INTERGROUP CORP

Previous wording

The Company had net loss of $2,151,000 for the three months ended December 31, 2023 compared to net income of $1,567,000 for the three months ended December 31, 2022. The change is primarily attributed to a gain on insurance recovery of $2,692,000 in December 31, 2022.

Current wording

The Company had net loss of $3,861,000 for the three months ended March 31, 2024 compared to net loss of $614,000 for the three months ended March 31, 2023. The change is primarily attributed to a net loss in marketable securities of $811,000 and repayment of SBA loan of $453,000.

Previous wording

The Company had net loss from Hotel operations of $1,645,000 for the three months ended December 31, 2023 compared to net loss of $1,149,000 for the three months ended December 31, 2022. The increase in loss is primarily attributable to the increase in operating expenses, offset by increased rooms and food and beverage revenues.

Current wording

The Company had net loss from Hotel operations of $1,958,000 for the three months ended March 31, 2024 compared to net loss of $260,000 for the three months ended March 31, 2023. The increase in loss is primarily attributable to the increase in default mortgage interest expense during forbearance period and operating expenses, partially offset by increased rooms and food and beverage revenues.

Previous wording

For the three months ended December 31, 2023, the Hotel had operating income of $820,000 before mortgage interest expense, depreciation, and amortization on total operating revenues of $10,225,000 compared to operating income of $1,166,000 before mortgage interest expense, depreciation and amortization on total operating revenues of $9,892,000 for the three months ended December 31, 2022.

Current wording

For the three months ended March 31, 2024, the Hotel had operating income of $1,519,000 before mortgage interest expense, depreciation, and amortization on total operating revenues of $10,758,000 compared to operating income of $2,017,000 before mortgage interest expense, depreciation and amortization on total operating revenues of $10,430,000 for the three months ended March 31, 2023.

Previous wording

For the three months ended December 31, 2023, room revenues increased by $153,000, food and beverage revenue increased by $347,000 and garage decreased by $9,000 compared to the three months ended December 31, 2022. Total operating expenses increased by $679,000 due to increase in union salaries and wages, room cost, food and beverage cost.

Current wording

For the three months ended March 31, 2024, room revenues increased by $50,000, food and beverage revenue increased by $180,000 and garage increased by $101,000 compared to the three months ended March 31, 2023. Total operating expenses increased by $826,000 due to increase in union salaries and wages, room amenities and booking commissions, food and beverage cost.

Previous wording

The Hotel’s revenues increased by 3% this quarter as compared to the previous comparable quarter. Average daily rate increased by $8, average occupancy decreased by 1%, and RevPAR increased by $4 for the three months ended December 31, 2023 compared to the three months ended December 31, 2022.

Current wording

The Hotel’s revenues increased by 3% this quarter as compared to the previous comparable quarter. Average daily rate decreased by $2, average occupancy remained the same, and RevPAR decreased by $1 for the three months ended March 31, 2024 compared to the three months ended March 31, 2023. The figures reflected in this table are negatively impacted by approximately 52-78 guest rooms taken out of order at any given time in to allow for their renovation which stated in November 2022 and is scheduled to be completed by June 2024.

Previous wording

Revenue from real estate operations increased to $4,096,000 for the three months ended December 31, 2023 from $3,980,000 for the three months ended December 31, 2022 primarily due to decrease in vacancy at its Missouri property which is rebranding and was undergoing renovation. Real estate operating expenses increased to $2,806,000 from $2,672,000 year over year primarily due to increased insurance expense, repairs and maintenance. Management continues to review and analyze the Company’s real estate operations to improve occupancy and rental rates and to reduce expenses and improve efficiencies.

Current wording

Revenue from real estate operations increased to $4,125,000 for the three months ended March 31, 2024 from $3,932,000 for the three months ended March 31, 2023 primarily due to decrease in vacancy at its Missouri property which is rebranding and was undergoing renovation. Real estate operating expenses decreased to $2,612,000 from $2,770,000 year over year primarily due to decreased repairs and maintenance. Management continues to review and analyze the Company’s real estate operations to improve occupancy and rental rates and to reduce expenses and improve efficiencies.

Previous wording

The Company had a net gain on marketable securities of $1,760,000 for the three months ended December 31, 2023 compared to a net gain on marketable securities of $1,384,000 for the three months ended December 31, 2022. For the three months ended December 31, 2023, the Company had a net realized gain of $1,471,000 and a net unrealized gain of $289,000. For the three months ended December 31, 2022, the Company had a net realized loss of $722,000 and a net unrealized gain of $2,106,000. Gains and losses on marketable securities may fluctuate significantly from period to period in the future and could have a significant impact on the Company’s results of operations. However, the amount of gain or loss on marketable securities for any given period may have no predictive value and variations in amount from period to period may have no analytical value. For a more detailed description of the composition of the Company’s marketable securities see the Marketable Securities section below.

Current wording

The Company had a net loss on marketable securities of $811,000 for the three months ended March 31, 2024 compared to a net gain on marketable securities of $866,000 for the three months ended March 31, 2023. For the three months ended March 31, 2024, the Company had a net realized gain of $9,000 and a net unrealized loss of $820,000. For the three months ended March 31, 2023, the Company had a net unrealized loss of $363,000. Gains and losses on marketable securities may fluctuate significantly from period to period in the future and could have a significant impact on the Company’s results of operations. However, the amount of gain or loss on marketable securities for any given period may have no predictive value and variations in amount from period to period may have no analytical value. For a more detailed description of the composition of the Company’s marketable securities see the Marketable Securities section below.

Previous wording

The Company had net loss from Hotel operations of $2,284,000 for the six months ended December 31, 2023 compared to net loss of $428,000 for the six months ended December 31, 2022. The increase in loss is primarily attributable to the decrease in rooms revenue and an by increase in operating expenses.

Current wording

The Company had net loss from Hotel operations of $4,242,000 for the nine months ended March 31, 2024 compared to net loss of $639,000 for the nine months ended March 31, 2023. The increase in loss is primarily attributable to the decrease in rooms revenues, an increased operating expenses.

Previous wording

The following table sets forth a more detailed presentation of Hotel operations for the six months ended December 31, 2023 and 2022:

Current wording

The following table sets forth a more detailed presentation of Hotel operations for the nine months ended March 31, 2024 and 2023:

Previous wording

For the six months ended December 31, 2023, the Hotel had operating income of $2,632,000 before interest expense, depreciation, and amortization on total operating revenues of $21,318,000 compared to operating income of $4,170,000 before interest expense, depreciation, and amortization on total operating revenues of $22,202,000 for the six months ended December 31, 2022. For the six months ended December 31, 2023, room revenues decreased by $1,089,000, food and beverage revenue increased by $439,000, and garage revenue decreased by $6,000, compared to the six months ended December 31, 2022. Total operating expenses increased by $654,000 due to increase in room costs, food and beverage costs, and salaries and wages.

Current wording

For the nine months ended March 31, 2024, the Hotel had operating income of $4,151,000 before interest expense, depreciation, and amortization on total operating revenues of $26,982,000 compared to operating income of $6,187,000 before interest expense, depreciation, and amortization on total operating revenues of $28,020,000 for the nine months ended March 31, 2023. For the nine months ended March 31, 2024, room revenues decreased by $1,038,000, food and beverage revenue increased by $618,000, and garage revenue increased by $95,000, compared to the nine months ended March 31, 2023. Total operating expenses increased by $1,480,000 due to increase in room amenities and booking commissions, food and beverage costs, and salaries and wages.

Previous wording

The following table sets forth the average daily room rate, average occupancy percentage and RevPAR of the Hotel for the six months ended December 31, 2023 and 2022.

Current wording

The following table sets forth the average daily room rate, average occupancy percentage and RevPAR of the Hotel for the nine months ended March 31, 2024 and 2023.

Previous wording

Revenue from real estate operations increased to $8,513,000 for the six months ended December 31, 2023 from $8,058,000 for the six months ended December 31, 2022. Real estate operating expenses increased to $5,162,000 from $4,863,000 year over year primarily due to increased insurance expense, turn-over expenses, and maintenance and repair expenses. Management continues to review and analyze the Company’s real estate operations to improve occupancy and rental rates and to reduce expenses and improve efficiencies.

Current wording

Revenue from real estate operations increased to $12,638,000 for the nine months ended March 31, 2024 from $11,991,000 for the nine months ended March 31, 2023. Real estate operating expenses increased to $7,774,000 from $7,695,000 year over year primarily due to increased insurance expense, turn-over expenses, and maintenance and repair expenses. Management continues to review and analyze the Company’s real estate operations to improve occupancy and rental rates and to reduce expenses and improve efficiencies.

Previous wording

The Company had a net gain on marketable securities of $975,000 for the six months ended December 31, 2023 compared to a net gain on marketable securities of $574,000 for the six months ended December 31, 2022. For the six months ended December 31, 2023, the Company had a net realized gain of $1,365,000 and a net unrealized loss of $390,000. For the six months ended December 31, 2022, the Company had a net realized loss of $1,522,000 and a net unrealized gain of $2,096,000.

Current wording

The Company had a net gain on marketable securities of $164,000 for the nine months ended March 31, 2024 compared to a net gain on marketable securities of $1,440,000 for the nine months ended March 31, 2023. For the nine months ended March 31, 2024, the Company had a net realized gain of $1,374,000 and a net unrealized loss of $1,210,000. For the nine months ended March 31, 2023, the Company had a net realized loss of $1,019,000 and a net unrealized gain of $2,459,000.

Previous wording

As of December 31, 2023, the Company’s investment portfolio is diversified with 99 different equity positions. The Company held one equity securities that are more than 10% of the equity value of the portfolio each. The largest security position represents 14% of the portfolio and consists of the common stock of American Realty Investors, Inc. (NYSE: ARL) which is included in the REITs and real estate companies services industry group.

Current wording

As of March 31, 2024, the Company’s investment portfolio is diversified with 42 different equity positions. The Company held three equity securities that comprised more than 10% of the equity value of the portfolio each. The largest security position represents 30% of the portfolio and consists of the common stock of Berkshire Hathaway Inc. (NYSE: BRKA) which is included in the financial services industry group.

Previous wording

As of June 30, 2023, the Company’s investment portfolio is diversified with 59 different equity positions. The Company holds one equity security that comprised more than 10% of the equity value of the portfolio. The three largest security position represent 19%, 4%, and 4% of the portfolio and consists of the common stock of American Realty Investors, Inc. (NASDAQ: ARL), Ouster Inc – Common Stock (NASDAQ: OUST), and Bank Hawaii Corp (NASDAQ: BOH), which are included in the REITs and real estate companies, Financial Services, and Financial Services industry groups, respectively.

Current wording

As of June 30, 2023, the Company’s investment portfolio is diversified with 59 different equity positions. The Company holds one equity security that comprised more than 10% of the equity value of the portfolio. The three largest security position represented 19%, 4%, and 4% of the portfolio and consists of the common stock of American Realty Investors, Inc. (NASDAQ: ARL), Ouster Inc – Common Stock (NASDAQ: OUST), and Bank Hawaii Corp (NASDAQ: BOH), which are included in the REITs and real estate companies, Financial Services, and Financial Services industry groups, respectively.

Previous wording

The Company had cash and cash equivalents of $9,371,000 and $5,960,000 as of December 31, 2023 and June 30, 2023, respectively. The Company had restricted cash of $2,936,000 and $6,914,000 as of December 31, 2022 and June 30, 2023, respectively. The Company had marketable securities, net of margin due to securities brokers, of $14,354,000 and $15,328,000 as of December 31, 2023 and June 30, 2023, respectively. These marketable securities are short-term investments and liquid in nature.

Current wording

The Company had cash and cash equivalents of $7,763,000 and $5,960,000 as of March 31, 2024 and June 30, 2023, respectively. The Company had restricted cash of $4,225,000 and $6,914,000 as of March 31, 2024 and June 30, 2023, respectively. The Company had marketable securities, net of margin due to securities brokers, of $11,717,000 and $15,328,000 as of March 31, 2024 and June 30, 2023, respectively. These marketable securities are short-term investments and liquid in nature.

Previous wording

On July 2, 2014, the Partnership obtained from InterGroup an unsecured loan in the principal amount of $4,250,000 at 12% per year fixed interest, with a term of 2 years, payable interest only each month. InterGroup received a 3% loan fee. The loan may be prepaid at any time without penalty. The loan was extended to July 31, 2023. On December 16, 2020, the Partnership and InterGroup entered into a loan modification agreement which increased the Partnership’s borrowing from InterGroup as needed up to $10,000,000. Upon the dissolution of the Partnership in December 2021, Portsmouth assumed the Partnership’s note payable to InterGroup in the amount of $11,350,000. On December 31, 2021, Portsmouth and InterGroup entered into a loan modification agreement which increased Portsmouth’s borrowing from InterGroup as needed up to $16,000,000. In July 2023, the note maturity date was extended to July 31, 2025 and the borrowing amount available was increased to $20,000,000. As of June 30, 2023 the balance of the loan was $15,700,000 net of loan amortization costs of zero. Portsmouth agreed to a 0.5% loan extension and modification fee payable to InterGroup. During the six months ended December 31, 2023, Portsmouth borrowed an additional $2,500,000 to fund its hotel operations. As of December 31, 2023 the balance of the loan was $18,200,000 and Portsmouth has not made any paid-downs to its note payable to InterGroup. All material intercompany accounts and transactions have been eliminated in consolidation.

Current wording

On July 2, 2014, the Partnership obtained from InterGroup an unsecured loan in the principal amount of $4,250,000 at 12% per year fixed interest, with a term of 2 years, with interest only payable each month. InterGroup received a 3% loan fee. The loan may be prepaid at any time without penalty. The loan was extended to July 31, 2023. On December 16, 2020, the Partnership and InterGroup entered into a loan modification agreement which increased the Partnership’s borrowing from InterGroup as needed up to $10,000,000. Upon the dissolution of the Partnership in December 2021, Portsmouth assumed the Partnership’s note payable to InterGroup in the amount of $11,350,000. On December 31, 2021, Portsmouth and InterGroup entered into a loan modification agreement which increased Portsmouth’s borrowing from InterGroup as needed up to $16,000,000. In July 2023, the note maturity date was extended to July 31, 2025 and the borrowing amount available was increased to $20,000,000. As of June 30, 2023 the balance of the loan was $15,700,000 net of loan amortization costs of zero. Portsmouth agreed to a 0.5% loan modification fee for the increased borrowing of $10,000,000 payable to InterGroup. In March 2024, Portsmouth and InterGroup entered in a loan modification agreement which increased Portsmouth’s borrowing amount to $30,000,000. During the nine months ended March 31, 2024, Portsmouth borrowed an additional $4,400,000 to fund its hotel operations. As of March 31, 2024 the balance of the loan was $20,100,000 and Portsmouth has not made any paid-downs to its note payable to InterGroup. All material intercompany accounts and transactions have been eliminated in consolidation.

Previous wording

The financial statements of the Hotel have been prepared on a going concern basis, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. As discussed in Note 11 – Related Party and Other Financing Transactions, as of December 31, 2023, the outstanding balance consists of a senior mortgage loan and mezzanine loan totaling $106,503,000. Both loans matured on January 1, 2024, in addition, the Hotel has recurring losses and has an accumulated deficit of $109,853,000 which includes a $64,100,000 increase adjustment made in December 2013 as a result of the partnership redemption.

Current wording

The financial statements of the Hotel have been prepared on a going concern basis, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. As discussed in Note 11 – Related Party and Other Financing Transactions, as of March 31, 2024, the outstanding balance consists of a senior mortgage loan and mezzanine loan totaling $106,045,000. Both loans matured on January 1, 2024 and were extended to January 1, 2025 on April 29, 2024 through Forbearance Agreements. In addition, the Hotel has recurring losses and has an accumulated deficit of $112,724,000 which includes a $64,100,000 increase adjustment made in December 2013 as a result of the partnership redemption.

Previous wording

The Hotel has been exploring the possibility of refinancing its senior mortgage and mezzanine debt with potential lenders. Additionally, the Company has been in fluent communications with its current lenders since October 2023 exploring the possibility of a loan modification or extension to the existing debt with the current lenders, however, the Company may be unable to access further financing when needed. As such, there can be no assurance that the Company will be able to obtain additional liquidity when needed or under acceptable terms, if at all. On January 4, 2024, the Hotel was made aware of a notice of default (the “Notice”) issued by its senior loan special servicer LNR Partners, LLC to Justice Operating Company, LLC which is the wholly owned subsidiary of Portsmouth Square, Inc. The Notice states that the lender has rights as a result of such defaults, including, but not limited to, acceleration of the loans, foreclosure on collateral and other rights and remedies under the loan documents and otherwise available under the law. During the entire life of the outstanding debt, the Company has made all mortgage payments timely as of the date of maturity and as of December 31, 2023, there were no delinquent amounts due to the senior or mezzanine lenders.

Current wording

On January 4, 2024, the Hotel was made aware of a notice of default (the “Notice”) issued by its senior loan special servicer LNR Partners, LLC to Justice Operating Company, LLC which is the wholly owned subsidiary of Portsmouth. The Notice states that the lender has rights as a result of such defaults, including, but not limited to, acceleration of the loans, foreclosure on collateral and other rights and remedies under the loan documents and otherwise available under the law. On January 10, 2024, the Company filed the required Form 8-K with the Securities and Exchange Commission. During the entire life of the outstanding debt, the Company has made all mortgage payments timely as of the date of maturity and as of March 31, 2024, there were no delinquent amounts due to the senior or mezzanine lenders. On April 29, 2024, the Company entered into forbearance agreements with its senior and mezzanine lenders which establishes, among other customary terms, the new maturity date of January 1, 2025 (see Note 11 - Subsequent Events). While the Company successfully entered into the aforementioned forbearance agreements, we continue our efforts to place a longer term refinancing solution to its current senior mortgage and mezzanine debt with potential lenders. As such, there can be no assurance that the Company will be able to obtain additional liquidity when needed or under acceptable terms, if at all.

Previous wording

In 2018-2019 major improvements to the Hotel were completed, such as the installation of a state-of-the-art high-speed internet Cisco Meraki system and updated all ethernet wiring with Cat6A and added the best available fiber to each guest room and common areas, added 55” and 65” Smart 4-K Samsung Televisions to all rooms and common areas, installed a new window-washing system and equipment, updated all computers and servers, and others. During 2021 and first part of calendar 2022, we took advantage of the slow periods to make certain capital improvements including resurfacing half of the hotel bathtubs that needed repair, refreshed meeting space and lobby paint and vinyl, replaced all bed frames and socks, and completed the carpet and wall covering corridor installation. In November 2022, we began our guestroom renovation and had completed approximately 352 guestrooms as of December 31, 2023. Hotel improvements are ongoing to remain competitive in this tough market and we anticipate completing the guestroom renovations by the end of May 2024. Once the Hotel completes its full renovation, management anticipates its high occupancy to continue and its average daily rates to increase as it completes the renovation.

Current wording

In 2018-2019 the Company completed major improvements to its Hotel, such as the installation of a state-of-the-art high-speed internet Cisco Meraki system and updated all ethernet wiring with Cat6A and added the best available fiber to each guest room and common areas, added 55” and 65” Smart 4-K Samsung Televisions to all rooms and common areas, installed a new window-washing system and equipment, updated all computers and servers, and others. During 2021 and first part of calendar 2022, we took advantage of the slow periods to make certain capital improvements including resurfacing half of the hotel bathtubs that needed repair, refreshed meeting space and lobby paint and vinyl, replaced all bed frames and socks, and completed the carpet and wall covering corridor installation. In November 2022, we began our guestroom renovation and had completed approximately 402 guestrooms as of March 31, 2024. Hotel improvements are ongoing to remain competitive in this challenging San Francisco market and we anticipate completing the guestroom renovations by mid-June 2024. Once the Company completes its full renovation, management anticipates its high occupancy to continue and its average daily rates to increase as a result of the updated product. Additionally, the Company anticipates that total revenues will also increase as the hotel has had at least three levels or approximately 75 guest rooms out of service since November 2022 in order to be renovated. While we have no assurances that the financial markets will improve, we are cautiously optimistic about our ability to improve our revenues upon the completion of our renovation and the recovery of the San Francisco market. Additionally, there are major changes in the political landscape in San Francisco and a Mayor election this year that we believe could improve the overall condition of the City of San Francisco as a whole.

Previous wording

Critical accounting policies are those that are most significant to the portrayal of our financial position and results of operations and require judgments by management in order to make estimates about the effect of matters that are inherently uncertain. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts in our consolidated financial statements. We evaluate our estimates on an ongoing basis, including those related to the consolidation of our subsidiaries, to our revenues, allowances for bad debts, accruals, asset impairments, other investments, income taxes and commitments and contingencies. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities. The actual results may differ from these estimates or our estimates may be affected by different assumptions or conditions. There have been no material changes to the Company’s critical accounting policies during the six months ended December 31, 2023.

Current wording

Critical accounting policies are those that are most significant to the portrayal of our financial position and results of operations and require judgments by management in order to make estimates about the effect of matters that are inherently uncertain. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts in our consolidated financial statements. We evaluate our estimates on an ongoing basis, including those related to the consolidation of our subsidiaries, to our revenues, allowances for bad debts, accruals, asset impairments, other investments, income taxes and commitments and contingencies. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities. The actual results may differ from these estimates or our estimates may be affected by different assumptions or conditions. There have been no material changes to the Company’s critical accounting policies during the nine months ended March 31, 2024.

Previous wording

We evaluate property and equipment, and definite-lived intangible assets for impairment quarterly, and when events or circumstances indicate the carrying value may not be recoverable, we evaluate the net book value of the assets by comparing to the projected undiscounted cash flows of the assets. We use judgment to determine whether indications of impairment exist and consider our knowledge of the hospitality industry, historical experience, location of the property, market conditions, and property-specific information available at the time of the assessment. The results of our analysis could vary from period to period depending on how our judgment is applied and the facts and circumstances available at the time of the analysis. When an indicator of impairment exists, judgment is also required in determining the assumptions and estimates to use within the recoverability analysis and when calculating the fair value of the asset or asset group, if applicable. Changes in economic and operating conditions impacting the judgments used could result in impairments to our long-lived assets in future periods. Historically, changes in estimates used in the property and equipment and definite-lived intangible assets impairment assessment process have not resulted in material impairment charges in subsequent periods as a result of changes made to those estimates. There were no indicators of impairment on its hotel investments or intangible assets and accordingly no impairment losses recorded during the six months ended December 31, 2023 and 2022, respectively.

Current wording

We evaluate property and equipment, and definite-lived intangible assets for impairment quarterly, and when events or circumstances indicate the carrying value may not be recoverable, we evaluate the net book value of the assets by comparing to the projected undiscounted cash flows of the assets. We use judgment to determine whether indications of impairment exist and consider our knowledge of the hospitality industry, historical experience, location of the property, market conditions, and property-specific information available at the time of the assessment. The results of our analysis could vary from period to period depending on how our judgment is applied and the facts and circumstances available at the time of the analysis. When an indicator of impairment exists, judgment is also required in determining the assumptions and estimates to use within the recoverability analysis and when calculating the fair value of the asset or asset group, if applicable. Changes in economic and operating conditions impacting the judgments used could result in impairments to our long-lived assets in future periods. Historically, changes in estimates used in the property and equipment and definite-lived intangible assets impairment assessment process have not resulted in material impairment charges in subsequent periods as a result of changes made to those estimates. There were no indicators of impairment on its hotel investments or intangible assets and accordingly no impairment losses recorded during the nine months ended March 31, 2024 and 2023, respectively.