| ORGANIZATION AND BASIS OF PRESENTATION | NOTE
1. ORGANIZATION AND BASIS OF PRESENTATION Organization
As
used herein, the terms “IOR”, “the Company”, “we”, “our”, “us” refer
to Income Opportunity Realty Investors, Inc., a Nevada corporation, individually or together with its subsidiaries. Income Opportunity
Realty Investors, Inc. is the successor to a California business trust organized on December 14, 1984, which commenced operations
on April 10, 1985. The Company is headquartered in Dallas, Texas, and its common stock trades on the NYSE American under the symbol
(“IOR”). Transcontinental
Realty Investors, Inc. (“TCI”) owns approximately 81.25% of the Company’s common stock. Effective July 17, 2009,
IOR’s financial results were consolidated with those of American Realty Investors, Inc. (“ARL”) and TCI and
their subsidiaries. IOR is a “C” corporation for U.S. federal income tax purposes and files an annual consolidated
income tax return with ARL and its ultimate parent, May Realty Holdings, Inc. (“MRHI”). We have no employees. IOR
invests in real estate through direct ownership, leases and partnerships and also invests in mortgage loans on real estate. Pillar
Income Asset Management, Inc. (“Pillar”) is the Company’s external Advisor and Cash Manager. Although the Board
of Directors is directly responsible for managing the affairs of IOR, and for setting the policies which guide it, the day-to-day
operations of IOR are performed by Pillar, as the contractual Advisor, under the supervision of the Board. Pillar’s
duties include, but are not limited to, locating, evaluating and recommending real estate and real estate-related investment opportunities
and arranging debt and equity financing for the Company with third party lenders and investors. Additionally, Pillar serves
as a consultant to the Board with regard to their decisions in connection with IOR’s business plan and investment policy. Pillar
also serves as an Advisor and Cash Manager to TCI and ARL. Our
primary business is investing in real estate and financing real estate and real estate-related activities through investments
in mortgage loans. As of March 31, 2019 and December 31, 2018, we had no real estate holdings. At March 31, 2019, the principal
source of revenue for the Company is interest income on approximately $95.4 million of notes receivable due from related parties,
out of which, $13.1 million are due from United Housing Foundation, Inc. (“UHF”) (Refer to Note 2). Basis
of Presentation The
accompanying unaudited Consolidated Financial Statements have been prepared in accordance with the instructions to Form 10-Q and
Article 10 of Regulation S-X. Certain information and footnote disclosures normally included in financial statements prepared
in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) have been
condensed or omitted in accordance with such rules and regulations, although management believes the disclosures are adequate
to prevent the information presented from being misleading. In the opinion of management, all adjustments (consisting of normal
recurring matters) considered necessary for a fair presentation have been included. The results of operations for the three months
ended March 31, 2019, are not necessarily indicative of the results that may be expected for other interim periods or for the
full fiscal year. As of March 31, 2019 and December 31, 2018, IOR was not the primary beneficiary of a variable interest entity
(“VIE”). The
year-end Consolidated Balance Sheet at December 31, 2018, was derived from the audited Consolidated Financial Statements
at that date, but does not include all of the information and disclosures required by U.S. GAAP for complete financial statements.
For further information, refer to the Consolidated Financial Statements and notes thereto included in the Company’s Annual
Report on Form 10-K for the year ended December 31, 2018. Real
Estate, Depreciation and Impairment Real
estate assets are stated at the lower of depreciated cost or fair value, if deemed impaired. Major replacements and betterments
are capitalized and depreciated over their estimated useful lives. Depreciation is computed on a straight-line basis over the
useful lives of the properties (buildings and improvements – 10-40 years; furniture, fixtures and equipment – 5-10
years). The Company continually evaluates the recoverability of the carrying value of our real estate assets using the methodology
prescribed in ASC Topic 360, “Property, Plant and Equipment”. Factors considered by management in evaluating impairment
of our existing real estate assets held for investment include significant declines in property operating profits, annually recurring
property operating losses and other significant adverse changes in general market conditions that are considered permanent in
nature. Under ASC Topic 360, a real estate asset held for investment is not considered impaired if the undiscounted, estimated
future cash flows of an asset (both the annual estimated cash flow from future operations and the estimated cash flow from the
theoretical sale of the asset) over its estimated holding period are in excess of the asset’s net book value at the balance
sheet date. If any real estate asset held for investment is considered impaired, a loss is provided to reduce the carrying value
of the asset to its estimated fair value. Real
Estate Held For Sale We
periodically classify real estate assets as “held for sale”. An asset is classified as held for sale after the approval
of our Board of Directors, after an active program to sell the asset has commenced and if the sale is probable. One of the deciding
factors in determining whether a sale is probable is whether a firm purchase commitment is obtained and whether the sale is probable
within the year. Upon the classification of a real estate asset as held for sale, the carrying value of the asset is reduced to
the lower of its net book value or its estimated fair value, less costs to sell the asset. Subsequent to the classification of
assets as held for sale, no further depreciation expense is recorded. Real estate assets held for sale are stated separately on
the accompanying Consolidated Balance Sheets. Upon a decision that the sale is no longer probable, the asset is classified as
an operating asset and depreciation expense is reinstated. Cost
Capitalization The
cost of buildings and improvements includes the purchase price of the property, legal fees and other acquisition costs. Costs
directly related to planning, developing, initial leasing and constructing a property are capitalized and classified as Real Estate
in the Consolidated Balance Sheets. Capitalized development costs include interest, property taxes, insurance, and other direct
project costs incurred during the period of development. A
variety of costs are incurred in the acquisition, development and leasing of properties. After determination is made to capitalize
a cost, it is allocated to the specific component of a project that is benefited. Determination of when a development project
is substantially complete and capitalization must cease involves a degree of judgment. Our capitalization policy on development
properties is guided by ASC 835-20 Interest – Capitalization of Interest Real Estate
- General Fair
Value Measurement We
apply the guidance in ASC Topic 820, “Fair Value Measurements and Disclosures”, to the valuation of real estate assets.
These provisions define fair value as the price that would be received to sell an asset or paid to transfer a liability in a transaction
between market participants at the measurement date, establish a hierarchy that prioritizes the information used in developing
fair value estimates and require disclosure of fair value measurements by level within the fair value hierarchy. The hierarchy
gives the highest priority to quoted prices in active markets (Level 1 measurements) and the lowest priority to unobservable data
(Level 3 measurements), such as the reporting entity’s own data. The
valuation hierarchy is based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date
and includes three levels defined as follows:
Level 1
– Unadjusted
quoted prices for identical and unrestricted assets or liabilities in active markets.
Level
2 – Quoted
prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either
directly or indirectly, for substantially the full term of the financial instrument.
Level
3 – Unobservable
inputs that are significant to the fair value measurement. A
financial instrument’s categorization within the valuation hierarchy is based upon the lowest level of input that is significant
to the fair value measurement. Related
Parties We
apply ASC Topic 805, “Business Combinations”, to evaluate business relationships. Related parties are persons or entities
who have one or more of the following characteristics, which include entities for which investments in their equity securities
would be required, trust for the benefit of persons including principal owners of the entities and members of their immediate
families, management personnel of the entity and members of their immediate families and other parties with which the entity may
deal if one party controls or can significantly influence the decision making of the other to an extent that one of the transacting
parties might be prevented from fully pursuing its own separate interests, or affiliates of the entity. Newly Issued Accounting Pronouncements We have considered all other newly issued accounting guidance that is applicable to our operations and the preparation of our statements, including that which we have not yet adopted. We do not believe that any such guidance will have a material effect on our financial position or results of operations. |
