000 as of December 31, 2013 resulted in a $915,000 deferred tax expense. This was primarily the result of the reduction in the deferred tax asset of $361,000 from utilization of $1.2 million of CII’s net operating loss carryover (NOL), net decrease in excess of tax basis over book basis of other investments of $189,000 and net decrease in excess of tax basis over book basis of assets associated with real estate interests held for sale of $286,000. CII NOL carryover to 2014 is estimated at $296,000 expiring in 2033.

The components of income before income taxes and the effect of adjustments to tax computed at the federal statutory rate for the years ended December 31, 2013 and 2012 were as follows:

	2013			2012
Income (loss) before income taxes	$	17,684,000		($	60,000	)
Computed tax at federal statutory rate of 34%	$	6,012,000		($	20,000	)
State taxes at 5.5%		973,000			(4,000	)
REIT capital gains dividend paid		(1,645,000	)		—
Utilization of net operating loss carryover		(2,408,000	)		—
REIT related adjustments		(407,000	)		(21,000	)
Unrealized gain from marketable securities for book not tax		(26,000	)		(31,000	)
Other items, net		9,000			10,000
Tax provision for (benefit from) income taxes	$	2,508,000		($	66,000	)

The REIT related adjustments represent the difference between estimated taxes on undistributed income and/or capital gains and book taxes computed on the REIT’s income before income taxes.

The benefit from income taxes in the consolidated statements of comprehensive income consists of the following:

Year ended December 31,	2013		2012
Current:
Federal		1,347,000		—
State		246,000		—
		1,593,000		—
Deferred:
Federal	$	905,000	($	60,000	)
State		10,000		(6,000	)
		915,000		(66,000	)
Total	$	2,508,000	($	66,000	)

As of December 31, 2013 and 2012, the components of the deferred tax assets and liabilities are as follows:

	As of December 31, 2013				As of December 31, 2012
	Deferred tax				Deferred tax
	Assets		Liabilities		Assets		Liabilities
Net operating loss carry forward	$	110,000			$	471,000
Excess of book basis of 49% owned corporation over tax basis			$	424,000			$	418,000
Excess of tax basis over book basis of assets associated with real estate interests held for sale		—				286,000
Unrealized gain on marketable securities				105,000				32,000
Excess of tax basis over book basis of other investments		306,000		104,000		508,000		117,000
Totals	$	416,000	$	633,000	$	1,265,000	$	567,000