INTERGROUP CORP

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

NOTE 1. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES

The accompanying unaudited condensed consolidated financial statements of The InterGroup Corporation (“InterGroup” or the “Company” or “we” or “our”), have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission (“SEC”) applicable to interim financial reporting. As permitted under those rules and regulations, certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) have been condensed or omitted. In the opinion of management, all normal recurring adjustments considered necessary for a fair presentation have been included. The results of operations for the interim periods presented are not necessarily indicative of results expected for the full fiscal year. The unaudited condensed consolidated financial statements include the accounts of our wholly owned and majority-owned subsidiaries. All material intercompany accounts and transactions have been eliminated in consolidation.

These unaudited condensed consolidated financial statements should be read in conjunction with the audited financial statements of InterGroup and the notes therein included in the Company’s Annual Report on Form 10-K for the year ended June 30, 2024. The June 30, 2024 condensed consolidated balance sheet was derived from the consolidated balance sheet as included in the Company’s Form 10-K for the year ended June 30, 2024.

Effective February 19, 2021, the Company’s 83.7% owned subsidiary, Santa Fe Financial Corporation (“Santa Fe”), a public company (OTCBB: SFEF), was liquidated and all of its assets including its 68.8% interest in Portsmouth Square, Inc. (“Portsmouth”), a public company (OTCBB: PRSI) were distributed to its shareholders in exchange for their Santa Fe common stock. As of March 31, 2025, InterGroup owns approximately 75.9% of the outstanding common shares of Portsmouth and the Company’s President, Chairman of the Board and Chief Executive Officer, John V. Winfield, owns approximately 2.5% of the outstanding common shares of Portsmouth. Mr. Winfield also serves as the Chairman of the Board and Chief Executive Officer of Portsmouth.

Portsmouth’s primary business was conducted through its general and limited partnership interest in Justice Investors Limited Partnership, a California limited partnership (“Justice” or the “Partnership”). Effective July 15, 2021, Portsmouth acquired the remaining 0.7% non-controlling interest in Justice, resulting in 100% ownership of the Partnership. On December 23, 2021, Justice was dissolved, and its financial results have been fully consolidated into those of the Company.

Prior to its dissolution, Justice owned and operated the Hilton San Francisco Financial District hotel (the “Hotel”), a 544-room hotel property located at 750 Kearny Street, San Francisco California, along with a five-level underground parking garage. These operations were conducted through subsidiaries Justice Operating Company, LLC (“Operating”) and Justice Mezzanine Company, LLC (“Mezzanine”). Mezzanine was a wholly owned subsidiary of Justice; and Operating was and remains a wholly owned subsidiary of Mezzanine. Upon the dissolution of Justice, Portsmouth became the sole member of Mezzanine. Mezzanine remains the borrower under certain mezzanine loan obligations. In December 2013, Justice conveyed ownership of the Hotel to Operating. The Hotel operates under the Hilton brand pursuant to a Franchise License Agreement with HLT Franchise Holding LLC (“Hilton”) through January 31, 2030.

In connection with the refinancing of the Hotel on March 28, 2025, the Company formed Justice Pledgor, LLC, a Delaware limited liability company (“Pledgor”), which became the sole member of Operating. Mezzanine is the sole member of Pledgor.

The Hotel is managed by Aimbridge Hospitality (“Aimbridge”) under a hotel management agreement (“HMA”) effective February 3, 2017. The HMA has an initial term of ten years, automatically renewable for up to five additional one-year terms, subject to certain conditions. Under the agreement, Aimbridge receives a base management fee equal to 1.70% of total Hotel revenue. Aimbridge is also entitled to an annual incentive fee equal to 10% of the amount by which current-year Gross Operating Profit exceeds the prior year’s Gross Operating Profit.

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However, following discussions with Aimbridge regarding the impact of the COVID-19 pandemic on incentive fee eligibility, the parties agreed that no incentive fees were payable for fiscal years 2019 through 2023. Specifically, Aimbridge agreed to waive $1,030,134 in previously recorded incentive fees, and both parties established a performance threshold of $15,257,301 in earnings before interest, taxes, depreciation, and amortization (“EBITDA”) for future incentive fee eligibility. As a result, the company recorded a reduction in Hotel operating expenses of $1,030,134 for the nine months period ended March 31, 2025.

In addition to the operations of the Hotel, the Company also generates income from the ownership of real estate. Properties include apartment complexes, commercial real estate, and three single-family houses as strategic investments. The properties are located throughout the United States but are concentrated in Texas and Southern California. The Company also has investments in unimproved real property. All the Company’s residential rental properties and its commercial rental property are managed in-house.

There have been no material changes to the Company’s significant accounting policies during the nine months ended March 31, 2025. Please refer to the Company’s Annual Report on Form 10-K for the year ended June 30, 2024 for a summary of the significant accounting policies.

Recently Issued and Adopted Accounting Pronouncements

Our Annual Report on Form 10-K for the year ended June 30, 2024, filed with the SEC on September 30, 2024, contains a discussion on the recently issued accounting pronouncements. As of March 31, 2025, there was no material impact from the recent adoption of new accounting pronouncements, nor expected material impact from recently issued accounting pronouncements yet to be adopted, on the Company’s condensed consolidated financial statements.

Going Concern

The accompanying condensed consolidated financial statements of Portsmouth have been prepared in accordance with US GAAP and on a going concern basis, which assumes the Company will continue to operate in the normal course of business. In accordance with Accounting Standards Codification (“ASC”) Topic 205-40, Presentation of Financial Statements – Going Concern, management evaluates whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the Portsmouth’s ability to continue as a going concern within one year after the date that the financial statements are issued.

As of March 31, 2025, Portsmouth had aggregate outstanding obligations of $100.3 million under a senior mortgage loan and mezzanine loan that matured on January 1, 2024. Following the maturity, Portsmouth entered into forbearance agreements with both lenders on April 29, 2024, which extended the maturity date to January 1, 2025, providing time to pursue a long-term refinancing solution. Upon the expiration of the forbearance period in January 2025, both lenders issued default notices.

On March 28, 2025, Portsmouth successfully refinanced its senior mortgage loan through a new $67.0 million agreement with PRIME Finance. The new loan bears interest at a floating rate equal to the 30-day Secured Overnight Financing Rate (“SOFR”) plus 4.75%, subject to an interest rate cap limiting SOFR to a maximum of 4.50% and provides for an initial two-year term with three successive one-year extension options, subject to satisfaction of certain conditions. Concurrently, Portsmouth entered into a modification of the mezzanine loan agreement, which provides for a $36.3 million principal balance at a fixed rate of 7.25% per annum, with maturity and extension terms aligned with the senior loan.

The successful completion of these refinancing transactions represents a significant step in enhancing Portsmouth’s financial flexibility and addressing its near-term liquidity requirements. Since the refinancing, Portsmouth has remained current on all required debt service payments. Additionally, Portsmouth has invested in extensive property improvements, including guest room, public area, and common space renovations, which are expected to enhance the asset’s competitiveness and support revenue growth.

Nevertheless, Portsmouth continues to operate in a challenging environment, particularly in the San Francisco market, which is characterized by elevated interest rates, reduced business travel demand, and increased labor costs. While management is actively managing these headwinds, including through cost control initiatives and revenue optimization strategies, these factors continue to impact operating performance.

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Management believes the refinancing completed in March 2025, along with ongoing operational initiatives and forecasted performance improvements, provide a viable path to meet Portsmouth’s obligations over the next twelve months. However, Portsmouth’s ability to continue as a going concern will depend on its ability to achieve forecasted cash flows, maintain compliance with financial covenants, and secure additional financing or extensions if necessary at or before the extended loan maturities. These conditions, while mitigated by Portsmouth’s recent actions and current plans, continue to raise substantial doubt about the Portsmouth’s ability to continue as a going concern within one year after the issuance of these financial statements.

Accordingly, the accompanying condensed consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

NOTE 2 -LIQUIDITY

Historically, the Company has relied primarily on cash flows generated from operations at its hotel property, the Hilton San Francisco Financial District (the “Hotel”), as its primary source of liquidity. However, the pace of recovery in the San Francisco hospitality market remains slower than anticipated due to several factors, including a sustained decline in business travel driven by remote work trends, as well as broader municipal challenges such as safety concerns, homelessness, and increased crime. These conditions have limited demand in key customer segments and shifted the Hotel’s revenue base toward lower-yielding leisure travel.

As a result, the Company experienced net cash provided for operating activities of $1,725,000 for the nine months ended March 31, 2025. In response to ongoing market pressures, Portsmouth has adopted several capital preservation initiatives, including deferral of non-essential capital projects, temporary suspension of certain Hotel services, renegotiation of vendor agreements, and reduction of controllable operating expenses. During the nine months ended March 31, 2025, Portsmouth continued to invest in property enhancements, incurring capital expenditure of $912,000. During the same period, the Company made capital improvements in the amount of $1,329,000 to its multi-family and commercial real estate.

As of March 31, 2025, the Company had:

Related Party Financing

To supplement its liquidity position, the Company maintains access to an unsecured loan facility with its subsidiary company, Portsmouth Square, Inc (“Portsmouth”), a related party. The initial facility, dated July 2, 2014, has undergone several amendments. In March 2025, the facility was amended to:

During the nine months ended March 31, 2025, Portsmouth borrowed an additional $11,615,000 under this facility to support Hotel operations. As of March 31, 2025, the outstanding loan balance was $38,108,000, with no principal repayments made to date. All material intercompany accounts and transactions have been eliminated in consolidation.

Real Estate

In December 2024, the Company refinanced mortgage on its 157-unit apartment located in Florence, Kentucky in the amount of $9,800,000. The new 10-year interest only loan has an interest rate of 5.40%. The loan matures in January 2035.

Liquidity Outlook and Going Concern Considerations

The Company’s short-term liquidity requirements include payments for Hotel operating costs, payroll, management and franchise fees, taxes, corporate overhead, interest on outstanding debt, and regular maintenance. Long-term liquidity requirements primarily include scheduled debt maturities and continued capital investments to maintain the Hotel’s competitive positioning.

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As described in Note 1, the Company has made substantial progress in refinancing its mortgage and mezzanine debt obligations, which previously raised doubt regarding its near-term financial viability. On March 28, 2025, the Company completed the refinancing of its senior mortgage and modified its mezzanine debt structure, both of which provide near-term relief and reduce imminent refinancing risk.

Nonetheless, the Company’s liquidity position continues to be impacted by broader macroeconomic and market-specific factors, including high interest rates, ongoing weakness in San Francisco’s business travel segment, and elevated operating costs. These uncertainties, combined with the need to maintain compliance with newly established debt covenants, raise substantial doubt about the Company’s ability to continue as a going concern within one year of the issuance of these financial statements.

Management continues to evaluate financing strategies, capital allocation decisions, and operating efficiencies to preserve liquidity. There can be no assurance, however, that these initiatives will be sufficient to meet all of the Company’s liquidity requirements, particularly in the event of continued market underperformance.

The following table provides a summary as of March 31, 2025, the Company’s material financial obligations

which also includes interest payments.

NOTE 3 –REVENUE

Our revenue from real estate is primarily rental income from residential and commercial property leases which is recorded when due from residents and is recognized monthly as earned. The revenue recognition rules under ASC 606 specifically eliminates rental revenue from the accounting standard.

The following table present our Hotel revenue disaggregated by revenue streams:

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Performance Obligations

We identified the following performance obligations for which revenue is recognized as the respective performance obligations are satisfied, which results in recognizing the amount we expect to be entitled to for providing the goods or services:

Hotel revenue primarily consists of Hotel room rentals, revenue from accommodations sold in conjunction with other services (e.g., package reservations), food and beverage sales and other ancillary goods and services (e.g., parking). Revenue is recognized when rooms are occupied or goods and services have been delivered or rendered, respectively. Payment terms typically align with when the goods and services are provided. For package reservations, the transaction price is allocated to the performance obligations within the package based on the estimated standalone selling prices of each component.

We do not disclose the value of unsatisfied performance obligations for contracts with an expected length of one year or less. Due to the nature of our business, our revenue is not significantly impacted by refunds. Cash payments received in advance of guests staying at our Hotel are refunded to Hotel guests if the guest cancels within the specified time period, before any services are rendered. Refunds related to service are generally recognized as an adjustment to the transaction price at the time the Hotel stay occurs or services are rendered.

Revenue recognition from apartment rental commences when an apartment unit is placed in service and occupied by a rent-paying tenant. Apartment units are leased on a short-term basis, with no lease extending beyond one year.

Contract Assets and Liabilities

The Company does not have any material contract assets as of March 31, 2025 and June 30, 2024, other than trade and other receivables, net on our condensed consolidated balance sheets. Our receivables are primarily the result of contracts with customers, that were entered into within the past 12 months, which are reduced by a reserve for estimated credit losses that reflects our estimate of amounts that will not be collected.

The Company records contract liabilities when cash payments are received or due in advance of guests staying at our Hotel, which are presented within accounts payable and other liabilities – Hotel on our condensed consolidated balance sheets and had a balance of $370,000 at July 1, 2024. Contract liabilities decreased to $290,000 as of March 31, 2025, primarily due to the recognition of advances performed prior to March 31, 2025. Contract liabilities increased to $291,000 as of March 31, 2024 from $290,000 as of June 30, 2023.

Contract Costs

We consider sales commissions earned to be incremental costs of obtaining a contract with our customers. As a practical expedient, we expense these costs as incurred as our contracts with customers are less than one year.

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NOTE 4 –INVESTMENT IN HOTEL, NET

Investment in Hotel consisted of the following as of:

Finance lease ROU assets, furniture and equipment are stated at cost, depreciated on a straight-line basis over their useful lives ranging from 3 to 7 years and amortized over the life of the lease. Building and improvements are stated at cost, depreciated on a straight-line basis over their useful lives ranging from 15 to 39 years. Depreciation expense related to our investment in Hotel for the nine months ended March 31, 2025 and 2024 are $2,731,000 and $2,596,000, respectively.

NOTE 5 –INVESTMENT IN REAL ESTATE, NET

The Company’s investment in real estate includes sixteen apartment complexes, one commercial real estate property and three single-family houses. The properties are located throughout the United States, but are concentrated in Dallas, Texas and Southern California. The Company also has an investment in unimproved land located in Maui, Hawaii.

Investment in real estate consisted of the following:

Building, improvements, and equipment are stated at cost, depreciated on a straight-line basis over their useful lives ranging from 5 to 40 years. During the nine months ended March 31, 2025, the Company invested $1,329,000 in capitalized improvements. Depreciation expense related to our investment in real estate for the nine months ended March 31, 2025 and 2024 are $2,236,000 and $2,092,000, respectively.

NOTE 6 –INVESTMENT IN MARKETABLE SECURITIES

The Company’s investment in marketable securities consists primarily of corporate equities. The Company has also periodically invested in corporate bonds and income producing securities, which may include interests in real estate-based companies and REITs, where financial benefit could transfer to its shareholders through income and/or capital gain.

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At March 31, 2025 and June 30, 2024, all of the Company’s marketable securities are classified as trading securities. The change in the unrealized gains and losses on these investments, along with the changes in amounts due to broker are included in earnings. Trading securities are summarized as follows:

Net gains (losses) on marketable securities on the statement of operations is comprised of realized and unrealized gains (losses). Below is the composition of net gains (losses) on marketable securities for the three and nine months ended March 31, 2025 and 2024, respectively:

NOTE 7 -FAIR VALUE MEASUREMENTS

The carrying values of the Company’s financial instruments not required to be carried at fair value on a recurring basis approximate fair value due to their short maturities (i.e., accounts receivable, other assets, accounts payable and other liabilities and obligations for securities sold) or the nature and terms of the obligation (i.e., other notes payable and mortgage notes payable).

The assets and liabilities measured at fair value on a recurring basis are as follows:

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The fair values of investments in marketable securities are determined by the most recently traded price of each security at the balance sheet date.

On March 31, 2025, Portsmouth, through its affiliate Justice Operating Company, LLC, entered into an interest rate cap agreement (the “Interest Rate Cap”) with Goldman Sachs Bank USA. The agreement was executed in connection with a variable-rate mortgage loan and is intended to economically limit the Company’s exposure to increases in Term SOFR. The Interest Rate Cap caps Term SOFR at 4.50% and has a notional amount equal to or greater than the outstanding principal balance of the loan. The Company paid a premium of approximately $136,000 for the cap at inception. Changes in the fair value of the Interest Rate Cap are recorded in Other Income (Expense) within the consolidated statement of operations.

The Interest Rate Cap is not designated as a hedging instrument under ASC 815 and is therefore accounted for at fair value, with changes in fair value recognized in earnings each reporting period. The cap is classified as a Level 2 financial instrument under the fair value hierarchy established by ASC 820, as its valuation is based on observable market inputs including interest rate curves and volatility assumptions obtained from a third-party pricing service.

The following table summarizes the fair value of the derivative instrument as of March 31, 2025:

NOTE 8 –CASH, CASH EQUIVALENTS AND RESTRICTED CASH

The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported within the condensed consolidated balance sheets that sum to the total of the same such amounts shown in the condensed consolidated statement of cash flows:

Restricted cash is comprised of amounts held by lenders for payment of real estate taxes, insurance, replacement and capital addition reserves for the Hotel and real estate properties.

NOTE 9 –STOCK BASED COMPENSATION PLANS

The Company follows Accounting Standard Codification (ASC) Topic 718 “Compensation – Stock Compensation”, which addresses accounting for equity-based compensation arrangements, including employee stock options and restricted stock units.

Please refer to Note 15 – Stock Based Compensation Plans in the Company’s Form 10-K for the year ended June 30, 2024 for more detailed information on the Company’s stock-based compensation plans.

On October 13, 2023, the Compensation Committee awarded 18,000 stock options to the Company’s Chief Operating Officer David C. Gonzalez, to purchase up to 18,000 shares of common stock. The exercise price of the options is $28.90 which was the fair market value of the Company’s Common Stock as reported on NASDAQ closing on October 12, 2023. The options expire inten years from the date of grant. Pursuant to the time vesting requirements, the options vest over a period ofthree years, with 6,000 options vesting upon each on year anniversary of the date of grant.

On December 21, 2023, the Company extended the expiration date of the 133,195 stock options originally issued to John V. Winfield, CEO on December 26, 2013 with an exercise price of $18.65. The original expiration date was December 26, 2023 and is extended to December 26, 2029. As a result of extending Mr. Winfield’s options, the Company recorded stock option compensation cost of $1,175,000 in December 2023. The fair value of the modification was estimated using the Black Scholes pricing model, which takes into account immediately before and after the modification date the exercise price $18.65 per share and expected life of the stock option of 0.01 and 6 years, the market price of the underlying stock on modification date and its expected volatility 72% and 50%, expected dividends 0% on the stock and the risk free interest rate 0.9% and 4.65% for the expected term of the stock option.

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Option-pricing models require the input of various subjective assumptions, including the option’s expected life, estimated forfeiture rates and the price volatility of the underlying stock. The expected stock price volatility is based on analysis of the Company’s stock price history. The Company has selected to use the simplified method for estimating the expected term. The risk-free interest rate is based on the U.S. Treasury interest rates whose term is consistent with the expected life of the stock options. No dividend yield is included as the Company has not issued any dividends and does not anticipate issuing any dividends in the future.

During the nine months ended March 31, 2025 and 2024 the Company recorded $85,000 and $1,263,000, respectively, related to stock option compensation cost.

The following table summarizes the stock options activity from July 1, 2023 to March 31, 2025:

NOTE 10 –SEGMENT INFORMATION

The Company operates inthree reportable segments, the operation of the Hotel (“Hotel Operations”), the operation of its multi-family residential properties (“Real Estate Operations”) and the investment of its cash in marketable securities and other investments (“Investment Transactions”). These three operating segments, as presented in the financial statements, reflect how management internally reviews each segment’s performance. Management also makes operational and strategic decisions based on this information.

Information below represents reported segments for the three and nine months ended March 31, 2025 and 2024. Segment income from Hotel operations consists of the operation of the Hotel and operation of the garage. Segment income from real estate operations consists of the operation of the rental properties. Loss from investments consists of net investment loss, dividend and interest income and investment related expenses.

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NOTE 11 –RELATED PARTY AND OTHER FINANCING TRANSACTIONS

The following summarizes the balances of other notes payable as of March 31, 2025 and June 30, 2024, respectively.

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 ofzero. In March 2025, Portsmouth and InterGroup executed a loan modification agreement that increased Portsmouth’s available borrowing capacity to $40,000,000 and extended the loan’s maturity date to July 31, 2027. During the nine months ended March 31, 2025, the Company borrowed an additional $11,615,000 to fund its hotel operations. As of March 31, 2025 the balance of the loan was $38,108,000 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.

Note payable to Hilton (Franchisor) is a self-exhausting, interest free development incentive note which is reduced by approximately $316,000 annually through 2030 by Hilton if the Company is still a Franchisee with Hilton.

On February 1, 2017, Operating entered into a HMA with Ambridge to manage the Hotel with an effective takeover date of February 3, 2017. The term of the management agreement is for an initial period of 10 years commencing on the takeover date and automatically renews for an additional year not to exceed five years in aggregate subject to certain conditions. The HMA also provides for Aimbridge to advance a key money incentive fee to the Hotel for capital improvements in the amount of $2,000,000 under certain terms and conditions described in a separate key money agreement. The key money contribution shall be amortized in equal monthly amounts over an eight (8) year period commencing on the second anniversary of the takeover date. The unamortized portion of $458,000 and $646,000 of the key money is included in the other notes payable in the consolidated balance sheets as of March 31, 2025 and June 30, 2024, respectively.

Future minimum principal payments and amortizations for all other financing transactions are as follows:

For the year ending June 30,

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A. Mortgage and Mezzanine Loan History

In December 2013, Justice Investors Limited Partnership (“Justice”), then a consolidated subsidiary of Portsmouth Square, Inc. (the “Company”), 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 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, Portsmouth negotiated forbearance agreements with both lenders on April 29, 2024, as discussed in Note 2 – Liquidity.

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, Portsmouth 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, 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.

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C. Debt Refinancing Completed on March 28, 2025

On January 21, 2025, Portsmouth executed a non-binding term sheet with Prime Finance (“Prime”) for a new senior loan. On March 28, 2025, Portsmouth closed on both a senior mortgage loan and modified mezzanine loan (collectively, the “Loan Agreements”), fully retiring the prior debt with U.S. Bank and CRED REIT Holdco LLC.

Portsmouth and the Company continue 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. DSCR and Lockbox Arrangements

Operating has not maintained compliance with the required Debt Service Coverage Ratio (“DSCR”) under both the original and refinanced loans. This condition ordinarily triggers a lender-imposed cash management lockbox. However, such a lockbox mechanism was in place from inception, and remains in effect through loan maturity, regardless of DSCR performance. Cash receipts from the Hotel are deposited into lender-controlled accounts, with controlled disbursements based on agreed-upon budget approvals.

E. Governance and Related Party Disclosure

All of Portsmouth’s directors serve as directors of InterGroup — John V. Winfield, William J. Nance, John C. Love, Yvonne Murphy, and Steve Grunwald. Mr. Winfield is Chairman of the Board and Chief Executive Officer of both Portsmouth and InterGroup. He served as Managing Director of Justice until its dissolution in December 2021.

Portsmouth encourages investments by its CEO and InterGroup in the same companies in which Portsmouth invests, as such alignment of interests places personal and affiliate capital at risk alongside Company capital.

NOTE 12 –ACCOUNTS PAYABLE AND OTHER LIABILITIES

The following summarizes the balances of accounts payable and other liabilities as of March 31, 2025 and June 30, 2024:

NOTE 13 –SUBSEQUENT EVENTS

The Company evaluated subsequent events through the date that the accompanying condensed consolidated financial statements were issued, and has determined that no material subsequent events exist through the date of this filing that require adjustment to or disclosure in the condensed consolidated financial statements.

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