INTERGROUP CORP

Previous wording

As of September 30, 2024, the Company owned approximately 75.7% of the common shares of Portsmouth Square, Inc. The Company’s principal sources of revenue are revenues from the hotel owned by Portsmouth, rental income from its investments in multi-family and commercial real estate properties, and income received from investment of its cash and securities assets.

Current wording

As of December 31, 2024, the Company owned approximately 75.8% of the common shares of Portsmouth Square, Inc. The Company’s principal sources of revenue are revenues from the hotel owned by Portsmouth, rental income from its investments in multi-family and commercial real estate properties, and income received from investment of its cash and securities assets.

Previous wording

The Company had net loss from Hotel operations of $725,000 for the three months ended September 30, 2024 compared to net loss $639,000 for the three months ended September 30, 2023. The increase is primarily attributable to the increased mortgage interest expense from the 4% default additional interest rate on the senior and mezzanine loans as provided in the Forbearance Agreement entered into with its senior and mezzanine lenders retroactive to January 1, 2024.

Current wording

The Company had net loss from Hotel operations of $2,838,000 for the three months ended December 31, 2024 compared to net loss of $1,645,000 for the three months ended December 31, 2023. The change is primarily attributable to increase in mortgage interest expense from 4% default additional interest rate.

Previous wording

For the three months ended September 30, 2024, the Hotel had operating income of $3,028,000 before interest expense, depreciation, and amortization on total operating revenues of $11,820,000 compared to operating income of $1,812,000 before interest expense, depreciation, and amortization on total operating revenues of $11,093,000 for the three months ended September 30, 2023.

Current wording

For the three months ended December 31, 2024, the Hotel had operating income of $910,000 before interest expense, depreciation, and amortization on total operating revenues of $9,965,000 compared to operating income of $820,000 before interest expense, depreciation, and amortization on total operating revenues of $10,225,000 for the three months ended December 31, 2023.

Previous wording

The Hotel’s revenues increase by 6.5% this quarter compared to the previous comparable quarter. Average daily rate decreased by $8, average occupancy increased by 8.0%, and RevPar increased by $11 for the three months ended September 30, 2024 compared to the three months ended September 30, 2023.

Current wording

The Hotel’s revenues were flat this quarter as compared to the previous comparable quarter. Average daily rate decreased by $17, average occupancy increased by 7%, and RevPAR was flat the three months ended December 31, 2024 compared to the three months ended December 31, 2023.

Previous wording

Revenue from real estate operations increased to $5,086,000 for the three months ended September 30, 2024 from $4,417,000 for the three months ended September 30, 2023 primarily due to decrease in vacancy at its Missouri property which is rebranding and is undergoing renovation. Real estate operating expenses increased to $2,457,000 from $2,356,000 year over year primarily due to increased insurance expense, and painting – contract labor 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 $4,476,000 for the three months ended December 31, 2024 from $4,096,000 for the three months ended December 31, 2023 primarily due to decrease in vacancy at its Missouri property which is rebranding and is undergoing renovation. Real estate operating expenses decreased to $2,208,000 from $2,806,000 year-over-year 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

For the three months ended September 30, 2024, room revenue increased by $549,000 and food and beverage revenue increased by $106,000 compared to the three months ended September 30, 2023. Total operating expenses decreased by $489,000 due to general and administrative expenses.

Current wording

For the six months ended December 31, 2024, room revenues increased by $547,000, food and beverage revenue decreased by $212,000, garage revenue increased by $122,000 compared to the six months ended December 31, 2023. Total operating expenses decreased by $839,000 due to general and administrative expenses. The year-over-year increase in room revenue due to completion of the renovation. Food and beverage is a result of less self-contained groups that utilize banquet spaces. Improved parking revenues are a result of price increases year-over-year.

Previous wording

The Company had a net gain on marketable securities of $129,000 for the three months ended September 30, 2024 compared to a net loss on marketable securities of $785,000 for the three months ended September 30, 2023. For the three months ended September 30, 2024, the Company had a net realized loss of $659,000 and a net unrealized gain of $788,000. For the three months ended September 30, 2023, the Company had a net realized loss of $106,000 and a net unrealized loss of $679,000.

Current wording

The Company had a net loss on marketable securities of $469,000 for the six months ended December 31, 2024 compared to a net gain on marketable securities of $975,000 for the six months ended December 31, 2023. For the six months ended December 31, 2024, the Company had a net realized loss of $255,000 and a net unrealized loss of $214,000. 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.

Previous wording

As of September 30, 2024, the Company’s investment portfolio is diversified with 27 different equity positions. The Company holds three equity securities that are more than 10% of the equity value of the portfolio each. The largest security position represents 34% 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 December 31, 2024, the Company’s investment portfolio is diversified with 40 different equity positions. The Company held one equity security that is more than 10% of the equity value of the portfolio. The largest security position represents 33% 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.

Previous wording

As of June 30, 2024, the Company’s investment portfolio is diversified with 24 different equity positions. The Company holds two equity securities that comprised more than 10% of the equity value of the portfolio. The two largest security positions represent 28% and 22% of the portfolio and consists of the common stock of American Realty Investors, Inc. (NASDAQ: ARL) and Alphabet Inc. (NASDAQ: GOOG), which are included in the REITs and real estate companies and Communication Services, respectively.

Current wording

As of June 30, 2024, the Company’s investment portfolio was diversified with 24 different equity positions. The Company held two equity securities that comprised more than 10% of the equity value of the portfolio. The two largest security positions represent 28% and 22% of the portfolio and consists of the common stock of American Realty Investors, Inc. (NASDAQ: ARL) and Alphabet Inc. (NASDAQ: GOOG), which are included in the REITs and real estate companies and Communication Services, respectively.

Previous wording

The following table shows the net loss on the Company’s marketable securities and the associated margin interest and trading expenses for the respective periods:

Current wording

The following table shows the net gain (loss) on the Company’s marketable securities and the associated margin interest and trading expenses for the respective periods:

Previous wording

The Company had cash and cash equivalents of $5,592,000 and $4,333,000 as of September 30, 2024 and June 30, 2024, respectively. The Company had restricted cash of $4,626,000 and $4,361,000 as of September 30, 2024 and June 30, 2024, respectively. The Company had marketable securities, net of margin due to securities brokers, of $6,648,000 and $7,266,000 as of September 30, 2024 and June 30, 2024, respectively. These marketable securities are short-term investments and liquid in nature.

Current wording

The Company had cash and cash equivalents of $10,420,000 and $4,333,000 as of December 31, 2024 and June 30, 2024, respectively. The Company had restricted cash of $3,966,000 and $4,361,000 as of December 31, 2024 and June 30, 2024, respectively. The Company had marketable securities, net of margin due to securities brokers, of $4,984,000 and $7,266,000 as of December 31, 2024 and June 30, 2024, 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. 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. 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. In July 2023, the note maturity date was extended to July 31, 2025 and the borrowing amount available was increased to $20,000,000. The Company agreed to a 0.5% loan extension and modification fee payable to InterGroup. In March 2024, Portsmouth and InterGroup entered into a loan modification agreement which increased Portsmouth’s borrowing amount to $30,000,000. Portsmouth agreed to a 0.5% loan modification fee for the increased borrowing of $10,000,000 payable to InterGroup. As of June 30, 2024 the balance of the loan was $26,493,000 net of loan amortization costs of zero. As of September 30, 2024 the balance of the loan was $26,493,000 and Portsmouth has not made any paid-downs to its note payable to InterGroup.

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, 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. 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. 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. In July 2023, the note maturity date was extended to July 31, 2025 and the borrowing amount available was increased to $20,000,000. The Company agreed to a 0.5% loan extension and modification fee payable to InterGroup. In March 2024, Portsmouth and InterGroup entered into a loan modification agreement which increased Portsmouth’s borrowing amount to $30,000,000. Portsmouth agreed to a 0.5% loan modification fee for the increased borrowing of $10,000,000 payable to InterGroup. As of June 30, 2024, the balance of the loan was $26,493,000 net of loan amortization costs of zero. As of December 31, 2024, the balance of the loan was $27,622,000 and the Company 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

Our known short-term liquidity requirements primarily consist of funds necessary to pay for operating and other expenditures, including management and franchise fees, corporate expenses, payroll and related costs, taxes, interest and principal payments on our outstanding indebtedness, and repairs and maintenance at all our properties.

Current wording

Our known short-term liquidity requirements primarily consist of funds necessary to pay for operating and other expenditures, including management and franchise fees, corporate expenses, payroll and related costs, taxes, interest and principal payments on our outstanding indebtedness, and repairs and maintenance of the Hotel.

Previous wording

Our long-term liquidity requirements primarily consist of funds necessary to pay for scheduled debt maturities and capital improvements of the Hotel and our real estate properties. We will continue to finance our business activities primarily with existing cash, including from the activities described above, and cash generated from our operations. The objectives of our cash management policy are to maintain existing leverage levels and the availability of liquidity, while minimizing operational costs. However, there can be no guarantee that management will be successful with its plan.

Current wording

Our long-term liquidity requirements primarily consist of funds necessary to pay for scheduled debt maturities and capital improvements of the Hotel and our real estate properties. We will continue to finance our business activities primarily with existing cash, including from the activities described above, and cash generated from our operations. The objectives of our cash management policy are to increase existing leverage levels and the availability of liquidity, while minimizing operational costs. However, there can be no guarantee that management will be successful with its plan.

Previous wording

The condensed consolidated financial statements do not include any adjustments to the carrying amounts of assets, liabilities, and reported expenses that may be necessary if the Hotel were unable to continue as a going concern.

Current wording

The condensed consolidated financial statements do not include any adjustments that might result from this uncertainty.

Previous wording

Hotel room rates are typically impacted by supply and demand factors, not inflation, since rental of a hotel room is usually for a limited number of nights. Room rates can be, and usually are, adjusted to account for inflationary cost increases. Since Aimbridge has the power and ability under the terms of its management agreement to adjust Hotel room rates on an ongoing basis, there should be minimal impact on partnership revenues due to inflation. For the two most recent fiscal years, the impact of inflation on the Company’s income is not viewed by management as material.

Current wording

Hotel room rates are typically impacted by supply and demand factors, not inflation, since rental of a hotel room is usually for a limited number of nights. Room rates can be, and usually are, adjusted to account for inflationary cost increases. Since Aimbridge has the power and ability under the terms of its management agreement to adjust hotel room rates on an ongoing basis, there should be minimal impact on Hotel’s revenues due to inflation. The Company’s revenues are also subject to interest rate risks, which may be influenced by inflation. For the two most recent fiscal years, the impact of inflation on the Company’s income is not viewed by management as material.

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 three months ended September 30, 2024.

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 six months ended December 31, 2024.

Previous wording

Judgment is required in addressing the future tax consequences of events that have been recognized in our consolidated financial statements or tax returns (e.g., realization of deferred tax assets, changes in tax laws, or interpretations thereof). In addition, we are subject to examination of our income tax returns by the IRS and other tax authorities. A change in the assessment of the outcomes of such matters could materially impact our consolidated financial statements. We evaluate tax positions taken or expected to be taken on a tax return to determine whether they are more likely than not of being sustained, assuming that the tax reporting positions will be examined by taxing authorities with full knowledge of all relevant information, prior to recording the related tax benefit in our consolidated financial statements. If a position does not meet the more likely than not standard, the benefit cannot be recognized. Assumptions, judgment, and the use of estimates are required in determining if the “more likely than not” standard has been met when developing the provision for income taxes. A change in the assessment of the “more likely than not” standard with respect to a position could materially impact our condensed consolidated financial statements.

Current wording

Judgment is required in addressing the future tax consequences of events that have been recognized in our consolidated financial statements or tax returns (e.g., realization of deferred tax assets, changes in tax laws, or interpretations thereof). In addition, we are subject to examination of our income tax returns by the IRS and other tax authorities. A change in the assessment of the outcomes of such matters could materially impact our consolidated financial statements. We evaluate tax positions taken or expected to be taken on a tax return to determine whether they are more likely than not of being sustained, assuming that the tax reporting positions will be examined by taxing authorities with full knowledge of all relevant information, prior to recording the related tax benefit in our consolidated financial statements. If a position does not meet the more likely than not standard, the benefit cannot be recognized. Assumptions, judgment, and the use of estimates are required in determining if the “more likely than not” standard has been met when developing the provision for income taxes. A change in the assessment of the “more likely than not” standard with respect to a position could materially impact our consolidated financial statements.

Previous wording

The Company and its subsidiary Portsmouth, compute and file income tax returns and prepare discrete income tax provisions for financial reporting. The income tax expense during the three months ended September 30, 2024 and income tax benefit ended September 30, 2023 represents primarily the combined income tax effect of Portsmouth’s pretax loss which includes the net loss from the Hotel and the pre-tax income from InterGroup (standalone). InterGroup and Portsmouth file their respective income tax returns on a calendar year basis.

Current wording

The Company and its subsidiary Portsmouth, compute and file income tax returns and prepare discrete income tax provisions for financial reporting. The income tax expense during the three months ended December 31, 2024 and 2023 represents primarily the combined income tax effect of Portsmouth’s pretax loss which includes the net loss from the Hotel and the pre-tax loss from InterGroup (standalone). InterGroup and Portsmouth file their respective income tax returns on a calendar year basis.

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 three months ended September 30, 2024 and 2023, 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 six months ended December 31, 2024 and 2023, respectively.