Income Opportunity Realty Investors: TCI Tender Offer, Potential Squeeze Out

Disclaimer: This is very illiquid and only appropriate for small PA's like mine

Income Opportunity Realty Investors (IOR) ($75MM market cap) is the smallest piece of the ARL/TCI/IOR Russian nesting doll, in a previous life it was akin to a mortgage REIT (although its a c-corp), today they only own one mortgage, their main asset is a receivable from Pillar Asset Management, the external manager and affiliate of the majority owner of ARL/TCI/IOR.  IOR has no reason to exist, TCI and an affiliate (RAI) own 89.78% of IOR and are currently conducting a tender offer (deadline just extended to 1/29/25) at $18.00/share to push that ownership level above 90% in order to squeeze-out the remaining minority shareholders.

Plans for IOR.

 

Except as disclosed in the Offer to Purchase, TCI does not have any present plan or proposal that would result in the acquisition by any person of additional securities of IOR (except TCI may purchase additional Shares if available at attractive pricing or TCI may purchase all Shares tendered in the Offer if more than 100,000 Shares are tendered), the disposition of securities of IOR, an extraordinary corporate transaction, such as a merger, reorganization or liquidation, involving IOR, the sale or transfer of a material amount of IOR Shares (except TCI reserves the right to consider any such transactions in TCI’s discretion), any material changes to IOR’s present dividend policy, indebtedness, capitalization, corporate structure, business or any material change to the composition of IOR’s management or the IOR Board.

 

It is expected that, initially following the conclusion of the Offer, the business and operations of IOR will, except as set forth in this Offer to Purchase, be continued as a stand-alone business unit substantially as they are currently being conducted. TCI will continue to evaluate the business and operations of IOR during and after consummation of the Offer and will take such actions it deems appropriate under the circumstances then existing. Thereafter, TCI intends to continue to work with IOR’s management as a part of a comprehensive review of IOR’s business, operations, capitalization and management with a view to optimizing development of IOR’s potential in conjunction with TCI’s business.

 

After completion or termination of the Offer, TCI may seek to acquire additional Shares through open market purchases, privately negotiated transactions, or a tender offer or exchange offer or otherwise upon terms and at prices as TCI determines, which may be more or less than the price paid in the Offer. If TCI does not acquire sufficient Shares in the Offer, including any subsequent offering period, to meet the Minimum Condition which would then put TCI (assuming it acquires the Shares held by its Affiliate) under the short-form merger provisions of the Nevada Revised Statutes, without a vote of IOR’s remaining stockholders, TCI will likely seek to acquire additional Shares to place it in a position that the Minimum Condition would have been satisfied.

No Stockholder Approval Required.

Under the Nevada Revised Statutes, if TCI acquires, pursuant to the Offer or otherwise (including by acquisition of the Shares held by its Affiliate), at least 90% plus 1 of the outstanding Shares, TCI believes it could, and may in the future, effectuate a merger under the short-form merger provisions of the Nevada Revised Statutes without a vote of the IOR stockholders. If TCI does not ultimately acquire at least 90% plus 1 Share of the outstanding Shares, any merger or consolidation involving IOR and TCI would need to seek the adoption and approval thereof by a vote of IOR’s stockholders. Thus, assuming that the Minimum Condition is satisfied, upon consummation of the Offer, TCI (together with its Affiliate) would own sufficient Shares to enable TCI, without the vote of any other IOR stockholder, to satisfy the requirements to approve any merger or consolidation without a vote of IOR stockholders. 

Shares currently trade above the $18/share offer price, meaning we could see a bump to shake out some more shares prior to the squeeze-out.

The "receivable from related parties" is simply a cash sweep back to Pillar Asset Management, when some investors make the comment that management uses a company as their own personal piggy bank, that's literally what is happening here.  Pillar is taking a loan out from IOR without a maturity date, the interest rate used to be prime + 100, but somehow got amended to a flat SOFR (some 3% above prime typically) last year.  So that's the type of people we're dealing with here.

The squeeze-out is supposed to be done at "fair value", given we're talking about near cash and its a current asset (the receivable from related parties asset is governed by a "cash management agreement"), book value should be pretty close to fair value.

Book value is ~$29.71/share as of 9/30, it'll have moved up above $30/share at year end.  Now, I don't expect TCI/Pillar to pay full book, but somewhere between $18 and $30 leaves a lot of room for management to take advantage of minority shareholders while still providing some upside to a dormant stock.  The other big risk here is timing, although this seems pretty well spelled out of the eventual path, guessing the squeeze-out happens within 9-12 months after the tender closes.

Disclosure: I own shares of IOR