# Intergroup Corp: Form 10-Q for the period ended Mar 31, 2024

- Company: [Intergroup Corp](/companies/intg.md) (CIK 69422)
- Form: 10-Q
- Filed: 2024-05-14
- Accepted by EDGAR: May 14, 2024, 13:44 ET
- Period: 2024-03-31
- Accession: 0001493152-24-019168
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/69422/000149315224019168/form10-q.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/69422/000149315224019168/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2024-03-31.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2024-01-01 to 2024-03-31 | $14.9m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Revenue | 9 months, 2023-07-01 to 2024-03-31 | $44.7m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Operating income | 3 months, 2024-01-01 to 2024-03-31 | $709.0k | us-gaap:OperatingIncomeLoss |
| Operating income | 9 months, 2023-07-01 to 2024-03-31 | $959.0k | us-gaap:OperatingIncomeLoss |
| Income tax | 3 months, 2024-01-01 to 2024-03-31 | −$295.0k | us-gaap:IncomeTaxExpenseBenefit |
| Income tax | 9 months, 2023-07-01 to 2024-03-31 | −$191.0k | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2024-01-01 to 2024-03-31 | −$3.2m | us-gaap:NetIncomeLoss |
| Net income | 9 months, 2023-07-01 to 2024-03-31 | −$5.9m | us-gaap:NetIncomeLoss |
| Diluted shares (weighted) | 3 months, 2024-01-01 to 2024-03-31 | 2,192,862 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 9 months, 2023-07-01 to 2024-03-31 | 2,200,515 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 9 months, 2023-07-01 to 2024-03-31 | $1.8m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 9 months, 2023-07-01 to 2024-03-31 | $2.6m | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Share repurchases | 9 months, 2023-07-01 to 2024-03-31 | $429.0k | us-gaap:PaymentsForRepurchaseOfCommonStock |
| Cash and equivalents | at 2024-03-31 | $7.8m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Total assets | at 2024-03-31 | $119.0m | us-gaap:Assets |
| Total liabilities | at 2024-03-31 | $220.4m | us-gaap:Liabilities |
| Long-term debt | at 2024-03-31 | $225.0m | us-gaap:LongTermDebt |
| Shareholders' equity | at 2024-03-31 | −$76.4m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 34,285 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 March 31, 2024, the Company owned approximately 75.7% of the common shares of Portsmouth Square, Inc. The Company’s principal sources of revenue are revenues from the hotel owned by Portsmouth, rental income from its investments in multi-family and commercial real estate properties, and income received from investment of its cash and securities assets.

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 March 31, 2024 Compared to Three Months Ended March 31, 2023

The Company had net loss of $3,861,000 for the three months ended March 31, 2024 compared to net loss of $614,000 for the three months ended March 31, 2023. The change is primarily attributed to a net loss in marketable securities of $811,000 and repayment of SBA loan of $453,000.

### Hotel Operations

The Company had net loss from Hotel operations of $1,958,000 for the three months ended March 31, 2024 compared to net loss of $260,000 for the three months ended March 31, 2023. The increase in loss is primarily attributable to the increase in default mortgage interest expense during forbearance period and operating expenses, partially 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 March 31, 2024 and 2023:

| For the three months ended March 31, Hotel revenues: | 2024 | 2023 |
| --- | ---: | ---: |
| Hotel rooms | $9,018,000 | $8,968,000 |
| Food and beverage | 924,000 | 744,000 |
| Garage | 710,000 | 609,000 |
| Other operating departments | 106,000 | 109,000 |
| Total hotel revenues | 10,758,000 | 10,430,000 |
| Operating expenses excluding depreciation and amortization | (9,239,000) | (8,413,000) |
| Operating income before gain on extinguishment of debt, interest expense, depreciation and amortization | 1,519,000 | 2,017,000 |
| Interest expense - mortgage | (2,591,000) | (1,584,000) |
| Depreciation and amortization expense | (886,000) | (693,000) |
| Net loss from Hotel operations | $(1,958,000) | $(260,000) |

For the three months ended March 31, 2024, the Hotel had operating income of $1,519,000 before mortgage interest expense, depreciation, and amortization on total operating revenues of $10,758,000 compared to operating income of $2,017,000 before mortgage interest expense, depreciation and amortization on total operating revenues of $10,430,000 for the three months ended March 31, 2023.

For the three months ended March 31, 2024, room revenues increased by $50,000, food and beverage revenue increased by $180,000 and garage increased by $101,000 compared to the three months ended March 31, 2023. Total operating expenses increased by $826,000 due to increase in union salaries and wages, room amenities and booking commissions, 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 March 31, 2024 and 2023:

| Three Months Ended March 31, | Average Daily Rate | Average Occupancy % | RevPAR |
| --- | ---: | ---: | ---: |
| **2024** | $232 | 78% | $182 |
| **2023** | $234 | 78% | $183 |

The Hotel’s revenues increased by 3% this quarter as compared to the previous comparable quarter. Average daily rate decreased by $2, average occupancy remained the same, and RevPAR decreased by $1 for the three months ended March 31, 2024 compared to the three months ended March 31, 2023. The figures reflected in this table are negatively impacted by approximately 52-78 guest rooms taken out of order at any given time in to allow for their renovation which stated in November 2022 and is scheduled to be completed by June 2024.

### Real Estate Operations

Revenue from real estate operations increased to $4,125,000 for the three months ended March 31, 2024 from $3,932,000 for the three months ended March 31, 2023 primarily due to decrease in vacancy at its Missouri property which is rebranding and was undergoing renovation. Real estate operating expenses decreased to $2,612,000 from $2,770,000 year over year primarily due to decreased repairs and maintenance. Management continues to review and analyze the Company’s real estate operations to improve occupancy and rental rates and to reduce expenses and improve efficiencies.

### Investment Transactions

The Company had a net loss on marketable securities of $811,000 for the three months ended March 31, 2024 compared to a net gain on marketable securities of $866,000 for the three months ended March 31, 2023. For the three months ended March 31, 2024, the Company had a net realized gain of $9,000 and a net unrealized loss of $820,000. For the three months ended March 31, 2023, the Company had a net unrealized loss of $363,000. 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.

### Nine Months Ended March 31, 2024 Compared to Nine Months Ended March 31, 2023

The Company had net loss of $7,634,000 for the nine months ended March 31, 2024 compared to net income of $752,000 for the nine months ended March 31, 2023. The increase in loss is primarily attributable to a decrease in rooms revenues and increased operating expenses and interest expense, offset in part by increased food and beverage revenues.

### Hotel Operations

The Company had net loss from Hotel operations of $4,242,000 for the nine months ended March 31, 2024 compared to net loss of $639,000 for the nine months ended March 31, 2023. The increase in loss is primarily attributable to the decrease in rooms revenues, an increased operating expenses.

The following table sets forth a more detailed presentation of Hotel operations for the nine months ended March 31, 2024 and 2023:

| For the nine months ended March 31, Hotel revenues: | 2024 | 2023 |
| --- | ---: | ---: |
| Hotel rooms | $26,982,000 | $28,020,000 |
| Food and beverage | 2,523,000 | 1,905,000 |
| Garage | 2,243,000 | 2,148,000 |
| Other operating departments | 328,000 | 559,000 |
| Total hotel revenues | 32,076,000 | 32,632,000 |
| Operating expenses excluding depreciation and amortization | (27,925,000) | (26,445,000) |
| Operating income before interest expense, depreciation and amortization | 4,151,000 | 6,187,000 |
| Interest expense - mortgage | (5,796,000) | (4,871,000) |
| Depreciation and amortization expense | (2,597,000) | (1,955,000) |
| Net loss from Hotel operations | $(4,242,000) | $(639,000) |

For the nine months ended March 31, 2024, the Hotel had operating income of $4,151,000 before interest expense, depreciation, and amortization on total operating revenues of $26,982,000 compared to operating income of $6,187,000 before interest expense, depreciation, and amortization on total operating revenues of $28,020,000 for the nine months ended March 31, 2023. For the nine months ended March 31, 2024, room revenues decreased by $1,038,000, food and beverage revenue increased by $618,000, and garage revenue increased by $95,000, compared to the nine months ended March 31, 2023. Total operating expenses increased by $1,480,000 due to increase in room amenities and booking commissions, 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 nine months ended March 31, 2024 and 2023.

| Nine Months Ended December 31, | Average Daily Rate | Average Occupancy % | RevPAR |
| --- | ---: | ---: | ---: |
| **2024** | $219 | 82% | $180 |
| **2023** | $221 | 85% | $188 |

The Hotel’s revenues decreased by 2% for the nine months ended March 31, 2024 as compared to the nine months ended March 31, 2023. Average daily rate decreased by $2, average occupancy decreased by 3%, and RevPAR decreased by $8 for the nine months ended March 31, 2024 compared to the nine months ended March 31, 2023. The figures reflected in this table are negatively impacted by approximately 52-78 guest rooms taken out of order at any given time in to allow for their renovation which started in November 2022 and is scheduled to be completed by June 2024.

### Real Estate Operations

Revenue from real estate operations increased to $12,638,000 for the nine months ended March 31, 2024 from $11,991,000 for the nine months ended March 31, 2023. Real estate operating expenses increased to $7,774,000 from $7,695,000 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 $164,000 for the nine months ended March 31, 2024 compared to a net gain on marketable securities of $1,440,000 for the nine months ended March 31, 2023. For the nine months ended March 31, 2024, the Company had a net realized gain of $1,374,000 and a net unrealized loss of $1,210,000. For the nine months ended March 31, 2023, the Company had a net realized loss of $1,019,000 and a net unrealized gain of $2,459,000.

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 March 31, 2024 and June 30, 2023 by selected industry groups:

| As of March 31, 2024 Industry Group | Fair Value | % of Total Investment Securities |
| --- | ---: | ---: |
| REITs and real estate companies | $4,190,000 | 29% |
| Communication services | 2,396,000 | 16% |
| Financial services | 4,967,000 | 34% |
| Technology | 719,000 | 5% |
| Consumer defensive | 125,000 | 1% |
| T-Notes | 925,000 | 6% |
| Basic material | 109,000 | 1% |
| Healthcare | 212,000 | 1% |
| Utilities | 346,000 | 2% |
| Energy | 250,000 | 2% |
| Industrial | 390,000 | 3% |
| Other | 55,000 | 0% |
|  | $14,684,000 | 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 March 31, 2024, the Company’s investment portfolio is diversified with 42 different equity positions. The Company held three equity securities that comprised more than 10% of the equity value of the portfolio each. The largest security position represents 30% of the portfolio and consists of the common stock of Berkshire Hathaway Inc. (NYSE: BRKA) which is included in the financial 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 represented 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 March 31, | 2024 | 2023 |
| --- | ---: | ---: |
| Net (loss) gain on marketable securities | $(811,000) | $866,000 |
| Dividend and interest income | 63,000 | 72,000 |
| Trading and management expenses | (430,000) | (473,000) |
| Net (loss) gain from investment transactions | $(1,178,000) | $465,000 |

| For the nine months ended March 31, | 2024 | 2023 |
| --- | ---: | ---: |
| Net gain on marketable securities | $164,000 | $1,440,000 |
| Dividend and interest income | 333,000 | 369,000 |
| Trading and management expenses | (1,133,000) | (1,182,000) |
| Net (loss) gain from investment transactions | $(636,000) | $627,000 |

### FINANCIAL CONDITION AND LIQUIDITY

The Company had cash and cash equivalents of $7,763,000 and $5,960,000 as of March 31, 2024 and June 30, 2023, respectively. The Company had restricted cash of $4,225,000 and $6,914,000 as of March 31, 2024 and June 30, 2023, respectively. The Company had marketable securities, net of margin due to securities brokers, of $11,717,000 and $15,328,000 as of March 31, 2024 and June 30, 2023, respectively. These marketable securities are short-term investments and liquid in nature.

On April 27, 2020, InterGroup entered into a loan agreement (“SBA Loan - InterGroup”) with CIBC Bank USA under the CARES Act and received loan proceeds in the amount of $453,000. As of March 31, 2021, InterGroup had used all of the $453,000 loan proceeds in qualified payroll expenses. The SBA Loan – InterGroup was scheduled to mature on April 27, 2022 and had a 1.00% interest rate. The SBA Loans are subject to the terms and conditions applicable to loans administered by the U.S. Small Business Administration under the CARES Act. If the SBA approves the forgiveness amount, all payments of principal and interest are deferred until the date the forgiveness amount is remitted by the SBA to CIBC. If the SBA does not forgive any amount of the loan, payments would start within 30 days. All unforgiven portion of the principal and accrued interest will be due at maturity. In March of 2021 the SBA had forgiven the full $453,000 of the SBA Loan. In February 2024 InterGroup repaid the loan after an eligibility investigation took place concluding the type of business was ineligible for the loan.

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, with interest only payable 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 modification fee for the increased borrowing of $10,000,000 payable to InterGroup. In March 2024, Portsmouth and InterGroup entered in a loan modification agreement which increased Portsmouth’s borrowing amount to $30,000,000. During the nine months ended March 31, 2024, Portsmouth borrowed an additional $4,400,000 to fund its hotel operations. As of March 31, 2024 the balance of the loan was $20,100,000 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 March 31, 2024, the outstanding balance consists of a senior mortgage loan and mezzanine loan totaling $106,045,000. Both loans matured on January 1, 2024 and were extended to January 1, 2025 on April 29, 2024 through Forbearance Agreements. In addition, the Hotel has recurring losses and has an accumulated deficit of $112,724,000 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.

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. 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. On January 10, 2024, the Company filed the required Form 8-K with the Securities and Exchange Commission. 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 March 31, 2024, there were no delinquent amounts due to the senior or mezzanine lenders. On April 29, 2024, the Company entered into forbearance agreements with its senior and mezzanine lenders which establishes, among other customary terms, the new maturity date of January 1, 2025 (see Note 11 - Subsequent Events). While the Company successfully entered into the aforementioned forbearance agreements, we continue our efforts to place a longer term refinancing solution to its current senior mortgage and mezzanine debt with potential lenders. 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.

In 2018-2019 the Company completed major improvements to its Hotel, 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 402 guestrooms as of March 31, 2024. Hotel improvements are ongoing to remain competitive in this challenging San Francisco market and we anticipate completing the guestroom renovations by mid-June 2024. Once the Company completes its full renovation, management anticipates its high occupancy to continue and its average daily rates to increase as a result of the updated product. Additionally, the Company anticipates that total revenues will also increase as the hotel has had at least three levels or approximately 75 guest rooms out of service since November 2022 in order to be renovated. While we have no assurances that the financial markets will improve, we are cautiously optimistic about our ability to improve our revenues upon the completion of our renovation and the recovery of the San Francisco market. Additionally, there are major changes in the political landscape in San Francisco and a Mayor election this year that we believe could improve the overall condition of the City of San Francisco as a whole.

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 March 31, 2024, the Company’s material financial obligations which also includes interest payments.

|  | Total | 3 Months 2024 | Year 2025 | Year 2026 | Year 2027 | Year 2028 | Thereafter |
| --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: |
| Mortgage and subordinated notes payable | $195,370,000 | $300,000 | $115,363,000 | $1,162,000 | $3,296,000 | $1,770,000 | $73,479,000 |
| Other notes payable | 2,529,000 | 142,000 | 567,000 | 567,000 | 463,000 | 317,000 | 473,000 |
| Interest | 27,119,000 | 2,698,000 | 3,259,000 | 2,752,000 | 2,645,000 | 2,648,000 | 13,117,000 |
| Total | $225,018,000 | $3,140,000 | $119,189,000 | $4,481,000 | $6,404,000 | $4,735,000 | $87,069,000 |

### 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 nine months ended March 31, 2024.

### 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 March 31, 2024 and 2023 represents primarily the combined income tax effect of Portsmouth’s pretax loss which includes the net loss from the Hotel and the pre-tax loss from InterGroup (standalone). InterGroup and Portsmouth file their respective income tax returns on a calendar year basis.

### 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 nine months ended March 31, 2024 and 2023, 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, 2,275 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 consultant 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 May 14, 2024.
Source: SEC EDGAR, the filing index for accession 0001493152-24-019168. Last ingested by Listed: Oct 24, 2026, 14:53 ET. No prices; not investment advice.