# Intergroup Corp: Form 10-Q for the period ended Dec 31, 2023

- Company: [Intergroup Corp](/companies/intg.md) (CIK 69422)
- Form: 10-Q
- Filed: 2024-02-20
- Accepted by EDGAR: Feb 16, 2024, 21:37 ET
- Period: 2023-12-31
- Accession: 0001493152-24-007070
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/69422/000149315224007070/form10-q.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/69422/000149315224007070/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2023-12-31.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2023-10-01 to 2023-12-31 | $14.3m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Revenue | 6 months, 2023-07-01 to 2023-12-31 | $29.8m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Operating income | 3 months, 2023-10-01 to 2023-12-31 | −$1.3m | us-gaap:OperatingIncomeLoss |
| Operating income | 6 months, 2023-07-01 to 2023-12-31 | $250.0k | us-gaap:OperatingIncomeLoss |
| Income tax | 3 months, 2023-10-01 to 2023-12-31 | $118.0k | us-gaap:IncomeTaxExpenseBenefit |
| Income tax | 6 months, 2023-07-01 to 2023-12-31 | $104.0k | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2023-10-01 to 2023-12-31 | −$1.5m | us-gaap:NetIncomeLoss |
| Net income | 6 months, 2023-07-01 to 2023-12-31 | −$2.8m | us-gaap:NetIncomeLoss |
| Diluted shares (weighted) | 3 months, 2023-10-01 to 2023-12-31 | 2,203,174 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 6 months, 2023-07-01 to 2023-12-31 | 2,204,300 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 6 months, 2023-07-01 to 2023-12-31 | −$80.0k | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 6 months, 2023-07-01 to 2023-12-31 | $1.9m | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Share repurchases | 6 months, 2023-07-01 to 2023-12-31 | $181.0k | us-gaap:PaymentsForRepurchaseOfCommonStock |
| Cash and equivalents | at 2023-12-31 | $9.4m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Total assets | at 2023-12-31 | $124.2m | us-gaap:Assets |
| Total liabilities | at 2023-12-31 | $221.6m | us-gaap:Liabilities |
| Long-term debt | at 2023-12-31 | $226.8m | us-gaap:LongTermDebt |
| Shareholders' equity | at 2023-12-31 | −$73.0m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 31,876 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, including anticipated repayment of certain of the Company’s indebtedness, the impact to our business and financial condition, the effects of competition and the effects of future legislation or regulations and other non-historical statements, the impact from macroeconomic factors (including inflation, increases in interest rates, potential economic slowdown or a recession and geopolitical conflicts). 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, 2023. 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.

### RESULTS OF OPERATIONS

As of December 31, 2023, the Company owned approximately 75.7% of the common shares of Portsmouth Square, Inc. The Company’s principal sources of revenue are revenues from the hotel owned by Portsmouth, rental income from its investments in multi-family and commercial real estate properties, and income received from investment of its cash and securities assets.

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, 2023 Compared to Three Months Ended December 31, 2022

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

### Hotel Operations

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

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

| For the three months ended December 31, Hotel revenues: | 2023 | 2022 |
| --- | ---: | ---: |
| Hotel rooms | $8,403,000 | $8,250,000 |
| Food and beverage | 972,000 | 625,000 |
| Garage | 708,000 | 717,000 |
| Other operating departments | 142,000 | 300,000 |
| Total hotel revenues | 10,225,000 | 9,892,000 |
| Operating expenses excluding depreciation and amortization | (9,405,000) | (8,726,000) |
| Operating income before gain on extinguishment of debt, interest expense, depreciation and amortization | 820,000 | 1,166,000 |
| Interest expense - mortgage | (1,599,000) | (1,655,000) |
| Depreciation and amortization expense | (866,000) | (660,000) |
| Net loss from Hotel operations | $(1,645,000) | $(1,149,000) |

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

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

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, 2023 and 2022:

| Three Months Ended December 31, | Average Daily Rate | Average Occupancy % | RevPAR |
| --- | ---: | ---: | ---: |
| **2023** | $207 | 81% | $168 |
| **2022** | $199 | 82% | $164 |

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

### Real Estate Operations

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

### Investment Transactions

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

### Six Months Ended December 31, 2023 Compared to Six Months Ended December 31, 2022

The Company had net loss of $3,773,000 for the six months ended December 31, 2023 compared to net income of $1,366,000 for the six months ended December 31, 2022. The change is primarily attributable to the decrease in Hotel revenue and by the increase in hotel operating expenses during the current period. Additionally, the Company recorded a gain on insurance recovery of $2,692,000.

### Hotel Operations

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

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

| For the six months ended December 31, Hotel revenues: | 2023 | 2022 |
| --- | ---: | ---: |
| Hotel rooms | $17,964,000 | $19,053,000 |
| Food and beverage | 1,599,000 | 1,160,000 |
| Garage | 1,533,000 | 1,539,000 |
| Other operating departments | 222,000 | 450,000 |
| Total hotel revenues | 21,318,000 | 22,202,000 |
| Operating expenses excluding depreciation and amortization | (18,686,000) | (18,032,000) |
| Operating income before interest expense, depreciation and amortization | 2,632,000 | 4,170,000 |
| Interest expense - mortgage | (3,205,000) | (3,287,000) |
| Depreciation and amortization expense | (1,711,000) | (1,311,000) |
| Net loss from Hotel operations | $(2,284,000) | $(428,000) |

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

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

| Six Months Ended December 31, | Average Daily Rate | Average Occupancy % | RevPAR |
| --- | ---: | ---: | ---: |
| **2023** | $212 | 84% | $180 |
| **2022** | $215 | 88% | $190 |

The Hotel’s revenues decreased by 4% for the six months ended December 31, 2023 as compared to the six months ended December 31, 2022. Average daily rate decreased by $3, average occupancy decreased by 4%, and RevPAR decreased by $10 for the six months ended December 31, 2023 compared to the six months ended December 31, 2022.

### Real Estate Operations

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

### Investment Transactions

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

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, 2023 and June 30, 2023 by selected industry groups:

| As of December 31, 2023 Industry Group | Fair Value | % of Total Investment Securities |
| --- | ---: | ---: |
| REITs and real estate companies | $5,279,000 | 27% |
| Communication services | 2,589,000 | 13% |
| Financial services | 2,086,000 | 11% |
| Technology | 1,683,000 | 9% |
| Consumer cyclical | 1,636,000 | 8% |
| Consumer defensive | 1,304,000 | 7% |
| T-Notes | 918,000 | 5% |
| Basic material | 852,000 | 4% |
| Healthcare | 811,000 | 4% |
| Utilities | 740,000 | 4% |
| Energy | 715,000 | 4% |
| Industrial | 672,000 | 4% |
| Other | 78,000 | 0% |
|  | $19,363,000 | 100% |

| As of June 30, 2023 Industry Group | Fair Value | % of Total Investment Securities |
| --- | ---: | ---: |
| REITs and real estate companies | $6,985,000 | 38% |
| Technology | 2,779,000 | 15% |
| T-Notes | 2,093,000 | 11% |
| Financial services | 1,865,000 | 10% |
| Consumer cyclical | 1,689,000 | 9% |
| Basic materials | 1,047,000 | 6% |
| Healthcare | 739,000 | 4% |
| Communication services | 566,000 | 3% |
| Industrials | 485,000 | 3% |
| Utilities | 97,000 | 1% |
|  | $18,345,000 | 100% |

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

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

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, | 2023 | 2022 |
| --- | ---: | ---: |
| Net gain on marketable securities | $1,760,000 | $1,384,000 |
| Dividend and interest income | 144,000 | 122,000 |
| Margin interest expense | (54,000) | (232,000) |
| Trading and management expenses | (327,000) | (212,000) |
| Net gain from investment transactions | $1,523,000 | $1,062,000 |

| For the six months ended December 31, | 2023 | 2022 |
| --- | ---: | ---: |
| Net gain on marketable securities | $975,000 | $574,000 |
| Dividend and interest income | 270,000 | 297,000 |
| Margin interest expense | (67,000) | (385,000) |
| Trading and management expenses | (636,000) | (324,000) |
| Net gain from investment transactions | $542,000 | $162,000 |

### FINANCIAL CONDITION AND LIQUIDITY

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

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

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.

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. The objectives of our cash management policy are to increase existing leverage levels and the availability of liquidity, while minimizing operational costs. However, there can be no guarantee that management will be successful with its plan.

### Going Concern

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

Due to these factors and the uncertainty around the Hotel’s ability to successfully refinance the debt on favorable terms in the current lending environment gives rise to substantial doubt about the Hotel’s ability to continue as a going concern for one year after the financial statement issuance date.

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

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

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

### 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, 2023, the Company’s material financial obligations which also includes interest payments.

|  | Total | 6 Months 2024 | Year 2025 | Year 2026 | Year 2027 | Year 2028 | Thereafter |
| --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: |
| Mortgage and subordinated notes payable | $196,126,000 | $107,102,000 | $9,317,000 | $1,162,000 | $3,296,000 | $1,770,000 | $73,479,000 |
| Other notes payable | 2,671,000 | 283,000 | 567,000 | 567,000 | 463,000 | 317,000 | 474,000 |
| Interest | 28,007,000 | 3,586,000 | 3,259,000 | 2,752,000 | 2,645,000 | 2,648,000 | 13,117,000 |
| Total | $226,804,000 | $110,971,000 | $13,143,000 | $4,481,000 | $6,404,000 | $4,735,000 | $87,070,000 |

### 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.

### CRITICAL ACCOUNTING POLICIES AND USE OF ESTIMATES

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

### 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.

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, 2023 and 2022 represents primarily the combined income tax effect of Portsmouth’s pretax loss which includes the net loss from the Hotel and the pre-tax loss from InterGroup (standalone). InterGroup and Portsmouth file their respective income tax returns on a calendar year basis.

### 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.

### HOTEL ASSETS 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 indicators of impairment on its hotel investments or intangible assets and accordingly no impairment losses recorded during the six months ended December 31, 2023 and 2022, respectively.

## 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, 2,264 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 their evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) were not effective because of a material weakness in our internal control over financial reporting. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the Company’s annual or interim financial statements will not be prevented or detected on a timely basis. Specifically, the Company’s management has concluded that our control around the interpretation and accounting for the deferred tax asset valuation allowance and stock-based compensation was not effectively designed or maintained. In light of this material weakness, we performed additional analysis as deemed necessary to ensure that our financial statements were prepared in accordance with GAAP. Accordingly, management believes that the financial statements included in this Quarterly Report on Form 10-Q present fairly in all material respects our financial position, results of operations and cash flows for the period presented.

### CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING

As stated in the Company’s Form 10-K for year ended June 30, 2023, we identified a material weakness in internal controls over financial reporting related to our accounting for the deferred tax asset valuation allowance was not effectively designed or maintained. We hired a new tax provision to perform detailed analysis moving forward. The Company has taken steps to remediate the material weakness and improve its internal controls over financial reporting during the last quarterly period covered by this Form 10-Q.

### PART II

### OTHER INFORMATION

Filed Feb 20, 2024.
Source: SEC EDGAR, the filing index for accession 0001493152-24-007070. Last ingested by Listed: Oct 24, 2026, 14:53 ET. No prices; not investment advice.