-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Gvldpl02d8F86sghsLxK0wesQ+9rswQfg8U3ygNkNvqPZsTwL9u7juQeTvcDsocc 6sbbWOvlepa7nGqZRXOqKQ== 0000950134-95-003400.txt : 19951221 0000950134-95-003400.hdr.sgml : 19951221 ACCESSION NUMBER: 0000950134-95-003400 CONFORMED SUBMISSION TYPE: 10-Q/A PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19950930 FILED AS OF DATE: 19951220 SROS: AMEX FILER: COMPANY DATA: COMPANY CONFORMED NAME: INCOME OPPORTUNITY REALTY TRUST CENTRAL INDEX KEY: 0000760730 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE INVESTMENT TRUSTS [6798] IRS NUMBER: 946578120 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q/A SEC ACT: 1934 Act SEC FILE NUMBER: 001-09525 FILM NUMBER: 95603126 BUSINESS ADDRESS: STREET 1: 10670 N CENTRAL EXPRSWY STE 300 CITY: DALLAS STATE: TX ZIP: 75231 BUSINESS PHONE: 2146924700 MAIL ADDRESS: STREET 1: 10670 NORTH CENTRAL EXPRESSWAY STREET 2: SUITE 600 CITY: DALLAS STATE: TX ZIP: 75231 FORMER COMPANY: FORMER CONFORMED NAME: INCOME OPPORTUNITY REALTY INVESTORS INC DATE OF NAME CHANGE: 19911003 FORMER COMPANY: FORMER CONFORMED NAME: CONSOLIDATED CAPITAL INCOME OPPORTUNITY TRUST 2 DATE OF NAME CHANGE: 19900815 10-Q/A 1 AMENDMENT TO 10-Q 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q/A [X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTER ENDED SEPTEMBER 30, 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 November 3, 1995) 1 2 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
September 30, December 31, 1995 1994 -------------- -------------- Assets (dollars in thousands) ------ Notes and interest receivable Performing........................................ $ 1,983 $ 1,974 Foreclosed real estate held for sale, net of accumulated depreciation ($1,481 in 1995 and $1,128 in 1994)............................... 15,777 15,999 Real estate held for sale, net of accumulated depreciation ($4,358 in 1995 and $3,927 in 1994).. 24,748 25,157 Less - allowance for estimated losses.............. (121) (121) -------------- -------------- 42,387 43,009 Investment in partnerships......................... 2,632 3,980 Cash and cash equivalents.......................... 297 232 Other assets (including $40 in 1995 and $44 in 1994 from affiliates)............................. 1,622 1,814 -------------- -------------- $ 46,938 $ 49,035 ============== ============== Liabilities and Shareholders' Equity ------------------------------------ Liabilities Notes and interest payable......................... $ 20,284 $ 20,717 Other liabilities (including $92 in 1995 and $407 in 1994 to affiliates)............................ 2,449 2,746 -------------- -------------- 22,733 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.......................................... (41,235) (39,868) -------------- -------------- 24,205 25,572 -------------- -------------- $ 46,938 $ 49,035 ============== ==============
The accompanying notes are an integral part of these Consolidated Financial Statements. 2 3 INCOME OPPORTUNITY REALTY TRUST CONSOLIDATED STATEMENTS OF OPERATIONS
For the Three Months For the Nine Months Ended September 30, Ended September 30, --------------------------------- ------------------------------- 1995 1994 1995 1994 -------------- ------------ ------------- ------------- (dollars in thousands, except per share) INCOME Rents........................ $ 1,992 $ 1,677 $ 5,692 $ 4,929 Interest..................... 57 71 170 212 ----------- ----------- ----------- ----------- 2,049 1,748 5,862 5,141 EXPENSES Property operations.......... 1,152 887 3,155 2,410 Equity in (income) loss of partnerships............... 54 (25) 698 (54) Interest..................... 463 476 1,399 1,438 Depreciation................. 263 242 784 720 Advisory fee to affiliate.... 88 75 271 257 General and administrative... 168 163 566 442 ----------- ----------- ----------- ----------- 2,188 1,818 6,873 5,213 ----------- ----------- ----------- ----------- Net (loss).................... $ (139) $ (70) $ (1,011) $ (72) ============ ============ ============ =========== Earnings Per Share Net (loss)................... $ (.18) $ (.09) $ (1.28) $ ( .09) ============= ============= ============= ============ Shares of beneficial interest used in computing earnings per share........... 791,444 791,444 791,444 791,444 ============== ============== ============= ============
The accompanying notes are an integral part of these Consolidated Financial Statements. 3 4 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 nine month period ended September 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. The property has been renamed the Spanish Trace Apartments. NOTE 4. INVESTMENT IN EQUITY METHOD PARTNERSHIPS The Trust's investments in equity method partnerships consisted of the following:
1995 1994 ------ ------ Tri-City Limited Partnership ("Tri-City)......... $2,370 $3,077 Nakash Income Associates ("NIA")................. 262 1,144 ------ ------ $2,682 $4,221 ====== ======
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 $601,000. 6 5 INCOME OPPORTUNITY REALTY TRUST NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED NOTE 4. INVESTMENT IN EQUITY METHOD PARTNERSHIPS (Continued) In September 1995, the Trust received notice from NIA that one of its wraparound notes receivable had been modified in conjunction with the modification of the underlying note payable. NIA recorded a provision for loss of $212,000 on such modification of which the Trust's equity share is $85,000. The Trust is a 36.3% general partner in Tri-City Limited Partnership ("Tri-City"). In July 1995, Tri-City obtained first mortgage financing of $1.4 million, secured by the previously unencumbered MacArthur Mills Office Park located in Dallas, Texas. The mortgage bears interest at 9.32% per annum, requires monthly payments of principal and interest of $12,186 and matures August 1, 2005. The Trust received $486,000 of the net financing proceeds. In conjunction with the financing, Tri-City paid a mortgage brokerage and equity refinancing fee of $14,000 to Basic Capital Management, Inc., the Trust's advisor, based on the $1.4 million financing. Set forth below are summarized financial data for the partnerships the Trust accounts for using the equity method:
September 30, September 30, 1995 1994 ------------- ------------- Notes receivable . . . . . . . . . . . . . . . . . . . . . . $ 2,597 $ 4,099 Real estate, net of accumulated depreciation ($2,586 in 1995 and $1,982 in 1994). . . . . . . . . . . 10,421 10,728 Other assets . . . . . . . . . . . . . . . . . . . . . . . . 392 2,847 Notes payable . . . . . . . . . . . . . . . . . . . . . . . (4,142) (2,650) Other liabilities . . . . . . . . . . . . . . . . . . . . . (339) (316) ----------- ----------- Partners' capital . . . . . . . . . . . . . . . . . . . . . $ 8,929 $ 14,708 =========== =========== September 30, September 30, 1995 1994 ------------- ------------- Rental income . . . . . . . . . . . . . . . . . . . . . . . $ 1,887 $ 1,751 Interest income . . . . . . . . . . . . . . . . . . . . . . 310 262 Interest expense . . . . . . . . . . . . . . . . . . . . . . (221) (213) Property operations . . . . . . . . . . . . . . . . . . . . (1,218) (1,223) Depreciation expense . . . . . . . . . . . . . . . . . . . . (422) (456) Provision for losses . . . . . . . . . . . . . . . . . . . . (1,714) -- ----------- ----------- Net income (loss) . . . . . . . . . . . . . . . . . . . . . $ (1,378) $ 121 =========== ===========
The Trust's equity share of the above net loss for 1995 was $506,000 and of net income for 1994 was $66,000, before amortization of property acquisitions cost discussed below. The Trust's share of the above partnership's capital was $2.4 million in 1995 and $3.8 million in 1994. The excess of the Trust's investment over its representative share of the equity in the underlying net assets of the partnerships relates principally to the underlying unamortized property acquisition costs of $181,000 in 1995 and $377,000 in 1994. These amounts are being amortized over the remaining useful lives of the properties. NOTE 5. COMMITMENTS AND CONTINGENCIES The Trust is involved in various lawsuits arising in the ordinary course of business. In the opinion of the Trust's management the outcome of these lawsuits will have no material impact on the Trust's financial condition, results of operations or liquidity. ____________________________ 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 7 6 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) Introduction (Continued) Trust's shareholders to eliminate the self-liquidation and finite-life provisions of the Declaration of Trust and, in that regard, recommended that the Trust's Board of Trustees approve a proposal to convert the Trust to a Nevada corporation. On August 1, 1995, the Trust's Board of Trustees approved such recommendation and the Trust has filed 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 September 30, 1995 aggregated $297,000, 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. Unless the Trust's Trustees make the determination to sell properties during the remainder of 1995 or in early 1996, then it is anticipated one or more of the Trust's properties would have to be refinanced in late 1995 or early 1996 for the Trust's continued payment of dividends, property maintenance and required operating cash reserves. In the first nine months of 1995, the Trust paid quarterly distributions aggregating $.45 per share or a total of $356,000. As of November 3, 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 distributions of $613,000 from the partnership in July 1995. See NOTE 4. "INVESTMENT IN EQUITY METHOD PARTNERSHIPS." 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 8 7 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) Liquidity and Capital Resources (Continued) 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 nine months ended September 30, 1995, the Trust incurred a net loss of $1.0 million, as compared with a net loss of $72,000 in the corresponding period in 1994. For the three months ended September 30, 1995, the Trust had net loss of $139,000 as compared with a net loss of $70,000 in the corresponding period in 1994. The primary factor contributing to the Trust's net loss in the three and nine months ended September 30, 1995 was an increase in equity in losses of partnerships of $79,000 and $752,000, respectively, as discussed in detail below. Rents for the nine months of 1995 were $5.7 million as compared to $4.9 million in the corresponding period in 1994. $360,000 of the increase is attributable to the Trust having obtained the Spanish Trace Apartments through foreclosure, which was completed in March 1995, and an additional $261,000 due to an increase in occupancy at Saratoga Office Center from an average of 84% in 1994 to an average of 95% in 1995. Property operations expense for the nine months of 1995 was $3.2 million as compared to $2.4 million in the corresponding period in 1994. The increase is primarily due to an increase of $458,000 due to obtaining the Spanish Trace Apartments through foreclosure. The remainder of the increase is comprised of $108,000 increase in real estate tax expense, a $46,000 increase in insurance expense and a $41,000 increase in replacements expense. Equity in income (loss) of partnerships was a loss of $54,000 and $698,000 for the three and nine months ended September 30, 1995 compared to income of $25,000 and $54,000 in the corresponding periods in 1994. The increased equity loss for the three months is primarily due to a modification of a wraparound mortgage note receivable and underlying note payable by Nakash Income Associates ("NIA"), a partnership in which the Trust has a 40% general partner interest. The increased equity loss for the nine months is primarily due to the modification discussed above, and the writedown of a wraparound mortgage note receivable to the balance of the underlying mortgage payable also by NIA. The Trust's equity share of the loss on the note modification was $85,000 and its equity share of the note writedown was $601,000. See NOTE 4. "INVESTMENT IN EQUITY METHOD PARTNERSHIPS." Interest income, interest expense, depreciation and advisory fee expense for the three and nine months ended September 30, 1995 all approximated that of the corresponding periods in 1994. General and administrative expenses for the three months ended September 30, 1995 and 1994 were comparable at $168,000 and $163,000, but for the nine months ended September 30, 1995 increased to $566,000 from $442,000 in the corresponding period in 1994. The increase in the nine months is primarily due to higher communications and legal fees 9 -----END PRIVACY-ENHANCED MESSAGE-----