# Intergroup Corp: Form 10-Q for the period ended Dec 31, 2022

- Company: [Intergroup Corp](/companies/intg.md) (CIK 69422)
- Form: 10-Q
- Filed: 2023-02-09
- Accepted by EDGAR: Feb 9, 2023, 14:16 ET
- Period: 2022-12-31
- Accession: 0001493152-23-004029
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/69422/000149315223004029/form10-q.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/69422/000149315223004029/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2022-12-31.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2022-10-01 to 2022-12-31 | $13.9m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Revenue | 6 months, 2022-07-01 to 2022-12-31 | $30.3m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Operating income | 3 months, 2022-10-01 to 2022-12-31 | $197.0k | us-gaap:OperatingIncomeLoss |
| Operating income | 6 months, 2022-07-01 to 2022-12-31 | $3.1m | us-gaap:OperatingIncomeLoss |
| Income tax | 3 months, 2022-10-01 to 2022-12-31 | $224.0k | us-gaap:IncomeTaxExpenseBenefit |
| Income tax | 6 months, 2022-07-01 to 2022-12-31 | $166.0k | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2022-10-01 to 2022-12-31 | $1.9m | us-gaap:NetIncomeLoss |
| Net income | 6 months, 2022-07-01 to 2022-12-31 | $1.7m | us-gaap:NetIncomeLoss |
| Diluted shares (weighted) | 3 months, 2022-10-01 to 2022-12-31 | 2,466,781 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 6 months, 2022-07-01 to 2022-12-31 | 2,476,079 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 6 months, 2022-07-01 to 2022-12-31 | −$2.5m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 6 months, 2022-07-01 to 2022-12-31 | $2.7m | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Share repurchases | 6 months, 2022-07-01 to 2022-12-31 | $1.2m | us-gaap:PaymentsForRepurchaseOfCommonStock |
| Cash and equivalents | at 2022-12-31 | $8.2m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Total assets | at 2022-12-31 | $132.3m | us-gaap:Assets |
| Total liabilities | at 2022-12-31 | $215.3m | us-gaap:Liabilities |
| Long-term debt | at 2022-12-31 | $228.4m | us-gaap:LongTermDebt |
| Shareholders' equity | at 2022-12-31 | −$62.4m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 33,414 characters.

FORWARD-LOOKING STATEMENTS AND PROJECTIONS

This quarterly report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (“Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (“Exchange Act”). Forward-looking statements include, but are not limited to, statements related to our expectations regarding the performance of our business, our financial results, our liquidity and capital resources, the impact to our business and financial condition, and measures being taken in response to the novel strain of coronavirus and the disease it causes (“COVID-19”), the effects of competition and the effects of future legislation or regulations and other non-historical statements. Forward-looking statements include all statements that are not historical facts, and in some cases, can be identified by the use of forward-looking terminology such as the words “outlook,” “believes,” “expects,” “potential,” “continues,” “may,” “will,” “should,” “could,” “seeks,” “projects,” “predicts,” “intends,” “plans,” “estimates,” “anticipates” or the negative version of these words or other comparable words. You should not rely on forward-looking statements since they involve known and unknown risks, uncertainties and other factors which are, in some cases, beyond our control and which could materially affect our results of operations, financial condition, cash flows, performance or future achievements or events.

Such statements are subject to certain risks and uncertainties. These risks and uncertainties include, but are not limited to, the following: national and worldwide economic conditions, including the impact of recessionary conditions on tourism, travel and the lodging industry; the impact of terrorism and war on the national and international economies, including tourism, securities markets, energy and fuel costs; natural disasters; general economic conditions and competition in the hotel industry in the San Francisco area; seasonality, labor relations and labor disruptions; actual and threatened pandemics such as swine flu or the outbreak of COVID-19 or similar outbreaks; the ability to obtain financing at favorable interest rates and terms; securities markets, regulatory factors, litigation and other factors discussed below in this Report and in the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2022. These risks and uncertainties could cause actual results to differ materially from those projected. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as to the date hereof. The Company undertakes no obligation to publicly release the results of any revisions to those forward-looking statements, which may be made to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events.

### COVID19 UPDATE

The novel strain of coronavirus and the disease it causes (“COVID-19”) have continued to affect the hospitality industry and our business. Beginning in March 2020, travel restrictions and mandated closings of non-essential businesses were imposed, which resulted in temporary suspensions of operations in many hotels in San Francisco, however, the Company did not suspend operations and did not close the hotel. As vaccination rates across the country increased and COVID-19 related restrictions were eased or removed, we saw an increase in travel and hospitality spending beginning in the second calendar quarter of 2021. During calendar year 2022, we continued to witness robust leisure demand and an acceleration in group and business transient demand. However, the potential for an economic slowdown or a recession during calendar year 2023 may disrupt the positive momentum at the Company’s hotel and our industry.

We believe the distribution of the COVID-19 vaccine during 2021 drove the improvement in traveler sentiment we experienced and resulted in an improvement in occupancy, Average Daily Rate (“ADR”) and Revenue per Available Room (“RevPAR”) during 2021. If additional virus variants emerge causing re-imposed widespread travel restrictions, the hospitality industry will be negatively affected. While there can be no assurances that the Company will not experience further fluctuations in hotel revenues or earnings due to the uncertainty of COVID-19 and other macroeconomic factors, such as inflation, increases in interest rates, potential economic slowdown or a recession and geopolitical conflicts, we expect to continue to recover through the remainder of fiscal year 2023 based on current demand trends.

### RESULTS OF OPERATIONS

As of December 31, 2022, the Company owned approximately 75.6% 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.

Portsmouth’s primary asset is a 544-room hotel property located at 750 Kearny Street, San Francisco, California 94108, known as the “Hilton San Francisco Financial District” (the “Hotel” or the “Property”) and related facilities, including a five-level underground parking garage. The financial statements of Portsmouth have been consolidated with those of the Company.

In addition to the operations of the Hotel, the Company also generates income from the ownership and management of its real estate. Properties include sixteen apartment complexes, one commercial real estate property, 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 an investment in unimproved real property in Hawaii.

The Company acquires its investments in real estate and other investments utilizing cash, securities or debt, subject to approval or guidelines of the Board of Directors. The Company also invests in income-producing instruments, equity and debt securities and will consider other investments if such investments offer growth or profit potential.

### Three Months Ended December 31, 2022 Compared to Three Months Ended December 31, 2021

The Company had net income of $1,567,000 for the three months ended December 31, 2022 compared to net loss of $2,243,000 for the three months ended December 31, 2021. The change is primarily attributable to the improved hotel operations, a change to net gains on marketable securities of $1,384,000 and a gain on insurance recovery of $2,692,000 during the three months ended December 2022, compared to a net loss on marketable securities of $2,351,000, offset by the gain of $1,665,000 on extinguishments of debt during the three months ended December 2021.

### Hotel Operations

The Company had net loss from Hotel operations of $1,149,000 for the three months ended December 31, 2022 compared to net loss of $324,000 for the three months ended December 31, 2021. The change is primarily attributable to the $2,000,000 gain on extinguishment of debt recorded during the three months ended December 31, 2021, offset by the improved Hotel operations.

The following table sets forth a more detailed presentation of Hotel operations for the three months ended December 31, 2022 and 2021:

| For the three months ended December 31, Hotel revenues: | 2022 | 2021 |
| --- | ---: | ---: |
| Hotel rooms | $8,250,000 | $5,218,000 |
| Food and beverage | 625,000 | 296,000 |
| Garage | 717,000 | 768,000 |
| Other operating departments | 300,000 | 66,000 |
| Total hotel revenues | 9,892,000 | 6,348,000 |
| Operating expenses excluding depreciation and amortization | (8,726,000) | (6,479,000) |
| Operating income (loss) before gain on extinguishment of debt, interest expense, depreciation and amortization | 1,166,000 | (131,000) |
| Gain on extinguishment of debt | - | 2,000,000 |
| Interest expense - mortgage | (1,655,000) | (1,654,000) |
| Depreciation and amortization expense | (660,000) | (539,000) |
| Net loss from Hotel operations | $(1,149,000) | $(324,000) |

For the three months ended December 31, 2022, the Hotel had operating income of $1,166,000 before interest expense, depreciation, and amortization on total operating revenues of $9,892,000 compared to operating loss of $131,000 before gain on extinguishment of debt, interest expense, depreciation and amortization on total operating revenues of $6,348,000 for the three months ended December 31, 2021.

For the three months ended December 31, 2022, room revenues increased by $3,032,000, food and beverage revenue increased by $329,000 and garage decreased by $51,000 compared to the three months ended December 31, 2021. The year over year increase in all the revenue sources except in garage revenues, are as a result of the recovery from the business interruption attributable to a variety of responses by federal, state, and local civil authority to the COVID-19 outbreak since March 2020. Total operating expenses increased by $2,247,000 due to an increase in salaries and wages, commission, credit card fees, management fees, and franchise fees.

The following table sets forth the average daily room rate, average occupancy percentage and RevPAR of the Hotel for the three months ended December 31, 2022 and 2021:

| Three Months Ended December 31, | Average Daily Rate | Average Occupancy % | RevPAR |
| --- | ---: | ---: | ---: |
| **2022** | $199 | 82% | $164 |
| **2021** | $138 | 75% | $104 |

The Hotel’s revenues increased by 56% this quarter as compared to the previous comparable quarter. Average daily rate increased by $61, average occupancy increased by 7%, and RevPAR increased by $60 for the three months ended December 31, 2022 compared to the three months ended December 31, 2021.

### Real Estate Operations

Revenue from real estate operations increased to $3,980,000 for the three months ended December 31, 2022 from $3,866,000 for the three months ended December 31, 2021. Real estate operating expenses increased to $2,672,000 from $2,276,000 year over year primarily due to increased insurance expense, and maintenance and repair expenses. The Company recorded a gain on insurance recovery of $2,692,000 at December 31, 2022 related to damages sustained at its Irving, Texas and St. Louis, Missouri properties related to the February 2021 winter storm.

Management continues to review and analyze the Company’s real estate operations to improve occupancy and rental rates and to reduce expenses and improve efficiency.

### Investment Transactions

The Company had a net gain on marketable securities of $1,384,000 for the three months ended December 31, 2022 compared to a net loss on marketable securities of $2,351,000 for the three months ended December 31, 2021. 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. For the three months ended December 31, 2021, the Company had a net realized loss of $3,254,000 which included a net realize loss of $2,441,000 from its investment in Comstock, and a net unrealized gain of $903,000. 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.

The Company and its subsidiary Portsmouth compute and file income tax returns and prepare discrete income tax provisions for financial reporting. The income tax benefit during the three months ended December 31, 2022 and 2021 represent primarily the income tax effect of the pretax (loss) income at InterGroup and Portsmouth, which includes its share in net loss of the Hotel.

### Six Months Ended December 31, 2022 Compared to Six Months Ended December 31, 2021

The Company had net income of $1,366,000 for the six months ended December 31, 2022 compared to net loss of $5,149,000 for the six months ended December 31, 2021. The decreased loss is primarily attributable to the change to net gains on marketable securities of $574,000 and the gain on insurance recovery of $2,692,000 during the six months ended December 2022, compared to a net loss on marketable securities of $4,519,000 and improved hotel operation, offset by the $1,665,000 gain on extinguishments of debt during the six months ended December 2021.

### Hotel Operations

The Company had net loss from Hotel operations of $428,000 for the six months ended December 31, 2022 compared to net loss of $2,067,000 for the six months ended December 31, 2021. The decreased loss is primarily attributable to increased revenues as the hospitality market continues its recovery, offset by the $2,000,000 gain on extinguishment of debt recorded during the six months ended December 31, 2021 related to the full forgiveness of the PPP loan.

The following table sets forth a more detailed presentation of Hotel operations for the six months ended December 31, 2022 and 2021:

| For the six months ended December 31, Hotel revenues: | 2022 | 2021 |
| --- | ---: | ---: |
| Hotel rooms | $19,053,000 | $10,780,000 |
| Food and beverage | 1,160,000 | 562,000 |
| Garage | 1,539,000 | 1,675,000 |
| Other operating departments | 450,000 | 136,000 |
| Total hotel revenues | 22,202,000 | 13,153,000 |
| Operating expenses excluding depreciation and amortization | (18,032,000) | (12,812,000) |
| Operating income before gain on extinguishment of debt, interest expense, and depreciation and amortization | 4,170,000 | 341,000 |
| Gain on extinguishment of debt | - | 2,000,000 |
| Interest expense - mortgage | (3,287,000) | (3,315,000) |
| Depreciation and amortization expense | (1,311,000) | (1,093,000) |
| Net loss from Hotel operations | $(428,000) | $(2,067,000) |

For the six months ended December 31, 2022, the Hotel had operating income of $4,170,000 before interest expense, depreciation, and amortization on total operating revenues of $22,202,000 compared to operating income of $341,000 before interest expense, depreciation, and amortization on total operating revenues of $13,153,000 for the six months ended December 31, 2021. For the six months ended December 31, 2022, room revenues increased by $8,273,000, food and beverage revenue increased by $598,000, and garage revenue decreased by $136,000, compared to the six months ended December 31, 2021. The year over year increase in all the revenue sources except for garage revenues, are as a result of the recovery from the business interruption attributable to a variety of responses by federal, state, and local civil authority to the COVID-19 outbreak since March 2020. Total operating expenses increased by $5,220,000 due to increase in salaries and wages, rooms commission, credit card fees, management fees, and franchise fees.

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, 2022 and 2021.

| Six Months Ended December 31, | Average Daily Rate | Average Occupancy % | RevPAR |
| --- | ---: | ---: | ---: |
| **2022** | $215 | 88% | $190 |
| **2021** | $139 | 77% | $107 |

The Hotel’s revenues increased by 69% for the six months ended December 31, 2022 as compared to the six months ended December 31, 2021. Average daily rate increased by $76, average occupancy increased by 11%, and RevPAR increased by $83 for the six months ended December 31, 2022 compared to the six months ended December 31, 2021.

### Real Estate Operations

Revenue from real estate operations increased to $8,058,000 for the six months ended December 31, 2022 from $7,982,000 for the six months ended December 31, 2021. Real estate operating expenses increased to $4,863,000 from $4,350,000 year over year primarily due to increased insurance expense, 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. The Company recorded a gain on insurance recovery of $2,692,000 at December 31, 2022 related to damages sustained at its Irving, Texas and St. Louis, Missouri properties related to the February 2021 winter storm.

All the Company’s properties are managed in-house. 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.

### Investment Transactions

The Company had a net gain on marketable securities of $574,000 for the six months ended December 31, 2022 compared to a net loss on marketable securities of $4,519,000 for the six months ended December 31, 2021. 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. For the six months ended December 31, 2021, the Company had a net realized loss of $1,001,000 and a net unrealized loss of $3,518,000. For the six months ended December 31, 2021, Company had a net realized loss of $2,581,000 from its investment in Comstock. 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.

### MARKETABLE SECURITIES

The following table shows the composition of the Company’s marketable securities portfolio as of December 31, 2022 and June 30, 2022 by selected industry groups:

| As of December 31, 2022 Industry Group | Fair Value | % of Total Investment Securities |
| --- | ---: | ---: |
| REITs and real estate companies | $7,007,000 | 31.7% |
| Financial services | 2,067,000 | 9.4% |
| Technology | 1,949,000 | 8.8% |
| Basic material | 1,723,000 | 7.8% |
| Healthcare | 1,431,000 | 6.5% |
| Consumer cyclical | 957,000 | 4.3% |
| Communication services | 897,000 | 4.1% |
| Industrials | 536,000 | 2.4% |
| Energy | 288,000 | 1.3% |
| Utilities | 230,000 | 1.0% |
| Other | 5,004,000 | 22.7% |
|  | $22,089,000 | 100.0% |

| As of June 30, 2022 Industry Group | Fair Value | % of Total Investment Securities |
| --- | ---: | ---: |
| REITs and real estate companies | $3,289,000 | 29.8% |
| Communication services | 2,787,000 | 25.2% |
| Financial services | 1,755,000 | 15.9% |
| Technology | 815,000 | 7.4% |
| Basic material | 769,000 | 7.0% |
| Consumer cyclical | 693,000 | 6.3% |
| Industrials | 385,000 | 3.5% |
| Energy | 279,000 | 2.5% |
| Other | 277,000 | 2.5% |
|  | $11,049,000 | 100.0% |

As of December 31, 2022, the Company’s investment portfolio is diversified with 99 different equity positions. The Company held two equity securities that are more than 10% of the equity value of the portfolio each. The largest security position represents 19% 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. The second largest position represents 13% of the portfolio and consists of a U.S. government treasury notes which are included in the Other industry group.

As of June 30, 2022, the Company’s investment portfolio is diversified with 38 different equity positions. The Company holds three equity securities that comprised more than 10% of the equity value of the portfolio. The three largest security positions represent 23%, 20%, and 13% of the portfolio and consists of the common stock of Paramount Global - Preferred Stock (NASDAQ: PARAP), American Realty Investors, Inc. (NYSE: ARL), and BlackRock Muni holdings California Quality Fund Inc. (NYSE: MUC), which are included the Communications, REITs and real estate companies, and Financial Services industry groups, respectively.

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:

| For the three months ended December 31, | 2022 | 2021 |
| --- | ---: | ---: |
| Net gain (loss) on marketable securities | $1,384,000 | $(120,000) |
| Net loss on marketable securities - Comstock | - | (2,231,000) |
| Impairment loss on other investments | - | (41,000) |
| Dividend and interest income | 122,000 | 462,000 |
| Margin interest expense | (232,000) | (204,000) |
| Trading and management expenses | (212,000) | (156,000) |
| Net gain (loss) from investment transactions | $1,062,000 | $(2,290,000) |

| For the six months ended December 31, | 2022 | 2021 |
| --- | ---: | ---: |
| Net gain (loss) on marketable securities | $574,000 | $(1,938,000) |
| Net loss on marketable securities - Comstock | - | (2,581,000) |
| Impairment loss on other investments | - | (41,000) |
| Dividend and interest income | 297,000 | 649,000 |
| Margin interest expense | (385,000) | (426,000) |
| Trading and management expenses | (324,000) | (288,000) |
| Net gain (loss) from investment transactions | $162,000 | $(4,625,000) |

### FINANCIAL CONDITION AND LIQUIDITY

The Company had cash and cash equivalents of $8,153,000 and $14,367,000 as of December 31, 2022 and June 30, 2022, respectively. The Company had restricted cash of $7,753,000 and $8,982,000 as of December 31, 2022 and June 30, 2022, respectively. The Company had marketable securities, net of margin due to securities brokers, of $15,526,000 and $10,110,000 as of December 31, 2022 and June 30, 2022, respectively. These marketable securities are short-term investments and liquid in nature.

On December 16, 2020, Justice and InterGroup entered into a loan modification agreement which increased Justice’s borrowing from InterGroup as needed up to $10,000,000 and extended the maturity date of the loan to July 31, 2021. The maturity date was extended to July 31, 2023. Upon the dissolution of Justice in December 2021, Portsmouth assumed Justice’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. During the fiscal year ending June 30, 2022, InterGroup advanced $7,550,000 to the Hotel, bringing the total amount due to InterGroup to $14,200,000 as of June 30, 2022 and December 31, 2022. Currently, Portsmouth does not anticipate any need for funding from InterGroup. As of December 31, 2022, Portsmouth has not made any pay-downs to its note payable to InterGroup. Portsmouth could amend its by-laws and increase the number of authorized shares to issue additional shares to raise capital in the public markets or refinance the hotel if needed. The note receivable from Portsmouth is eliminated in the Company’s consolidated financial statements.

During the fiscal year ending June 30, 2022, the Company refinanced six of its properties’ existing mortgages and obtained a mortgage note payable on one of our California properties, generating net proceeds totaling $16,683,000. The Company is currently evaluating other refinancing opportunities and we could refinance additional multifamily properties should the need arise, or should management consider the interest rate environment favorable.

The Company had an uncollateralized $5,000,000 revolving line of credit (“LOC”) from CIBC Bank USA (“CIBC”) and the entire $5,000,000 was available to be drawn down as of June 30, 2022. In July 2022, the Company renewed it’s LOC for a reduced amount of $2,000,000 and is available in its entirety as of December 31, 2022.

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.

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. After considering our approach to liquidity and accessing our available sources of cash, we believe that our cash position, after giving effect to the transactions discussed above, will be adequate to meet anticipated requirements for operating and other expenditures, including corporate expenses, payroll and related benefits, taxes and compliance costs and other commitments, for at least twelve months from the date of issuance of these financial statements, even if current levels of low occupancy were to persist. 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.

### OFF-BALANCE SHEET ARRANGEMENTS

The Company has no off-balance sheet arrangements.

### MATERIAL CONTRACTUAL OBLIGATIONS

The following table provides a summary as of December 31, 2022, the Company’s material financial obligations which also includes interest payments.

|  | Total | 6 Months 2023 | Year 2024 | Year 2025 | Year 2026 | Year 2027 | Thereafter |
| --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: |
| Mortgage and subordinated notes payable | $193,866,000 | $6,357,000 | $108,417,000 | $3,966,000 | $1,171,000 | $3,301,000 | $70,654,000 |
| Related party notes payable | 3,238,000 | 283,000 | 567,000 | 567,000 | 567,000 | 463,000 | 791,000 |
| Interest | 31,259,000 | 4,392,000 | 5,640,000 | 2,501,000 | 2,381,000 | 2,274,000 | 14,071,000 |
| Total | $228,363,000 | $11,032,000 | $114,624,000 | $7,034,000 | $4,119,000 | $6,038,000 | $85,516,000 |

### IMPACT OF INFLATION

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.

The Company’s residential rental properties provide income from short-term operating leases and no lease extends beyond one year. Rental increases are expected to offset anticipated increased property operating expenses. The Company refinanced most of its mortgages with favorable long-term fixed interest rate mortgages during the past three fiscal years.

### CRITICAL ACCOUNTING ESTIMATES

Critical accounting estimates 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 on-going 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 or method or assumptions during the six months ended December 31, 2022.

### INCOME TAXES

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. See Part II, Item 8, “Financial Statements and Supplementary Data —Note 13 to our Consolidated Financial Statements” on Form 10K for the year ended June 30, 2022.

### DEFERRED INCOME TAXES – VALUATION ALLOWANCE

We assess the realizability of our deferred tax assets quarterly and recognize a valuation allowance when it is more likely than not that some or all of our deferred tax assets are not realizable. This assessment is completed by tax jurisdiction and relies on the weight of both positive and negative evidence available, with significant weight placed on recent financial results. Cumulative pre-tax losses for the three-year period are considered significant objective negative evidence that some or all of our deferred tax assets may not be realizable. Cumulative reported pre-tax income is considered objectively verifiable positive evidence of our ability to generate positive pre-tax income in the future. In accordance with GAAP, when there is a recent history of pre-tax losses, there is little or no weight placed on forecasts for purposes of assessing the recoverability of our deferred tax assets. When necessary, we use systematic and logical methods to estimate when deferred tax liabilities will reverse and generate taxable income and when deferred tax assets will reverse and generate tax deductions. Assumptions, judgment, and the use of estimates are required when scheduling the reversal of deferred tax assets and liabilities, and the exercise is inherently complex and subjective. However, significant judgment will be required to determine the timing and amount of any reversal of the valuation allowance in future periods. See Part II, Item 8, “Financial Statements and Supplementary Data — Note 13 to our Consolidated Financial Statements” on Form 10K for the year ended June 30, 2022.

### PROPERTY AND EQUIPMENT AND DEFINITE-LIVED INTANGIBLE ASSETS

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 impairment losses recorded during the six months ended December 31, 2022.

## Market risk

As filed, 128 characters.

We are a smaller reporting company and therefore, we are not required to provide information required by this Item of Form 10-Q.

## Controls and procedures

As filed, 1,263 characters.

### EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES

The Company’s management, with the participation of the Company’s Chief Executive Officer and Principal Financial Officer, has evaluated the effectiveness of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the quarterly period covered by this Quarterly Report on Form 10-Q. Based upon such evaluation, the Chief Executive Officer and Principal Financial Officer have concluded that, as of the end of such period, the Company’s disclosure controls and procedures are effective in ensuring that information required to be disclosed in this filing is accumulated and communicated to management and is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission rules and forms.

### CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING

There have been no changes in the Company’s internal control over financial reporting during the last quarterly period covered by this Quarterly Report on Form 10-Q that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

### PART II

### OTHER INFORMATION

Filed Feb 9, 2023.
Source: SEC EDGAR, the filing index for accession 0001493152-23-004029. Last ingested by Listed: Oct 24, 2026, 14:53 ET. No prices; not investment advice.