INTERGROUP CORP

SAN FRANCISCO HOTEL PROPERTY

The Hotel is owned by Portsmouth through its wholly owned subsidiary, Operating. The Hotel is centrally located in the Financial District in San Francisco, one block from the Transamerica Pyramid. The Embarcadero Center is within walking distance and North Beach is two blocks away. Chinatown is directly across the bridge that runs from the Hotel to Portsmouth Square Park. The Hotel is a 31-story (including parking garage), steel and concrete, A-frame building, built in 1970. The Hotel has 544 well-appointed guest rooms and suites situated on 22 floors. The Hotel has a restaurant, a lounge, and a private dining room totaling approximately 3,700 square feet; additionally, there are two kitchens that service both restaurant and banquet operations, and a fully equipped gym. The third floor houses the Chinese Culture Center (the “CCC”), its administrative office, and a grand ballroom. The Hotel has approximately 22,000 square feet of meeting room space, including the grand ballroom. Other features of the Hotel include a 5-level underground parking garage and a pedestrian bridge across Kearny Street connecting the Hotel and the CCC with Portsmouth Square Park in Chinatown.

As required by its senior lender, Operating will continue to make minimum payments into its furniture, fixtures, and equipment (“FF&E”) escrow account held by its senior lender in an amount equal to the greater of four percent (4%) of annual revenues or a minimum of $1,952,000 per annum, as adjusted under the loan agreement. In the opinion of management, the Hotel is adequately covered by insurance, subject to customary deductibles, exclusions, and coverage limits.

We believe the Hotel is suitable and adequate for its current use and is substantially utilized.

HOTEL FINANCING

A. Mortgage and Mezzanine Loan History

In December 2013, Justice Investors Limited Partnership (“Justice”), then a consolidated subsidiary of Portsmouth Square, Inc. (“Portsmouth”), obtained a $97,000,000 mortgage loan and a $20,000,000 mezzanine loan to fund the redemption of limited partnership interests and repay a prior $42,940,000 mortgage loan. The mortgage loan was secured by the Company’s principal asset, the Hilton San Francisco Financial District (the “Hotel”), and bore interest at a fixed rate of 5.275% per annum. The loan required interest-only payments through January 2017 and began amortizing thereafter on a 30-year schedule, maturing on January 1, 2024. The mortgage loan was guaranteed in part by Portsmouth.

The mezzanine loan, originally bearing interest at 9.75% per annum and maturing concurrently with the senior loan, was secured by the membership interests of Justice Operating Company, LLC (“Operating”), held by Justice Mezzanine Company, LLC (“Mezzanine”), and was subordinated to the mortgage debt. The mezzanine loan was refinanced in July 2019 through a new agreement with CRED REIT Holdco LLC (“Mezzanine Lender”) in the amount of $20,000,000, at a reduced fixed interest rate of 7.25%, also maturing on January 1, 2024.

As of June 30, 2024, the outstanding mortgage loan balance was $76,962,000. As of December 31, 2024, the outstanding balance was $75,789,000.

B. Forbearance Agreements and Defaults

Due to the maturity of both loans on January 1, 2024, and the absence of full repayment by that date, the Company negotiated forbearance agreements with both lenders on April 29, 2024.

Mortgage Loan Forbearance Agreement (U.S. Bank and others, the “Mortgage Lender”):

Mezzanine Loan Forbearance Agreement (CRED REIT Holdco LLC):

Both agreements contained customary covenants, events of default, and representations and warranties. On January 3, 2025, Justice Operating Company, LLC (“Operating”) received a Notice of Termination from the Mortgage Lender, citing a termination event for failure to repay the debt by the forbearance expiration. On January 14, 2025, the Mezzanine Lender issued a Notice of Default to Justice Mezzanine Company, LLC (“Mezzanine”), asserting its rights to pursue all remedies under the agreement. These defaults were the primary contributors to Portsmouth’s substantial doubt assessment under ASC 205-40, as disclosed in Note 2 – Liquidity.

C. Debt Refinancing Completed on March 28, 2025

On January 21, 2025, Operating executed a non-binding term sheet with Prime Finance (“Prime”) for a new senior loan. On March 28, 2025, Operating closed on a senior mortgage loan and Mezzanine closed on a modified mezzanine loan (collectively, the “Loan Agreements”), fully retiring the prior debt with U.S. Bank and CRED REIT Holdco LLC. The refinancing resulted in an increase in overall leverage of approximately $1.0 million.

Portsmouth continues to provide a limited guaranty in connection with both facilities. The Company is also subject to customary covenants, including financial ratios and affirmative obligations.

D. Related Party Guarantee – InterGroup

Under the March 28, 2025 refinancing, all guaranties associated with the prior 2013 senior mortgage and 2019 mezzanine facilities were terminated. The current senior mortgage and amended mezzanine facilities include customary limited non=recourse carve-out and performance undertakings provided at the Portsmouth/Operating-entity level. InterGroup is not a guarantor of the March 28, 2025 senior mortgage loan or the amended mezzanine loan.

E. DSCR and Lockbox Arrangements

Operating did not maintain compliance with the required Debt Service Coverage Ratio (“DSCR”) under the original December 2013 loan and is subject to ongoing DSCR requirements under the refinanced loans. Under the March 28, 2025 refinancing, a Cash Management Agreement with Prime Finance (“Lender”) and Wells Fargo Bank, N.A. (“Cash Management Bank”) requires that all Hotel cash receipts be deposited into a lender-controlled account. This lockbox arrangement remains in effect until DSCR conditions are met for two consecutive quarters. Funds are disbursed for approved operating expenses, debt service (including senior interest-only), and required reserves (insurance, real estate taxes, and furniture, fixtures and equipment) in accordance with lender-approved budgets. Excess cash, if any, is held in lender-controlled accounts for future interest-only payments to the Mezzanine lender, subject to certain conditions under the loan agreements with both lenders (a “cash sweep” mechanism).

These Hotel loan obligations reside at Portsmouth’s subsidiaries (Justice Operating Company, LLC and Justice Mezzanine Company, LLC) and are non-recourse to InterGroup except to the limited extent of the guaranties described in Note 10.

Related Party Financing

On July 2, 2014, the Partnership secured an unsecured loan from InterGroup in the principal amount of $4,250,000, bearing a fixed annual interest rate of 12%, with interest-only payments due monthly. InterGroup also received a loan fee equal to 3% of the principal. The loan was prepayable at any time without penalty and was subsequently extended through July 31, 2023.

On December 16, 2020, the Partnership and InterGroup executed a loan modification agreement that increased the borrowing capacity, as needed, to a maximum of $10,000,000. Subsequently, on December 31, 2021, Portsmouth and InterGroup entered into a separate loan modification agreement, raising Portsmouth’s borrowing limit to $16,000,000. Following the dissolution of the Partnership in December 2021, Portsmouth assumed the outstanding loan obligation to InterGroup in the amount of $11,350,000.

In July 2023, the loan’s maturity date was extended to July 31, 2025, and the available borrowing capacity was increased to $20,000,000. In connection with this increase, the Company agreed to pay InterGroup a 0.5% loan modification fee applicable to the additional $10,000,000.

In March 2024, a further modification agreement between Portsmouth and InterGroup raised the available borrowing limit to $30,000,000, subject to a 0.5% modification fee applicable to the $10,000,000 increase.

In March 2025, another amendment was executed, increasing Portsmouth’s borrowing capacity to $40,000,000 and extending the maturity date to July 31, 2027. In May 2025, the parties agreed to reduce the loan’s interest rate from 12% to 9%.

During fiscal 2025 and 2024, InterGroup advanced $11,615,000 and $10,793,000, respectively, to Portsmouth under the related party credit facility. Proceed were primarily to (i) satisfy the senior lender’s required 10% principal paydown in April 2024 in connection with the one-year forbearance and (ii) reduce the senior loan balance to approximately $67.0 million (from approximately $76.0 million) upon the March 28, 2025 refinancing. In addition, the refinancing required the establishment of (a) a $5.0 million cash reserve to cover potential operating shortfall during the first two years of the new loan and (b) a $1.35 million capital improvement reserve to complete the renovation and return to inventory of 14 guest rooms previously converted to administrative offices. A portion of the advances funded these required reserves and, to a lesser extent, pre-refinancing operating shortfalls. As of June 30, 2025 and 2024, amounts owed to InterGroup were $38,108,000, and $26,493,000, respectively; no principal payments have been made to date. Following the March 2025 refinancing, ongoing Hotel operations have been funded from operating cash flows, and the InterGroup facility is maintained as a contingent source of liquidity.

If necessary, the Company may amend its by-laws to increase the number of authorized shares, allowing it to issue additional equity to raise capital in the public markets. Such actions would be subject to Board approval and, if required, shareholder approval under applicable corporate law and listing rules.

RENTAL PROPERTIES

As of June 30, 2025, the Company’s investment in real estate consisted of twenty properties located throughout the United States, with a concentration in Texas and Los Angeles County, California. These properties include sixteen apartment complexes, three single-family houses held as strategic investments, and one commercial real estate property. All properties are operating properties. In addition to the properties, the Company owns approximately 2 acres of unimproved land in Maui, Hawaii. As of June 30, 2025, all the Company’s operating real estate properties are managed in-house.

Description of Properties

**Las Colinas, Texas.**The Las Colinas property is a waterfront apartment community along Beaver Creek that was developed in 1993 with 358 units on approximately 15.6 acres of land. The Company acquired the complex on April 30, 2004 for approximately $27,145,000. Depreciation is recorded on the straight-line method, based upon an estimated useful life of 27.5 years. Real estate property taxes for the year ended June 30, 2025 were approximately $1,190,000. In October 2021, the Company refinanced its 3.73% existing $15,900,000 mortgage note payable on the property and generated net proceeds of $12,938,000. The outstanding mortgage balance was $28,800,000 as of June 30, 2025. The annual interest rate on the mortgage is fixed at 2.95% for ten years with interest-only payments for the first five years and 30-year amortization thereafter. The mortgage loan matures in November 2031. In December 2023, the Company obtained a second mortgage on its 358-unit apartment located in Las Colinas, Texas in the amount of $4,573,000. The term of the loan is approximately 7 years with interest rate at 7.60%. The loan matures in November 2031.

Morris County, New Jersey. The Morris County property is a two-story garden apartment complex that was completed in June 1964 with 151 units on approximately 8 acres of land. The Company acquired the complex on September 15, 1967 at an initial cost of approximately $1,600,000. Real estate property taxes for the year ended June 30, 2025 were approximately $295,000. Depreciation is recorded on the straight-line method, based upon an estimated useful life of 40 years. In April 2020, the Company refinanced its 3.51% and 4.51% existing $8,737,000 and $2,512,000 mortgages and generated net proceeds of $6,814,000. The outstanding mortgage balance was approximately $16,392,000 at June 30, 2025 with a fixed interest rate of 3.17% per annum and the maturity date of the new mortgage is May 1, 2030.

St. Louis, Missouri. The St. Louis property is a two-story project with 264 units on approximately 17.5 acres. The Company acquired the complex on November 1, 1968 at an initial cost of $2,328,000. For the year ended June 30, 2024, real estate property taxes were approximately $147,000. Depreciation is recorded on the straight-line method, based upon an estimated useful life of 40 years. On May 31, 2023, the Company refinanced its $4,823,000 mortgage with a new two-year $5,360,000 mortgage. Interest-only payments were due monthly for the first 12 months, and commencing June 10, 2024 the Company is required to make equal monthly principal installments of $5,500. In May 2025, the Company amended the agreement to extend the maturity to June 5, 2028 and made a $344,000 principal reduction. The outstanding mortgage balance was approximately $4,950,000 as of June 30, 2025. The floating rate is based on 30-day Term SOFR plus 3.10%, with a SOFR cap of 5.5%.

Florence, Kentucky. The Florence property is a three-story apartment complex with 157 units on approximately 6.0 acres. The Company acquired the property on December 20, 1972 at an initial cost of approximately $1,995,000. For the year ended June 30, 2025, real estate property taxes were approximately $62,000. Depreciation is recorded on the straight-line method, based upon an estimated useful life of 40 years. The outstanding mortgage balance was approximately $9,800,000 as of June 30, 2025. In December 2024 the Company refinanced with new 10-year, interest-only loan at 5.40%, the maturity date is January 2035.

Los Angeles, California. The Company owns one commercial property, twelve apartment complexes, and three single-family houses in the general area of Los Angeles County, California (“Los Angeles County”).

The Company’s Los Angeles commercial property is a 5,503 square foot, two story building that served as the Company’s corporate offices until it was leased out, effective October 1, 2009 and the Company leased a new space for its corporate office. The Company acquired the building on March 4, 1999 for $1,876,000. Property taxes for the year ended June 30, 2025 were approximately $35,000. Depreciation is recorded on the straight-line method, based upon an estimated useful life of 40 years. As of June 30, 2025, this property was not encumbered by a mortgage.

The first Los Angeles apartment complex is a 10,600 square foot two-story apartment with 12 units. The Company acquired the property on July 30, 1999 at an initial cost of approximately $1,305,000. For the year ended June 30, 2025, real estate property taxes were approximately $25,000. Depreciation is recorded on the straight-line method, based upon an estimated useful life of 40 years. The outstanding mortgage balance was approximately $1,863,000 as of June 30, 2025 with a fixed interest rate of 3.59% per annum and the maturity date of the mortgage is June 23, 2026. In February 2025 the Company entered into a listing agreement to sell this property and began active marketing in April 2025. The property met the criteria to be classified as held for sale as of June 30, 2025.

The second Los Angeles apartment complex is a 12,700 square foot apartment with 14 units. The Company acquired the property on October 20, 1999 at an initial cost of approximately $2,150,000. For the year ended June 30, 2025, real estate property taxes were approximately $41,000. Depreciation is recorded on the straight-line method, based upon an estimated useful life of 40 years. The outstanding mortgage balance was approximately $2,522,000 at June 30, 2025 with a fixed interest rate of 3.05% per annum and the maturity date of the mortgage is February 1, 2031.

The third Los Angeles apartment complex is a 10,500 square foot apartment with 9 units. The Company acquired the property on November 10, 1999 at an initial cost of approximately $1,675,000. For the year ended June 30, 2025, real estate property taxes were approximately $32,000. Depreciation is recorded on the straight-line method, based upon an estimated useful life of 40 years. The outstanding mortgage balance was approximately $1,803,000 as of June 30, 2025 with a fixed interest rate of 3.05% per annum and the maturity date is December 1, 2030.

The fourth Los Angeles apartment complex is a 26,100 square foot two-story apartment with 31 units. The Company acquired the property on May 26, 2000 at an initial cost of approximately $7,500,000. For the year ended June 30, 2025, real estate property taxes were approximately $131,000. Depreciation is recorded on the straight-line method, based upon an estimated useful life of 40 years. The outstanding mortgage balance was approximately $7,907,000 at June 30, 2025 with a fixed interest rate of 2.52% per annum and the maturity date is November 1, 2030.

The fifth Los Angeles apartment complex is a 27,600 square foot two-story apartment with 30 units. The Company acquired the property on July 7, 2000 at an initial cost of approximately $4,411,000. For the year ended June 30, 2025, real estate property taxes were approximately $83,000. Depreciation is recorded on the straight-line method, based upon an estimated useful life of 40 years. The outstanding mortgage balance was approximately $5,558,000 at June 30, 2025 with a fixed annual interest rate 4.40% for the first five years and 5.44% thereafter. The mortgage loan matures in July 2052.

The sixth Los Angeles apartment complex is a 3,000 square foot apartment with 4 units. The Company acquired the property on July 19, 2000 at an initial cost of approximately $1,070,000. For the year ended June 30, 2025, real estate property taxes were approximately $20,000. Depreciation is recorded on the straight-line method, based upon an estimated useful life of 40 years. The outstanding mortgage balance was approximately $1,064,000 as of June 30, 2025 with a fixed interest rate of 3.50% per annum and the maturity date is July 1, 2051.

The seventh Los Angeles apartment complex is a 4,500 square foot two-story apartment with 4 units. The Company acquired the property on July 28, 2000 at an initial cost of approximately $1,005,000. For the year ended June 30, 2025, real estate property taxes were approximately $18,000. Depreciation is recorded on the straight-line method, based upon an estimated useful life of 40 years. The outstanding mortgage balance was approximately $1,064,000 at June 30, 2025 with a five-year fixed interest rate of 3.5% per annum and adjustable rate thereafter at 2.5% over the 6-month LIBOR Index with semi-annual rate and payment adjustments. Semi-annual rate cap is 1.25% after the initial interest rate change with a floor equal to the start rate and ceiling of 9.95%. The maturity date is August 1, 2051.

The eighth Los Angeles apartment complex is a 7,500 square foot apartment with 7 units. The Company acquired the property on August 9, 2000 at an initial cost of approximately $1,308,000. For the year ended June 30, 2025, real estate property taxes were approximately $25,000. Depreciation is recorded on the straight-line method, based upon an estimated useful life of 40 years. The outstanding mortgage balance was approximately $715,000 as of June 30, 2025 with an interest rate of 4.125% and the maturity date is September 1, 2042.

The ninth Los Angeles apartment complex is a 13,000 square foot two-story apartment with 8 units. The Company acquired the property on May 1, 2001 at an initial cost of approximately $1,206,000. For the year ended June 30, 2025, real estate property taxes were approximately $23,000. Depreciation is recorded on the straight-line method, based upon an estimated useful life of 40 years. The outstanding mortgage balance was approximately $1,469,000 as of June 30, 2025 with an interest rate of 3.50% and the maturity date is July 2051.

The tenth Los Angeles apartment complex is a 4,200 square foot two-story apartment with 2 units. The Company acquired the property on November 23, 2020 at an initial cost of approximately $1,530,000. For the year ended June 30, 2025, real estate property taxes were approximately $14,000. Depreciation is recorded on the straight-line method based upon an estimated useful life of 40 years. The outstanding mortgage balance was approximately $645,000 as of June 30, 2025, with an interest rate of 3.50% and the maturity date is July 2051.

The eleventh apartment in Marina del Rey, California, is a 6,316 square foot two-story apartment with 9 units. The Company acquired the property on April 29, 2011 at an initial cost of approximately $4,000,000. For the year ended June 30, 2025, real estate property taxes were approximately $62,000. Depreciation is recorded on the straight-line method, based upon an estimated useful life of 27.5 years. The outstanding mortgage balance was approximately $2,326,000 as of June 30, 2025 with a fixed interest rate of 3.09% per annum and the maturity date is July 1, 2030.

The twelfth Los Angeles apartment complex is a 4,093 square foot apartment with 4 units. In an all-cash transaction, the Company acquired the property on May 14, 2021 at an initial cost of approximately $2,600,000. Depreciation is recorded on the straight-line method, based upon an estimated useful life of 40 years. For the year ended June 30, 2025, real estate property taxes were approximately $34,000. The outstanding mortgage balance was approximately $766,000 as of June 30, 2025 with a fixed interest rate of 3.50% per annum and the maturity date is August 2051.

The first Los Angeles single-family house is a 2,771 square foot home. The Company acquired the property on November 9, 2000 at an initial cost of approximately $660,000. For the year ended June 30, 2025, real estate property taxes were approximately $12,000. Depreciation is recorded on the straight-line method, based upon an estimated useful life of 40 years. The outstanding mortgage balance was approximately $847,000 as of June 30, 2025 with a five-year fixed interest rate of 3.5% per annum and an adjustable rate thereafter at 2.5% over the 6-month LIBOR Index with semi-annual rate and payment adjustments. Semi-annual rate cap is 1.25% after the initial interest rate change with a floor equal to the start rate and ceiling of 9.95%. The maturity date is August 1, 2051.

The second Los Angeles single-family house is a 2,201 square foot home. The Company acquired the property on August 22, 2003 at an initial cost of approximately $700,000. For the year ended June 30, 2025, real estate property taxes were approximately $14,000. Depreciation is recorded on the straight-line method, based upon an estimated useful life of 40 years. The outstanding mortgage balance was approximately $511,000 as of June 30, 2025, with a five-year fixed interest rate of 3.5% per annum and an adjustable rate thereafter at 2.5% over the 6-month LIBOR Index with semi-annual rate and payment adjustments. Semi-annual rate cap is 1.25% after the initial interest rate change with a floor equal to the start rate and ceiling of 9.95%. The maturity date is August 1, 2051.

The third Los Angeles single-family house is a 2,387 square foot home. The Company acquired the property in July of 2015 as a strategic asset for $1,975,000. For the year ended June 30, 2025, real estate property taxes were approximately $28,000. Depreciation is recorded on the straight-line method, based upon an estimated useful life of 40 years. The outstanding mortgage balance was approximately $886,000 as of June 30, 2025, with a five-year fixed interest rate of 3.5% per annum adjustable thereafter at 2.5% over the 6-month LIBOR Index with semi-annual rate and payment adjustments. Semi-annual rate cap is 1.25% after the initial interest rate change with a floor equal to the start rate and ceiling of 9.95%. The maturity date is October 1, 2048.

Maui, Hawaii. In August 2004, the Company purchased an approximately two-acre parcel of unimproved land in Kihei, Maui, Hawaii for $1,467,000. As of June 30, 2025, this property is not encumbered by a mortgage.

MORTGAGES

Further information with respect to mortgage notes payable of the Company is set forth in Note 10 of the Notes to Consolidated Financial Statements.

ECONOMIC AND PHYSICAL OCCUPANCY RATES

The Company leases units in its residential rental properties on a short-term basis, with no lease extending beyond one year. The economic occupancy (gross potential less rent below market, vacancy loss, bad debt, discounts and concessions divided by gross potential rent) and the physical occupancy (gross potential rent less vacancy loss divided by gross potential rent) for each of the Company’s operating properties for fiscal year ended June 30, 2025 are provided below.

The Company’s Los Angeles, California properties are subject to various rent control laws, ordinances and regulations which impact the Company’s ability to adjust and achieve higher rental rates. Within the City of Los Angeles, the COVID-19 eviction moratorium ended on January 31, 2023, and the RSO rent-increase freeze ended on January 31, 2024; the current allowable annual RSO rent increase is 3% for July 1, 2025-June 30, 2026 (plus 1% if the landlord provides gas and/or electric. The County’s non-payment COVID-19 tenant eviction protection resolution expired on March 31, 2023. In unincorporated Los Angeles County, annual rent increases for fully covered units are limited to 60% of CPI, capped at 3%, effective January 1, 2025. For City of Los Angeles COVID-19 rental debt, repayment deadlines have passed (August 1, 2023 for rent owed March 1, 2020-September 30,2021; February 1, 2024 for rent owned October 1, 2021-January 31, 2023), after which landlords may pursue such amounts in court. Additionally, the City has permanent protections including a Just Cause Ordinance and “economic displacement” relocation assistance when a rent increase exceeds the lesser of 10% or CPI+5% and the tenant chooses to move. Statewide, AB 1482 caps rent increases for most covered units at 5% + CPI (max 10%), and AB 12 limits most residential security deposits to one month’s rent effective July 1, 2024.