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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q/A
[XI QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTER ENDED JUNE 30, 1995
Commission File Number 1-9525
INCOME OPPORTUNITY REALTY TRUST
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(Exact Name of Registrant as Specified in Its Charter)
California 94-6578120
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(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
10670 North Central Expressway, Suite 300, Dallas, Texas, 75231
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(Address of Principal Executive Office) (Zip Code)
(214) 692-4700
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(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
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(Class) (Outstanding at July 28, 1995)
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This Form 10-Q/A amends the Registrant's quarterly report on Form 10-Q for the
quarter ended June 30, 1995 as follows:
ITEM 1. FINANCIAL STATEMENTS - pages 4, 6 and 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS - pages 8 and 9
Exhibit 27.0 Financial Data Schedule - page 14
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INCOME OPPORTUNITY REALTY TRUST
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
For the Six Months Ended June 30, 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 ($.30 per
share) . . . . . . . . - - - (238) (238)
Net loss . . . . . . . . - - - (872) (872)
-------- ------- -------- --------- --------
Balance, June 30, 1995 . 791,444 $ 3,347 $ 62,093 $ (40,978) $ 24,462
======== ======= ======== ========= ========
</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 six month period ended June 30, 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 HELD FOR SALE 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. INVESTMENT IN EQUITY METHOD PARTNERSHIPS
In September 1989, the Trust purchased a 40% general partner interest in
Nakash Income Associates ("NIA") for a total of $2.6 million in cash, assets
and shares of beneficial interest. NIA owns two wraparound mortgage notes
receivable, one of which is secured by the Green Hills Shopping Center ("Green
Hills") in Onandaga, New York. The shopping center in turn is owned by Green
Hills Associates ("GHA"). In July 1995, GHA determined that further investment
in Green Hills was not justified and further that it intends to deed the
property back to the first lien holder in lieu of foreclosure. As GHA has no
other assets, the wraparound note receivable held by NIA will become
uncollectible, and therefore, at June 30, 1995, NIA recorded a provision for
loss of $1.5 million to write its wraparound note receivable down to the
balance of the first lien mortgage. The Trust's equity portion of the loss is
$792,000.
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INCOME OPPORTUNITY REALTY TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE 5. 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 or
results of operations.
---------------------------
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 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 has determined that it would be in the best interest of the Trust's
shareholders to eliminate the self-liquidation and finite-life provisions of
the Declaration of Trust and, in that regard, has recommended that the Trust's
Board of Trustees approve a proposal to convert the Trust to a Nevada
corporation. Upon approval by the Trust's Board of Trustees, the Trust will
file a Proxy Statement/Prospectus with the Securities and Exchange Commission
providing for a special meeting of the Trust's shareholders. At such meeting
shareholders will be presented with a proposal to approve the conversion of the
Trust to a corporation by way of the merger of the Trust into a wholly-owned
subsidiary of the Trust. This proposal will 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 June 30, 1995 aggregated $447,000, 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
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)
Liquidity and Capital Resources (Continued)
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 six months of 1995, the Trust paid quarterly distributions
aggregating $0.30 per share or a total of $238,000.
As of July 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.
The Trust owns a 36.3% general partner interest in Tri-City Limited Partnership
which in turn owns five properties in Texas. The Trust received a distribution
of $127,000 from the partnership in July 1995.
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 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 Pronouncement," below.
Results of Operations
For the six months ended June 30, 1995, the Trust incurred a net loss of
$872,000, as compared with a net loss of $2,000 in the corresponding period in
1994. For the three months ended June 30, 1995, the Trust had net loss of
$880,000 as compared with net income of $137,000 in the corresponding period in
1994. The primary factor contributing to the Trust's net loss in the three and
six months ended June 30, 1995 was an increase in equity in losses of
partnerships of $707,000 and $673,000, respectively, as discussed in detail
below.
Net rental income (rental income less expenses applicable to rental income) for
the first six months of 1995 of $1.7 million approximated the $1.7 million in
the
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)
Results of Operations (Continued)
corresponding period in 1994. Net rental income for the three months ended June
30, 1995 was $882,000, as compared to $1.1 million in the corresponding period
in 1994. The decline in second quarter net rental income is primarily due to
operating losses incurred at the Cedars Apartments, a property obtained by
deed-in-lieu of foreclosure in March 1995 and to higher expenses in both the
Trust's residential and commercial portfolios.
Equity in loss of partnerships was a loss of $729,000 and $644,000 for the
three and six months ended June 30, 1995 compared to a loss of $22,000 and
income of $29,000 in the corresponding periods in 1994, respectively. The
increased equity loss is primarily due to the write down of a wraparound
mortgage note receivable to the balance of the underlying mortgage payable by
the Nakash Income Associates, a partnership in which the Trust has a 40%
general partner interest. See NOTE 4. "INVESTMENT IN EQUITY METHOD
PARTNERSHIPS."
Interest income, interest expense, depreciation and advisory fee expense for
the three and six months ended June 30, 1995 all approximated that of the
corresponding periods in 1994.
General and administrative expenses increased to $263,000 and $398,000 for the
three and six months ended June 30, 1995, from $138,000 and $279,000 in the
corresponding periods in 1994, respectively. The increase is primarily due to
higher communications and legal fees relating to the Trust's 1994 annual meeting
of shareholders which meeting was held in March 1995. There was no annual
meeting held in 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 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.
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EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------- -----------------------------------------------------------
<S> <C>
27.0 Financial Data Schedule
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> JUN-30-1995
<CASH> 447
<SECURITIES> 0
<RECEIVABLES> 1,980
<ALLOWANCES> 121
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 46,332
<DEPRECIATION> 5,576
<TOTAL-ASSETS> 47,860
<CURRENT-LIABILITIES> 0
<BONDS> 20,413
<COMMON> 0
0
0
<OTHER-SE> 24,462
<TOTAL-LIABILITY-AND-EQUITY> 47,860
<SALES> 0
<TOTAL-REVENUES> 3,700
<CGS> 0
<TOTAL-COSTS> 2,003
<OTHER-EXPENSES> 521
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 936
<INCOME-PRETAX> (872)
<INCOME-TAX> 0
<INCOME-CONTINUING> (872)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (872)
<EPS-PRIMARY> (1.10)
<EPS-DILUTED> (1.10)
</TABLE>
