<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTER ENDED MARCH 31, 1995
Commission File Number 1-9525
INCOME OPPORTUNITY REALTY TRUST
------------------------------------------------------
(Exact Name of Registrant as Specified in Its Charter)
California 94-6578120
- - -------------------------------- ---------------------
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
10670 North Central Expressway, Suite 300, Dallas, Texas, 75231
- - --------------------------------------------------------------------------------
(Address of Principal Executive Office) (Zip Code)
(214) 692-4700
-------------------------------
(Registrant's Telephone Number,
Including Area Code)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X . No .
--- ---
Shares of Beneficial Interest,
no par value 791,444
- - ------------------------------ ---------------------------------
(Class) (Outstanding at April 28, 1995)
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
The accompanying Consolidated Financial Statements have not been examined by
independent certified public accountants, but in the opinion of the management
of Income Opportunity Realty Trust (the "Trust"), all adjustments (consisting
of normal recurring accruals) necessary for a fair presentation of the Trust's
consolidated financial position, consolidated results of operations and
consolidated cash flows at the dates and for the periods indicated, have been
included.
INCOME OPPORTUNITY REALTY TRUST
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, December 31,
1995 1994
----------- -----------
Assets (dollars in thousands)
------
<S> <C> <C>
Notes and interest receivable
Performing........................................ $ 1,977 $ 1,974
Real estate held for sale, net of accumulated
depreciation ($5,312 in 1995 and $5,055 in 1994).. 40,921 41,156
Less - allowance for estimated losses.............. (121) (121)
-------------- --------------
42,777 43,009
Investment in partnerships......................... 4,064 3,980
Cash and cash equivalents.......................... 139 232
Other assets (including $265 in 1995 and $44 in
1994 due from affiliates)......................... 1,534 1,814
-------------- --------------
$ 48,514 $ 49,035
============== ==============
Liabilities and Shareholders' Equity
------------------------------------
Liabilities
Notes and interest payable......................... $ 20,566 $ 20,717
Other liabilities (including $24 in 1995 and $407
in 1994 due to affiliates)........................ 2,487 2,746
-------------- --------------
23,053 23,463
Commitments and contingencies
Shareholders' equity
Shares of beneficial interest, no par value;
authorized shares, unlimited; issued and
outstanding, 791,444 shares....................... 3,347 3,347
Paid-in capital.................................... 62,093 62,093
Accumulated distributions in excess of accumulated
earnings.......................................... (39,979) (39,868)
-------------- --------------
25,461 25,572
-------------- --------------
$ 48,514 $ 49,035
============== ==============
</TABLE>
The accompanying notes are an integral part of these Consolidated Financial
Statements.
2
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INCOME OPPORTUNITY REALTY TRUST
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
For the Three Months
Ended March 31,
--------------------------------
1995 1994
----------- ----------
(dollars in thousands,
except per share)
<S> <C> <C>
INCOME
Rents...................................... $ 1,750 $ 1,530
Interest................................... 62 72
Equity in income of partnerships........... 85 51
-------------- --------------
1,897 1,653
EXPENSES
Property operations........................ 935 832
Interest................................... 470 483
Depreciation............................... 257 238
Advisory fee to affiliate.................. 92 98
General and administrative................. 135 141
-------------- --------------
1,889 1,792
-------------- --------------
Net income (loss)........................... $ 8 $ (139)
============== ==============
Earnings Per Share
Net income (loss).......................... $ .02 $ (.18)
============= =============
Shares of beneficial interest used in
computing earnings per share............... 791,444 791,444
============== ==============
</TABLE>
The accompanying notes are an integral part of these Consolidated Financial
Statements.
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INCOME OPPORTUNITY REALTY TRUST
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
For the Three Months Ended March 31, 1995
<TABLE>
<CAPTION>
Accumulated
Shares of Beneficial Distributions
Interest in Excess of
--------------------------- Paid-In Accumulated Shareholders'
Shares Amount Capital Earnings Equity
------------ ---------- ---------- ------------ ------------
(dollars in thousands)
<S> <C> <C> <C> <C> <C>
Balance, January 1,
1995................... 791,444 $ 3,347 $ 62,093 $ (39,868) $ 25,572
Distributions ($.15 per
share)................. - - - (119) (119)
Net income............... - - - 8 8
------------- ----------- ------------ --------------- --------------
Balance, March 31, 1995.. 791,444 $ 3,347 $ 62,093 $ (39,979) $ 25,461
============= =========== ============ =============== ==============
</TABLE>
The accompanying notes are an integral part of these Consolidated Financial
Statements.
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INCOME OPPORTUNITY REALTY TRUST
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the Three Months
Ended March 31,
--------------------------------
1995 1994
----------- ----------
(dollars in thousands)
<S> <C> <C>
Cash Flows from Operating Activities
Rents collected.................................. $ 1,748 $ 1,686
Interest collected............................... 59 69
Interest paid.................................... (449) (462)
Payments for property operations................. (1,140) (688)
Advisory fee paid to affiliate................... (92) (98)
General and administrative expenses paid......... (213) (530)
Distribution from partnerships................... 4 5
Other............................................ 317 (107)
-------------- --------------
Net cash provided by (used in) operating
activities.................................. 234 (125)
Cash Flows from Investing Activities
Real estate improvements......................... (21) -
-------------- --------------
Net cash (used in) investing activities....... (21) -
Cash Flows from Financing Activities
Payments on notes payable........................ (150) (169)
Distributions to shareholders.................... (119) (126)
Advances to/(from) advisor....................... (37) 16
-------------- --------------
Net cash (used in) financing activities....... (306) (279)
Net (decrease) in cash and cash equivalents....... (93) (404)
Cash and cash equivalents, beginning of period.... 232 582
-------------- --------------
Cash and cash equivalents, end of period.......... $ 139 $ 178
============== ==============
Reconciliation of net income (loss) to net cash
provided by (used in) operating activities
Net income (loss)................................. $ 8 $ (139)
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities
Depreciation and amortization.................... 276 257
Equity in (income) of partnerships............... (85) (51)
Distributions from partnerships in excess of
current period earnings....................... 4 5
Decrease in other assets......................... 270 19
(Decrease) in interest payable................... (1) (1)
(Decrease) in other liabilities.................. (238) (215)
-------------- --------------
Net cash provided by (used in) operating
activities.................................. $ 234 $ (125)
============== ==============
</TABLE>
The accompanying notes are an integral part of these Consolidated Financial
Statements.
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INCOME OPPORTUNITY REALTY TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. BASIS OF PRESENTATION
The accompanying Consolidated Financial Statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions to Form 10-Q and Article 10 of Regulation
S-X. Accordingly, they do not include all of the information and notes
required by generally accepted accounting principles for complete financial
statements. Operating results for the three month period ended March 31, 1995
are not necessarily indicative of the results that may be expected for the year
ending December 31, 1995. For further information, refer to the Consolidated
Financial Statements and notes thereto included in the Trust's Annual Report on
Form 10-K for the year ended December 31, 1994 (the "1994 Form 10-K").
NOTE 2. NOTES AND INTEREST RECEIVABLE
In November 1993, the Trust placed the $1.1 million wraparound mortgage note,
secured by the Cedars Apartments in Irving, Texas on nonperforming, nonaccrual
status. The Trust had sold the property securing the mortgage in 1992
providing purchase money financing in conjunction with the sale. In December
1993, the borrower filed for bankruptcy protection. The Trust recorded the
property as an insubstance foreclosure as of December 31, 1994 and accepted a
deed in lieu of foreclosure on March 2, 1995. The Trust did not incur a loss
on foreclosure as the fair value of the property, less estimated costs of sale,
exceeded the principal balance of the note receivable.
NOTE 3. REAL ESTATE AND DEPRECIATION
As discussed in NOTE 2. "NOTES AND INTEREST RECEIVABLE," as of December 31,
1994, the Trust recorded the insubstance foreclosure of the Cedars Apartments.
Upon foreclosure, the property was renamed the Spanish Trace Apartments.
NOTE 4. COMMITMENTS AND CONTINGENCIES
The Trust is involved in various lawsuits arising in the ordinary course of
business. The Trust's management is of the opinion that the outcome of these
lawsuits will have no material impact on the Trust's financial condition.
____________________________
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Introduction
Income Opportunity Realty Trust (the "Trust") was formed to invest in mortgage
loans on real estate, including first, wraparound, and junior
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)
Introduction (Continued)
mortgage loans, and in equity interests in real estate through acquisitions,
leases and partnerships. The Trust was organized on December 14, 1984 and
commenced operations on April 10, 1985.
The Trust is a self-liquidating trust and is scheduled, unless and until the
Trust's shareholders decide on a contrary course of action, to begin
liquidation of its assets prior to October 24, 1996. The Trust's declaration
of Trust also requires the distribution to the Trust's shareholders of (i) the
net cash proceeds from sale or refinancing of equity investments received by
the Trust, and (ii) the net cash proceeds from the satisfaction of mortgage
notes receivable received after October 24, 1996. However, the Trust's Board
of Trustees has discretionary authority to hold any investment past October 24,
1996, should circumstances so dictate.
The Trust's management periodically reviews the self-liquidation and
finite-life provisions of the Trust's Declaration of Trust. The Trust's
management may determine in the future that it would be in the best interest of
the Trust's shareholders to modify or eliminate the self-liquidation or the
finite-life provisions of the Declaration of Trust. Any such changes would
require the approval of shareholders holding a majority of the Trust's
outstanding shares of beneficial interest.
Liquidity and Capital Resources
Cash and cash equivalents at March 31, 1995 aggregated $139,000, compared with
$232,000 at December 31, 1994. The Trust's principal sources of cash have been
and will continue to be property operations and collection of interest on its
mortgage note receivable and distributions from partnerships. The Trust
anticipates that it will have sufficient cash to meet its various cash
requirements during the remainder of 1995, including the payment of
distributions, debt service obligations and property maintenance and
improvements.
In the first quarter of 1995, the Trust paid its regular quarterly distribution
of $.15 per share or a total of $119,000.
As of April 28, 1995, the Trust had repurchased 67,952 of its shares of
beneficial interest at a cost of $1.2 million pursuant to a repurchase program
commenced in December 1989. None of such shares were repurchased in 1995. The
Trust's Board of Trustees has authorized the Trust's repurchase of a total of
100,000 shares under such repurchase program, of which 32,048 shares remain to
be repurchased. The level of any future share repurchases will depend on the
market price of the Trust's shares and the continued availability to the Trust
of excess funds.
On a quarterly basis, the Trust's management reviews the carrying values of the
Trust's mortgage note receivable and properties. Generally accepted accounting
principles require that the carrying amount of an
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)
Liquidity and Capital Resources (Continued)
investment cannot exceed the lower of its cost or its estimated net realizable
value. In an instance where the estimate of net realizable value of a Trust
property or note is less than the carrying value thereof at the time of
evaluation, a provision for loss is recorded by a charge against earnings. The
estimate of net realizable value of the Trust's mortgage note receivable is
based on management's review and evaluation of the collateral property securing
the mortgage note. The property review generally includes selective property
inspections, a review of the property's current rents compared to market rents,
a review of the property's expenses, a review of the maintenance requirements,
discussions with the manager of the property and a review of the surrounding
area. See "Recent Accounting Pronouncements," below.
Results of Operations
For the three months ended March 31, 1995, the Trust reported net income of
$8,000, as compared with a net loss of $139,000 for the corresponding period in
1994. The primary factors contributing to the Trust's 1995 first quarter net
income versus a net loss in the first quarter of 1994, are discussed in the
following paragraphs.
Net rental income (rents less property operating expense) for the first quarter
of 1995 was $815,000 as compared to the $698,000 in the corresponding quarter
of 1994. The increase is due to an increase in occupancy rates and common area
maintenance cost recoveries at one of the Trust's commercial properties.
Interest income, interest expense, depreciation, advisory fee and general and
administrative expense for the first quarter of 1995 all approximated that of
the corresponding quarter of 1994.
Tax Matters
As more fully discussed in the Trust's 1994 Form 10-K, the Trust has elected
and, in management's opinion, qualified, to be taxed as a real estate
investment trust ("REIT"), as defined under Sections 856 through 860 of the
Internal Revenue Code of 1986, as amended, (the "Code"). To continue to
qualify for federal taxation as a REIT under the Code, the Trust is required to
hold at least 75% of the value of its total assets in real estate assets,
government securities, cash and cash equivalents at the close of each quarter
of each taxable year. The Code also requires a REIT to distribute at least 95%
of its REIT taxable income plus 95% of its net income from foreclosure
property, all as defined in Section 857 of the Code, on an annual basis to
shareholders.
Inflation
The effects of inflation on the Trust's operations are not quantifiable.
Revenues from property operations generally fluctuate proportionately
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)
Inflation
with inflationary increases and decreases in housing costs. Fluctuations in the
rate of inflation also affect the sales value of properties and,
correspondingly, the ultimate realizable value of the Trust's real estate and
notes receivable portfolios.
Environmental Matters
Under various federal, state and local environmental laws, ordinances and
regulations, the Trust may be potentially liable for removal or remediation
costs, as well as certain other potential costs, relating to hazardous or toxic
substances (including governmental fines and injuries to persons and property)
where property-level managers have arranged for the removal, disposal or
treatment of hazardous or toxic substances. In addition, certain environmental
laws impose liability for release of asbestos- containing materials into the
air, and third parties may seek recovery from the Trust for personal injury
associated with such materials.
The Trust's management is not aware of any environmental liability relating to
the above matters that would have a material adverse effect on the Trust's
business, assets or results of operations.
Recent Accounting Pronouncement
In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 121 - "Accounting for the
Impairment of Long-lived Assets and for Long-lived Assets to Be Disposed Of."
As discussed under "Introduction" above, the Trust is a self liquidating trust.
Accordingly, all of the Trust's properties are classified as held for sale.
SFAS No. 121 requires long-lived assets held for sale "...be reported at the
lower of carrying amount or fair value less cost to sell." If a reduction in a
held for sale asset's carrying amount to fair value less cost to sell is
required, a provision for loss shall be recognized by a charge against
earnings. Subsequent revisions, either upward or downward, to a held for sale
asset's estimated fair value less cost to sell shall be recorded as an
adjustment to the asset's carrying amount, but not in excess of the asset's
carrying amount when originally classified as held for sale. A corresponding
charge against or credit to earnings is to be recognized. Long-lived assets
held for sale are not to be depreciated. SFAS No. 121 is effective for fiscal
years beginning after December 15, 1995.
The Trust's management has not fully evaluated the effects of adopting SFAS No.
121, but it estimates that if the Trust had adopted SFAS No. 121 effective
January 1, 1995, the Trust would have recorded no depreciation in the first
quarter of 1995, the Trust's reported net income would have increased by
$251,000 and that a provision for loss to reduce any property's carrying amount
to its fair value less cost to sell would not have been required.
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PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
<TABLE>
<CAPTION>
Exhibit
Number Description
- - ------- ---------------------------------------------------------
<S> <C>
27.0 Financial Data Schedule
</TABLE>
(b) Reports on Form 8-K as follows:
None.
10
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SIGNATURE PAGE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
<TABLE>
<S> <C>
INCOME OPPORTUNITY REALTY TRUST
Date: May 11, 1995 By: /s/ Oscar W. Cashwell
------------------------- ----------------------------------
Oscar W. Cashwell
President
Date: May 11, 1995 By: /s/ Hamilton P. Schrauff
------------------------- -----------------------------------
Hamilton P. Schrauff
Executive Vice President and
Chief Financial Officer
</TABLE>
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INCOME OPPORTUNITY REALTY TRUST
EXHIBITS TO
QUARTERLY REPORT ON FORM 10-Q
For the Three Months Ended March 31, 1995
<TABLE>
<CAPTION>
Exhibit Page
Number Description Number
- - ------- --------------------------------------------------- ------
<S> <C> <C>
27.0 Financial Data Schedule. 13
</TABLE>
12
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> MAR-31-1995
<CASH> 139
<SECURITIES> 0
<RECEIVABLES> 1,977
<ALLOWANCES> 121
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 46,233
<DEPRECIATION> 5,312
<TOTAL-ASSETS> 48,514
<CURRENT-LIABILITIES> 0
<BONDS> 20,566
<COMMON> 0
0
0
<OTHER-SE> 25,461
<TOTAL-LIABILITY-AND-EQUITY> 48,514
<SALES> 0
<TOTAL-REVENUES> 1,750
<CGS> 0
<TOTAL-COSTS> 935
<OTHER-EXPENSES> 257
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 470
<INCOME-PRETAX> 8
<INCOME-TAX> 0
<INCOME-CONTINUING> 8
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8
<EPS-PRIMARY> .02
<EPS-DILUTED> .02
</TABLE>
