INCOME OPPORTUNITY REALTY INVESTORS INC /TX/

(dollars in thousands, except per share and square foot amounts)

Income Opportunity Realty Investors, Inc. (the “Company”) is an externally managed company that currently holds investments in mortgage notes receivables. As used herein, the terms “IOR”, “the Company”, “We”, “Our”, or “Us” refer to the Company.

Transcontinental Realty Investors, Inc. (“TCI”), whose common stock is listed on the NYSE under the symbol “TCI”, owned approximately 85.1% of our stock at June 30, 2026 and together with an affiliate owned approximately 91.8% of our common stock at June 30, 2026. Accordingly our financial results are included in the consolidated financial statements of TCI. American Realty Investors, Inc. (“ARL”), whose common stock is traded on the NYSE under the symbol “ARL”, in turn, owns approximately 79.2% of TCI.

Our business is managed by Pillar Income Asset Management, Inc. (“Pillar”).

Their duties include, but are not limited to, locating, evaluating and recommending real estate and real estate-related investment opportunities. Pillar also arranges our debt and equity financing with third party lenders and investors.

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 (“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 consolidated balance sheet at December 31, 2025 was derived from the audited consolidated financial statements at that date, but does not include all of the information and disclosures required by GAAP for complete financial statements. For further information, refer to the consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2025.

We consolidate entities in which we are considered to be the primary beneficiary of a variable interest entity (“VIE”) or have a majority of the voting interest of the entity. We have determined that we are a primary beneficiary of the VIE when we have (i) the power to direct the activities of a VIE that most significantly impacts its economic performance, and (ii) the obligations to absorb losses or the right to receive benefits that could potentially be significant to the VIE. In determining whether we are the primary beneficiary, we consider qualitative and quantitative factors, including ownership interest, management representation, ability to control decision and other contractual rights.

We account for entities in which we have less than a controlling financial interest or entities where we are not deemed to be the primary beneficiary under the equity method of accounting. Accordingly, we include our share of the net earnings or losses of these entities in our results of operations.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands, except per share and square foot amounts)

We have a note receivable issued by Unified Housing Foundation, Inc. (“UHF”) that bears interest at the Secured Overnight Financing Rate (“SOFR”) in effect on the last day of the preceding calendar quarter and matures on December 31, 2032. The interest rate of the new note was 3.68% and 4.24% as of June 30, 2026 and December 31, 2025, respectively.

UHF is determined to be a related party due to our significant investment in the performance of the collateral secured by the note receivable. Principal and interest payments on the note are funded from surplus cash flow from operations, sale or refinancing of the underlying property and are cross collateralized to the extent that any surplus cash is available from any other property owned by UHF.

We engage in certain business transactions with related parties, including investment in notes receivables. Transactions involving related parties cannot be presumed to be carried out on at arm’s length basis due to the absence of free market forces that naturally exist in business dealings between two or more unrelated entities. Related party transactions may not always be favorable to our business and may include terms, conditions and agreements that are not necessarily beneficial to or in our best interest.

Pillar is a wholly owned subsidiary of May Realty Holdings, Inc., which owns approximately 91.0% of ARL, which owns approximately 79.2% of TCI, which owns approximately 85.1% of the Company.

Advisory fees paid to Pillar were$23 and$25 for the three months ended June 30, 2026 and 2025, respectively, and$47 and$50 for the six months ended June 30, 2026 and 2025, respectively.

Our note receivable is with UHF (See Note 3 – Notes Receivable). UHF is determined to be a related party due to our significant investment in the performance of the collateral secured by the notes receivable. Interest income on these notes was$100 and$122 for the three months ended June 30, 2026 and 2025, respectively, and$205 and$246 for the six months ended June 30, 2026 and 2025, respectively.

Receivables from related parties were$116,409 and$114,595 at June 30, 2026 and December 31, 2025, respectively; which represents amounts outstanding advanced to Pillar net of unreimbursed fees (“Pillar Receivable”), which bears interest in accordance with a cash management agreement. On January 1, 2024, an amendment to the cash management agreement changed the interest rate on the Pillar Receivable from prime plus one percent to SOFR. Interest income on related party receivables was$889 and$1,233 for thethree months ended June 30, 2026 and 2025, respectively, and$2,160 and$2,456 for the six months ended June 30, 2026 and 2025, respectively.

We have a stock repurchase program that allows for the repurchase of up to 1,650,000 shares of our common stock. This repurchase program has no termination date. As of June 30, 2026, there are 513,003 shares remaining that can be repurchased.

We believe that we will generate excess cash from property operations in the next twelve months; such excess, however, might not be sufficient to discharge all of our obligations as they become due.

The date to which events occurring after June 30, 2026, the date of the most recent balance sheet, have been evaluated for possible adjustment to the consolidated financial statements or disclosure is August 6, 2026, which is the date on which the consolidated financial statements were available to be issued.

On July 31, 2026, TCI acquired 269,299 common share of the Company from Realty Advisors, Inc. (“RAI”) for 134,649 new issued TCI common shares based on exchange rate of 0.5 share of TCI common stock in exchange for each common share of the Company. RAI is ARL’s controlling shareholder and a wholly-owned subsidiary of MRHI.