INTG Intergroup Corp - 10-K

Item 1A. Risk Factors.

Adverse changes in the U.S. and global economies could adversely affect our financial performance.

Due to a number of factors affecting consumers, the outlook for the lodging industry remains uncertain. These factors have, at times, resulted in fewer customers visiting San Francisco or in reduced customer spending as compared to prior periods, and may do so again. The current macroeconomic environment, including risks of a U.S. or global recession, has resulted in many businesses reducing or eliminating typical travel and group meetings as a conservative measure in times of financial uncertainty. Leisure travel and other leisure activities represent discretionary expenditures, and participation in such activities tends to decline during economic downturns, during which consumers generally have less disposable income. As a result, customer demand for the amenities and leisure activities that we offer may decline during such periods. Furthermore, during periods of economic contraction, revenues may decrease while some of our costs remain fixed or even increase, resulting in decreased earnings.

Weakened global economic conditions may adversely affect our industry, business, and results of operations.

Our overall performance depends in part on worldwide economic conditions, which could adversely affect the tourism industry. According to current economic news reports, the United States and other key international economies may enter into a recession or experience prolonged periods of slow growth, characterized by falling demand for a variety of goods and services, restricted credit, going concern threats to financial institutions, major multinational companies and medium and small businesses, poor liquidity, declining asset values, reduced corporate profitability, and volatility in credit, equity and foreign exchange markets. These conditions affect discretionary and leisure spending and could adversely affect our customers’ ability or willingness to travel to destinations for leisure and cut back on discretionary business travel, which could adversely affect our operating results. In addition, in a weakened economy, companies that have competing properties may reduce room rates and other prices which could also reduce our average revenues and harm our operating results.

Exposure to the San Francisco market through our majority-owned subsidiary could adversely affect our consolidated results, cash flows and financial condition.

Through our majority-owned subsidiary, Portsmouth Square, Inc. (“Portsmouth”), we own a single hotel property in San Francisco, California (the Hilton San Francisco Financial District). While InterGroup is not a single-asset company—we also own and operate a diversified portfolio of multifamily and commercial real estate and hold investment securities—the Hotel represents a significant component of our consolidated revenues and cash flows. As a result, adverse conditions in the San Francisco Bay Area—including local economic trends, business-travel and convention activity, competitive dynamics, public safety or municipal issues, natural disasters (including earthquakes), climate-related impacts, and public health events—could materially reduce Hotel operating results and, in turn, negatively impact our consolidated results of operations, liquidity, and cash flows.

Prolonged weakness in the San Francisco market could also limit cash available at Portsmouth for debt service, required reserves, or capital expenditures, which may restrict upstream distributions to InterGroup and constrain our corporate capital allocation. Although our other real estate investments and securities provide diversification, they do not eliminate the concentration risk inherent in our Hotel segment’s reliance on a single urban market. See also “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” and Note 10 – Mortgage Notes Payable.

We face intense local and increasingly national competition which could impact our operations and adversely affect our business and the results of operations .

We operate in the highly competitive San Francisco hotel industry. The Hotel competes with other high-quality Northern California hotels and resorts. Many of these competitors seek to attract customers to their properties by providing food and beverage outlets, retail stores and other related amenities, in addition to recently renovated hotel accommodations. To the extent that we seek to enhance our revenue base by offering our own various amenities, we compete with the service offerings provided by these competitors.

Many of the competing properties have themes and attractions which draw a significant number of visitors and directly compete with our operations. Some of these properties are operated by subsidiaries or divisions of large public companies that may have greater name recognition and financial and marketing resources than we do and market to the same target demographic group as we do. Various competitors are expanding and renovating their existing facilities. We believe that competition in the San Francisco hotel and resort industry is based on certain property-specific factors, including overall atmosphere, range of amenities, price, location, technology infrastructure, entertainment attractions, theme and size. Any market perception that we do not excel with respect to such property-specific factors could adversely affect our ability to compete effectively. If we fail to respond effectively to changes in market conditions, customer preferences, or competitor strategies – including pricing actions, loyalty programs, and digital marketing initiatives, we could lose market share, which could adversely affect our business, revenues, and results of operations.

The San Francisco hotel and resort industry is capital intensive; financing our renovations and future capital improvements could reduce our cash flow and adversely affect our financial performance.

The Hotel has an ongoing need for renovations and other capital improvements to remain competitive, including replacement, from time to time, of furniture, fixtures and equipment. We will also need to make capital expenditures to comply with applicable laws and regulations.

Renovations and other capital improvements of hotels require significant capital expenditures. In addition, renovations and capital improvements of hotels usually generate little or no cash flow until the project’s completion. We may not be able to fund such projects solely from cash provided from our operating activities. Consequently, we will rely upon the availability of debt or equity capital and reserve funds to fund renovations and capital improvements and our ability to carry them out will be limited if we cannot obtain satisfactory debt or equity financing, which will depend on, among other things, market conditions. No assurances can be made that we will be able to obtain additional equity or debt financing or that we will be able to obtain such financing on favorable terms. In addition, labor shortages, supply chain disruptions, inflationary pressures on materials and services, and increased regulatory requirements related to environmental sustainability or climate-resilient construction could further escalate costs or extend project timelines.

Renovations and other capital improvements may give rise to the following additional risks, among others: construction cost overruns and delays; increased prices of materials due to tariffs; temporary closures of all or a portion of the Hotel to customers; disruption in service and room availability causing reduced demand, occupancy and rates; and possible environmental issues.

As a result, renovations and any other future capital improvement projects may increase our expenses, reduce our cash flows and our revenues. If capital expenditures exceed our expectations, this excess would have an adverse effect on our available cash. Significant delays or cost overruns could also impact our ability to maintain competitive standards and customer satisfaction, potentially reducing revenues.

We have substantial debt, and we may incur additional indebtedness, which may negatively affect our business and financial results.

We have substantial debt service obligations. Our substantial debt may negatively affect our business and operations in several ways, including: requiring us to use a substantial portion of our funds from operations to make required payments on principal and interest, which will reduce funds available for operations and capital expenditures, future business opportunities and other purposes; making us more vulnerable to economic and industry downturns and reducing our flexibility in responding to changing business and economic conditions; limiting our flexibility in planning for, or reacting to, changes in the business and the industry in which we operate; placing us at a competitive disadvantage compared to our competitors that have less debt; limiting our ability to borrow more money for operations, capital or to finance acquisitions in the future; and requiring us to dispose of assets, if needed, in order to make required payments of interest and principal. In addition, increases in interest rates, changes in credit market conditions, or a downgrade of our creditworthiness could increase our borrowing costs or limit our access to additional financing. If we are unable to refinance existing debt on acceptable terms or at all, we may need to reduce or delay capital expenditures, asset improvements, or strategic initiatives, which could negatively affect our competitive position and financial performance.

Limited guaranties and “springing recourse” events under the Hotel financing could expose InterGroup or Portsmouth to liability.

The Hotel’s senior mortgage and amended mezzanine loans are generally non-recourse to the borrower subsidiaries, except for customary non-recourse carve-outs (e.g., fraud, willful misconduct, misapplication of funds, certain prohibited transfers, and environmental indemnities) and specified “springing recourse” events. Portsmouth and InterGroup have provided limited guaranties of these recourse obligations. While no such events have occurred as of June 30, 2025, the occurrence of a defined recourse event could increase our exposure and have a material adverse effect on liquidity or financial condition.

Our business model involves high fixed costs, including property taxes and insurance costs, which we may be unable to adjust in a timely manner in response to a reduction in our revenues.

The costs associated with owning and operating the Hotel are significant. Some of these costs (such as property taxes and insurance costs) are fixed, meaning that such costs may not be altered in a timely manner in response to changes in demand for services. Failure to adjust our expenses may adversely affect our business and results of operations. Our real property taxes may increase as property tax rates change and as the values of properties are assessed and reassessed by tax authorities. Our real estate taxes do not depend on our revenues, and generally we could not reduce them other than by disposing of our real estate assets.

Insurance premiums have increased significantly in recent years, and continued escalation may result in our inability to obtain adequate insurance at acceptable premium rates. A continuation of this trend would appreciably increase the operating expenses of the Hotel. If we do not obtain adequate insurance, to the extent that any of the events not covered by an insurance policy materialize, our financial condition may be materially adversely affected. Further, factors such as climate change, extreme weather events, and increased litigation risk have contributed to rising insurance premiums and reduced coverage availability in certain markets, including California. Limited insurance options or higher costs could pressure our operating margins and cash flows.

In the future, our property may be subject to increases in real estate and other tax rates, utility costs, operating expenses, insurance costs, repairs and maintenance and administrative expenses, which could reduce our cash flow and adversely affect our financial performance. If our revenues decline and we are unable to reduce our expenses in a timely manner, our business and results of operations could be adversely affected.

Risk of declining market values in marketable securities.

The Company invests from time to time in marketable securities. As a result, the Company is exposed to market volatility in connection with these investments. The Company’s financial position and financial performance could be adversely affected by worsening market conditions or sluggish performance of such investments. Factors such as interest rate fluctuations, geopolitical events, changes in credit ratings, and overall capital market volatility could also lead to unrealized or realized losses in our investment portfolio. In addition, a prolonged decline in market values could reduce our liquidity or our ability to meet certain financial covenants, and changes in fair value of equity securities are recognized in earnings, which can increase the volatility of our reported results.

Illiquidity risk in nonmarketable securities.

Nonmarketable securities are, by definition, instruments that are not readily salable in the capital markets, and when sold are usually at a substantial discount. Thus, the holder is limited to return on investment from any income producing feature of the instrument, as any sale of such an instrument would be subject to a substantial discount. Thus, a holder may need to hold such instruments for a longer period of time and may be unable to liquidate the investment without incurring a substantial loss if cash is needed on short notice. This lack of liquidity could adversely affect our ability to respond to changing market conditions or to reallocate capital to other strategic opportunities.

Litigation and legal proceedings could expose us to significant liabilities and thus negatively affect our financial results.

We are a party, from time to time, to various litigation claims and legal proceedings, government and regulatory inquiries and/or proceedings, including, but not limited to, intellectual property, premises liability and breach of contract claims. Material legal proceedings are described more fully in Note 17, Commitments and Contingencies, to our consolidated financial statements, included in Item 8 of this Annual Report on Form 10-K.

Litigation is inherently unpredictable and defending these proceedings can result in significant ongoing expenditures and the diversion of our management’s time and attention from the operation of our business, which could have a negative effect on our business operations. Our failure to successfully defend or settle any litigation or legal proceedings could result in liabilities that, to the extent not covered by our insurance, could have a material adverse effect on our financial condition, revenue and profitability. In addition, regulatory investigations or enforcement actions could result in fines, penalties, or other sanctions, some of which may not be covered by insurance. Any adverse publicity resulting from litigation or regulatory matters could also harm our brand reputation and customer relationships, further impacting revenues.

The threat of terrorism could adversely affect the number of customer visits to the Hotel .

The threat of terrorism has caused, and may in the future cause, a significant decrease in customer visits to San Francisco due to disruptions in commercial and leisure travel patterns and concerns about travel safety. We cannot predict the extent to which disruptions in air or other forms of travel as a result of any further terrorist act, outbreak of hostilities or escalation of war would adversely affect our financial condition, results of operations or cash flows. The possibility of future attacks may hamper business and leisure travel patterns and, accordingly, the performance of our business and our operations. Moreover, other security-related risks – including cybersecurity threats impacting travel infrastructure, domestic or international civil unrest, and geopolitical tensions – could have similar adverse effects on travel demand and hotel occupancy levels.

We depend in part, on third-party management companies for the future success of our business and the loss of one or more of their key personnel could have an adverse effect on our ability to manage our business and operate successfully and competitively or could be negatively perceived in the capital markets.

The Hotel is managed by Aimbridge. Their ability to manage the Hotel and to operate successfully and competitively is dependent, in part, upon the efforts and continued service of their managers. The departure of key personnel of current or future management companies could have an adverse effect on our business and our ability to operate successfully and competitively, and it could be difficult to find replacements for these key personnel, as competition for such personnel is intense. In addition, the termination or non-renewal of our management agreement, changes in the terms of such agreement, or the failure of our management company to meet performance expectations could materially impact our operations. Lack of a robust succession plan for management personnel could also heighten our operations risk in the event of unexpected departures.

Seasonality and other related factors such as weather can be expected to cause quarterly fluctuations in revenue at the Hotel.

The hotel and resort industry is seasonal in nature. This seasonality can tend to cause quarterly fluctuations in revenues at the Hotel. Our quarterly earnings may also be adversely affected by other related factors outside our control, including weather conditions and poor economic conditions. Changes in climate patterns, including more frequent or severe weather events, could alter historical seasonal demand trends or disrupt travel plans. As a result, we may have to enter into short-term borrowings in certain quarters in order to offset these quarterly fluctuations in our revenues. If weather-related or climate-related events become more frequent or severe, the impact on occupancy and average daily rates could be greater than historical experience suggests.

The hotel industry is heavily regulated and failure to comply with extensive regulatory requirements may result in an adverse effect on our business.

The hotel industry is subject to extensive regulation and the Hotel must maintain its licenses and pay taxes and fees to continue operations. Our property is subject to numerous laws, including those relating to the preparation and sale of food and beverages, including alcohol. We are also subject to laws governing our relationship with our employees in such areas as minimum wage and maximum working hours, overtime, working conditions, hiring and firing employees and work permits. Also, our ability to remodel, refurbish or add to our property may be dependent upon our obtaining necessary building permits from local authorities. The failure to obtain any of these permits could adversely affect our ability to increase revenues and net income through capital improvements of our property. In addition, we are subject to the numerous rules and regulations relating to state and federal taxation. Compliance with these rules and regulations requires significant management attention. Furthermore, compliance costs associated with such laws, regulations and licenses are significant. Any change in the laws, regulations or licenses applicable to our business or a violation of any current or future laws or regulations applicable to our business could require us to make substantial expenditures or could otherwise negatively affect the hotel’s operations. We are also subject to environmental, health, safety, accessibility, and privacy regulations, as well as increasing expectations for environmental, social, and governance (ESG) disclosures and performance. Failure to comply with any of these requirements, or changes in regulatory standards, could result in fines, penalties, litigation, or restrictions on our operations.

Violations of laws could result in, among other things, disciplinary action. If we fail to comply with regulatory requirements, this may result in an adverse effect on our business. In addition, heightened regulatory scrutiny or enforcement actions could divert management’s attention and resources, impacting our financial performance.

Uninsured and underinsured losses could adversely affect our financial condition and results of operations.

There are certain types of losses, generally of a catastrophic nature, such as earthquakes and floods or terrorist acts, which may be uninsurable or not economically insurable, or may be subject to insurance coverage limitations, such as large deductibles or co-payments. We will use our discretion in determining amounts, coverage limits, deductibility provisions of insurance and the appropriateness of self-insuring, with a view to maintaining appropriate insurance coverage on our investments at a reasonable cost and on suitable terms. Uninsured and underinsured losses could harm our financial condition and results of operations. We could incur liabilities resulting from loss or injury to the Hotel or to persons at the Hotel. Claims, whether or not they have merit, could harm the reputation of the Hotel or cause us to incur expenses to the extent of insurance deductibles or losses in excess of policy limitations, which could harm our results of operations. Moreover, recent trends in the insurance market have resulted in reduced coverage availability and higher premiums for catastrophic risks, particularly in California. Climate change, extreme weather events, and geopolitical instability could further pressure insurance capacity and costs.

In the event of a catastrophic loss, our insurance coverage may not be sufficient to cover the full current market value or replacement cost of our lost investment. Should an uninsured loss or a loss in excess of insured limits occur, we could lose all or a portion of the capital we have invested in the Hotel, as well as the anticipated future revenue from the property. In that event, we might nevertheless remain obligated for any mortgage debt or other financial obligations related to the Hotel. In the event of a significant loss, our deductible may be high, and we may be required to pay for all such repairs and, therefore, it could materially adversely affect our financial condition. Inflation, changes in building codes and ordinances, environmental considerations and other factors might also keep us from using insurance proceeds to replace or renovate the Hotel after it has been damaged or destroyed. Under those circumstances, the insurance proceeds we receive might be inadequate to restore our economic position on the damaged or destroyed property.

It has generally become more difficult and expensive to obtain property and casualty insurance, including coverage for terrorism. When our current insurance policies expire, we may encounter difficulty in obtaining or renewing property or casualty insurance on our property at the same levels of coverage and under similar terms. Such insurance may be more limited and for some catastrophic risks (for example, earthquake, flood and terrorism) may not be generally available at current levels. Even if we can renew our policies or to obtain new policies at levels and with limitations consistent with our current policies, we cannot be sure that we will be able to obtain such insurance at premium rates that are commercially reasonable. If we were unable to obtain adequate insurance on the Hotel for certain risks, it could cause us to be in default under specific covenants on certain of our indebtedness or other contractual commitments that require us to maintain adequate insurance on the Hotel to protect against the risk of loss. If this were to occur, or if we were unable to obtain adequate insurance and the Hotel experienced damage which would otherwise have been covered by insurance, it could materially adversely affect our financial condition and the operations of the Hotel.

In addition, insurance coverage for the Hotel and for casualty losses does not customarily cover damages that are characterized as punitive or similar damages. As a result, any claims or legal proceedings, or settlement of any such claims or legal proceedings that result in damages that are characterized as punitive or similar damages may not be covered by our insurance. If these types of damages are substantial, our financial resources may be adversely affected. We may also face gaps in coverage for newly emerging risks, such as pandemic-related business interruptions or cybersecurity-related losses, if insurers restrict or exclude such coverage in future policies.

Cybersecurity risks could disrupt our operations and adversely affect our business, even though no material incidents have occurred.

We rely on information technology systems, including those provided by third parties, to conduct our operations and maintain data integrity. A significant cybersecurity incident, such as a data breach, ransomware attack, or other network disruption, could adversely affect our operations, financial condition, and reputation. While we maintain cybersecurity risk management programs as described in Item 1C – Cybersecurity and did not experience any material cybersecurity incidents during the fiscal year ended June 30, 2025, there can be no assurance that future threats will not occur or that any such events would not have a material adverse impact.

You may lose all or part of your investment.

There is no assurance that the Company’s initiatives to improve its profitability or liquidity and financial position will be successful. If we are unable to successfully implement our strategic initiatives, respond to changing market conditions, or address operational challenges, our business and financial performance could deteriorate. In addition, external factors – including economic downturns, competitive pressures, regulatory changes, and uninsured losses – could also lead to a decline in the value of your investment, including the possibility of a total loss.

The price of the Company’s common stock may fluctuate significantly, which could negatively affect the Company and holders of its common stock.

The market price of the Company’s common stock may fluctuate significantly from time to time as a result of many factors, including: investors’ perceptions of the Company and its prospects; investors’ perceptions of the Company’s and/or the industry’s risk and return characteristics relative to other investment alternatives; differences between actual financial and operating results and those expected by investors and analysts; changes in our capital structure; trading volume fluctuations; actual or anticipated fluctuations in quarterly financial and operational results; volatility in the equity securities market; and sales, or anticipated sales, of large blocks of the Company’s common stock. Other factors that could cause volatility include changes in macroeconomic conditions, interest rate movements, regulatory developments, geopolitical events, and reduced liquidity in our stock. Significant volatility in our stock price could also impact our ability to raise capital on favorable terms or at all.

The concentrated beneficial ownership of our common stock and the ability it affords to control our business may limit or eliminate other shareholders’ ability to influence corporate affairs .

The Company’s President, Chief Executive Officer, and Chairman of the Board of Directors, John V. Winfield is a 70.1% beneficial shareholder of the Company. Because of this concentrated stock ownership, Mr. Winfield will be able to significantly influence the election of the Company’s board of directors and all other decisions on all matters requiring shareholder approval. As a result, the ability of other shareholders to determine the management and policies of the Company is significantly limited. The interests of the Company’s largest shareholder may differ from the interests of other shareholders with respect to the issuance of shares, business transactions with or sales to other companies, selection of officers and directors and other business decisions. This level of control may also have an adverse impact on the market value of our shares because our largest shareholder may institute or undertake transactions, policies or programs that may result in losses, may not take any steps to increase our visibility in the financial community and/or may sell enough shares to significantly decrease our price per share. Furthermore, this concentration of ownership could delay or prevent a change in control that other shareholders may view as beneficial, and could reduce the marketability or liquidity of our common stock. Minority shareholders may have limited recourse to influence corporate decisions, including those relating to mergers, acquisitions, or other strategic transactions.

Our financial statements do not reflect market values of our real estate; therefore, our book equity may understate (or overstate) the value realizable upon sale.

GAAP requires us to carry real estate at historical cost less accumulated depreciation and impairment. We do not mark our properties to market. Consequently, our reported asset values and shareholders’ equity may differ significantly from amounts that could be realized in a current market sale. We have not obtained portfolio-wide third-party appraisals. Any monetization would be subject to market conditions, buyer demand, due diligence findings, transaction costs and taxes, and may result in proceeds that are materially lower (or higher) than carrying value.

Many of the risk factors described above should be read in conjunction with the cautionary statement regarding forward-looking statements contained in Item 7: Management’s Discussion and Analysis of Financial Condition and Results of Operations and in the ‘Forward-looking Statements’ section of this Annual Report on Form 10-K.

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the accompanying consolidated financial statements, related notes included thereto and Item 1A - “Risk Factors,” appearing elsewhere in this Annual Report on Form 10-K. Under the SEC’s Item 303 modernization, we have omitted a discussion of the earlier year. For a comparison of fiscal 2024 to fiscal 2023, refer to Item 7 – “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report of Form 10-K for the year ended June 30, 2024, which is incorporated herein by reference.

MARKET CONDITIONS IN SAN FRANCISCO

We continue to monitor the San Francisco lodging market, including changes in business travel, convention activity, tourism, public safety initiatives, and broader economic conditions. Demand trends are influenced by the region’s technology sector, convention and group calendars, and overall macroeconomic conditions. Management evaluates these trends and related uncertainties when planning pricing, sales and marketing, and capital allocation strategies. See “Risk Factors” for a discussion of factors that could adversely affect demand for our Hotel.

REAL ESTATE

Real estate carried at historical cost; book values may understate economic value. Our consolidated financial statements are prepared in accordance with U.S. GAAP, which requires real estate to be carried at historical cost less accumulated depreciation and, where applicable, impairment. We do not record increases in the fair value of our properties to reflect market conditions or replacement cost. As a result, the carrying values of certain long-held assets may be significantly lower than their estimated market values. Management believes the intrinsic value of the Company—driven in part by the long holding periods of many properties and relatively modest mortgage balances on those assets—is not fully reflected in the historical cost basis presented on our balance sheet. These views are qualitative in nature; we have not obtained portfolio-wide third-party appraisals and do not undertake to do so. Actual realizable values are subject to market conditions, property-specific factors, transaction costs and taxes, and may differ materially from management’s views.

RESULTS OF OPERATIONS

As of June 30, 2025, the Company owned approximately 75.9% 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 are 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.

Fiscal Year Ended June 30, 2025, Compared to Fiscal Year Ended June 30, 2024

For the fiscal year ended June 30, 2025, the Company reported a net loss of $7,547,000, compared to a net loss of $12,556,000 for the year ended June 30, 2024. Income from operations was $7,643,000 in fiscal 2025, an increase from $1,454,000 for the year ended June 30, 2024. Losses from marketable securities transactions totaled $2,502,000 for the year ended June 30, 2025, compared to losses of $1,633,000 for the year ended June 30, 2024. Interest expense increased to $13,556,000 for the year ended June 30, 2025, from $12,007,000 for the year ended June 30, 2024, an increase of $1,549,000, primarily due to higher interest costs associated with the Company’s Hotel operations.

Hotel Operations

The Company had a loss of $4,166,000 from Hotel operations for the year ended June 30, 2025 compared to a loss of $7,154,000 for the year ended June 30, 2024. The decrease in pre-tax loss for fiscal 2025 compared to fiscal 2024, was primarily attributable to increased hotel room revenues and to the refinancing-related waiver of default interest and forbearance fees from the mezzanine lender.  In connection with the March 2025 refinancing, the mezzanine lender waived certain previously accrued default interest and forbearance amounts; the Company recognized a $1.416 million gain on extinguishment of debt in fiscal 2025 in accordance with ASC 405-20.

The following tables set forth a more detailed presentation of Hotel operations for the years ended June 30, 2025 and 2024.

For the year ended June 30,

Hotel revenues:

Hotel rooms

Food and beverage

Garage

Other operating departments

Total Hotel revenues

Operating expenses excluding depreciation and amortization

Operating income before interest, depreciation and amortization

Gain on extinguishment of debt

Interest expense - mortgage

Depreciation and amortization expense

Net loss from Hotel operations

For the year ended June 30, 2025, the Hotel had operating income of $8,732,000 before interest, depreciation, and amortization on total operating revenues of $46,363,000. The following table sets forth the monthly average occupancy percentage of the Hotel for the fiscal years ended June 30, 2025 and 2024.

Month

Jul

Aug

Sep

Oct

Nov

Dec

Jan

Feb

Mar

Apr

May

Jun

Fiscal Year

Year

Average Occupancy %

Year

Average Occupancy %

Total operating expenses increased by $1,492,000 due to increases in union salaries and wages, Hilton marketing and guest loyalty fees, credit card fees, and travel agent and group commissions.

The following table sets forth the average daily room rate, average occupancy percentage and room revenue per available room (“RevPAR”) of the Hotel for the year ended June 30, 2025 and 2024.

For the Year Ended June 30,

Average

Daily Rate

Average

Occupancy %

RevPAR

The Hotel’s revenues increased by 10% year over year. Average daily rate increased by $1, average occupancy increased 10%, and RevPAR increased by $23 for the twelve months ended June 30, 2025 compared to the twelve months ended June 30, 2024.

Real Estate Operations

Revenues from real estate operations increased to $18,015,000 in fiscal 2025 and $16,254,000 in fiscal 2024, primarily as the result of higher occupancy and increased rental rates. Real estate operating expenses decreased to $9,550,000 from $9,836,000 primarily due to a decrease in vacancy at our Missouri property, which rebranding and is undergoing renovation. 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 $1,347,000 for the year ended June 30, 2025 compared to a net loss on marketable securities of $485,000 for the year ended June 30, 2024.

For the year ended June 30, 2025, the Company had a net realized loss of $329,000 and a net unrealized loss of $1,018,000. For the year ended June 30, 2024, the Company had a net realized gain of $1,251,000 and a net unrealized loss of $1,736,000.

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 is not necessarily predictive, and variations from period to period may have limited analytical value. For a more detailed description of the composition of the Company’s marketable securities see the Marketable Securities section below.

During the years ended June 30, 2025 and 2024, the Company performed an impairment analysis of its other investments and determined that its investments had other than temporary impairment and recorded impairment losses of $0 and $5,000, respectively.

The Company and its subsidiary Portsmouth compute and file income tax returns and prepare separate income tax provisions for financial reporting. Portsmouth does not record an income tax benefit from its pre-tax losses due to its continued operating losses in each of the past three consecutive taxable years.

MARKETABLE SECURITIES AND OTHER INVESTMENTS

As of June 30, 2025 and 2024, the Company had investments in marketable equity securities of $969,000 and $7,454,000, respectively. The following table shows the composition of the Company’s marketable securities portfolio by selected industry groups:

As of June 30, 2025

Industry Group

Fair Value

% of Total

Investment

Securities

REITs and real estate companies

Technology

As of June 30, 2024

Industry Group

Fair Value

% of Total

Investment

Securities

REITs and real estate companies

Communication services

T-Notes

Energy

Financial services

Healthcare

Utilities

Industrial

Basic materials

Technology

As of June 30, 2025 the Company’s investment portfolio was comprised of two different equity positions. The portfolio is concentrated, with one investment accounting for a significant majority of the total equity value. Specifically, the Company held common stock of American Realty Investors, Inc. (NASDAQ: ARL), which represented approximately 99% of the total equity investment portfolio as of the reporting date. American Realty Investors, Inc. is included in the REITs and real estate companies industry group.

As of June 30, 2024, the Company’s investment portfolio was diversified with 24 different equity positions. The Company holds two equity securities that comprised more than 10% of the equity value of the portfolio. The two largest security positions represent 28% and 22% of the portfolio and consist of the common stock of American Realty Investors, Inc. (NASDAQ: ARL) and Alphabet Inc. (NASDAQ: GOOG), which are included in the REITs and real estate companies and Communication Services, respectively

The following table shows the net loss on the Company’s marketable securities and the associated margin interest and trading expenses for the respective years.

For the years ended June 30,

Net loss on marketable securities

Impairment loss on other investments

Dividend and interest income

Margin interest expense

Trading expenses

Net loss from marketable securities operations

FINANCIAL CONDITION, LIQUIDITY AND CAPITAL SOURCES

As of June 30, 2025, the Company had total cash, cash equivalents, and restricted cash $15,195,000 (including $53,000 classified as held for sale) compared to $8,694,000 as of June 30, 2024. The Company also held marketable securities, net of margin balances, of $969,000, compared to $7,266,000 at June 30, 2024. These marketable securities are short-term and considered readily convertible to cash.

Parent Company (InterGroup) — Liquidity and Capital Resources

InterGroup’s liquidity is driven primarily by: (i) cash generated by its multifamily and commercial real estate portfolio; (ii) cash and cash equivalents held at the parent; (iii) proceeds from refinancings at InterGroup-owned properties; and (iv) limited amounts of marketable securities. Key expected uses of cash at the parent include corporate G&A, parent-level income taxes, debt service on InterGroup property-level mortgages, and capital expenditures for its multifamily and other real estate assets.

Parent cash sources and uses for the next twelve months include:

Real estate operations: Net operating cash flows from apartment and commercial properties, primarily in Texas and Los Angeles County, California.

Debt service and maturities: Scheduled principal and interest on InterGroup’s property-level mortgages, including recently modified loans in St. Louis (maturity June 5, 2028) and Florence, Kentucky (maturity January 2035). InterGroup evaluates additional refinancing opportunities to optimize liquidity and interest costs.

Capital expenditures: Routine unit turns and building systems maintenance; larger discretionary projects are prioritized based on expected returns and market conditions.

Investments and other: Limited marketable securities activity; InterGroup may opportunistically recycle capital via selective asset sales or refinancings, subject to market conditions.

InterGroup also provides liquidity to Portsmouth through an unsecured related-party revolving credit facility (see “Related Party Credit Facility – InterGroup”). The availability of this facility depends on InterGroup’s own cash, cash flows from operations, and financing capacity. If InterGroup’s liquidity were to be constrained, Portsmouth’s ability to draw on the facility could be limited. InterGroup’s Board (or Audit Committee) oversees related-party transactions in accordance with the Company’s policies and applicable SEC rules.

In February 2025, the Company initiated a plan to dispose of a non-core 12-unit multifamily property in Los Angeles and commenced active marketing in April 2025. The property was classified as held for sale at June 30, 2025. If completed, the sale would provide additional liquidity; the Company currently expects to use any net proceeds for general corporate purposes, which may include debt reduction, reinvestment in the real estate portfolio, and working capital. There is no assurance as to the timing, terms, or completion of the transaction. In the ordinary course of portfolio management, we may selectively dispose of non-core assets or recycle capital where we believe market pricing is attractive. Any such activity will depend on prevailing market conditions, property-level performance, tax consequences, and our capital allocation priorities. We can provide no assurance as to the timing, pricing, or completion of any disposition.

Nasdaq Listing Compliance. As discussed under Item 1A and Item 5, in July 2025 the Nasdaq Hearings Panel granted the Company an extension through September 30, 2025 to regain compliance with Nasdaq Listing Rule 5550(b)(2) (minimum MVLS). On September 17, 2025, the Company received confirmation from Nasdaq that the Company has regained compliance with Listing Rule 5550(b)(2). Nasdaq’s notice stated that, as of September 15, 2025, the Company had demonstrated 11 consecutive business days with a market value of listed securities above $35 million, thereby satisfying the requirement. As a result, the Panel granted the Company’s request for continued listing, and the matter is now closed.

Related Party Credit Facility – InterGroup

Portsmouth maintains an unsecured related-party revolving credit facility with its parent company, InterGroup, for contingency liquidity purposes; however, as of the date of this report Hotel operations have been self-funded and no incremental draws have been required to support operating needs. The facility, originally entered into in 2014 and subsequently modified, has undergone several amendments since inception.

Key modifications include:

December 2021: Portsmouth assumed $11.35 million in outstanding debt upon the dissolution of Justice Investors L.P.

July 2023: Increased available borrowings to $20,000,000 and extended maturity to July 31, 2025 with a 0.5% loan modification fee.

March 2024: Increased available borrowings to $30,000,000 with a 0.5% loan modification fee

March 2025: Further increased available borrowing capacity to $40,000,000 and extended the maturity to July 31, 2027.

May 2025: Reduction of interest rate from 12% to 9%.

The facility now bears 9% annual interest, is interest-only, and may be prepaid at any time without penalty. During the fiscal year ended June 30, 2025, Portsmouth borrowed an additional $11,615,000 to fund Hotel refinancing and Hotel operations. As of June 30, 2025, the outstanding balance was $38,108,000, and Portsmouth had not made any principal repayments. This facility remains a critical source of liquidity and flexibility for Portsmouth. See also Note 9 – Other Financing Transactions. All material intercompany accounts and transactions have been eliminated in consolidation.

Intergroup Real Estate – Recent Financing Activity

During the fiscal year ending June 30, 2025, the Company refinanced the mortgage on its 157-unit apartment located in Florence, Kentucky in the amount of $9,800,000. The term of the loan is approximately 10 years with an interest rate of 5.40%. The loan matures in January 2035. In May 2025 we amended the loan on our St. Louis, Missouri property, establishing a maturity of June 5, 2028. In May 2025 the Company made a principal reduction payment of $344,000.

During the fiscal year ending June 30, 2024, 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 an interest rate of 7.60%.

Liquidity Requirements and Material Cash Requirements

Material Cash Requirements

Our material cash requirements arise from (i) debt service and maturities on property-level mortgages within InterGroup’s real estate portfolio, (ii) recurring capital expenditures across our multifamily and commercial properties, (iii) corporate general and administrative costs and income taxes, and (iv) on a consolidated basis, debt service and required reserve deposits related to the Hilton San Francisco Financial District (the “Hotel”). See Note 2 – Liquidity, Note 10 – Mortgage Notes Payable, and Note 17 – Commitments and Contingencies.

Parent-level (InterGroup) liquidity and cash requirements

InterGroup’s liquidity is primarily supported by cash flows generated from its owned real estate portfolio (not Hotel operations), supplemented by cash on hand and, where appropriate, property-level financing. Historically, Portsmouth has paid only limited dividends to all of its shareholders, and none in the last 12 years; accordingly, we do not rely on Portsmouth or the Hotel for parent liquidity.

Near-term parent cash requirements include:

Debt service and required escrows on InterGroup’s property-level mortgages within the multifamily and commercial portfolio (see Note 10 for terms and maturities).

Recurring capital expenditures to maintain safety, habitability, and competitiveness of our properties. We expect to fund these primarily from property operating cash flows and, as needed, property-level financing.

Corporate G&A and income taxes.

Board-authorized share repurchases, if any, which are discretionary and subject to market conditions and liquidity.

Longer-term parent cash requirements include:

Scheduled mortgage maturities and potential refinancings within our real estate portfolio (see the contractual obligations table under “Material Contractual Obligations” in this MD&A and Note 10).

Value-add and repositioning capital for select properties, evaluated based on expected returns and available liquidity.

As of June 30, 2025, we had cash and cash equivalents of $5.1 million and marketable securities, net of margin balances, of $1.0 million (see Note 2 and Note 6). We also expect cash generated from real estate operations to continue to be our principal source of parent liquidity. We may from time to time consider asset sales, refinancings, or equity issuance (subject to Board and, if required, stockholder approval) as part of broader capital planning. See Note 9 for additional financing information.

Consolidated (including Portsmouth) liquidity and cash requirements

On a consolidated basis, our material cash requirements also include those of Portsmouth and the Hotel:

Hotel debt service consisting of interest-only payments on the senior mortgage loan with Prime Finance and the mezzanine loan with CRED REIT Holdco LLC, as well as required reserve deposits (taxes, insurance, and FF&E) and compliance with lender-approved budgets. See Note 10 – Mortgage Notes Payable for terms.

Cash Management Agreement. Under the Cash Management Agreement with Prime Finance and Wells Fargo Bank, all Hotel receipts are deposited into a lender-controlled account and disbursed for approved operating expenses, debt service and required reserves. A cash sweep applies during periods when DSCR thresholds are not met. These arrangements restrict upstream distributions from the Hotel until the applicable conditions are satisfied. See Note 17 – Commitments and Contingencies.

Given these restrictions and the Hotel’s current cash management framework, we do not budget for parent-level liquidity from Hotel cash flows.

Contractual obligations and maturities

A summary of our contractual obligations, including principal and interest by year, is presented in “Material Contractual Obligations” within this Item 7 and in Note 10 – Mortgage Notes Payable. We have no material off-balance sheet arrangements. See “Off-Balance Sheet Arrangements”.

Outlook

Based on current cash, expected cash flows from InterGroup’s real estate operations, and access to property-level financing, management believes existing liquidity sources are sufficient to meet parent-level material cash requirements for at least the next 12 months. On a consolidated basis, Portsmouth’s March 28, 2025 refinancing improved its maturity profile and liquidity; Portsmouth remains current on required debt service. Nonetheless, uncertainties remain, including interest-rate levels, operating costs, capital needs in our real estate portfolio, and, for the Hotel, San Francisco market conditions and loan covenant/DSCR requirements. We will continue to monitor these factors and adjust operating plans and capital allocation accordingly. See Note 2 – Liquidity and Risk Factors.

Management’s Liquidity Assessment

As further discussed in Note 2 – Liquidity, the Company has taken proactive steps to stabilize its liquidity profile, including:

Completion of a refinancing of its senior and mezzanine debt in March 2025,

Continuing cost controls and selective capital expenditure deferrals,

Strategic use of related party financing, and

Maintenance of a lender-controlled lockbox cash management system.

While management believes that current liquidity sources and available borrowing capacity will be sufficient to support near-term working capital needs—even in the event of continued pressure on hotel performance indicators such as occupancy and RevPAR—there can be no assurance that unforeseen market or operational conditions will not adversely affect the Company’s liquidity position.

From a parent-only perspective, InterGroup expects to fund its obligations primarily from real estate operating cash flows, property-level refinancings and sale of non-core properties depending on market conditions. Management monitors interest-rate and capital-markets conditions and may adjust capital allocation (including deferring discretionary capex or pursuing asset sales) to preserve liquidity.

As of March 28, 2025, the Hotel senior mortgage was refinanced and the mezzanine loan amended at the Portsmouth subsidiary level. The related cash-management/lockbox applies only to the Hotel loan structure; it does not restrict InterGroup’s non-Hotel properties. InterGroup is not the primary obligor on the Hotel financing and has provided only limited non-recourse “carve-out/springing recourse” guaranties (see Note 10 and ASC 460 discussion). Portsmouth’s Hotel operations are currently self-funded under the existing cash-management structure. See Item 15(a)(3) – Exhibits. The senior loan agreement, mezzanine loan amendment, and cash management agreement are incorporated by reference to Portsmouth Square, Inc.’s Form 10-K for the year.

The Company continues to evaluate strategic alternatives and operational adjustments in response to ongoing macroeconomic and market-specific challenges in San Francisco’s hospitality sector and broader multifamily markets.

Going Concern — Portsmouth (Subsidiary Only)

The going-concern uncertainty discussed below pertains solely to Portsmouth Square, Inc. (“Portsmouth”), the Company’s majority-owned subsidiary. InterGroup (parent) has not had a going-concern uncertainty.

In the Company’s June 30, 2024 Form 10-K and subsequent Form 10-Q, maturities of Portsmouth’s senior mortgage and mezzanine loans on January 1, 2024, together with related default notices, raised substantial doubt about Portsmouth’s ability to continue as a going concern.

On March 28, 2025, Portsmouth completed a comprehensive refinancing of its senior mortgage and modified its mezzanine loan, improving maturities, pricing and covenant profile. Since closing, Portsmouth has remained current on required debt service and continued property upgrades intended to support operating performance. In March 2025 and May 2025, Portsmouth’s related-party revolving credit facility with InterGroup was amended to increase capacity to $40,000,000, extend maturity to July 31, 2027, and reduce the interest rate to 9%, providing contingency liquidity (see Note 8 — Related-Party Financing). See Note 9 — Mortgage Notes Payable for loan terms.

Based on the refinancing and current forecasts for the twelve months following issuance, management concluded that the conditions and events that initially raised substantial doubt have been alleviated and that substantial doubt does not exist for Portsmouth as of issuance under ASC 205-40.

Market dynamics in San Francisco and broader macroeconomic factors—including potential pressure on occupancy and RevPAR—could adversely affect Portsmouth’s results and, indirectly, consolidated liquidity (e.g., through covenant or cash-management constraints on distributions). Management will continue to monitor conditions and adjust operations and capital allocation as necessary. See Note 1 — Basis of Presentation (Going Concern) for the Company’s detailed going-concern disclosure related to Portsmouth.

MATERIAL CASH REQUIREMENTS FROM CONTRACTUAL AND OTHER OBLIGATIONS

The following table summarizes, as of June 30, 2025, our material contractual (including estimated interest) and other cash requirements. A tabular presentation is provided for investor clarity; however, Item 303 no longer requires a contractual obligations table.

Year

Year

Year

Year

Year

Total

Thereafter

Mortgage and subordinated notes payable

Other notes payable

Interest

Total

Of the amounts shown, Hotel-related mortgage and mezzanine balances are obligations of Portsmouth’s subsidiaries; InterGroup’s parent-level mortgages relate to its non-Hotel real estate portfolio. See Note 10 for obligor/recourse details.

OFF-BALANCE SHEET ARRANGEMENTS

As of June 30, 2025, the Company has no material off balance sheet arrangements.

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 is minimal expected impact on revenues due to inflation. For the two most recent fiscal years, the impact of inflation on the Company’s income has not been 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 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 on-going basis, including those related to the consolidation of our subsidiaries, revenues, allowance for doubtful accounts, 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, and different assumptions or conditions could materially affect such estimates.

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.

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 Hotel investments or intangible assets, and accordingly there were no impairment losses recorded for the years ended June 30, 2025 and 2024.

STOCK-BASED COMPENSATION

We account for stock-based compensation by measuring and recognizing as compensation expense the fair value of all share-based payment awards made to employees, including employee stock options, restricted stock awards and employee stock purchases related to the Employee Stock Purchase Plan (“ESPP”) based on estimated grant date fair values. The determination of fair value involves a number of significant estimates. We use the Black Scholes option pricing model to estimate the value of employee stock options which requires a number of assumptions to determine the model inputs. These include the expected volatility of our stock and employee exercise behavior which are based on historical data as well as expectations of future developments over the term of the options.