UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X]
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the fiscal year ended June 30, 2020
or
[ ]
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from _______ to_________
Commission File Number 1-10324
THE INTERGROUP CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE
(State or Other Jurisdiction of
Incorporation or Organization)
13-3293645
(I.R.S. Employer
Identification No.)
12121 Wilshire Boulevard, Suite 610, Los Angeles, California 90025
(Address of principal executive offices) (Zip Code)
(310) 889-2500
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Common Stock $.01 par value
Name of each exchange on which registered
The NASDAQ Stock Market, LLC
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
[ ] Yes [X] No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act.
[ ] Yes [X] No
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
[X] Yes [ ] No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be
submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such
shorter period that the registrant was required to submit and post such files).
[X] Yes [ ] No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (Section 229.405 of this
chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K or any amendments to this Form 10-K.
[X] Yes [ ] No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer,
smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated
filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large Accelerated Filer
[ ]
Accelerated Filer
[ ]
Non-Accelerated Filer
[ ] (Do not check if a smaller reporting company)
Smaller reporting company [X]
Emerging growth company [ ]
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition
period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the
Exchange Act. [ ]
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act):
[ ] Yes [X] No
The aggregate market value of the Common Stock, no par value, held by non-affiliates computed by reference to the
average bid and asked price on December 31, 2019 was $29,720,000.
Securities registered pursuant to section 12(b) of the Act:
Title of each class
Common stock
Trading Symbol(s)
INTG
Name of each exchange on which registered
NASDAQ CAPITAL MARKET
The number of shares outstanding of registrant’s Common Stock, as of September 9, 2020 was 2,287,147.
DOCUMENTS INCORPORATED BY REFERENCE: None
TABLE OF CONTENTS
PART I
Page
Item 1.
Business.
Item 1A. Risk Factors.
Item 1B. Unresolved Staff Comments.
Item 2.
Properties.
Item 3.
Legal Proceedings.
Item 4.
Mine Safety Disclosures.
PART II
Item 5.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities.
Item 6.
Selected Financial Data.
Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
Item 8.
Financial Statements and Supplementary Data.
Item 9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
Item 9A. Controls and Procedures.
Item 9B. Other Information.
Item 10.
Directors, Executive Officers and Corporate Governance.
Item 11.
Executive Compensation.
PART III
Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
Item 13.
Certain Relationships and Related Transactions, and Director Independence.
Item 14.
Principal Accounting Fees and Services.
Item 15.
Exhibits, Financial Statement Schedules.
Signatures
PART IV
2
4
9
13
14
19
19
19
20
20
26
27
55
56
56
57
59
63
65
66
66
69
FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K contains forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933, as amended (“Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as
amended (“Exchange Act”). Forward-looking statements include, but are not limited to, statements related to our
expectations regarding the performance of our business, our financial results, our liquidity and capital resources, the impact
to our business and financial condition, and measures being taken in response to COVID-19, the effects of competition and
the effects of future legislation or regulations and other non-historical statements. Forward-looking statements include all
statements that are not historical facts, and in some cases, can be identified by the use of forward-looking terminology such
as the words “outlook,” “believes,” “expects,” “potential,” “continues,” “may,” “will,” “should,” “could,” “seeks,”
“projects,” “predicts,” “intends,” “plans,” “estimates,” “anticipates” or the negative version of these words or other
comparable words. You should not rely on forward-looking statements since they involve known and unknown risks,
uncertainties and other factors which are, in some cases, beyond our control and which could materially affect our results of
operations, financial condition, cash flows, performance or future achievements or events.
Currently, one of the most significant factors is the potential adverse effect of COVID-19, including possible resurgences,
on our financial condition, results of operations, cash flows and performance, and on the global economy and financial
markets. The extent to which COVID-19 impacts us and guests at our hotel will depend on future developments, which are
highly uncertain and cannot be predicted with confidence, including the scope, severity and duration of the pandemic, the
actions taken to contain the pandemic or mitigate its effect, additional closures that may be mandated or advisable whether
due to an increased number of COVID-19 cases or otherwise, and the direct and indirect economic effects of the pandemic
and containment measures, among others. Moreover, investors are cautioned to interpret many of the risks identified in the
risk factors discussed in this 10-K and incorporated by reference from our Quarterly Report on Form 10-Q for the quarter
ended March 31, 2020 and our Annual Report on Form 10-K for the year ended June 30, 2019 as being heightened as a
result of the ongoing and numerous adverse impacts of COVID-19.
Other factors that may cause actual results to differ materially from current expectations include, but are not limited to:
● risks associated with the lodging industry, including competition, increases in wages, labor relations, energy and
fuel costs, actual and threatened pandemics, actual and threatened terrorist attacks, and downturns in domestic and
international economic and market conditions, particularly in the San Francisco Bay area;
● risks associated with the real estate industry, including changes in real estate and zoning laws or regulations,
increases in real property taxes, rising insurance premiums, costs of compliance with environmental laws and other
governmental regulations;
● the availability and terms of financing and capital and the general volatility of securities markets;
● changes in the competitive environment in the hotel industry;
● economic volatility and potential recessive trends;
● risks related to natural disasters;
● litigation; and
● other risk factors discussed below in this Report.
All such forward-looking statements are based on current expectations of management and therefore involve estimates and
assumptions that are subject to risks, uncertainties and other factors that could cause actual results to differ materially from
the results expressed in the statements. You should not put undue reliance on any forward-looking statements and we urge
investors to carefully review the disclosures we make concerning risks and uncertainties in Item 1A: “Risk Factors” in this
Annual Report on Form 10-K, our Quarterly Report on Form 10-Q for the quarter ended March 31, 2020 and our Annual
Report on Form 10-K for the year ended June 30, 2019, as such factors may be updated from time to time in our periodic
filings with the SEC, which are accessible on the SEC’s website at www.sec.gov, as well as risks, uncertainties and other
factors discussed in this Annual Report on Form 10-K. Except as required by law, we undertake no obligation to update or
revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise.
3
Item 1. Business.
GENERAL
PART I
The InterGroup Corporation (“InterGroup” or the “Company” and may also be referred to as “we” “us” or “our” in this
report) is a Delaware corporation formed in 1985, as the successor to Mutual Real Estate Investment Trust (“M-REIT”), a
New York real estate investment trust created in 1965. The Company has been a publicly held company since M-REIT’s
first public offering of shares in 1966.
The Company was organized to buy, develop, operate, rehabilitate and dispose of real property of various types and
descriptions, and to engage in such other business and investment activities as would benefit the Company and its
shareholders. The Company was founded upon, and remains committed to, social responsibility. Such social responsibility
was originally defined as providing decent and affordable housing to people without regard to race. In 1985, after
examining the impact of federal, state and local equal housing laws, the Company determined to broaden its definition of
social responsibility. The Company changed its form from a REIT to a corporation so that it could pursue a variety of
investments beyond real estate and broaden its social impact to engage in any opportunity which would offer the potential
to increase shareholder value within the Company’s underlying commitment to social responsibility.
As of June 30, 2020, the Company owned approximately 83.7% of the common shares of Santa Fe Financial Corporation
(“Santa Fe”), a public company (OTC Market Inc.’s Pink: SFEF). As of June 30, 2020, InterGroup also has the power to
vote an approximately 3.7% interest in the common stock in Santa Fe owned by InterGroup Chairman and CEO, John V.
Winfield, pursuant to a voting trust agreement entered into on June 30, 1998. Mr. Winfield, Chairman of the Board of both
Santa Fe and InterGroup, is a control person of both entities. Santa Fe’s revenue is primarily generated through its 68.8%
owned subsidiary, Portsmouth Square, Inc. (“Portsmouth”), a public company (OTC Market Inc.’s Pink: PRSI). InterGroup
also directly owns approximately 13.7% of Portsmouth. Portsmouth’s primary business is conducted through its general and
limited partnership interest in Justice Investors, a California limited partnership (“Justice” or the “Partnership”). Portsmouth
has a 93.3% limited partnership interest in Justice and is the sole general partner. The financial statements of Justice are
consolidated with those of the Company.
Justice, through its subsidiaries Justice Operating Company, LLC (“Operating”) and Justice Mezzanine Company, LLC
(“Mezzanine”) owns and operates a 544-room hotel property located at 750 Kearny Street, San Francisco California, known
as the Hilton San Francisco Financial District (the “Hotel”) and related facilities including a five-level underground parking
garage. Mezzanine is a wholly owned subsidiary of the Partnership; Operating is a wholly owned subsidiary of Mezzanine.
Mezzanine is the borrower under certain mezzanine indebtedness of Justice, and in December 2013, the Partnership
conveyed ownership of the Hotel to Operating. The Hotel is operated by the partnership as a full-service Hilton brand hotel
pursuant to a Franchise License Agreement with HLT Franchise Holding LLC (“Hilton”) through January 31, 2030.
Justice entered into a Hotel management agreement (“HMA”) with Interstate Management Company, LLC (“Interstate”) to
manage the Hotel, along with its five-level parking garage, with an effective takeover date of February 3, 2017. The term of
the management agreement is for an initial period of ten years commencing on the takeover date and automatically renews
for successive one (1) year periods, to not exceed five years in the aggregate, subject to certain conditions. Under the terms
of the HMA, base management fee payable to Interstate shall be one and seven-tenths percent (1.70%) of total Hotel
revenue. On October 25, 2019, Interstate merged with Aimbridge Hospitality, North America’s largest independent hotel
management firm. With the completion of the merger, the newly combined company will be positioned under the
Aimbridge Hospitality name in the Americas.
In addition to the operations of the Hotel, the Company also generates income from the ownership, management and, when
appropriate, sale of real estate. Properties include sixteen apartment complexes, one commercial real estate property and
three single-family houses. The properties are located throughout the United States but are concentrated in Texas and
Southern California. The Company also has an investment in unimproved real property. As of June 30, 2020, all of the
Company’s operating real estate properties are managed in-house.
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 and its Executive Strategic Real Estate and Securities Investment
Committee. The Company may also look for new real estate investment opportunities in hotels, apartments, office buildings
and development properties. The acquisition of any new real estate investments will depend on the Company’s ability to
find suitable investment opportunities and the availability of sufficient financing to acquire such investments. To help fund
any such acquisition, the Company may borrow funds to leverage its investment capital. The amount of any such debt will
depend on a number of factors including, but not limited to, the availability of financing and the sufficiency of the
acquisition property’s projected cash flows to support the operations and debt service.
4
The Company also may derive income from the investment of its cash and investment securities assets. The Company has
invested in income-producing instruments, equity and debt securities and will consider other investments if such
investments offer growth or profit potential. See Item 7. Management’s Discussion and Analysis of Financial Condition and
Results of Operations for a discussion of the Company’s marketable securities and other investments.
HILTON HOTELS FRANCHISE LICENSE AGREEMENT
The Partnership entered into a Franchise License Agreement (the “License Agreement”) with the HLT Existing Franchise
Holding LLC (“Hilton”) on December 10, 2004. The term of the License Agreement was for an initial period of fifteen
years commencing on the date the Hotel began operating as a Hilton hotel, with an option to extend the License Agreement
for another five years, subject to certain conditions. On June 26, 2015, Operating and Hilton entered into an amended
franchise agreement that, among other things, extended the License Agreement through 2030, and also provided the
Partnership with certain key money cash incentives to be earned through 2030.
HOTEL MANAGEMENT COMPANY AGREEMENT
On February 1, 2017, Justice entered into a Hotel management agreement with Interstate Management Company, LLC to
manage the Hotel with an effective takeover date of February 3, 2017. The term of the management agreement is for an
initial period of ten years commencing on the takeover date and automatically renews for successive one (1) year periods,
not to exceed five years in the aggregate, subject to certain conditions. Under the terms on the HMA, base management fee
payable to Interstate shall be one and seven-tenths (1.70%) of total Hotel revenue. For the fiscal years ended June 30, 2020
and 2019, Interstate management fees were $341,000 and $1,206,000, respectively, and are included in Hotel operating
expenses in the consolidated statements of operations. As part of the Hotel management agreement, Interstate, through the
Partnership’s wholly owned subsidiary, Kearny Street Parking LLC, manages the parking garage in-house.
CHINESE CULTURE FOUNDATION LEASE
On March 15, 2005, the Partnership entered into an amended lease with the Chinese Culture Foundation of San Francisco
(the “Foundation”) for the third-floor space of the Hotel commonly known as the Chinese Culture Center, which the
Foundation had right to occupy pursuant to a 50-year nominal rent lease that began in 1967.
The amended lease, among other things, requires the Partnership to pay to the Foundation a monthly event space fee in the
amount of $5,000, adjusted annually based on the local Consumer Price Index. As of June 30, 2020, monthly event space
fee is $6,200. The term of the amended lease expires on October 17, 2023, with an automatic extension for another 10-year
term if the property continues to be operated as a hotel. Subject to certain conditions as set forth in the amended lease, the
Foundation is entitled to reserve for a maximum of 75 days per calendar year for use of the event space. In the event that
the Partnership needs the event space during one of the dates previously reserved by the Foundation, the Partnership shall
pay the Foundation $4,000 per day for using the event space. During the fiscal year ended June 30, 2020, the Partnership
did not pay the Foundation any such fees. During the fiscal year ended June 30, 2019, the Partnership paid the Foundation
$13,000 for using the event space on previously reserved dates by the Foundation.
SALES AND REFINANCINGS OF REAL ESTATE PROPERTIES
In July 2015, the Company purchased a residential house in Los Angeles, California as a strategic asset for $1,975,000 in
cash. In August 2016, the Company obtained a $1,000,000 mortgage note payable on this property and received net
proceeds of $983,000. The interest on the note was 5.75% with interest only payments for twenty-three months. In
September 2018, the Company refinanced the mortgage note payable with a new mortgage in the amount of $1,000,000.
The interest rate on the mortgage is 4.75% and matures in October 2048.
In July 2018, the Company obtained a revolving $5,000,000 line of credit (“RLOC”) from CIBC Bank USA (“CIBC”). The
RLOC carries a variable interest rate of 30-day LIBOR plus 3%. Interest is paid on a monthly basis. The RLOC and all
accrued and unpaid interests were due in July 2019. On July 31, 2018, $2,969,000 was drawn from the RLOC to pay off the
mortgage note payable at our 27-unit apartment complex in Santa Monica, California. In July 2019, the Company obtained
a modification from CIBC which increased the RLOC by $3,000,000 and extended the maturity date from July 24, 2019 to
July 23, 2020. In July 2020, the RLOC was extended to July 2021. As of June 30, 2020 and 2019, outstanding balance of
the RLOC was $2,985,000.
In April 2020, the Company refinanced its $8,453,000 and $2,469,000 mortgage notes payable on its 151-unit apartment
complex in Parsippany, New Jersey and obtained a new mortgage note payable for $18,370,000. The Company received net
proceeds of $6,814,000 as a result of the refinance. Interest rate on the mortgage is fixed at 3.17% for ten years and the
mortgage matures in May 2030.
5
In June 2020, the Company refinanced its $1,274,000 mortgage note payable on its 9-unit apartment complex in Marina del
Rey, California and obtained a new mortgage note payable for $2,600,000. The Company received net proceeds of
$1,144,000 as a result of the refinance. Interest rate on the mortgage is fixed at 3.09% for ten years and the mortgage
matures in July 2030.
MARKETABLE SECURITIES INVESTMENT POLICIES
In addition to its Hotel and real estate operations, the Company also invests from time to time in income producing
instruments, corporate debt and equity securities, publicly traded investment funds, mortgage backed securities, securities
issued by REITs and other companies which invest primarily in real estate.
The Company’s securities investments are made under the supervision of an Executive Strategic Real Estate and Securities
Investment Committee of the Board of Directors (the “Committee”). The Committee currently has three members and is
chaired by the Company’s Chairman of the Board and President, John V. Winfield. The Committee has delegated authority
to manage the portfolio to the Company’s Chairman and President together with such assistants and management
committees he may engage. The Committee generally follows certain established investment guidelines for the Company’s
investments. These guidelines presently include: (i) corporate equity securities should be listed on the New York Stock
Exchange (NYSE), NYSE MKT, NYSE Arca or the Nasdaq Stock Market (NASDAQ); (ii) the issuer of the listed
securities should be in compliance with the listing standards of the applicable national securities exchange; and (iii)
investment in a particular issuer should not exceed 10% of the market value of the total portfolio. The investment
guidelines do not require the Company to divest itself of investments, which initially meet these guidelines but
subsequently fail to meet one or more of the investment criteria. The Committee has in the past approved non-conforming
investments and may in the future approve non-conforming investments. The Committee may modify these guidelines from
time to time.
The Company may also invest, with the approval of the Committee, in unlisted securities, such as convertible notes,
through private placements including private equity investment funds. Those investments in non-marketable securities are
carried at cost on the Company’s balance sheet as part of other investments and reviewed for impairment on a periodic
basis. As of June 30, 2020 and 2019, the Company had other investments of $278,000 and $612,000, respectively.
As part of its investment strategies, the Company may assume short positions in marketable securities. Short sales are used
by the Company to potentially offset normal market risks undertaken in the course of its investing activities or to provide
additional return opportunities. As of June 30, 2020 and 2019, the Company had obligations for securities sold (equities
short) of $294,000 and $1,225,000, respectively.
In addition, the Company may utilize margin for its marketable securities purchases through the use of standard margin
agreements with national brokerage firms. The margin used by the Company may fluctuate depending on market
conditions. The use of leverage could be viewed as risky and the market values of the portfolio may be subject to large
fluctuations. Margin balances due at June 30, 2020 and 2019 were $1,576,000 and $1,629,000, respectively.
As Chairman of the Executive Strategic Real Estate and Securities Investment Committee, the Company’s President and
Chief Executive Officer (CEO), John V. Winfield, directs the investment activity of the Company in public and private
markets pursuant to authority granted by the Board of Directors. Mr. Winfield also serves as Chief Executive Officer and
Chairman of the Board of Portsmouth and Santa Fe and oversees the investment activity of those companies. Effective June
2016, Mr. Winfield became the Managing Director of Justice. Depending on certain market conditions and various risk
factors, the Chief Executive Officer, Portsmouth and Santa Fe may, at times, invest in the same companies in which the
Company invests. Such investments align the interests of the Company with the interests of related parties because it places
the personal resources of the Chief Executive Officer and the resources of the Portsmouth and Santa Fe, at risk in
substantially the same manner as the Company in connection with investment decisions made on behalf of the Company.
Further information with respect to investment in marketable securities and other investments of the Company is set forth in
Management Discussion and Analysis of Financial Condition and Results of Operations section and Notes 5 and 6 of the
Notes to Consolidated Financial Statements.
SEASONALITY
Historically, the Hotel’s operation have been seasonal under normal circumstances. Like most hotels in the San Francisco
area, the Hotel generally maintained high occupancy and room rates during the entire year except for the weeks starting
from Thanksgiving to the end of the calendar year due to the holiday season. These seasonal patterns can be expected to
cause fluctuations in the quarterly revenues of the Hotel. However, the COVID-19 pandemic has altered this seasonal trend
in 2020. See Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations for more
information regarding the effects of the COVID-19 pandemic on our results of operations.
6
COMPETITION
The hotel industry is highly competitive. Competition is based on a number of factors, most notably convenience of
location, brand affiliation, price, range of services and guest amenities or accommodations offered and quality of customer
service. Competition is often specific to the individual market in which properties are located. The San Francisco market is
a very competitive market with a high supply of guest rooms and meeting space in the area. During fiscal year 2019, we
implemented advanced state of the art Internet system which included a rewiring of the entire hotel with the best possible
Ethernet cabling and fiber. Specifically, the complete overhaul of the infrastructure of the Internet in the guest rooms and
meeting space will enable the Hotel to compete in this market. This investment is allowing the Hotel to go to market with
measurable statistics that will help win the much-coveted technology company meetings when those are able to be held
again. We installed 55” and 65” 4K smart televisions in all guest rooms and common areas during fiscal year 2019. During
fiscal year 2020, we completed the installation of window washing equipment, giving us the ability to wash windows
periodically. We also replaced mattresses in all guestrooms and upgraded all computers in our business center and Hotel
administrative offices during fiscal year 2020.
Our highest priority is guest satisfaction. We believe that enhancing the guest experience differentiates the Hotel from our
competition and is critical to the Hotel’s objective of building sustainable guest loyalty. In order to make a large impact on
guest experience, the Hotel will continue training team members on Hilton brand standards and guest satisfaction, hiring
and retaining talents in key operations, and enhancing the arrival experience.
The Hotel’s location in the San Francisco Financial District lends itself to greater opportunities over its competitors when it
comes to developing relationships with the Financial District entities and the customers who regularly do business in the
downtown area. The ability to capitalize on the strong midweek demand of the individual business traveler to the Financial
District has been the focus during the timeframe of strong growth in the market; however, that customer along with our
group customers has significantly reduced occupancy beginning in February 2020 as COVID-19 ravaged the hotel industry.
The Hotel has remained open during the pandemic as many of our competitors have closed their doors and remained closed.
The key to growing share during this time will be focusing on service and cleanliness standards to gain customer
confidence to return.
The Hotel is also subject to certain operating risks common to all of the hotel industry, which could adversely impact
performance. These risks include:
● Competition for guests and meetings from other hotels including competition and pricing pressure from internet
wholesalers and distributors;
● increases in operating costs, including wages, benefits, insurance, property taxes and energy, due to inflation and
other factors, which may not be offset in the future by increased room rates;
● labor strikes, disruptions or lock outs;
● dependence on demand from business and leisure travelers, which may fluctuate and is seasonal;
● increases in energy costs, cost of fuel, airline fares and other expenses related to travel, which may negatively
affect traveling;
● terrorism, terrorism alerts and warnings, wars and other military actions, pandemics or other medical events or
warnings which may result in decreases in business and leisure travel;
● natural disasters; and
● adverse effects of downturns and recessionary conditions in international, national and/or local economies and
market conditions.
ENVIRONMENTAL MATTERS
In connection with the ownership of the Hotel, the Company is subject to various federal, state and local laws, ordinances
and regulations relating to environmental protection. Under these laws, a current or previous owner or operator of real
estate may be liable for the costs of removal or remediation of certain hazardous or toxic substances on, under or in such
property. Such laws often impose liability without regard to whether the owner or operator knew of, or was responsible for,
the presence of hazardous or toxic substances.
7
Environmental consultants retained by the Partnership or its lenders conducted updated Phase I environmental site
assessments in fiscal year ended June 30, 2014 on the Hotel property. These Phase I assessments relied, in part, on Phase I
environmental assessments prepared in connection with the Partnership’s first mortgage loan obtained in December 2013.
Phase I assessments are designed to evaluate the potential for environmental contamination on properties based generally
upon site inspections, facility personnel interviews, historical information and certain publicly available databases;
however, Phase I assessments will not necessarily reveal the existence or extent of all environmental conditions, liabilities
or compliance concerns at the properties.
Although the Phase I assessments and other environmental reports we have reviewed disclose certain conditions on our
property and the use of hazardous substances in operation and maintenance activities that could pose a risk of
environmental contamination or liability, we are not aware of any environmental liability that we believe would have a
material adverse effect on our business, financial position, results of operations or cash flows.
The Company believes that the Hotel is in compliance, in all material respects, with all federal, state and local
environmental ordinances and regulations regarding hazardous or toxic substances and other environmental matters, the
violation of which could have a material adverse effect on the Company. The Company has not received written notice
from any governmental authority of any material noncompliance, liability or claim relating to hazardous or toxic substances
or other environmental matters in connection with any of its present properties.
Competition – Rental Properties
The ownership, operation and leasing of multifamily rental properties are highly competitive. The Company competes with
domestic and foreign financial institutions, REITs, life insurance companies, pension trusts, trust funds, partnerships and
individual investors. In addition, The Company competes for tenants in markets primarily on the basis of property location,
rent charged, services provided and the design and condition of improvements. The Company also competes with other
quality apartment owned by public and private companies. The number of competitive multifamily properties in a particular
market could adversely affect the Company’s ability to lease its multifamily properties, as well as the rents it is able to
charge. In addition, other forms of residential properties, including single family housing and town homes, provide housing
alternatives to potential residents of quality apartment communities or potential purchasers of for-sale condominium units.
The Company competes for residents in its apartment communities based on resident service and amenity offerings and the
desirability of the Company’s locations. Resident leases at the Company’s apartment communities are priced competitively
based on market conditions, supply and demand characteristics, and the quality and resident service offerings of its
communities.
EMPLOYEES
As of June 30, 2020, the Company had a total of 30 full-time employees. Effective August 2014, the Company entered into
a client service agreement with Automatic Data Processing (“ADP”), a professional employer organization serving as an
off-site, full service human resource department for its employees. ADP personnel management services are delivered by
entering into a co-employment relationship with the Company’s employees. The employees and the Company are not party
to any collective bargaining agreement, and the Company believes that its employee relations are satisfactory.
Effective February 3, 2017, the Partnership had no employees. On February 3, 2017, Interstate assumed all labor union
agreements and retained employees of their choice to continue providing services to the Hotel. As of June 30, 2020,
approximately 87% of those employees were represented by one of three labor unions, and their terms of employment were
determined under various collective bargaining agreements (“CBAs”) to which the Partnership was a party. During the
fiscal year ended June 30, 2020, the Partnership renewed the CBA for Local 2 (Hotel and Restaurant Employees). CBA for
Local 856 (International Brotherhood of Teamsters) will expire on December 31, 2022. CBA for Local 39 (Stationary
Engineers) will expire on July 31, 2024.
Negotiation of collective bargaining agreements, which includes not just terms and conditions of employment, but scope
and coverage of employees, is a regular and expected course of business operations for the Partnership and Interstate. The
Partnership expects and anticipates that the terms of conditions of CBAs will have an impact on wage and benefit costs,
operating expenses, and certain hotel operations during the life of each CBA, and incorporates these principles into its
operating and budgetary practices.
ADDITIONAL INFORMATION
The Company files required annual and quarterly reports on Forms 10-K and 10-Q, current reports on Form 8-K and other
information with the Securities and Exchange Commission (“SEC” or the “Commission”). The public may read and copy
any materials that we file with the Commission at the SEC’s Public Reference Room at 100 F Street, NE, Washington, DC
20549, on official business days during the hours of 10:00 a.m. to 3:00 p.m. You may obtain information on the operation
of the Public Reference Room by calling the Commission at 1-800-SEC-0330. The Commission also maintains an Internet
site at http://www.sec.gov that contains reports, proxy and information statements, and other information regarding issuers
that file electronically with the Commission.
8
Other information about the Company can be found on its website www.intgla.com. Reference in this document to that
website address does not constitute incorporation by reference of the information contained on the website.
Item 1A. Risk Factors.
The responses by federal, state, and local civil authorities to the COVID-19 pandemic has had a material detrimental
impact on our business, financial results and liquidity, and such impact could worsen and last for an unknown period of
time.
The global spread of the COVID-19 pandemic is complex and rapidly-evolving, with governments, public institutions and
other organizations imposing or recommending, and businesses and individuals implementing, restrictions on various
activities or other actions to combat its spread, such as restrictions and bans on travel or transportation, limitations on the
size of gatherings, closures of work facilities, schools, public buildings and businesses, cancellation of events, including
sporting events, conferences and meetings, and quarantines and lock-downs. The shelter-in-place, physical distancing,
quarantine measures, city closures and their consequences have dramatically reduced travel, conventions and demand for
hotel rooms, which has and will continue to impact our business, operations, and financial results. The pandemic is having a
significant impact on the U.S. economy and on the local markets in which our properties are located. While we did not
incur significant disruptions in our real estate operations during the fiscal year ended June 30, 2020 from the COVID-19
pandemic, we are unable to predict the impact that the COVID-19 pandemic will have on our financial condition, results of
operations and cash flows due to many uncertainties. The extent to which the closures impacts our business, operations, and
financial results, including the duration and magnitude of such effects, will depend on numerous evolving factors that we
may not be able to accurately predict or assess, including the duration and scope of the closures; the negative impact it has
on global and regional economies and economic activity, including the duration and magnitude of its impact on
unemployment rates and consumer discretionary spending; its short and longer-term impact on the demand for travel,
transient and group business, and levels of consumer confidence; our ability to successfully navigate the impacts of the
closures; governments actions, businesses and individuals take in response to the closures, including limiting or banning
travel; and how quickly economies, travel activity, and demand for lodging recovers after the closures subsides.
The COVID-19 closures have subjected our business, operations and financial condition to a number of risks, including, but
not limited to, those discussed below:
● Risks Related to Revenue: The COVID-19 closures and other imposed restrictions have negatively impacted and will
in the future negatively impact to an extent we are unable to predict, our revenue from the Hotel. Currently, the Hotel is
not generating revenue sufficient to meet its operating expenses, which is adversely affecting our net income.
● Risks Related to Operations: Because of the significant decline in the demand for hotel rooms, the Hotel has taken
steps to reduce operating costs and improve efficiency, including furloughing a substantial number of its personnel and
implementing reduced work weeks for other personnel. Such steps, and further changes we may make in the future to
reduce costs, may negatively impact guest loyalty, or our ability to attract and retain associates, and our reputation and
market share may suffer as a result. For example, if our furloughed personnel do not return to work with us when the
COVID-19 closures and imposed restrictions are lifted, including because they find new jobs during the furlough, we
may experience operational challenges that impact guest loyalty and our market share, which could limit our ability to
grow revenue and could reduce our profits. Further, reputational damage from, and the financial impact of, reduced
work weeks could lead associates to depart the company and could make it harder for us to recruit new associates in the
future. We may also face demands or requests from labor unions that represent our associates, whether in the course of
our periodic renegotiation of our collective bargaining agreements or otherwise, for additional compensation,
healthcare benefits or other terms as a result of COVID-19 that could increase costs, and we could experience labor
disputes or disruptions as we continue to implement our COVID-19 mitigation plans.
COVID-19, and the volatile regional and global economic conditions stemming from the pandemic, as well as reactions to
future pandemics or resurgences of COVID-19, could also precipitate or aggravate the other risk factors that we identify in
this annual report, which in turn could materially adversely affect our business, financial condition, liquidity, and results of
operations (including revenues and profitability). Further, COVID-19 may also affect our operating and financial results in
a manner that is not presently known to us or that we currently do not consider presenting significant risks to our
operations.
9
Adverse changes in the U.S. and global economies could negatively impact our financial performance.
Due to a number of factors affecting consumers, the outlook for the lodging industry remains uncertain. These factors have
resulted at times in the past and could continue to result in the future in fewer customers visiting, or customers spending
less, in San Francisco, as compared to prior periods. 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, in those times customer demand for the luxury amenities and leisure
activities that we offer may decline. 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 be
subject to a recession, 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 cutback 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.
We operate a single property located in San Francisco and rely on the San Francisco market. Changes adversely impacting
this market could have a material effect on our business, financial condition and results of operations.
Our business has a limited base of operations and substantially all of our revenues are currently generated by the Hotel.
Accordingly, we are subject to greater risks than a more diversified hotel or resort operator and the profitability of our
operations is linked to local economic conditions in San Francisco. The combination of a decline in the local economy of
San Francisco, reliance on a single location and the significant investment associated with it may cause our operating
results to fluctuate significantly and may adversely affect us and materially affect our total profitability.
We face intense local and increasingly national competition which could impact our operations and adversely affect our
business and 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 are unable to compete effectively, we could lose market share, which could adversely affect our
business 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.
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.
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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.
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.
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.
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.
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 long period of time and not be able to realize a return of their cash investment should there be a
need to liquidate to obtain cash at any given time.
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 18, Commitments and Contingencies, to our consolidated
financial statements, included in Item 8 of this Annual Report on Form 10-K.
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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.
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.
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 Interstate. 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.
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. 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.
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 or gaming license could require us to make substantial expenditures or could
otherwise negatively affect our gaming operations. Any failure to comply with all such rules and regulations could subject
us to fines or audits by the applicable taxation authority.
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.
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.
12
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, as a
consequence, 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 are able to 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.
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. Accordingly, there is substantial risk that an investment in the Company will decline in value.
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; difficulties 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.
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, owns more
than 60% of the Company’s outstanding common stock. Because of this concentrated stock ownership, Mr. Winfield will
be in a position 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
sufficient numbers of shares to significantly decrease our price per share.
Item 1B. Unresolved Staff Comments.
None.
13
Item 2. Properties.
SAN FRANCISCO HOTEL PROPERTY
The Hotel is owned by the Partnership through its wholly owned subsidiary, Operating. The Hotel is centrally located in the
Financial District in San Francisco, one block from the Transamerica Pyramid. The Embarcadero Center is within walking
distance and North Beach is two blocks away. Chinatown is directly across the bridge that runs from the Hotel to
Portsmouth Square Park. The Hotel is a 31-story (including parking garage), steel and concrete, A-frame building, built in
1970. The Hotel has 544 well-appointed guest rooms and luxury suites situated on 22 floors. The third floor houses the
Chinese Culture Center (the “CCC”), its administrative office, and a grand ballroom. The Hotel has approximately 22,000
square feet of meeting room space, including the grand ballroom. Other features of the Hotel include a 5-level underground
parking garage and pedestrian bridge across Kearny Street connecting the Hotel and the CCC with Portsmouth Square Park
in Chinatown. The bridge, built and owned by the Partnership, is included in the lease to the CCC.
The Partnership expects to set aside at least 4% of gross annual Hotel revenues each year or a minimum of $2,000,000 as
required by its senior lender for capital improvements. In the opinion of management, the Hotel is adequately covered by
insurance.
HOTEL FINANCINGS
On December 18, 2013: (i) Justice Operating Company, LLC, a Delaware limited liability company (“Operating”), entered
into a loan agreement (“Mortgage Loan Agreement”) with Bank of America (“Mortgage Lender”); and (ii) Justice
Mezzanine Company, a Delaware limited liability company (“Mezzanine”), entered into a mezzanine loan agreement
(“Mezzanine Loan Agreement” and, together with the Mortgage Loan Agreement, the “Loan Agreements”) with ISBI San
Francisco Mezz Lender LLC (“Mezzanine Lender” and, together with Mortgage Lender, the “Lenders”). The Partnership is
the sole member of Mezzanine, and Mezzanine is the sole member of Operating.
The Loan Agreements provide for a $97,000,000 Mortgage Loan and a $20,000,000 Mezzanine Loan. The proceeds of the
Loan Agreements were used to fund the redemption of limited partnership interests and the pay-off of the prior mortgage.
The Mortgage Loan is secured by the Partnership’s principal asset, the Hotel. The Mortgage Loan bears an interest rate of
5.275% per annum and matures in January 2024. The term of the loan is ten years with interest only due in the first three
years and principal and interest payments to be made during the remaining seven years of the loan based on a thirty-year
amortization schedule. The Mortgage Loan also requires payments for impounds related to property tax, insurance and
capital improvement reserves. As additional security for the Mortgage Loan, there is a limited guaranty (“Mortgage
Guaranty”) executed by Portsmouth in favor of the Mortgage Lender.
The Mezzanine Loan is secured by the Operating membership interest held by Mezzanine and is subordinated to the
Mortgage Loan. The Mezzanine Loan had an interest rate of 9.75% per annum and a maturity date of January 1, 2024.
Interest only payments were due monthly. On July 31, 2019, Mezzanine refinanced the Mezzanine Loan by entering into a
new mezzanine loan agreement (“New Mezzanine Loan Agreement”) with Cred Reit Holdco LLC in the amount of
$20,000,000. The prior Mezzanine Loan was paid off. Interest rate on the new mezzanine loan is 7.25% and the loan
matures on January 1, 2024. Interest only payments are due monthly. As a result of the refinance, Justice has generated
$500,000 in annual interest expense savings. As additional security for the new mezzanine loan, there is a limited guaranty
executed by the Partnership and Portsmouth in favor of Cred Reit Holdco LLC (the “Mezzanine Guaranty” and, together
with the Mortgage Guaranty, the “Guaranties”).
The Guaranties are limited to what are commonly referred to as “bad boy” acts, including: (i) fraud or intentional
misrepresentations; (ii) gross negligence or willful misconduct; (iii) misapplication or misappropriation of rents, security
deposits, insurance or condemnation proceeds; and (iv) failure to pay taxes or insurance. The Guaranties are full recourse
guaranties under identified circumstances, including failure to maintain “single purpose” status which is a factor in a
consolidation of Operating or Mezzanine in a bankruptcy of another person, transfer or encumbrance of the Property in
violation of the applicable loan documents, Operating or Mezzanine incurring debts that are not permitted, and the Property
becoming subject to a bankruptcy proceeding. Pursuant to the Guaranties, the Partnership is required to maintain a certain
minimum net worth and liquidity. Effective as of May 12, 2017, InterGroup agreed to become an additional guarantor
under the limited guaranty and an additional indemnitor under the environmental indemnity for Justice Investors limited
partnership’s $97,000,000 mortgage loan and the $20,000,000 mezzanine loan. Pursuant to the agreement, InterGroup is
required to maintain a certain net worth and liquidity. As of June 30, 2020 and 2019, InterGroup is in compliance with both
requirements. Due to the Hotel’s current low occupancy and low rates and their negative impact on the Hotel’s cash flow,
Justice Operating Company, LLC is not meeting certain of its loan covenants such as the Debt Service Coverage Ratio
(“DSCR”) which would trigger the creation of a lock-box and cash sweep by the Lender for all cash collected by the Hotel,
and under certain terms, would allow the Lender to request Operating to replace its hotel management company. The DSCR
for Operating has been below 1.00 for the last two quarters during fiscal year 2020 while it is required to maintain a DSCR
of at least 1.10 to 1.00 for two consecutive quarters. However, such lockbox has been created and utilized from the loan
inception and will be in place up to loan maturity regardless of the DSCR. Justice has not missed any of its debt service
payments and does not anticipate missing any debt obligations even during these uncertain times for at least the next twelve
months and beyond.
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Each of the Loan Agreements contains customary representations and warranties, events of default, reporting requirements,
affirmative covenants and negative covenants, which impose restrictions on, among other things, organizational changes of
the respective borrower, operations of the Property, agreements with affiliates and third parties. Each of the Loan
Agreements also provides for mandatory prepayments under certain circumstances (including casualty or condemnation
events) and voluntary prepayments, subject to satisfaction of prescribed conditions set forth in the Loan Agreements.
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 two years, payable interest only each month. InterGroup received a 3% loan fee. The
loan may be prepaid at any time without penalty. The proceeds of the loan were applied to the July 2014 payments to
Justice Holdings Company, LLC (“Holdings”) in connection with the redemption of limited partnership interests. The loan
was extended to July 1, 2021. The balance of this loan is $3,000,000 as of June 30, 2020 and 2019, and is eliminated in the
consolidated balance sheets.
On April 9, 2020, Justice entered into a loan agreement (“SBA Loan”) with CIBC Bank USA under the recently enacted
Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) administered by the U.S. Small Business
Administration. Justice received proceeds of $4,719,000 from the SBA Loan. In accordance with the requirements of the
CARES Act, Justice has used proceeds from the SBA Loan primarily for payroll costs. As of June 30, 2020, Justice had
used $3,568,000 in qualified expenses and had a balance of $1,151,000 available for future qualified expenses. The SBA
Loan is scheduled to mature on April 9, 2022 with a 1.00% interest rate and is subject to the terms and conditions
applicable to loans administered by the U.S. Small Business Administration under the CARES Act. All payments of
principal and interest are deferred until October 2020, and the repayment obligations under the loan may be forgiven if the
funds are used for payroll and other qualified expenses. We anticipate applying for loan forgiveness shortly. All unforgiven
portion of the principal and accrued interest will be due at maturity.
RENTAL PROPERTIES
As June 30, 2020, the Company’s investment in real estate consisted of twenty properties located throughout the United
States, with a concentration in Texas and Southern California. These properties include sixteen apartment complexes, three
single-family houses as strategic investments and one commercial real estate property. All properties are operating
properties. In addition to the properties, the Company owns approximately 2 acres of unimproved land in Maui, Hawaii. As
of June 30, 2020, all of the Company’s operating real estate properties are managed in-house.
Description of Properties
Las Colinas, Texas. The Las Colinas property is a waterfront apartment community along Beaver Creek that was
developed in 1993 with 358 units on approximately 15.6 acres of land. The Company acquired the complex on April 30,
2004 for approximately $27,145,000. Depreciation is recorded on the straight-line method, based upon an estimated useful
life of 27.5 years. Real estate property taxes for the year ended June 30, 2020 were approximately $905,000. The
outstanding mortgage balance was approximately $16,529,000 at June 30, 2020 with an interest rate of 3.73% and the
maturity date of the mortgage is December 1, 2022.
Morris County, New Jersey. The Morris County property is a two-story garden apartment complex that was completed in
June 1964 with 151 units on approximately 8 acres of land. The Company acquired the complex on September 15, 1967 at
an initial cost of approximately $1,600,000. Real estate property taxes for the year ended June 30, 2020 were approximately
$251,000. Depreciation is recorded on the straight-line method, based upon an estimated useful life of 40 years. The
outstanding mortgage balance was approximately $8,737,000 at June 30, 2019 and the maturity date of the mortgage was
July 31, 2022 with interest rate fixed at 3.51%. In June 2014, the Company obtained a second mortgage on this property in
the amount of $2,701,000. The term of the loan was approximately 8 years with the interest rate fixed at 4.51%. The
outstanding mortgage balance was approximately $2,512,000 at June 30, 2019. In April 2020, the Company refinanced the
two aforementioned mortgage notes payable on this property and obtained a new mortgage note payable for $18,370,000.
The Company received net proceeds of $6,814,000 as a result of the refinance. Interest rate on the mortgage is fixed at
3.17% for ten years and the mortgage matures in May 2030.
St. Louis, Missouri. The St. Louis property is a two-story project with 264 units on approximately 17.5 acres. The
Company acquired the complex on November 1, 1968 at an initial cost of $2,328,000. For the year ended June 30, 2020,
real estate property taxes were approximately $109,000. Depreciation is recorded on the straight-line method, based upon
an estimated useful life of 40 years. The outstanding mortgage balance was approximately $5,236,000 at June 30, 2020
with an interest rate of 4.05% and the maturity date of the mortgage is May 31, 2023.
Florence, Kentucky. The Florence property is a three-story apartment complex with 157 units on approximately 6.0 acres.
The Company acquired the property on December 20, 1972 at an initial cost of approximately $1,995,000. For the year
ended June 30, 2020, real estate property taxes were approximately $59,000. Depreciation is recorded on the straight-line
method, based upon an estimated useful life of 40 years. In March 2015, the Company refinanced the $3,636,000 mortgage
note payable for a new mortgage in the amount of $3,492,000. The Company paid down approximately $210,000 of the old
mortgage as part of the refinancing. The new mortgage has a fixed interest rate of 3.87% for ten years and matures in April
2025. The outstanding mortgage balance was approximately $3,150,000 at June 30, 2020.
15
Los Angeles, California. The Company owns one commercial property, eleven apartment complexes, and three single-
family houses in the general area of West Los Angeles.
The first Los Angeles commercial property is a 5,503 square foot, two story building that served as the Company’s
corporate offices until it was leased out, effective October 1, 2009 and the Company leased a new space for its corporate
office. The Company acquired the building on March 4, 1999 for $1,876,000. Property taxes for the year ended June 30,
2020 were approximately $31,000. Depreciation is recorded on the straight-line method, based upon an estimated useful life
of 40 years. In April 2016, the Company refinanced the $1,007,000 mortgage note payable for a new mortgage in the
amount of $921,000. The new mortgage has a fixed interest rate swap with the floating rate loan. By combing both rates
rate through maturity of the credit facility (1.49% swap + 2.50% credit spread), the all-in fixed rate is 3.99%. The
outstanding mortgage balance was approximately $770,000 at June 30, 2020 and the note matures in January 2021.
The first Los Angeles apartment complex is a 10,600 square foot two-story apartment with 12 units. The Company acquired
the property on July 30, 1999 at an initial cost of approximately $1,305,000. For the year ended June 30, 2020, real estate
property taxes were approximately $24,000. Depreciation is recorded on the straight-line method, based upon an estimated
useful life of 40 years. In June 2016, the Company refinanced the $2,095,000 mortgage note payable for a new mortgage in
the amount of $2,300,000 with an interest rate of 3.59%. The outstanding mortgage balance was approximately $2,125,000
at June 30, 2020 and the maturity date of the mortgage is June 23, 2026.
The second Los Angeles apartment complex is a 29,000 square foot three-story apartment with 27 units. This complex was
held by Intergroup Woodland Village, Inc., which was 55.4% and 44.6% owned by Santa Fe and the Company,
respectively. On February 5, 2020, Santa Fe acquired the additional 44.6% interest in Woodland Village from InterGroup
by issuing 97,500 shares of its common stock to InterGroup. Subsequent to the transaction, Intergroup Woodland Village,
Inc. was converted into Woodland Village LLC (“Woodland Village”) and Woodland Village become a wholly owned
subsidiary of Santa Fe. The transaction is being made pursuant to a Contribution Agreement (the “Contribution
Agreement”) between the Santa Fe and InterGroup, dated February 5, 2020. The Contribution Agreement also contains a
provision for a potential subsequent earn out to InterGroup pursuant to terms set forth therein.
The property was acquired on September 29, 1999 at an initial cost of approximately $4,075,000. For the year ended June
30, 2020, real estate property taxes were approximately $70,000. Depreciation is recorded on the straight-line method,
based upon an estimated useful life of 40 years. The outstanding mortgage balance was approximately $2,843,000 at June
30, 2018 with an interest rate of 4.85% and the maturity date of the mortgage was December 1, 2020. In July 2018,
InterGroup obtained a revolving $5,000,000 line of credit (“RLOC”). On July 31, 2018, $2,969,000 was drawn from the
RLOC to pay off the mortgage. A new mortgage note payable was established at Woodland Village due to InterGroup for
$2,969,000 and the note was eliminated in consolidation. The RLOC carries a variable interest rate of 30-day LIBOR plus
3%. Interest is paid on a monthly basis. The RLOC and all accrued and unpaid interest were due in July 2019. The
$2,969,000 mortgage due to InterGroup carries same terms as InterGroup’s RLOC. In July 2019, InterGroup obtained a
modification from CIBC which increased its $5,000,000 revolving line of credit by $3,000,000 and extended the maturity
date from July 24, 2019 to July 23, 2020. The $2,969,000 mortgage due to InterGroup was also extended from July 24,
2019 to July 23, 2020. In July 2020, InterGroup entered into a second modification agreement with CIBC which extended
the maturity date of its $8,000,000 RLOC to July 21, 2021. The $2,969,000 mortgage due to InterGroup was also extended
to July 21, 2021. On August 28, 2020, Santa Fe sold the 27-unit apartment complex for $15,650,000 and realized a gain on
the sale of approximately $12,026,000. Santa Fe will manage its federal and state income tax liability, and anticipates the
utilization of its available net operating losses and capital loss carryforwards. Santa Fe received net proceeds of
$12,163,000 after selling costs and repayment of InterGroup’s RLOC of $2,985,000 as InterGroup had drawn on its RLOC
in July 2018 to pay off the previous Fannie Mae mortgage on the property. Furthermore, pursuant to the Contribution
Agreement between Santa Fe and InterGroup, Santa Fe paid InterGroup $662,000 from the sale. Santa Fe will not seek a
replacement property.
The third Los Angeles apartment complex is a 12,700 square foot apartment with 14 units. The Company acquired the
property on October 20, 1999 at an initial cost of approximately $2,150,000. For the year ended June 30, 2020, real estate
property taxes were approximately $37,000. Depreciation is recorded on the straight-line method, based upon an estimated
useful life of 40 years. The outstanding mortgage balance was approximately $1,597,000 at June 30, 2020 with an interest
rate of 5.89% and the maturity date of the mortgage is March 1, 2021.
The fourth Los Angeles apartment complex is a 10,500 square foot apartment with 9 units. The Company acquired the
property on November 10, 1999 at an initial cost of approximately $1,675,000. For the year ended June 30, 2020, real estate
property taxes were approximately $29,000. Depreciation is recorded on the straight-line method, based upon an estimated
useful life of 40 years. The outstanding mortgage balance was approximately $1,088,000 at June 30, 2020 with an interest
rate of 5.89% and the maturity date of the mortgage is March 1, 2021.
16
The fifth Los Angeles apartment complex is a 26,100 square foot two-story apartment with 31 units. The Company
acquired the property on May 26, 2000 at an initial cost of approximately $7,500,000. For the year ended June 30, 2020,
real estate property taxes were approximately $122,000. Depreciation is recorded on the straight-line method, based upon
an estimated useful life of 40 years. The outstanding mortgage balance was approximately $4,800,000 at June 30, 2020
with an interest rate of 4.85% and the maturity date of the mortgage is December 1, 2020.
The sixth Los Angeles apartment complex is a 27,600 square foot two-story apartment with 30 units. The Company
acquired the property on July 7, 2000 at an initial cost of approximately $4,411,000. For the year ended June 30, 2020, real
estate property taxes were approximately $75,000. Depreciation is recorded on the straight-line method, based upon an
estimated useful life of 40 years. The outstanding mortgage balance was approximately $5,614,000 at June 30, 2020 with
an interest rate of 5.97% and the maturity date of the mortgage is September 1, 2022.
The seventh Los Angeles apartment complex is a 3,000 square foot apartment with 4 units. The Company acquired the
property on July 19, 2000 at an initial cost of approximately $1,070,000. For the year ended June 30, 2020, real estate
property taxes were approximately $18,000. Depreciation is recorded on the straight-line method, based upon an estimated
useful life of 40 years. The outstanding mortgage balance was approximately $333,000 at June 30, 2020 with an interest
rate of 3.75% and the maturity date of the mortgage is September 1, 2042.
The eighth Los Angeles apartment complex is a 4,500 square foot two-story apartment with 4 units. The Company acquired
the property on July 28, 2000 at an initial cost of approximately $1,005,000. For the year ended June 30, 2020, real estate
property taxes were approximately $17,000. Depreciation is recorded on the straight-line method, based upon an estimated
useful life of 40 years. The outstanding mortgage balance was approximately $563,000 at June 30, 2020 with an interest
rate of 3.75% and the maturity date of the mortgage is September 1, 2042.
The ninth Los Angeles apartment complex is a 7,500 square foot apartment with 7 units. The Company acquired the
property on August 9, 2000 at an initial cost of approximately $1,308,000. For the year ended June 30, 2020, real estate
property taxes were approximately $22,000. Depreciation is recorded on the straight-line method, based upon an estimated
useful life of 40 years. The outstanding mortgage balance was approximately $823,000 at June 30, 2020 with an interest
rate of 3.75% and the maturity date of the mortgage is September 1, 2042.
The tenth Los Angeles apartment complex is a 13,000 square foot two-story apartment with 8 units. The Company acquired
the property on May 1, 2001 at an initial cost of approximately $1,206,000. For the year ended June 30, 2020, real estate
property taxes were approximately $20,000. Depreciation is recorded on the straight-line method, based upon an estimated
useful life of 40 years. In July 2013, the Company refinanced its $466,000 adjustable rate mortgage note payable on this
property for a new 30-year mortgage in the amount of $500,000. The interest rate on the new loan is fixed at 3.50% per
annum for the first five years and variable for the remaining of the term. For the fiscal year ended June 30, 2020, interest
rate on the note was 3.75%. The note matures in July 2043. The outstanding mortgage balance was approximately $428,000
at June 30, 2020.
The eleventh Los Angeles apartment complex, which is owned 100% by the Company’s subsidiary Santa Fe, is a 4,200
square foot two-story apartment with 2 units. Santa Fe acquired the property on February 1, 2002 at an initial cost of
approximately $785,000. For the year ended June 30, 2020, real estate property taxes were approximately $12,000.
Depreciation is recorded on the straight-line method based upon an estimated useful life of 40 years. The outstanding
mortgage balance was approximately $337,000 at June 30, 2020 with an interest rate of 3.75% and the maturity date of the
mortgage is September 1, 2042.
The twelfth apartment which is located in Marina del Rey, California, is a 6,316 square foot two-story apartment with 9
units. The Company acquired the property on April 29, 2011 at an initial cost of approximately $4,000,000. For the year
ended June 30, 2020, real estate property taxes were approximately $55,000. Depreciation is recorded on the straight-line
method, based upon an estimated useful life of 27.5 years. The outstanding mortgage balance was approximately
$1,303,000 at June 30, 2019 with an interest rate of 5.60% and the maturity date of the mortgage was May 1, 2021. In June
2020, the Company refinanced the mortgage note payable and obtained a new mortgage note payable for $2,600,000. The
Company received net proceeds of $1,144,000 as a result of the refinance. Interest rate on the new mortgage is fixed at
3.09% for ten years and the mortgage matures in July 2030.
The first Los Angeles single-family house is a 2,771 square foot home. The Company acquired the property on November
9, 2000 at an initial cost of approximately $660,000. For the year ended June 30, 2020, real estate property taxes were
approximately $11,000. Depreciation is recorded on the straight-line method, based upon an estimated useful life of 40
years. The outstanding mortgage balance was approximately $363,000 at June 30, 2020 with an interest rate of 3.75% and
the maturity date of the mortgage is September 1, 2042.
17
The second Los Angeles single-family house is a 2,201 square foot home. The Company acquired the property on August
22, 2003 at an initial cost of approximately $700,000. For the year ended June 30, 2020, real estate property taxes were
approximately $12,000. Depreciation is recorded on the straight-line method, based upon an estimated useful life of 40
years. The outstanding mortgage balance was approximately $388,000 at June 30, 2020 with an interest rate of 3.75% and
the maturity date of the mortgage is September 1, 2042.
The third Los Angeles single-family house is a 2,387 square foot home. The company acquired the property in July of 2015
as a strategic asset for $1,975,000 in cash. In August 2016, the Company obtained a $1,000,000 mortgage note payable and
received net proceeds of $983,000. The interest on note is 4.50% with interest only payments for twenty-three months. On
August 31, 2018, $1,005,000 was drawn from the RLOC to pay off the mortgage note payable. On September 28, 2018, the
Company obtained a new mortgage note payable in the amount of $1,000,000 for this property with interest rates fixed at
4.75% per annum for the first five years and variable for the remaining of the term. The mortgage note payable matures in
October 2048. $995,000 received as a result of the refinance was used to pay down the RLOC. The outstanding mortgage
balance was approximately $974,000 at June 30, 2020. For the year ended June 30, 2020, real estate property taxes were
approximately $25,000. Depreciation is recorded on the straight-line method, based upon an estimated useful life of 40
years.
Maui, Hawaii. In August 2004, the Company purchased an approximately two-acre parcel of unimproved land in Kihei,
Maui, Hawaii for $1,467,000.
MORTGAGES
Further information with respect to mortgage notes payable of the Company is set forth in Note 11 of the Notes to
Consolidated Financial Statements.
ECONOMIC AND PHYSICAL OCCUPANCY RATES
The Company leases units in its residential rental properties on a short-term basis, with no lease extending beyond one year.
The economic occupancy (gross potential less rent below market, vacancy loss, bad debt, discounts and concessions divided
by gross
potential rent) and the physical occupancy (gross potential rent less vacancy loss divided by gross potential rent) for each of
the Company’s operating properties for fiscal year ended June 30, 2020 are provided below.
Property
1. Las Colinas, TX
2. Morris County, NJ
3. St. Louis, MO
4. Florence, KY
5. Los Angeles, CA (1)
6. Los Angeles, CA (2)
7. Los Angeles, CA (3)
8. Los Angeles, CA (4)
9. Los Angeles, CA (5)
10. Los Angeles, CA (6)
11. Los Angeles, CA (7)
12. Los Angeles, CA (8)
13. Los Angeles, CA (9)
14. Los Angeles, CA (10)
15. Los Angeles, CA (11)
16. Los Angeles, CA (12)
17. Los Angeles, CA (13)
18. Los Angeles, CA (14)
19. Los Angeles, CA (15)
Economic
Occupancy
Physical
Occupancy
96%
92%
89%
95%
81%
32%
100%
95%
67%
99%
99%
100%
100%
100%
100%
91%
100%
100%
100%
90%
96%
88%
96%
89%
47%
96%
89%
83%
98%
98%
98%
98%
96%
100%
95%
100%
100%
100%
18
The Company’s Los Angeles, California properties are subject to various rent control laws, ordinances and regulations
which impact the Company’s ability to adjust and achieve higher rental rates.
Item 3. Legal Proceedings.
The Company may be subject to legal proceedings, claims, and litigation arising in the ordinary course of business. The
Company will defend itself vigorously against any such claims. Management does not believe that the impact of such
matters will have a material effect on the financial conditions or result of operations when resolved.
Item 4. Mine Safety Disclosures.
Not applicable.
Item 5. Market for Common Equity and Related Stockholder Matters.
MARKET INFORMATION
PART II
The Company’s Common Stock is listed and trades on the NASDAQ Capital Market tier of the NASDAQ Stock Market,
LLC under the symbol: “INTG”. The following table sets forth the high and low sales prices for the Company’s common
stock for each quarter of the last two fiscal years ended June 30, 2020 and 2019 as reported by NASDAQ.
Fiscal 2020
High
Low
First Quarter (7/ 1 to 9/30)
Second Quarter (10/1 to 12/31)
Third Quarter (1/1 to 3/31)
Fourth Quarter (4/1 to 6/30)
Fiscal 2019
First Quarter (7/ 1 to 9/30)
Second Quarter (10/1 to 12/31)
Third Quarter (1/1 to 3/31)
Fourth Quarter (4/1 to 6/30)
$
$
$
$
$
$
$
$
31.44
38.60
37.45
32.00
High
39.35
35.00
33.60
32.09
$
$
$
$
$
$
$
$
29.08
29.34
26.36
25.96
Low
27.25
29.26
29.20
29.97
As of June 30, 2020, the approximate number of holders of record of the Company’s Common Stock was 214. Such
number of owners was determined from the Company’s shareholders records and does not include beneficial owners of the
Company’s Common Stock whose shares are held in names of various brokers, clearing agencies or other nominees.
DIVIDENDS
The Company has not declared any cash dividends on its common stock and does not foresee issuing cash dividends in the
near future.
SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS.
This information appears in Part III, Item 12 of this report.
19
ISSUER PURCHASES OF EQUITY SECURITIES
The following table reflects purchases of InterGroup’s common stock made by The InterGroup Corporation, for its own
account, during the fourth quarter of its fiscal year ending June 30, 2020.
SMALL BUSINESS ISSUER PURCHASES OF EQUITY SECURITIES
Fiscal
2019
Period
(a) Total
Number of
Shares
Purchased
(b)
Average
Price Paid
Per Share
(c) Total Number
of Shares Purchased
as Part of Publicly
Announced Plans
or Programs
(d) Maximum Number
of shares that May
Yet be Purchased
Under the Plans
or Programs
Month #1 (April 1- April 30)
1,400
Month #2 (May 1- May 31)
Month #3 (June 1- June 30)
TOTAL:
573
772
2,745
$
$
$
$
29.86
28.24
28.34
29.09
1,400
573
772
2,745
104,864
104,291
103,519
103,519
The Company has only one stock repurchase program. The program was initially announced on January 13, 1998 and was
amended on February 10, 2003 and October 12, 2004. The total number of shares authorized to be repurchased pursuant to
those prior authorizations was 870,000, adjusted for stock splits. On June 3, 2009, the Board of Directors authorized the
Company to purchase up to an additional 125,000 shares of Company’s common stock. On November 15, 2012, the Board
of Directors authorized the Company to purchase up to an additional 100,000 shares of Company’s common stock. On
September 23, 2019, the Board of Directors authorized the Company to purchase up to an additional 120,000 shares of
Company’s common stock. The purchases will be made, in the discretion of management, from time to time, in the open
market or through privately negotiated third party transactions depending on market conditions and other factors. The
Company’s repurchase program has no expiration date and can be amended and increased, from time to time, in the
discretion of the Board of Directors. No plan or program expired during the period covered by the table.
Item 6. Selected Financial Data.
Not required for smaller reporting companies.
Item 7. Management Discussion and Analysis of Financial Condition and Results of Operations.
NEGATIVE EFFECTS OF CIVIL AUTHORITY ACTIONS ON OUR BUSINESS
On February 25, 2020, the City of San Francisco issued the proclamation by the Mayor declaring the existence of a local
emergency. The negative effects of the civil authority actions related to the novel strain of coronavirus (“COVID-19”) on
our business have been significant. In March 2020, the World Health Organization declared COVID-19 a global pandemic.
This contagious virus, which has continued to spread, has adversely affected workforces, customers, economies and
financial markets globally. It has also disrupted the normal operations of many businesses, including ours. To mitigate the
harm from the pandemic, on March 16, 2020, the City and County of San Francisco, along with a group of five other Bay
Area counties and the City of Berkeley, issued parallel health officer orders imposing shelter in place limitations across the
Bay Area, requiring everyone to stay safe at home except for certain essential needs. Since February 2020, several
unfavorable events and civil authority actions have unfolded causing demand for our hotel rooms to suffer including
cancellations of all citywide conventions, reduction of flights in and out of the Bay Area and decline in both leisure and
business travel.
20
In response to the decrease in demand, we have since furloughed all managers at the Hotel except for members of the
executive team and continue to limit hourly staff to a minimum. By the end of March 2020, we had temporarily closed all
of our food and beverage outlets, valet parking, concierge and bell services, fitness center, as well as the executive lounge
facility. We continue to implement social distancing standards and cleaning processes designed by Interstate and Hilton to
keep employees and guests safe. The full impact and duration of the COVID-19 outbreak continues to evolve as of the date
of this Annual Report. The pandemic effectively eliminated our ability to generate any profits, due to the drastic decline in
both leisure and business travel. As a result, management believes the ongoing length and severity of the economic
downturn caused by the pandemic will have a material adverse impact on our future business, financial condition, liquidity
and financial results. We are also assessing the potential impact on the impairment analysis of our long-lived assets and the
realization of our deferred tax assets. As of the date of this annual report, the effects of the pandemic continue to affect our
economy, business and leisure travel, and our needs to continue to curtail certain revenue generating activities at the Hotel,
and until there are vaccines or other methodologies to effectively combat this pandemic, we expect that the effects will have
a material adverse effect on our business.
As a result of the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) signed into law on March 27,
2020, additional avenues of relief may be available to workers and families through enhanced unemployment insurance
provisions and to small businesses through programs administered by the Small Business Administration (“SBA”). The
CARES Act includes, among other things, provisions relating to payroll tax credits and deferrals, net operating loss
carryback periods, alternative minimum tax credits and technical corrections to tax depreciation methods for qualified
improvement property. The CARES Act also established a Paycheck Protection Program (“PPP”), whereby certain small
businesses are eligible for a loan to fund payroll expenses, rent, and related costs. On April 9, 2020, Justice entered into a
loan agreement (“SBA Loan - Justice”) with CIBC Bank USA under the recently enacted CARES Act administered by the
U.S. Small Business Administration. The Partnership received proceeds of $4,719,000 from the SBA Loan - Justice. In
accordance with the requirements of the CARES Act, Justice has used proceeds from the loan primarily for payroll costs.
As of June 30, 2020, Justice had used $3,568,000 in qualified expenses such as payroll expenses, mortgage interests,
utilities, etc., and had a balance of $1,151,000 available for future qualified expenses. The SBA Loan - Justice is scheduled
to mature on April 9, 2022 and has a 1.00% interest rate. 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 June 30, 2020, InterGroup had used all of the $453,000 loan proceeds in qualified payroll expenses. The
SBA Loan – InterGroup is scheduled to mature on April 27, 2022 and has a 1.00% interest rate. Both the SBA Loan –
Justice and SBA Loan – InterGroup (collectively the “SBA Loans”) may be forgiven if the funds are used for payroll and
other qualified expenses. All payments of principal and interests are deferred until October 2020. 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. We anticipate applying for loan forgiveness shortly. All unforgiven portion of the principal and accrued
interest will be due at maturity.
RESULTS OF OPERATIONS
As of June 30, 2020, the Company owned approximately 83.7% of the common shares of its subsidiary, Santa Fe, and
Santa Fe owned approximately 68.8% of the common shares of Portsmouth Square, Inc. Intergroup also directly owns
approximately 13.7% of the common shares of Portsmouth. The Company’s principal sources of revenue continue to be
derived from the general and limited partnership interests of its subsidiary, Portsmouth, in the Justice Investors limited
partnership (“Justice” or the “Partnership”), rental income from its investments in multi-family and commercial real estate
properties, and income received from investment of its cash and securities assets. Justice owns 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 Justice have been consolidated with those of the Company.
The Hotel is operated by the Partnership as a full-service Hilton brand hotel pursuant to a License Agreement with Hilton.
The Partnership entered into the License Agreement on December 10, 2004. The term of the License Agreement was for an
initial period of 15 years commencing on the reopening date, upon completion of a major renovation, with an option to
extend the License Agreement for another five years, subject to certain conditions. On June 26, 2015, the Partnership and
Hilton entered into an amended franchise agreement which extended the License Agreement through 2030, modified the
monthly royalty rate, extended geographic protection to the Partnership and also provided the Partnership certain key
money cash incentives to be earned through 2030 in the form of a self-exhausting, interest free note. The key money cash
incentive of $4,750,000 was received on July 1, 2015. As of June 30, 2020 and 2019, the balance of the note was
$3,008,000 and $3,325,000, respectively, and are included in related party and other notes payable in the consolidated
balance sheets.
On February 1, 2017, Justice entered into a hotel management agreement (“HMA”) with Interstate Management Company,
LLC (“Interstate”) to manage the Hotel with an effective takeover date of February 3, 2017. The term of HMA is for an
initial period of 10 years commencing on the takeover date and automatically renews for an additional year not to exceed
five years in the aggregate subject to certain conditions. The HMA also provides for Interstate to advance a key money
incentive fee to the Hotel for capital improvements in the amount of $2,000,000 under certain terms and conditions
described in a separate key money agreement. As of June 30, 2020 and 2019, balance of the key money including accrued
interests are $1,009,000 and $2,049,000, respectively, and are included in restricted cash in the consolidated balance sheets.
As of June 30, 2020 and 2019, balance of the unamortized portion of the key money are $1,646,000 and $1,896,000,
respectively, and are included in the related party notes payable in the consolidated balance sheets. On October 25, 2019,
Interstate merged with Aimbridge Hospitality, North America’s largest independent hotel management firm. With the
completion of the merger, the newly combined company will be positioned under the Aimbridge Hospitality name in the
Americas.
21
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, 2020 Compared to Fiscal Year Ended June 30, 2019
The Company had a net loss of $5,089,000 for the year ended June 30, 2020 compared to a net income of $2,814,000 for
the year ended June 30, 2019. The change is primarily attributable to the decrease in Hotel revenue.
Hotel Operations
The Company had net loss from Hotel operations of $3,768,000 for the year ended June 30, 2020 compared to net income
of $5,277,000 for the year ended June 30, 2019. The change was primarily attributable to the $17,042,000 decrease in Hotel
revenue, offset by the $7,133,000 decrease in operating expenses.
The following table sets forth a more detailed presentation of Hotel operations for the years ended June 30, 2020 and 2019.
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
Loss on disposal of assets
Interest expense - mortgage
Depreciation and amortization expense
Net (loss) income from Hotel operations
22
2020
2019
$
$
36,465,000
3,529,000
2,368,000
477,000
42,839,000
(37,333,000)
5,506,000
-
(6,885,000)
(2,389,000)
(3,768,000)
$
$
51,243,000
5,353,000
2,875,000
410,000
59,881,000
(44,466,000)
15,415,000
(398,000)
(7,234,000)
(2,506,000)
5,277,000
For the year ended June 30, 2020, the Hotel generated operating income of $5,506,000 before non-recurring charges,
interest, depreciation, and amortization on total operating revenues of $42,839,000 compared to operating income of
$15,415,000 before non-recurring charges, interest, depreciation, and amortization on total operating revenues of
$59,881,000 for the year ended June 30, 2019. Room revenues decreased by $14,778,000 for the year ended June 30, 2020
compared to the year ended June 30, 2019, food and beverage revenue decreased by $1,824,000, and revenue from garage
decreased by $507,000. The year over year decline in all areas are result of the business interruption attributable to a variety
of responses by federal, state, and local civil authority to the COVID-19 outbreak in March 2020 which continues to affect
us. Revenue from other operating departments increased year over year mainly due to increase in cancellation revenue. The
following table sets forth the monthly average occupancy percentage of the Hotel for the fiscal years ended June 30, 2020
and 2019.
Month
Year
Average
Occupancy
%
Year
Average
Occupancy
%
July August September October November December
2019
2019
2019
2019
2019
2019
January February March April May
2020
2020
2020
2020
2020
June Fiscal Year
2019 - 2020
2020
98%
99%
98%
97%
99%
98%
96%
96%
35% 10% 27% 34%
74%
2018
2018
2018
2018
2018
2018
2019
2019
2019
2019
2019
2019
Fiscal Year
2018 - 2019
98%
98%
97%
97%
95%
98% 94%
97% 94% 96% 96% 98%
96%
Operating expenses decreased by $7,133,000 for the year ended June 30, 2020 to $37,333,000 compared to the year ended
June 30, 2019 of $44,466,000 primarily due to decrease in salaries and wages, rooms commission, credit card fees,
management fees, and franchise fees.
The following table sets forth the average daily room rate, average occupancy percentage and room revenue per available
room (“RevPAR”) of the Hotel for the year ended June 30, 2020 and 2019.
For the Year
Ended June 30,
Average
Daily Rate
Average
Occupancy %
RevPAR
2020
2019
$
$
248
268
74% $
96% $
183
257
The Hotel’s revenues decreased by 28% year over year. Average daily rate decreased by $20, average occupancy dropped
22%, and RevPAR decreased by $74 for the twelve months ended June 30, 2020 compared to the twelve months ended
June 30, 2019.
In order to provide our guests with best in class technology experience, we completed the upgrade of our new internet
system from Cisco, and installed new 55” smart 4K televisions and Hilton’s stay connected internet streaming products. We
also replaced mattresses in all guestrooms during the fiscal year ended June 30, 2020. The COVID-19 pandemic and design
delays have pushed back the plans for the conversion of the Justice offices, Fitness Center and Executive Lounge; projects
that would add 19 guest rooms into our inventory. The long-term value of these rooms is in utilizing them as guest rooms,
and we will work to implement a new timeline as business returns. Part of this renovation will be funded by the Hotel’s
furniture, fixture and equipment reserve account with our lender as well as the key money incentive provided by Interstate.
Lastly, the Hotel completed the installation of a complete exterior building maintenance system which will enable periodic
window washing, replaced and upgraded all computers in the business center and administrative offices.
Real Estate Operations
Revenue from real estate operations increased to $15,178,000 for the year ended June 30, 2020 from $14,872,000 for the
year ended June 30, 2019 primarily as a result of increase in market rent. Real estate operating expenses increased to
$8,051,000 from $7,810,000 primarily as a result of increase in repairs and maintenance costs. 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 $1,913,000 for the year ended June 30, 2020 compared to a net loss
on marketable securities of $1,733,000 for the year ended June 30, 2019. For the year ended June 30, 2020 and 2019, the
Company had a net unrealized loss of zero and $254,000, respectively, related to the Company’s investment in the common
stock of Comstock Mining Inc. (“Comstock” - NYSE MKT: LODE).
As of June 30, 2020 and 2019, investments in Comstock represent approximately 11% and 7% of the Company’s
investment portfolio, respectively. For the year ended June 30, 2020, the Company had a net realized loss of $641,000 and a
net unrealized loss of $1,272,000. For the year ended June 30, 2019, the Company had a net realized loss of $806,000 and a
net unrealized loss of $927,000.
23
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.
During the years ended June 30, 2020 and 2019, 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 $219,000 and
$98,000, respectively.
The Company and its subsidiaries, Portsmouth and Santa Fe, compute and file income tax returns and prepare discrete
income tax provisions for financial reporting. The income tax benefit during the years ended June 30, 2020 and 2019
represents primarily the combined income tax effect of Portsmouth’s pretax (loss) income which includes its share in net
(loss) income from the Hotel and the pre-tax loss from InterGroup (standalone).
MARKETABLE SECURITIES AND OTHER INVESTMENTS
As of June 30, 2020 and 2019, the Company had investments in marketable equity securities of $6,178,000 and $9,696,000,
respectively. The following table shows the composition of the Company’s marketable securities portfolio by selected
industry groups:
As of June 30, 2020
Industry Group
REITs and real estate companies
Basic material
Energy
Industrials
Corporate bonds
Other
As of June 30, 2019
Industry Group
REITs and real estate companies
Consumer cyclical
Corporate bonds
Financial services
Energy
Other
Fair Value
2,365,000
1,209,000
767,000
484,000
417,000
936,000
6,178,000
Fair Value
3,069,000
1,448,000
1,420,000
951,000
950,000
1,858,000
9,696,000
$
$
$
$
% of Total
Investment
Securities
38.3%
19.6%
12.4%
7.8%
6.7%
15.2%
100.0%
% of Total
Investment
Securities
31.7%
14.9%
14.6%
9.8%
9.8%
19.2%
100.0%
As of June 30, 2020, the Company’s investment portfolio is diversified with 59 different equity positions. The Company
holds two equity securities that comprised more than 10% of the equity value of the portfolio. The largest security position
represents 19.4% of the portfolio and consists of the common stock of American Realty Investors, Inc. which is included in
the REITs and real estate companies’ industry group.
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
2020
(1,913,000)
(219,000)
363,000
(452,000)
(545,000)
(2,766,000)
$
$
2019
(1,733,000)
(98,000)
484,000
(576,000)
(574,000)
(2,497,000)
$
$
24
FINANCIAL CONDITION AND LIQUIDITY
Historically, our cash flows have been primarily generated from our Hotel operations. However, the responses by federal,
state, and local civil authorities to the COVID-19 pandemic has had a material detrimental impact on our liquidity. For the
fiscal year ended June 30, 2020, our net cash flow used in operations was $3,454,000. For the fiscal year ended June 30,
2019, our net cash flow provided by operations was $14,269,000. We have taken several steps to preserve capital and
increase liquidity at our Hotel, including implementing strict cost management measures to eliminate non-essential
expenses, postponing capital expenditures, renegotiating certain reoccurring expenses, and temporarily closing certain hotel
services and outlets.
As of June 30, 2020, we had cash, cash equivalents, and restricted cash of $28,286,000 which included $10,666,000 of
restricted cash held by our Hotel senior lender Wells Fargo Bank, N.A. (“Lender”). Of the $10,666,000 restricted cash,
$7,486,000 was held for furniture, fixtures and equipment (“FF&E”) reserves and $2,432,000 was held for a possible future
property improvement plan (“PIP”) requested by our franchisor, Hilton. However, Hilton has confirmed that it will not
require a PIP for our Hotel until relicensing which shall occur at the earlier of (i) January 2030, which is six years after the
maturity date of our current senior and mezzanine loans, or (ii) upon the sale of our Hotel. On August 19, 2020, Operating
received PIP deposits in the amount of $2,379,000 held by Lender. The funds were utilized to fund operating expenses,
including franchise and management fees and other expenses.
On April 9, 2020, Justice entered into a loan agreement (“SBA Loan - Justice”) with CIBC Bank USA under the recently
enacted CARES Act administered by the U.S. Small Business Administration. The Partnership received proceeds of
$4,719,000 from the SBA Loan - Justice. In accordance with the requirements of the CARES Act, Justice has used proceeds
from the loan primarily for payroll costs. As of June 30, 2020, Justice had used $3,568,000 in qualified expenses such as
payroll expenses, mortgage interests, utilities, etc., and had a balance of $1,151,000 available for future qualified expenses.
The SBA Loan - Justice is scheduled to mature on April 9, 2022 and has a 1.00% interest rate. 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 June 30, 2020, InterGroup had used all of the $453,000 loan
proceeds in qualified payroll expenses. The SBA Loan – InterGroup is scheduled to mature on April 27, 2022 and has a
1.00% interest rate. Both the SBA Loan – Justice and SBA Loan – InterGroup (collectively the “SBA Loans”) may be
forgiven if the funds are used for payroll and other qualified expenses. All payments of principal and interests are deferred
until October 2020. 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. We anticipate applying for loan forgiveness shortly. All unforgiven
portion of the principal and accrued interest will be due at maturity.
In order to increase our liquidity position, the Company refinanced its 151-unit apartment complex in Parsippany, New
Jersey on April 30, 2020, generating net proceeds of $6,814,000. In June 2020, the Company refinanced one of its
California properties and generated net proceeds of $1,144,000. We are currently evaluating other refinancing
opportunities. We could refinance additional multifamily properties should the need arise; however, we do not deem it
necessary at this time. The Company has an uncollateralized $8,000,000 revolving line of credit from CIBC Bank USA
(“CIBC”) of which $5,000,000 was available to be drawn down as of June 30, 2020; however, the outstanding balance on
the revolving line of credit was paid down fully on August 28, 2020, making the entire $8,000,000 available to be drawn
down should additional liquidity be necessary. On August 28, 2020, Santa Fe sold its 27-unit apartment complex located in
Santa Monica, California for $15,650,000 and realized a gain on the sale of approximately $12,026,000. Santa Fe will
manage its federal and state income tax liability, and anticipates the utilization of its available net operating losses and
capital loss carryforwards. Santa Fe received net proceeds of $12,163,000 after selling costs and repayment of InterGroup’s
RLOC of $2,985,000 as InterGroup had drawn on its RLOC in July 2018 to pay off the previous Fannie Mae mortgage on
the property. Furthermore, pursuant to the Contribution Agreement between Santa Fe and InterGroup, Santa Fe paid
InterGroup $662,000 from the sale. Santa Fe will not seek a replacement property.
As the sole general partner of Justice that controls approximately 93.3% of the voting interest in the Partnership,
Portsmouth has the ability to amend the partnership agreement to allow for capital calls to the limited partners of Justice if
needed. The majority of any capital calls will be met by Portsmouth. Portsmouth will have financing availability, upon the
authorization of the respective board of directors, to borrow from InterGroup and/or Santa Fe to meet any capital calls and
its other obligations during the next twelve months and beyond. On August 28, 2020, the Board of InterGroup and Santa Fe
have passed resolutions, respectively, to provide funding to Portsmouth if necessary. The Partnership is also allowed to
seek additional loans and sell partnership interests. Upon the consent of the general partner and a super majority in interest,
the Partnership may sell additional classes or series of units of the Partnership under certain conditions in order to raise
additional capital.
25
Our known short-term liquidity requirements primarily consist of funds necessary to pay for operating and other
expenditures, including management and franchise fees, corporate expenses, payroll and related costs, taxes, interest and
principal payments on our outstanding indebtedness, and repairs and maintenance of the Hotel.
Our long-term liquidity requirements primarily consist of funds necessary to pay for scheduled debt maturities and capital
improvements of the Hotel and our real estate properties. We will continue to finance our business activities primarily with
existing cash, including from the activities described above, and cash generated from our operations. After considering our
approach to liquidity and accessing our available sources of cash, we believe that our cash position, after giving effect to
the transactions discussed above, will be adequate to meet anticipated requirements for operating and other expenditures,
including corporate expenses, payroll and related benefits, taxes and compliance costs and other commitments, for at least
twelve months from the date of issuance of these financial statements, even if current levels of low occupancy were to
persist. The objectives of our cash management policy are to maintain existing leverage levels and the availability of
liquidity, while minimizing operational costs. We believe that our cash on hand, along with other potential aforementioned
sources of liquidity that management may be able to obtain, will be sufficient to fund our working capital needs, as well as
our capital lease and debt obligations for at least the next twelve months and beyond. However, there can be no guarantee
that management will be successful with its plan.
MATERIAL CONTRACTUAL OBLIGATIONS
The following table provides a summary of the Company’s material financial obligations which also includes interest.
Mortgage notes payable
Related party and other notes payable
Interest
Total
Total
$178,352,000
13,909,000
34,492,000
$226,753,000
Year
2021
$11,211,000
1,016,000
8,801,000
$21,028,000
Year
2022
$ 3,101,000
9,190,000
8,418,000
$20,709,000
Year
2023
$28,244,000
750,000
7,625,000
$36,619,000
Year
2024
$108,113,000
567,000
4,412,000
$113,092,000
Year
2025
$3,494,000
567,000
904,000
$4,965,000
Thereafter
$24,189,000
1,819,000
4,332,000
$30,340,000
OFF-BALANCE SHEET ARRANGEMENTS
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
Interstate 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 partnership revenues due to inflation. Partnership 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
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, 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.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk.
Not required for smaller reporting companies.
26
Item 8. Financial Statements and Supplementary Data.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets - June 30, 2020 and 2019
Consolidated Statements of Operations - For years ended June 30, 2020 and 2019
Consolidated Statements of Shareholders’ Deficit - For years ended June 30, 2020 and 2019
Consolidated Statements of Cash Flows - For years ended June 30, 2020 and 2019
Notes to the Consolidated Financial Statements
27
28
29
30
31
32
33
Report of Independent Registered Public Accounting Firm
To the Shareholders and the Board of Directors
The Intergroup Corporation
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of The Intergroup Corporation and its subsidiaries (the
“Company”) as of June 30, 2020 and 2019, and the related consolidated statements of operations, shareholders’ deficit and
cash flows for the years then ended, and the related notes (collectively referred to as the “consolidated financial
statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the consolidated
financial position of the Company as of June 30, 2020 and 2019, and the consolidated results of its operations and its cash
flows for the years then ended, in conformity with accounting principles generally accepted in the United States of
America.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to
express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting
firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be
independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and
regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and
perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material
misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an
audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of
internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the
Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial
statements, whether due to error or fraud, and performing procedures to respond to those risks. Such procedures included
examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our
audits also included evaluating the accounting principles used and significant estimates made by management, as well as
evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable
basis for our opinion.
/s/ Moss Adams LLP
Irvine, California
September 9, 2020
We have served as the Company’s auditor since 2017.
28
THE INTERGROUP CORPORATION
CONSOLIDATED BALANCE SHEETS
As of June 30,
ASSETS
Investment in Hotel, net
Investment in real estate, net
Investment in marketable securities
Other investments, net
Cash and cash equivalents
Restricted cash
Other assets, net
Deferred tax asset
Total assets
LIABILITIES AND SHAREHOLDERS’ DEFICIT
Liabilities:
Accounts payable and other liabilities
Accounts payable and other liabilities - Hotel
Due to securities broker
Obligations for securities sold
Related party and other notes payable
Other notes payable – SBA Loans
Finance leases
Line of credit payable
Mortgage notes payable - Hotel
Mortgage notes payable - real estate
Total liabilities
Commitments and contingencies - Note 18
Shareholders’ deficit:
Preferred stock, $.01 par value, 100,000 shares authorized; none issued
Common stock, $.01 par value, 4,000,000 shares authorized; 3,404,982
issued; 2,288,809 and 2,309,962 outstanding as of June 30, 2020 and 2019
Additional paid-in capital
Accumulated deficit
Treasury stock, at cost, 1,116,173 and 1,095,020 shares as of June 30, 2020
and 2019
Total Intergroup shareholders’ deficit
Noncontrolling interest
Total shareholders’ deficit
Total liabilities and shareholders’ deficit
2020
2019
$
38,769,000
50,338,000
6,178,000
278,000
14,163,000
14,123,000
1,985,000
4,383,000
39,836,000
51,773,000
9,696,000
612,000
11,837,000
13,295,000
2,362,000
1,468,000
130,217,000
$
130,879,000
$
4,213,000
7,414,000
1,576,000
294,000
4,654,000
5,172,000
1,098,000
2,985,000
111,446,000
65,612,000
204,464,000
3,819,000
11,245,000
1,629,000
1,225,000
5,261,000
-
1,486,000
2,985,000
113,087,000
58,571,000
199,308,000
-
-
33,000
6,626,000
(43,541,000)
(14,995,000)
(51,877,000)
(22,370,000)
(74,247,000)
130,217,000
$
33,000
10,342,000
(39,760,000)
(14,347,000)
(43,732,000)
(24,697,000)
(68,429,000)
130,879,000
$
$
$
$
The accompanying notes are an integral part of these consolidated financial statements.
29
THE INTERGROUP CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
For the years ended June 30,
Revenues:
Hotel
Real estate
Total revenues
Costs and operating expenses:
Hotel operating expenses
Real estate operating expenses
Depreciation and amortization expense
General and administrative expense
Total costs and operating expenses
Income from operations
Other income (expense):
Interest expense - mortgage
Loss on disposal of assets
Net loss on marketable securities
Loss on debt extinguishment
Impairment loss on other investments
Dividend and interest income
Trading and margin interest expense
Net other expense
(Loss) Income before income taxes
Income tax benefit
Net (loss) income
Less: Net loss (income) attributable to the noncontrolling interest
Net (loss) income attributable to InterGroup
Net (loss) income per share
Basic
Diluted
Net (loss) income per share attributable to InterGroup
Basic
Diluted
2020
2019
$
$
42,839,000
15,178,000
58,017,000
59,881,000
14,872,000
74,753,000
(37,333,000)
(8,051,000)
(4,872,000)
(2,870,000)
(44,466,000)
(7,810,000)
(4,935,000)
(2,346,000)
(53,126,000)
(59,557,000)
4,891,000
15,196,000
(9,321,000)
-
(1,913,000)
(687,000)
(219,000)
363,000
(997,000)
(12,774,000)
(7,883,000)
2,794,000
(5,089,000)
1,308,000
(3,781,000)
(2.21)
(2.21)
(1.64)
(1.64)
$
$
$
$
$
(9,788,000)
(398,000)
(1,733,000)
-
(98,000)
484,000
(1,150,000)
(12,683,000)
2,513,000
301,000
2,814,000
(1,357,000)
1,457,000
1.21
1.06
0.63
0.55
$
$
$
$
$
Weighted average number of common shares outstanding
Weighted average number of diluted shares outstanding
2,300,059
2,623,254
2,328,156
2,658,551
The accompanying notes are an integral part of these consolidated financial statements.
30
THE INTERGROUP CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ DEFICIT
Additional
Paid-in
Common Stock
Shares Amount Capital
Accumulated Treasury
Deficit
Stock
InterGroup
Shareholders’ Noncontrolling Shareholders’
Interest
Deficit
Deficit
Total
Balance at July
1, 2018
3,395,616 $ 33,000 $10,522,000 $ (41,217,000) $(13,268,000) $ (43,930,000) $
(26,037,000) $ (69,967,000)
Net Income
-
Issuance of stock
9,366
-
-
-
-
-
-
-
-
76,000
(256,000)
-
-
1,457,000
-
-
-
-
-
-
-
-
-
-
1,457,000
1,357,000
2,814,000
-
76,000
-
-
-
76,000
(256,000)
133,000
(123,000)
-
(150,000)
(150,000)
(1,079,000)
(1,079,000)
-
(1,079,000)
-
-
-
-
3,404,982 $ 33,000 $10,342,000 $ (39,760,000) $(14,347,000) $
(43,732,000) $
(24,697,000) $
(68,429,000)
-
-
-
-
-
-
-
-
-
-
-
-
-
(3,781,000)
142,000
(4,505,000)
(266,000)
913,000
-
-
-
-
-
-
-
-
-
-
-
(3,781,000)
(1,308,000)
(5,089,000)
142,000
-
142,000
(4,505,000)
3,468,000
(1,037,000)
(266,000)
167,000
(99,000)
913,000
(648,000)
(648,000)
-
-
913,000
(648,000)
3,404,982 $ 33,000 $ 6,626,000 $ (43,541,000) $(14,995,000) $
(51,877,000) $
(22,370,000) $
(74,247,000)
Stock options
expense
Investment in
Santa Fe
Investment in
Justice
Purchase of
treasury stock
Balance at June
30, 2019
Net Loss
Stock options
expense
Investment in
Santa Fe
Investment in
Portsmouth
Investment in
Woodland
Purchase of
treasury stock
Balance at June
30, 2020
The accompanying notes are an integral part of these consolidated financial statements.
31
THE INTERGROUP CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended June 30,
Cash flows from operating activities:
Net (loss) income
Adjustments to reconcile net (loss) income to net cash (used in) provided by
operating activities:
2020
2019
$
(5,089,000)
$
2,814,000
Net unrealized loss on marketable securities
Deferred taxes
Loss on disposal of assets
Impairment loss on other investments
Depreciation and amortization
Stock compensation expense
Changes in assets and liabilities:
Investment in marketable securities
Other assets, net
Accounts payable and other liabilities – Justice
Accounts payable and other liabilities
Due to securities broker
Obligations for securities sold
Net cash (used in) provided by operating activities
Cash flows from investing activities:
Investment in Hotel, net
Investment in real estate, net
Proceeds from other investments
Investment in Santa Fe
Investment in Portsmouth
Investment in Woodland
Investment in Justice
Net cash used in investing activities
Cash flows from financing activities:
Proceeds from other notes payable – SBA Loans
Net proceeds from (payments of) mortgage and other notes payable
Issuance cost from refinance of long-term debt
Proceeds from line of credit
Purchase of treasury stock
Net cash provided by (used in) financing activities
Net increase in cash, cash equivalents and restricted cash:
Cash, cash equivalents and restricted cash at the beginning of the year
Cash, cash equivalents and restricted cash at the end of the year
Supplemental information:
Income taxes paid (refunds received)
Interests paid
Non-cash transactions:
Additions to Hotel equipment through finance leases
$
$
$
$
The accompanying notes are an integral part of these consolidated financial statements.
32
1,272,000
(2,915,000)
-
219,000
4,715,000
142,000
2,246,000
377,000
(3,831,000)
394,000
(53,000)
(931,000)
(3,454,000)
(1,292,000)
(1,048,000)
115,000
(1,037,000)
(99,000)
913,000
-
(2,448,000)
5,172,000
5,303,000
(771,000)
-
(648,000)
9,056,000
3,154,000
25,132,000
28,286,000
41,000
9,440,000
30,000
$
$
$
$
927,000
(1,713,000)
398,000
98,000
4,777,000
76,000
3,218,000
2,823,000
1,352,000
467,000
(258,000)
(710,000)
14,269,000
(1,397,000)
(833,000)
103,000
(123,000)
-
-
(150,000)
(2,400,000)
-
(5,992,000)
(162,000)
2,985,000
(1,079,000)
(4,248,000)
7,621,000
17,511,000
25,132,000
(1,239,000)
10,011,000
382,000
THE INTERGROUP CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES AND PRACTICES
Description of the Business
The InterGroup Corporation, a Delaware corporation, (“InterGroup” or the “Company”) was formed to buy, develop,
operate and dispose of real property and to engage in various investment activities to benefit the Company and its
shareholders.
As of June 30, 2020, the Company had the power to vote 87.4% of the voting shares of Santa Fe Financial Corporation
(“Santa Fe”), a public company (OTCBB: SFEF). This percentage includes the power to vote an approximately 3.7%
interest in the common stock in Santa Fe owned by the Company’s Chairman and CEO, John V. Winfield, pursuant to a
voting trust agreement entered into on June 30, 1998. Mr. Winfield, Chairman of the Board of both Santa Fe and
InterGroup, is a control person of both entities.
Santa Fe’s primary business is conducted through the management of its 68.8% owned subsidiary, Portsmouth Square, Inc.
(“Portsmouth”), a public company (OTCBB: PRSI). Portsmouth has a 93.3% limited partnership interest in Justice
Investors, a California limited partnership (“Justice” or the “Partnership”) and is the sole general partner. Justice was
formed in 1967 to acquire real property in San Francisco, California. As of June 30, 2020, the Partnership has
approximately 23 voting limited partners. InterGroup also directly owns approximately 13.7% of the common stock of
Portsmouth.
Justice, through its subsidiaries Justice Operating Company, LLC (“Operating”) and Justice Mezzanine Company, LLC
(“Mezzanine”) owns and operates a 544-room hotel property located at 750 Kearny Street, San Francisco California, known
as the Hilton San Francisco Financial District (the “Hotel”) and related facilities including a five-level underground parking
garage. Mezzanine is a wholly owned subsidiary of the Partnership; Operating is a wholly owned subsidiary of Mezzanine.
Mezzanine is the borrower under certain mezzanine indebtedness of Justice, and in December 2013, the Partnership
conveyed ownership of the Hotel to Operating. The Hotel is operated by the partnership as a full-service Hilton brand hotel
pursuant to a Franchise License Agreement with HLT Franchise Holding LLC (“Hilton”) through January 31, 2030.
Justice entered into a Hotel management agreement (“HMA”) with Interstate Management Company, LLC (“Interstate”) to
manage the Hotel, along with its five-level parking garage, with an effective takeover date of February 3, 2017. The term of
the management agreement is for an initial period of ten years commencing on the takeover date and automatically renews
for successive one (1) year periods, to not exceed five years in the aggregate, subject to certain conditions. Under the terms
of the HMA, base management fee payable to Interstate shall be one and seven-tenths percent (1.70%) of total Hotel
revenue. The HMA also provides for Interstate to advance a key money incentive fee to the Hotel for capital improvements
in the form of a self-exhausting, interest free note payable in the amount of $2,000,000 in a separate key money agreement.
As of June 30, 2020 and 2019, balance of the key money including accrued interests are $1,009,000 and $2,049,000,
respectively, and are included in restricted cash in the consolidated balance sheets. As of June 30, 2020 and 2019, balance
of the unamortized portion of the key money are $1,646,000 and $1,896,000, respectively, and are included in the related
party notes payable in the consolidated balance sheets. On October 25, 2019, Interstate merged with Aimbridge Hospitality,
North America’s largest independent hotel management firm. With the completion of the merger, the newly combined
company will be positioned under the Aimbridge Hospitality name in the Americas.
In addition to the operations of the Hotel, the Company also generates income from the ownership of real estate. Properties
include apartment complexes, commercial real estate, and three single-family houses as strategic investments. The
properties are located throughout the United States, but are concentrated in Texas and Southern California. The Company
also has investments in unimproved real property. All of the Company’s residential rental properties are managed in-house.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and Santa Fe. All significant inter-company
transactions and balances have been eliminated.
Investment in Hotel, Net
Property and equipment are stated at cost. Building improvements are depreciated on a straight-line basis over their useful
lives ranging from 3 to 39 years. Furniture, fixtures, and equipment are depreciated on a straight-line basis over their useful
lives ranging from 3 to 7 years.
33
Repairs and maintenance are charged to expense as incurred. Costs of significant renewals and improvements are
capitalized and depreciated over the shorter of its remaining estimated useful life or life of the asset. The cost of assets sold
or retired, and the related accumulated depreciation are removed from the accounts; any resulting gain or loss is included in
other income (expenses).
The Company reviews property and equipment for impairment whenever events or changes in circumstances indicate that
the carrying amount of an asset may not be recoverable in accordance with generally accepted accounting principles
(“GAAP”). If the carrying amount of the asset, including any intangible assets associated with that asset, exceeds its
estimated undiscounted net cash flow, before interest, the Partnership will recognize an impairment loss equal to the
difference between the asset’s carrying amount and its estimated fair value. If impairment is recognized, the reduced
carrying amount of the asset will be accounted for as its new cost. For a depreciable asset, the new cost will be depreciated
over the asset’s remaining useful life. Generally, fair values are estimated using discounted cash flow, replacement cost or
market comparison analyses. The process of evaluating for impairment requires estimates as to future events and
conditions, which are subject to varying market and economic factors. Therefore, it is reasonably possible that a change in
estimate resulting from judgments as to future events could occur which would affect the recorded amounts of the property.
No impairment losses were recorded for the years ended June 30, 2020 and 2019.
Investment in Real Estate, Net
Rental properties are stated at cost less accumulated depreciation. Depreciation of rental property is provided on the
straight-line method based upon estimated useful lives of 5 to 40 years for buildings and improvements and 5 to 10 years
for equipment. Expenditures for repairs and maintenance are charged to expense as incurred and major improvements are
capitalized.
The Company also reviews its rental property assets for impairment. No impairment losses on the investment in real estate
have been recorded for the years ended June 30, 2020 and 2019.
The fair value of the tangible assets of an acquired property, which includes land, building and improvements, is
determined by valuing the property as if they were vacant, and incorporates costs during the lease-up periods considering
current market conditions and costs to execute similar leases such lost rental revenue and tenant improvements. The value
of tangible assets is depreciated using straight-line method based upon the assets estimated useful lives.
Investment in Marketable Securities
Marketable securities are stated at fair value as determined by the most recently traded price of each security at the balance
sheet date. Marketable securities are classified as trading securities with all unrealized gains and losses on the Company’s
investment portfolio recorded through the consolidated statements of operations.
Other Investments, Net
Other investments include non-marketable securities (carried at cost, net of any impairments loss) and non-marketable debt
instruments. The Company has no significant influence or control over the entities that issue these investments. These
investments are reviewed on a periodic basis for other-than-temporary impairment. The Company reviews several factors to
determine whether a loss is other-than-temporary. These factors include but are not limited to: (i) the length of time an
investment is in an unrealized loss position, (ii) the extent to which fair value is less than cost, (iii) the financial condition
and near term prospects of the issuer and (iv) our ability to hold the investment for a period of time sufficient to allow for
any anticipated recovery in fair value. For the years ended June 30, 2020 and 2019, the Company recorded impairment
losses related to other investments of $219,000 and $98,000, respectively. As of June 30, 2020 and 2019, the allowance for
impairment losses was $6,270,000 and $6,367,000, respectively.
Cash and Cash Equivalents
Cash equivalents consist of highly liquid investments with an original maturity of three months or less when purchased and
are carried at cost, which approximates fair value. As of June 30, 2020 and 2019, the Company does not have any cash
equivalents.
Restricted Cash
Restricted cash is comprised of amounts held by lenders for payment of real estate taxes, insurance, replacement and capital
addition reserves for the Hotel. It also includes key money received from Interstate that is restricted for capital
improvements.
Other Assets, Net
Other assets include prepaid insurance, accounts receivable, franchise fees, tax refund receivable, and other miscellaneous
assets. Franchise fees are stated at cost and amortized over the life of the agreement (15 years).
34
Accounts receivable from the Hotel and rental property customers are carried at cost less an allowance for doubtful
accounts that is based on management’s assessment of the collectability of accounts receivable. As of June 30, 2020, and
2019, the allowance for doubtful accounts was $79,000 and $71,000, respectively. The Company extends unsecured credit
to its customers but mitigates the associated credit risk by performing ongoing credit evaluations of its customers.
Due to Securities Broker
The Company may utilize margin for its marketable securities purchases through the use of standard margin agreements
with national brokerage firms. Various securities brokers have advanced funds to the Company for the purchase of
marketable securities under standard margin agreements. These advanced funds are recorded as a liability.
Obligation for Securities Sold
Obligation for securities sold represents the fair market value of shares sold with the promise to deliver that security at
some future date and the fair market value of shares underlying the written call options with the obligation to deliver that
security when and if the option is exercised. The obligation may be satisfied with current holdings of the same security or
by subsequent purchases of that security. Unrealized gains and losses from changes in the obligation are included in the
statement of operations.
Accounts Payable and Other Liabilities
Accounts payable and other liabilities include trade payables, advance customer deposits, accrued wages, accrued real
estate taxes, and other liabilities.
Treasury Stock
The Company records the acquisition of treasury stock under the cost method. During the years ended June 30, 2020 and
2019, the Company purchased 21,153 and 33,601 shares of treasury stock, respectively.
Fair Value of Financial Instruments
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (i.e., the “exit price”) in
an orderly transaction between market participants at the measurement date. Accounting standards for fair value
measurement establishes a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs
and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available.
Observable inputs are inputs that market participants would use in pricing the asset or liability developed based on market
data obtained from sources independent of the Company. Unobservable inputs are inputs that reflect the Company’s
assumptions about the assumptions market participants would use in pricing the asset or liability developed based on the
best information available in the circumstances. The hierarchy is broken down into three levels based on the observability
of inputs as follows:
Level 1–inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active
markets.
Level 2–inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and
inputs that are observable for the assets or liability, either directly or indirectly, for substantially the full term of the
financial instruments.
Level 3–inputs to the valuation methodology are unobservable and significant to the fair value.
Revenue Recognition
On July 1, 2018, we adopted ASC 606, Revenue from Contracts with Customers, using the modified retrospective approach
to all contracts resulting in no cumulative adjustment to accumulated deficit. The adoption of this standard did not impact
the timing of our revenue recognition based on the short-term, day-to-day nature of our operations. See Note 3 – Revenue.
Advertising Costs
Advertising costs are expensed as incurred and are included in Hotel operating expenses in the consolidated statements of
operations. Advertising costs were $176,000 and $282,000 for the years ended June 30, 2020 and 2019, respectively.
35
Income Taxes
Deferred income taxes are calculated under the liability method. Deferred income tax assets and liabilities are based on
differences between the financial statement and tax basis of assets and liabilities at the current enacted tax rates. Changes in
deferred income tax assets and liabilities are included as a component of income tax expense. Changes in deferred income
tax assets and liabilities attributable to changes in enacted tax rates are charged or credited to income tax expense in the
period of enactment. Valuation allowances are established for certain deferred tax assets where realization is not likely.
We have considered the income tax accounting and disclosure implications of the relief provided by the Coronavirus Aid,
Relief, and Economic Security (CARES) Act enacted on March 27, 2020. The effect of tax law changes is required to be
recognized either in the interim period in which the legislation is enacted or reflected in the computation of the annual
effective tax rate, depending on the nature of the change. As of June 30, 2020, we evaluated the income tax provisions of
the CARES Act and have determined there to be no material effect on the fiscal year tax provision. We will continue to
evaluate the income tax provisions of the CARES Act and monitor the tax law changes that could have income tax
accounting and disclosure implications.
Assets and liabilities are established for uncertain tax positions taken or positions expected to be taken in income tax returns
when such positions are judged to not meet the “more-likely-than-not” threshold based on the technical merits of the
positions.
Earnings Per Share
Basic net (loss) income per share is computed by dividing net (loss) income available to common stockholders by the
weighted average number of common shares outstanding. The computation of diluted net income per share is similar to the
computation of basic net income per share except that the weighted-average number of common shares is increased to
include the number of additional common shares that would have been outstanding if potential dilutive common shares had
been issued. As of June 30, 2020, the Company’s only potentially dilutive common shares are 323,195 shares that Mr.
Winfield has a right to acquire pursuant to vested stock options. The basic and diluted earnings per share are the same for
the fiscal year ended June 30, 2020 because the Company had a net loss.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of
America (U.S. GAAP) requires the use of estimates and assumptions regarding certain types of assets, liabilities, revenues,
and expenses. Such estimates primarily relate to the recording of allowance for doubtful accounts and allowance for
impairment losses which are based on management’s assessment of the collectability of accounts receivable and the fair
market value of nonmarketable securities, respectively, as of the end of the fiscal year. Actual results may differ from those
estimates.
Debt Issuance Costs
Debt issuance costs related to a recognized debt liability are presented in the consolidated balance sheets as a direct
deduction from the carrying amount of the debt liability and are amortized over the life of the debt. Loan amortization costs
are included in interest expense in the consolidated statement of operations.
Recent Accounting Pronouncements
In February 2016, the Financial Accounting Standards Board (FASB) issued ASU 2016-02, Leases (Topic 842). ASU 2016-
02 requires lessees to recognize lease assets and lease liabilities on the balance sheet and requires expanded disclosures
about leasing arrangements. ASU 2016-02 is effective for fiscal years beginning after December 15, 2018, and interim
periods in fiscal years beginning after December 15, 2018, with early adoption permitted. In July 2018, the FASB issued
ASU 2018-11, Leases (Topic 842): Targeted Improvements. ASU 2018-11 provides entities another option for transition,
allowing entities to not apply the new standard in the comparative periods they present in their financial statements in the
year of adoption. Effective July 1, 2019, we adopted ASU 2016-02 using the modified retrospective approach provided by
ASU 2018-11. We elected certain practical expedients permitted under the transition guidance, including the election to
carryforward historical lease classification. We also elected the short-term lease practical expedient, which allowed us to
not recognize leases with a term of less than twelve months on our consolidated balance sheets. In addition, we elected the
lease and non-lease components practical expedient, which allowed us to calculate the present value of the fixed payments
without performing an allocation of lease and non-lease components. We did not record any operating lease right-of-use
(“ROU”) assets and operating lease liabilities upon adoption of the new standard as the aggregate value of the ROU assets
and operating lease liabilities are immaterial relative to our total assets and liabilities as of June 30, 2020 and 2019. The
standard did not have an impact on our other finance leases, statements of operations or cash flows. See Note 4 and Note 10
for balances of finance lease ROU assets and liabilities, respectively.
36
On June 16, 2016, the FASB issued ASU 2016-13, “Financial Instruments - Credit Losses (Topic 326): Measurement of
Credit Losses on Financial Instruments.” This ASU modifies the impairment model to utilize an expected loss
methodology in place of the currently used incurred loss methodology, which will result in the timelier recognition of
losses. ASU No. 2016-13 will be effective for us as of January 1, 2023. The Company is currently reviewing the effect of
ASU No. 2016-13.
NOTE 2 - LIQUIDITY
Historically, our cash flows have been primarily generated from our Hotel operations. However, the responses by federal,
state, and local civil authorities to the COVID-19 pandemic has had a material detrimental impact on our liquidity. For the
fiscal year ended June 30, 2020, our net cash flow used in operations was $3,454,000. For the fiscal year ended June 30,
2019, our net cash flow provided by operations was $14,269,000. We have taken several steps to preserve capital and
increase liquidity at our Hotel, including implementing strict cost management measures to eliminate non-essential
expenses, postponing capital expenditures, renegotiating certain reoccurring expenses, and temporarily closing certain hotel
services and outlets.
As of June 30, 2020, we had cash, cash equivalents, and restricted cash of $28,286,000 which included $10,666,000 of
restricted cash held by our Hotel senior lender Wells Fargo Bank, N.A. (“Lender”). Of the $10,666,000 restricted cash,
$7,486,000 was held for furniture, fixtures and equipment (“FF&E”) reserves and $2,432,000 was held for a possible future
property improvement plan (“PIP”) requested by our franchisor, Hilton. However, Hilton has confirmed that it will not
require a PIP for our Hotel until relicensing which shall occur at the earlier of (i) January 2030, which is six years after the
maturity date of our current senior and mezzanine loans, or (ii) upon the sale of our Hotel. On August 19, 2020, Operating
received PIP deposits in the amount of $2,379,000 held by Lender. The funds were utilized to fund operating expenses,
including franchise and management fees and other expenses.
On April 9, 2020, Justice entered into a loan agreement (“SBA Loan - Justice”) with CIBC Bank USA under the recently
enacted CARES Act administered by the U.S. Small Business Administration. The Partnership received proceeds of
$4,719,000 from the SBA Loan - Justice. In accordance with the requirements of the CARES Act, Justice has used proceeds
from the loan primarily for payroll costs. As of June 30, 2020, Justice had used $3,568,000 in qualified expenses such as
payroll expenses, mortgage interests, utilities, etc., and had a balance of $1,151,000 available for future qualified expenses.
The SBA Loan - Justice is scheduled to mature on April 9, 2022 and has a 1.00% interest rate. 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 June 30, 2020, InterGroup had used all of the $453,000 loan
proceeds in qualified payroll expenses. The SBA Loan – InterGroup is scheduled to mature on April 27, 2022 and has a
1.00% interest rate. Both the SBA Loan – Justice and SBA Loan – InterGroup (collectively the “SBA Loans”) may be
forgiven if the funds are used for payroll and other qualified expenses. All payments of principal and interests are deferred
until October 2020. 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. We anticipate applying for loan forgiveness shortly. All unforgiven
portion of the principal and accrued interest will be due at maturity.
In order to increase our liquidity position, the Company refinanced its 151-unit apartment complex in Parsippany, New
Jersey on April 30, 2020, generating net proceeds of $6,814,000. In June 2020, the Company refinanced one of its
California properties and generated net proceeds of $1,144,000. We are currently evaluating other refinancing
opportunities. We could refinance additional multifamily properties should the need arise; however, we do not deem it
necessary at this time. The Company has an uncollateralized $8,000,000 revolving line of credit from CIBC Bank USA
(“CIBC”) of which $5,000,000 was available to be drawn down as of June 30, 2020; however, the outstanding balance on
the revolving line of credit was paid down fully on August 28, 2020, making the entire $8,000,000 available to be drawn
down should additional liquidity be necessary. On August 28, 2020, Santa Fe sold its 27-unit apartment complex located in
Santa Monica, California for $15,650,000 and realized a gain on the sale of approximately $12,026,000. Santa Fe will
manage its federal and state income tax liability, and anticipates the utilization of its available net operating losses and
capital loss carryforwards. Santa Fe received net proceeds of $12,163,000 after selling costs and repayment of InterGroup’s
RLOC of $2,985,000 as InterGroup had drawn on its RLOC in July 2018 to pay off the previous Fannie Mae mortgage on
the property. Furthermore, pursuant to the Contribution Agreement between Santa Fe and InterGroup, Santa Fe paid
InterGroup $662,000 from the sale. Santa Fe will not seek a replacement property.
As the sole general partner of Justice that controls approximately 93.3% of the voting interest in the Partnership,
Portsmouth has the ability to amend the partnership agreement to allow for capital calls to the limited partners of Justice if
needed. The majority of any capital calls will be met by Portsmouth. Portsmouth will have financing availability, upon the
authorization of the respective board of directors, to borrow from InterGroup and/or Santa Fe to meet any capital calls and
its other obligations during the next twelve months and beyond. On August 28, 2020, the Board of InterGroup and Santa Fe
have passed resolutions, respectively, to provide funding to Portsmouth if necessary. The Partnership is also allowed to
seek additional loans and sell partnership interests. Upon the consent of the general partner and a super majority in interest,
the Partnership may sell additional classes or series of units of the Partnership under certain conditions in order to raise
additional capital.
37
Our known short-term liquidity requirements primarily consist of funds necessary to pay for operating and other
expenditures, including management and franchise fees, corporate expenses, payroll and related costs, taxes, interest and
principal payments on our outstanding indebtedness, and repairs and maintenance of the Hotel.
Our long-term liquidity requirements primarily consist of funds necessary to pay for scheduled debt maturities and capital
improvements of the Hotel and our real estate properties. We will continue to finance our business activities primarily with
existing cash, including from the activities described above, and cash generated from our operations. After considering our
approach to liquidity and accessing our available sources of cash, we believe that our cash position, after giving effect to
the transactions discussed above, will be adequate to meet anticipated requirements for operating and other expenditures,
including corporate expenses, payroll and related benefits, taxes and compliance costs and other commitments, for at least
twelve months from the date of issuance of these financial statements, even if current levels of low occupancy were to
persist. The objectives of our cash management policy are to maintain existing leverage levels and the availability of
liquidity, while minimizing operational costs. We believe that our cash on hand, along with other potential aforementioned
sources of liquidity that management may be able to obtain, will be sufficient to fund our working capital needs, as well as
our capital lease and debt obligations for at least the next twelve months and beyond. However, there can be no guarantee
that management will be successful with its plan.
NOTE 3 - REVENUE
Our revenue from real estate is primarily rental income from residential and commercial property leases which is recorded
when due from residents and is recognized monthly as earned. The following table present our Hotel revenue disaggregated
by revenue streams.
For the year ended June 30,
Hotel revenues:
Hotel rooms
Food and beverage
Garage
Other operating departments
Total Hotel revenue
Performance obligations
2020
2019
$
$
36,465,000
3,529,000
2,368,000
477,000
42,839,000
$
$
51,243,000
5,353,000
2,875,000
410,000
59,881,000
We identified the following performance obligations for which revenue is recognized as the respective performance
obligations are satisfied, which results in recognizing the amount we expect to be entitled to for providing the goods or
services:
● Cancelable room reservations or ancillary services are typically satisfied as the good or service is transferred to
the hotel guest, which is generally when the room stay occurs.
● Noncancelable room reservations and banquet or conference reservations represent a series of distinct goods or
services provided over time and satisfied as each distinct good or service is provided, which is reflected by the
duration of the room reservation.
● Other ancillary goods and services are purchased independently of the room reservation at standalone selling
prices and are considered separate performance obligations, which are satisfied when the related good or service is
provided to the hotel guest.
● Components of package reservations for which each component could be sold separately to other hotel guests are
considered separate performance obligations and are satisfied as set forth above.
Hotel revenue primarily consists of hotel room rentals, revenue from accommodations sold in conjunction with other
services (e.g., package reservations), food and beverage sales and other ancillary goods and services (e.g., parking).
Revenue is recognized when rooms are occupied or goods and services have been delivered or rendered, respectively.
Payment terms typically align with when the goods and services are provided. For package reservations, the transaction
price is allocated to the performance obligations within the package based on the estimated standalone selling prices of each
component.
38
We do not disclose the value of unsatisfied performance obligations for contracts with an expected length of one year or
less. Due to the nature of our business, our revenue is not significantly impacted by refunds. Cash payments received in
advance of guests staying at our hotel are refunded to hotel guests if the guest cancels within the specified time period,
before any services are rendered. Refunds related to service are generally recognized as an adjustment to the transaction
price at the time the hotel stay occurs or services are rendered.
Contract assets and liabilities
We do not have any material contract assets as of June 30, 2020 and 2019, other than trade and other receivables, net on our
consolidated balance sheets. Our receivables are primarily the result of contracts with customers, which are reduced by an
allowance for doubtful accounts that reflects our estimate of amounts that will not be collected.
We record contract liabilities when cash payments are received or due in advance of guests staying at our hotel, which are
presented within accounts payable and other liabilities on our consolidated balance sheets. Contract liabilities decreased to
$375,000 as of June 30, 2020 from $1,215,000 as of June 30, 2019. The decrease for the twelve months ended June 30,
2020 was primarily driven by $840,000 revenue recognized that was included in the advanced deposits balance as of June
30, 2019.
Contract costs
We consider sales commissions earned to be incremental costs of obtaining a contract with our customers. As a practical
expedient, we expense these costs as incurred as our contracts with customers are less than one year.
NOTE 4 – INVESTMENT IN HOTEL, NET
Investment in Hotel consisted of the following as of:
June 30, 2020
Land
Finance lease ROU assets
Furniture and equipment
Building and improvements
Investment in Hotel, net
June 30, 2019
Land
Finance lease ROU assets
Furniture and equipment
Building and improvements
Investment in Hotel, net
Cost
2,738,000
1,775,000
30,528,000
64,005,000
99,046,000
Cost
2,738,000
521,000
30,585,000
63,879,000
97,723,000
$
$
$
$
Accumulated
Depreciation
Net Book
Value
$
$
$
$
-
(291,000)
(27,498,000)
(32,488,000)
(60,277,000)
Accumulated
Depreciation
-
(35,000)
(26,842,000)
(31,010,000)
(57,887,000)
$
$
$
$
2,738,000
1,484,000
3,030,000
31,517,000
38,769,000
Net Book
Value
2,738,000
486,000
3,743,000
32,869,000
39,836,000
NOTE 5 - INVESTMENT IN REAL ESTATE, NET
At June 30, 2020, the Company’s investment in real estate consisted of twenty properties located throughout the United
States. These properties include sixteen apartment complexes, three single-family houses as strategic investments, and one
commercial real estate property. The Company also owns unimproved land located in Maui, Hawaii.
39
Investment in real estate included the following:
As of
Land
Buildings, improvements and equipment
Accumulated depreciation
Land held for development
Investment in real estate, net
June 30, 2020
23,565,000
$
69,417,000
(44,112,000)
48,870,000
1,468,000
50,338,000
$
June 30, 2019
23,566,000
$
68,369,000
(41,629,000)
50,306,000
1,467,000
51,773,000
$
NOTE 6 - INVESTMENT IN MARKETABLE SECURITIES
The Company’s investment in marketable securities consists primarily of corporate equities. The Company has also
periodically invested in corporate bonds and income producing securities, which may include interests in real estate-based
companies and REITs, where financial benefit could insure to its shareholders through income and/or capital gain.
At June 30, 2020 and 2019, all of the Company’s marketable securities are classified as trading securities. The change in
the unrealized gains and losses on these investments are included in earnings. Trading securities are summarized as follows:
Investment
As of June 30, 2020
Corporate Equities
As of June 30, 2019
Corporate Equities
Gross
Unrealized
Gain
Gross
Unrealized
Loss
Net
Unrealized
Loss
Fair
Value
Cost
$11,459,000
$
902,000
$ (6,183,000)
$ (5,281,000)
$ 6,178,000
$19,204,000
$ 1,753,000
$(11,261,000)
$ (9,508,000)
$ 9,696,000
As of June 30, 2020 and 2019, approximately 11% and 7% of the investment marketable securities balance above is
comprised of the common stock of Comstock Mining Inc. (“Comstock” – NYSE AMERICAN: LODE), respectively.
As of June 30, 2020 and 2019, the Company had $5,734,000 and $11,088,000, respectively, of unrealized losses related to
securities held for over one year; of which $5,427,000 and $10,900,000 are related to its investment in Comstock,
respectively.
Net loss on marketable securities on the statement of operations is comprised of realized and unrealized gains (losses).
Below is the composition of the two components for the years ended June 30, 2020 and 2019, respectively.
For the year ended June 30,
Realized loss on marketable securities
Unrealized loss on marketable securities related to Comstock
Unrealized loss on marketable securities
Net loss on marketable securities
2020
(641,000)
-
(1,272,000)
(1,913,000) $
2019
(806,000)
(254,000)
(673,000)
(1,733,000)
$
NOTE 7 – OTHER INVESTMENTS, NET
The Company may also invest, with the approval of the Executive Strategic Real Estate and Securities Investment
Committee and other Company guidelines, in private investment equity funds and other unlisted securities. Those
investments in non-marketable securities are carried at cost on the Company’s balance sheet as part of other investments,
net of other than temporary impairment losses.
40
Other investments, net consist of the following:
Private equity hedge fund, at cost
Other investments
Type
NOTE 8 - FAIR VALUE MEASUREMENTS
June 30, 2020
June 30, 2019
$
$
157,000
121,000
278,000
$
$
376,000
236,000
612,000
The carrying values of the Company’s financial instruments not required to be carried at fair value on a recurring basis
approximate fair value due to their short maturities (i.e., accounts receivable, other assets, accounts payable and other
liabilities, due to securities broker and obligations for securities sold) or the nature and terms of the obligation (i.e., other
notes payable and mortgage notes payable).
The assets measured at fair value on a recurring basis are as follows:
As of June 30, 2020
Assets:
Investment in marketable securities:
REITs and real estate companies
Basic material
Energy
Industrials
Corporate bonds
Other
As of June 30, 2019
Assets:
Investment in marketable securities:
REITs and real estate companies
Consumer cyclical
Corporate bonds
Financial services
Energy
Other
Level 1
2,365,000
1,209,000
767,000
484,000
417,000
936,000
6,178,000
Level 1
3,069,000
1,448,000
1,420,000
951,000
950,000
1,858,000
9,696,000
$
$
$
$
The fair values of investments in marketable securities are determined by the most recently traded price of each security at
the balance sheet date.
41
Financial assets that are measured at fair value on a non-recurring basis and are not included in the tables above include
“Other investments in non-marketable securities,” that were initially measured at cost and have been written down to fair
value as a result of impairment or adjusted to record the fair value of new instruments received (i.e., preferred shares) in
exchange for old instruments (i.e., debt instruments). The following table shows the fair value hierarchy for these assets
measured at fair value on a non-recurring basis as follows:
Assets
Level 3
June 30, 2020
Net loss for the year
ended June 30, 2020
Other non-marketable investments
Assets
Other non-marketable investments
$
$
278,000
$
278,000
$
(219,000)
Level 3
June 30, 2019
Net loss for the year
ended June 30, 2019
612,000
$
612,000
$
(98,000)
For fiscal years ended June 30, 2020 and 2019, we received distribution from other non-marketable investments of
$115,000 and $103,000, respectively.
Other investments in non-marketable securities are carried at cost net of any impairment loss. The Company has no
significant influence or control over the entities that issue these investments. These investments are reviewed on a periodic
basis for other-than-temporary impairment. When determining the fair value of these investments on a non-recurring basis,
the Company uses valuation techniques such as the market approach and the unobservable inputs include factors such as
conversion ratios and the stock price of the underlying convertible instruments. The Company reviews several factors to
determine whether a loss is other-than-temporary. These factors include but are not limited to: (i) the length of time an
investment is in an unrealized loss position, (ii) the extent to which fair value is less than cost, (iii) the financial condition
and near term prospects of the issuer and (iv) our ability to hold the investment for a period of time sufficient to allow for
any anticipated recovery in fair value.
NOTE 9 – OTHER ASSETS, NET
Other assets consist of the following as of June 30:
Accounts receivable, net
Prepaid expenses
Miscellaneous assets, net
Total other assets
2020
504,000
673,000
808,000
1,985,000
$
$
2019
852,000
747,000
763,000
2,362,000
$
$
NOTE 10 – RELATED PARTY AND OTHER FINANCING TRANSACTIONS
The following summarizes the balances of related party and other notes payable as of June 30, 2020 and 2019, respectively.
As of June 30,
Note payable - Hilton
Note payable - Interstate
Other notes payable - SBA Loans
Other notes payable
Total related party and other notes payable
2020
3,008,000
1,646,000
5,172,000
-
9,826,000
$
$
2019
3,325,000
1,896,000
-
40,000
5,261,000
$
$
Note payable to Hilton (Franchisor) is a self-exhausting, interest free development incentive note which is reduced by
approximately $316,000 annually through 2030 by Hilton if the Partnership is still a Franchisee with Hilton.
On February 1, 2017, Justice entered into an HMA with Interstate to manage the Hotel with an effective takeover date of
February 3, 2017. The term of the management agreement is for an initial period of 10 years commencing on the takeover
date and automatically renews for an additional year not to exceed five years in aggregate subject to certain conditions. The
HMA also provides for Interstate to advance a key money incentive fee to the Hotel for capital improvements in the amount
of $2,000,000 under certain terms and conditions described in a separate key money agreement. The key money
contribution shall be amortized in equal monthly amounts over an eight (8) year period commencing on the second (2nd)
anniversary of the takeover date. As of June 30, 2020 and 2019, balance of the key money including accrued interests are
$1,009,000 and $2,049,000, respectively, and are included in restricted cash in the consolidated balance sheets.
Unamortized portion of the key money is included in the related party notes payable in the consolidated balance sheets.
42
In July 2018, InterGroup obtained a revolving $5,000,000 line of credit (“RLOC”) from CIBC Bank USA (“CIBC”). On
July 31, 2018, $2,969,000 was drawn from the RLOC to pay off the mortgage note payable at Intergroup Woodland
Village, Inc. (“Woodland Village”) and a new mortgage note payable was established at Woodland Village due to
InterGroup for the amount drawn. Woodland Village holds a three-story apartment complex in Santa Monica, California
and is a subsidiary of Santa Fe and the Company. The RLOC carries a variable interest rate of 30-day LIBOR plus 3%.
Interest is paid on a monthly basis. The RLOC and all accrued and unpaid interests were due in July 2019. In July 2019, the
Company obtained a modification from CIBC which increased the RLOC by $3,000,000 and extended the maturity date
from July 24, 2019 to July 23, 2020. The $2,969,000 mortgage due to InterGroup carries same terms as InterGroup’s
RLOC. In July 2020, the $2,969,000 mortgage due to InterGroup and the RLOC was extended to July 2021.
On August 31, 2018, $1,005,000 was drawn from the RLOC to pay off a mortgage note payable on a single-family house
located in Los Angeles, California. On September 28, 2018, the Company obtained a new mortgage in the amount of
$1,000,000 on the same property. The interest rate on the new loan is fixed at 4.75% per annum for the first five years and
variable for the remaining of the term. The note matures in October 2048. Net proceeds of $995,000 received as a result of
the refinance was used to pay down the RLOC.
On April 9, 2020, Justice entered into a loan agreement (“SBA Loan - Justice”) with CIBC Bank USA under the recently
enacted CARES Act administered by the U.S. Small Business Administration. The Partnership received proceeds of
$4,719,000 from the SBA Loan - Justice. In accordance with the requirements of the CARES Act, Justice has used proceeds
from the loan primarily for payroll costs. As of June 30, 2020, Justice had used $3,568,000 in qualified expenses and had a
balance of $1,151,000 available for future qualified expenses. The SBA Loan - Justice is scheduled to mature on April 9,
2022 and has a 1.00% interest rate. 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
June 30, 2020, InterGroup had used all of the $453,000 loan proceeds in qualified payroll expenses. The SBA Loan –
InterGroup is scheduled to mature on April 27, 2022 and has a 1.00% interest rate. Both the SBA Loan – Justice and SBA
Loan – InterGroup (collectively the “SBA Loans”) may be forgiven if the funds are used for payroll and other qualified
expenses. All payments of principal and interests are deferred until October 2020. 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. We
anticipate applying for loan forgiveness shortly. All unforgiven portion of the principal and accrued interest will be due at
maturity. As of June 30, 2020, balance of the SBA Loans total $5,172,000 and are included in other notes payable in the
consolidated balance sheets.
As of June 30, 2020, the Company had finance lease obligations outstanding of $1,098,000. These finance leases expire in
various years through 2023 at rates ranging from 4.62% to 6.25% per annum. Minimum future lease payments for assets
under finance leases as of June 30, 2020 are as follows:
For the year ending June 30,
2021
2022
2023
$
Total minimum lease payments
Less interest on finance lease
Present value of future minimum lease payments $
43
503,000
492,000
188,000
1,183,000
(85,000)
1,098,000
Future minimum principal payments for all related party and other financing transactions are as follows:
For the year ending June 30,
2021
2022
2023
2024
2025
Thereafter
$
$
1,016,000
9,190,000
750,000
567,000
567,000
1,819,000
13,909,000
On July 2, 2014, the Partnership obtained from InterGroup an unsecured loan in the principal amount of $4,250,000 at 12%
per year fixed interest, with a term of 2 years, payable interest only each month. InterGroup received a 3% loan fee. The
loan may be prepaid at any time without penalty. The loan was extended to July 1, 2021. The balance of this loan is
$3,000,000 as of June 30, 2020 and 2019, and is eliminated in the consolidated balance sheets.
On February 5, 2020, Santa Fe acquired additional 44.6% interest in Woodland Village from InterGroup by issuing 97,500
shares of its common stock to InterGroup. As a result of the transaction, Woodland Village became a wholly owned
subsidiary of Santa Fe. The transaction is being made pursuant to a Contribution Agreement (the “Contribution
Agreement”) between Santa Fe and InterGroup, dated February 5, 2020. The Contribution Agreement also contains a
provision for a potential subsequent earn out to InterGroup pursuant to terms set forth therein.
Four of the Portsmouth directors serve as directors of InterGroup. Two of those directors also serve as directors of Santa Fe.
The two Santa Fe directors also serve as directors of InterGroup.
As Chairman of the Executive Strategic Real Estate and Securities Investment Committee, the Company’s President and
Chief Executive Officer (CEO), John V. Winfield, directs the investment activity of the Company in public and private
markets pursuant to authority granted by the Board of Directors. Mr. Winfield also serves as Chief Executive Officer and
Chairman of the Board of Portsmouth and Santa Fe and oversees the investment activity of those companies. Effective June
2016, Mr. Winfield became the Managing Director of Justice. Depending on certain market conditions and various risk
factors, the Chief Executive Officer, Portsmouth and Santa Fe may, at times, invest in the same companies in which the
Company invests. Such investments align the interests of the Company with the interests of related parties because it places
the personal resources of the Chief Executive Officer and the resources of the Portsmouth and Santa Fe, at risk in
substantially the same manner as the Company in connection with investment decisions made on behalf of the Company.
NOTE 11 - MORTGAGE NOTES PAYABLE
On December 18, 2013: (i) Justice Operating Company, LLC, a Delaware limited liability company (“Operating”), entered
into a loan agreement (“Mortgage Loan Agreement”) with Bank of America (“Mortgage Lender”); and (ii) Justice
Mezzanine Company, a Delaware limited liability company (“Mezzanine”), entered into a mezzanine loan agreement
(“Mezzanine Loan Agreement” and, together with the Mortgage Loan Agreement, the “Loan Agreements”) with ISBI San
Francisco Mezz Lender LLC (“Mezzanine Lender” and, together with Mortgage Lender, the “Lenders”). The Partnership is
the sole member of Mezzanine, and Mezzanine is the sole member of Operating.
The Loan Agreements provide for a $97,000,000 Mortgage Loan and a $20,000,000 Mezzanine Loan. The proceeds of the
Loan Agreements were used to fund the redemption of limited partnership interests and the pay-off of the prior mortgage.
The Mortgage Loan is secured by the Partnership’s principal asset, the Hilton San Francisco-Financial District (the
“Property”). The Mortgage Loan bears an interest rate of 5.275% per annum and matures in January 2024. The term of the
loan is 10 years with interest only due in the first three years and principle and interest on the remaining seven years of the
loan based on a thirty-year amortization schedule. The Mortgage Loan also requires payments for impounds related to
property tax, insurance and capital improvement reserves. As additional security for the Mortgage Loan, there is a limited
guaranty (“Mortgage Guaranty”) executed by Portsmouth in favor of the Mortgage Lender.
The Mezzanine Loan is secured by the Operating membership interest held by Mezzanine and is subordinated to the
Mortgage Loan. The Mezzanine Loan had an interest rate of 9.75% per annum and a maturity date of January 1, 2024.
Interest only payments were due monthly. On July 31, 2019, Mezzanine refinanced the Mezzanine Loan by entering into a
new mezzanine loan agreement (“New Mezzanine Loan Agreement”) with Cred Reit Holdco LLC in the amount of
$20,000,000. The prior Mezzanine Loan was paid off. Interest rate on the new mezzanine loan is 7.25% and the loan
matures on January 1, 2024. Interest only payments are due monthly. As additional security for the new mezzanine loan,
there is a limited guaranty executed by the Partnership and Portsmouth in favor of Cred Reit Holdco LLC (the “Mezzanine
Guaranty” and, together with the Mortgage Guaranty, the “Guaranties”).
44
The Guaranties are limited to what are commonly referred to as “bad boy” acts, including: (i) fraud or intentional
misrepresentations; (ii) gross negligence or willful misconduct; (iii) misapplication or misappropriation of rents, security
deposits, insurance or condemnation proceeds; and (iv) failure to pay taxes or insurance. The Guaranties are full recourse
guaranties under identified circumstances, including failure to maintain “single purpose” status which is a factor in a
consolidation of Operating or Mezzanine in a bankruptcy of another person, transfer or encumbrance of the Property in
violation of the applicable loan documents, Operating or Mezzanine incurring debts that are not permitted, and the Property
becoming subject to a bankruptcy proceeding. Pursuant to the Guaranties, the Partnership is required to maintain a certain
minimum net worth and liquidity. Effective as of May 12, 2017, InterGroup agreed to become an additional guarantor
under the limited guaranty and an additional indemnitor under the environmental indemnity for Justice Investors limited
partnership’s $97,000,000 mortgage loan and the $20,000,000 mezzanine loan. Pursuant to the agreement, InterGroup is
required to maintain a certain net worth and liquidity. As of June 30, 2020 and 2019, InterGroup is in compliance with both
requirements. However, due to the Hotel’s current low occupancy and its negative impact on the Hotel’s cash flow, Justice
Operating Company, LLC is not meeting certain of its loan covenants such as the Debt Service Coverage Ratio (“DSCR”)
which would trigger the creation of a lock-box and cash sweep by the Lender for all cash collected by the Hotel, and under
certain terms, would allow the Lender to request Operating to replace its hotel management company. The DSCR for
Operating has been below 1.00 for the last two quarters during fiscal year 2020 while it is required to maintain a DSCR of
at least 1.10 to 1.00 for two consecutive quarters. However, such lockbox has been created and utilized from the loan
inception and will be in place up to loan maturity regardless of the DSCR.
Each of the Loan Agreements contains customary representations and warranties, events of default, reporting requirements,
affirmative covenants and negative covenants, which impose restrictions on, among other things, organizational changes of
the respective borrower, operations of the Property, agreements with affiliates and third parties. Each of the Loan
Agreements also provides for mandatory prepayments under certain circumstances (including casualty or condemnation
events) and voluntary prepayments, subject to satisfaction of prescribed conditions set forth in the Loan Agreements.
In August 2018, $1,005,000 was drawn from the Company’s RLOC with CIBC to pay off a mortgage note payable on its
single-family house located in Los Angeles, California. In September 2018, the Company obtained a new mortgage in the
amount of $1,000,000 on the same property. The interest rate on the new loan is fixed at 4.75% per annum for the first five
years and variable for the remaining of the term. The note matures in October 2048. $995,000 received as a result of the
refinance was used to pay down the RLOC.
In April 2020, the Company refinanced its $8,453,000 and $2,469,000 mortgage notes payable on its 151-unit apartment
complex in Parsippany, New Jersey and obtained a new mortgage note payable for $18,370,000. The Company received net
proceeds of $6,814,000 as a result of the refinance. Interest rate on the mortgage is fixed at 3.17% for ten years and the
mortgage matures in May 2030. The Company recorded loss on debt extinguishment of approximately $687,000 as a result
of the refinance which represent prepayment premium on prior mortgage notes payables.
In June 2020, the Company refinanced its $1,274,000 mortgage note payable on its 9-unit apartment complex in Marina del
Rey, California and obtained a new mortgage note payable for $2,600,000. The Company received net proceeds of
$1,144,000 as a result of the refinance. Interest rate on the mortgage is fixed at 3.09% for ten years and the mortgage
matures in July 2030.
45
Each mortgage notes payable is secured by real estate or the Hotel. As of June 30, 2020 and 2019, the mortgage notes
payables are summarized as follows:
As of June 30, 2020
Number
of Units
Note
Origination Date
Note
Maturity Date
Mortgage Balance Interest Rate
2013 January
2024 $
92,292,000
Property
SF Hotel
SF Hotel
Florence
Las Colinas
Morris County
St. Louis
Los Angeles
Los Angeles
Los Angeles
Los Angeles
Los Angeles
Los Angeles
Los Angeles
Los Angeles
Los Angeles
Los Angeles
Los Angeles
Los Angeles
Los Angeles
Los Angeles
Los Angeles
544
rooms December
544
rooms
2019 January
July
Mortgage notes payable - Hotel
Debt issuance costs
Total mortgage notes payable - Hotel
157 March
358 November
151 April
264 May
4 September
2 September
1 August
31 November
30 August
14 April
12 June
9 June
9 April
8 July
7 August
4 August
1 September
1 September
Office April
2015 April
2012 December
2020 May
2013 May
2012 September
2012 September
2012 September
2010 December
2007 September
2011 March
2016 June
2020 July
2011 March
2013 July
2012 September
2012 September
2012 September
2018 October
2016 January
Mortgage notes payable - real estate
Debt issuance costs
Total mortgage notes payable - real estate
46
5.28%
7.25%
3.87%
3.73%
3.17%
4.05%
3.75%
3.75%
3.75%
4.85%
5.97%
5.89%
3.59%
3.09%
5.89%
3.75%
3.75%
3.75%
3.75%
4.75%
2.67%
2024
$
2025 $
2022
2030
2023
2042
2042
2042
2020
2022
2021
2026
2030
2021
2043
2042
2042
2042
2048
2021
$
20,000,000
112,292,000
(896,000)
111,396,000
3,150,000
16,529,000
18,341,000
5,236,000
333,000
337,000
363,000
4,800,000
5,614,000
1,597,000
2,125,000
2,600,000
1,088,000
428,000
823,000
563,000
388,000
974,000
770,000
66,059,000
(447,000)
65,612,000
As of June 30, 2019
Number
of Units
Note
Origination Date
Note
Maturity Date
Mortgage Balance Interest Rate
544
rooms December
544
rooms December
2013 January
2024 $
93,746,000
2013 January
2024
Property
SF Hotel
SF Hotel
Florence
Las Colinas
Morris County
Morris County
St. Louis
Los Angeles
Los Angeles
Los Angeles
Los Angeles
Los Angeles
Los Angeles
Los Angeles
Los Angeles
Los Angeles
Los Angeles
Los Angeles
Los Angeles
Los Angeles
Los Angeles
Los Angeles
Mortgage notes payable - Hotel
Debt issuance costs
Total mortgage notes payable - Hotel
157 March
358 November
151 July
151 June
264 May
4 September
2 September
1 August
31 November
30 August
14 April
12 June
9 April
9 April
8 July
7 August
4 August
1 September
1 September
Office April
2015 April
2012 December
2012 August
2014 August
2013 May
2012 September
2012 September
2012 September
2010 December
2007 September
2011 March
2016 June
2011 May
2011 March
2013 July
2012 September
2012 September
2012 September
2018 October
2016 January
Mortgage notes payable - real estate
Debt issuance costs
Total mortgage notes payable - real estate
Future minimum payments for all mortgage notes payable are as follows:
For the year ending June 30,
2021
2022
2023
2024
2025
Thereafter
47
$
2025 $
2022
2022
2022
2023
2042
2042
2042
2020
2022
2021
2026
2021
2021
2043
2042
2042
2042
2048
2021
$
20,000,000
113,746,000
(659,000)
113,087,000
3,222,000
16,974,000
8,737,000
2,512,000
5,365,000
343,000
347,000
373,000
4,927,000
5,765,000
1,632,000
2,172,000
1,303,000
1,112,000
440,000
846,000
579,000
399,000
990,000
806,000
58,844,000
(273,000)
58,571,000
$
$
11,211,000
3,101,000
28,244,000
108,113,000
3,494,000
24,188,000
178,351,000
5.28%
9.75%
3.87%
3.73%
3.51%
4.51%
4.05%
3.75%
3.75%
3.75%
4.85%
5.97%
5.89%
3.59%
5.60%
5.89%
3.75%
3.75%
3.75%
3.75%
4.75%
4.91%
NOTE 12 – MANAGEMENT AGREEMENTS
On February 1, 2017, Justice entered into a Hotel management agreement (“HMA”) with Interstate Management Company,
LLC (“Interstate”) to manage the Hotel with an effective takeover date of February 3, 2017. The term of management
agreement is for an initial period of 10 years commencing on the takeover date and automatically renews for an additional
year not to exceed five years in the aggregate subject to certain conditions. The HMA also provides for Interstate to
advance a key money incentive fee to the Hotel for capital improvements in the amount of $2,000,000 under certain terms
and conditions described in a separate key money agreement. The key money contribution shall be amortized in equal
monthly amounts over an eight (8) year period commencing on the second (2nd) anniversary of the takeover date. The key
money is included in restricted cash balances in the consolidated balance sheets. As of June 30, 2020 and 2019, balance of
the key money including accrued interests are $1,009,000 and $2,049,000, respectively. As of June 30, 2020 and 2019,
unamortized portion of the key money was $1,646,000 and $1,896,000, respectively, and are included in related party and
other notes payable in the consolidated balance sheets. During the years ended June 30, 2020 and 2019, Interstate
management fees were $341,000 and $1,206,000, respectively, and are included in Hotel operating expenses in the
consolidated statements of operations.
NOTE 13 – CONCENTRATION OF CREDIT RISK
As of June 30, 2020 and 2019, all accounts receivables are related to Hotel customers. The Hotel had two customers that
accounted for 95%, or $239,000 of accounts receivable at June 30, 2020, and one customer that accounted for 32%, or
$272,000 of accounts receivable at June 30, 2019.
The Company maintains its cash and cash equivalents and restricted cash with various financial institutions that are
monitored regularly for credit quality. At times, such cash and cash equivalents holdings may be in excess of the Federal
Deposit Insurance Corporation (“FDIC”) or other federally insured limits.
NOTE 14 – INCOME TAXES
The provision for the Company’s income tax (expense) benefit is comprised of the following:
For the years ended June 30,
2020
2019
Federal
Current tax expense
Deferred tax benefit
State
Current tax expense
Deferred tax benefit (expense)
Income Tax Benefit
$
(57,000) $ (1,387,000)
2,563,000
1,176,000
1,828,000
1,771,000
(64,000)
1,087,000
1,023,000
(25,000)
(850,000)
(875,000)
$ 2,794,000
$
301,000
48
The provision for income taxes differs from the amount of income tax computed by applying the federal statutory income
tax rate to income before taxes as a result of the following differences:
For the years ended June 30,
2020
2019
Statutory federal tax rate
State income taxes, net of federal tax benefit
Dividend received deduction
Disallowed interest
Valuation allowance
Basis difference in investments
Carryback tax payable
Other
$ 1,593,000
812,000
18,000
504,000
49,000
39,000
-
(221,000)
$ 2,794,000
$
$
(457,000)
(972,000)
16,000
-
2,158,000
815,000
(1,140,000)
(119,000)
301,000
The components of the deferred tax asset and liabilities are as follows:
Deferred tax assets:
Net operating loss carryforwards
Capital loss carryforwards
Investment impairment reserve
Accruals and reserves
Interest expense
Tax credits
Unrealized loss on marketable securities
Other
Valuation allowance
Deferred tax liabilities:
Equity earnings
Deferred gains on real estate sale and depreciation
State taxes
Net deferred tax asset
June 30, 2020
June 30, 2019
$
8,713,000 $
1,074,000
1,156,000
871,000
1,498,000
563,000
1,591,000
221,000
(497,000)
15,190,000
(4,306,000)
(6,249,000)
(252,000)
(10,807,000)
$
4,383,000 $
6,810,000
1,283,000
1,295,000
1,095,000
162,000
619,000
547,000
231,000
(524,000)
11,518,000
(3,188,000)
(6,844,000)
(18,000)
(10,050,000)
1,468,000
Management considers new evidence, both positive and negative, that could affect its view of the future realization of
deferred tax assets. As of June 30, 2019, because of tax planning to generate taxable income in the future, management has
determined that there is sufficient positive evidence to conclude that a significant portion of its deferred tax assets are
realizable. As a result, the valuation allowance decreased by $2,086,000 during the fiscal year ended June 30, 2019.
As of June 30, 2020, the Company had estimated net operating losses (NOLs) of $30,486,000 and $26,140,000 for federal
and state purposes, respectively. Below is the break-down of the NOLs for InterGroup, Santa Fe and Portsmouth. The
carryforward expires in varying amounts through the year 2038.
49
InterGroup
Santa Fe
Portsmouth
Federal
- $
9,781,000
20,705,000
30,486,000 $
$
$
State
-
4,761,000
21,379,000
26,140,000
Utilization of the net operating loss carryover may be subject a substantial annual limitation if it should be determined that
there has been a change in the ownership of more than 50 percent of the value of the Company’s stock, pursuant to Section
382 of the Internal Revenue Code of 1986 and similar state provisions. The annual limitation may result in the expiration of
net operating loss carryovers before utilization.
Assets and liabilities are established for uncertain tax positions taken or positions expected to be taken in income tax returns
when such positions are judged to not meet the “more-likely-than-not” threshold based on the technical merits of the
positions. As of June 30, 2020, it has been determined there are no uncertain tax positions likely to impact the Company.
The Company files tax returns as prescribed by the tax laws of the jurisdictions in which it operates and is subject to
examination by federal, state and local jurisdictions, where applicable.
As of June 30, 2020, tax years beginning in fiscal years 2015 and 2016 remain open to examination by the major tax
jurisdictions, and are subject to the statute of limitations.
NOTE 15 – SEGMENT INFORMATION
The Company operates in three reportable segments, the operation of the Hotel (“Hotel Operations”), the operation of its
multi-family residential properties (“Real Estate Operations”) and the investment of its cash in marketable securities and
other investments (“Investment Transactions”). These three operating segments, as presented in the financial statements,
reflect how management internally reviews each segment’s performance. Management also makes operational and strategic
decisions based on this information.
Information below represents reported segments for the years ended June 30, 2020 and 2019. Segment income from Hotel
operations consists of the operation of the Hotel and operation of the garage. Segment income from real estate operations
consists of the operation of the rental properties. Loss from investments consists of net investment loss, dividend and
interest income and investment related expenses.
As of and for the year
ended June 30, 2020
Revenues
Segment operating expenses
Segment income (loss) from operations
Interest expense - mortgage
Loss on debt extinguishment
Depreciation and amortization expense
Loss from investments
Income tax benefit
Net income (loss)
Total assets
Hotel
Operations
$ 42,839,000 $ 15,178,000 $
Investment
Real Estate
Operations Transactions
(37,333,000)
5,506,000
(6,885,000)
-
(2,389,000)
-
-
(8,051,000)
7,127,000
(2,436,000)
(687,000)
(2,483,000)
-
-
Other
Total
- $
-
-
-
-
-
(2,766,000)
-
- $ 58,017,000
(48,254,000)
9,763,000
(9,321,000)
(687,000)
(4,872,000)
(2,766,000)
2,794,000
(76,000) $ (5,089,000)
6,456,000 $ 17,419,000 $130,217,000
(2,870,000)
(2,870,000)
-
-
-
-
2,794,000
$ (3,768,000) $ 1,521,000 $ (2,766,000) $
$ 56,004,000 $ 50,338,000 $
50
As of and for the year
ended June 30, 2019
Revenues
Segment operating expenses
Segment income (loss) from operations
Interest expense - mortgage
Loss on disposal of assets
Depreciation and amortization expense
Loss from investments
Income tax benefit
Net income (loss)
Total assets
Other
Total
Hotel
Operations
$ 59,881,000 $ 14,872,000 $
Real Estate
Investment
Operations Transactions
(44,466,000)
15,415,000
(7,234,000)
(398,000)
(2,506,000)
-
-
- $ 74,753,000
(54,622,000)
20,131,000
(9,788,000)
(398,000)
(4,935,000)
(2,497,000)
301,000
$ 5,277,000 $ 2,079,000 $ (2,497,000) $ (2,045,000) $ 2,814,000
$ 62,148,000 $ 51,773,000 $ 10,308,000 $ 6,650,000 $130,879,000
- $
-
-
-
-
-
(2,497,000)
-
(2,346,000)
(2,346,000)
-
-
-
-
301,000
(7,810,000)
7,062,000
(2,554,000)
-
(2,429,000)
-
-
NOTE 16 – STOCK-BASED COMPENSATION PLANS
The Company follows the Statement of Financial Accounting Standards 123 (Revised), “Share-Based Payments” (“SFAS
No. 123R”), which was primarily codified into ASC Topic 718 “Compensation – Stock Compensation”, which addresses
accounting for equity-based compensation arrangements, including employee stock options and restricted stock units.
The Company currently has one equity compensation plan, which is the Intergroup 2010 Omnibus Employee Incentive
Plan. The InterGroup Corporation 2008 Restricted Stock Unit Plan (the “2008 RSU Plan”) terminated on its expiration date
of December 8th, 2018 as prescribed in the plan document. Both plans have been approved by the Company’s stockholders
and are described below. Any outstanding options issued under the Key Employee Plan or the Non-Employee Director Plan
remain effective in accordance with their terms.
The InterGroup Corporation 2008 Restricted Stock Unit Plan
On December 3, 2008, the Board of Directors adopted, subject to shareholder approval, an equity compensation plan for its
officers, directors and key employees entitled, The InterGroup Corporation 2008 Restricted Stock Unit Plan (the “2008
RSU Plan”). The 2008 RSU Plan was approved and ratified by the shareholders on February 18, 2009.
The 2008 RSU Plan authorizes the Company to issue restricted stock units (“RSUs”) as equity compensation to officers,
directors and key employees of the Company on such terms and conditions established by the Compensation Committee of
the Company. RSUs are not actual shares of the Company’s common stock, but rather promises to deliver common stock in
the future, subject to certain vesting requirements and other restrictions as may be determined by the Committee. Holders of
RSUs have no voting rights with respect to the underlying shares of common stock and holders are not entitled to receive
any dividends until the RSUs vest and the shares are delivered. No awards of RSUs shall vest until at least six months after
shareholder approval of the Plan. Subject to certain adjustments upon changes in capitalization, a maximum of 200,000
shares of the common stock are available for issuance to participants under the 2008 RSU Plan. The 2008 RSU Plan will
terminate ten (10) years from December 3, 2008, unless terminated sooner by the Board of Directors. After the 2008 RSU
Plan is terminated, no awards may be granted but awards previously granted shall remain outstanding in accordance with
the Plan and their applicable terms and conditions.
The shares of common stock to be delivered upon the vesting of an award of RSUs have been registered under the
Securities Act, pursuant to a registration statement filed on Form S-8 by the Company on June 16, 2010. The grant of RSUs
is personal to the recipient and is not transferable. Once received, shares of common stock issuable upon the vesting of the
RSUs are freely transferable subject to any requirements of Section 16(b) of the Exchange Act. Under the 2008 RSU Plan,
the Compensation Committee also has the power and authority to establish and implement an exchange program that would
permit the Company to offer holders of awards issued under prior shareholder approved compensation plans to exchange
certain options for new RSUs on terms and conditions to be set by the Committee. The exchange program is designed to
increase the retention and motivational value of awards granted under prior plans. In addition, by exchanging options for
RSUs, the Company will reduce the number of shares of common stock subject to equity awards, thereby reducing potential
dilution to stockholders in the event of significant increases in the value of its common stock.
As of June 30, 2020, there were no RSUs outstanding.
51
Intergroup Corporation 2010 Omnibus Employee Incentive Plan
On February 24, 2010, the shareholders of the Company approved The Intergroup Corporation 2010 Omnibus Employee
Incentive Plan (the “2010 Incentive Plan”), which was formally adopted by the Board of Directors following the annual
meeting of shareholders. The Company believes that such awards better align the interests of its employees with those of its
shareholders. Option awards are generally granted with an exercise price equal to the market price of the Company’s stock
at the date of grant; those option awards generally vest based on 5 years of continuous service. Certain option and share
awards provide for accelerated vesting if there is a change in control, as defined in the 2010 Incentive Plan. The 2010
Incentive plan as modified in December 2013, authorizes a total of up to 400,000 shares of common stock to be issued as
equity compensation to officers and employees of the Company in an amount and in a manner to be determined by the
Compensation Committee in accordance with the terms of the 2010 Incentive Plan. The 2010 Incentive Plan authorizes the
awards of several types of equity compensation including stock options, stock appreciation rights, performance awards and
other stock-based compensation. The 2010 Incentive Plan had an original expiration date of February 23, 2020, if not
terminated sooner by the Board of Directors upon recommendation of the Compensation Committee. Any awards issued
under the 2010 Incentive Plan will expire under the terms of the grant agreement.
The shares of common stock to be issued under the 2010 Incentive Plan have been registered under the Securities Act,
pursuant to a registration statement filed on Form S-8 by the Company on June 16, 2010. Once received, shares of common
stock issued under the Plan will be freely transferable subject to any requirements of Section 16 (b) of the Exchange Act.
On March 16, 2010, the Compensation Committee authorized the grant of 100,000 stock options to the Company’s
Chairman, President and Chief Executive, John V. Winfield to purchase up to 100,000 shares of the Company’s common
stock pursuant to the 2010 Incentive Plan. The exercise price of the options is $10.30, which is 100% of the fair market
value of the Company’s Common Stock as determined by reference to the closing price of the Company’s Common Stock
as reported on the NASDAQ Capital Market on March 16, 2010, the date of grant. The options had an original expiration
date ten years from the date of grant, unless terminated earlier in accordance with the terms of the 2010 Incentive Plan. The
options shall be subject to both time and market based vesting requirements, each of which must be satisfied before options
are fully vested and eligible to be exercised. Pursuant to the time vesting requirements, the options vest over a period of five
years, with 20,000 options vesting upon each one-year anniversary of the date of grant. Pursuant to the market vesting
requirements, the options vest in increments of 20,000 shares upon each increase of $2.00 or more in the market price of the
Company’s common stock above the exercise price ($10.30) of the options. To satisfy this requirement, the common stock
must trade at that increased level for a period of at least ten trading days during any one quarter. As of June 30, 2020, all the
market vesting requirements have been met.
On December 28, 2019, the Compensation Committee of the Board of Directors recommended to the Board amendments to
the 2010 Incentive Plan which would amend Section 1.3 to extend the term from ten years to sixteen years, and Section 6.4
to change “tenth (10th) anniversary date” to “twentieth (20th) anniversary date”. This would increase the term of the 2010
Incentive Plan to twenty years (expiring in February 2030 instead of February 2020) and also permit the existence of
options with a term longer than ten years. The purpose of the amendment to the term is to extend its existence as our only
incentive plan. The purpose of amendment of the allowable term of options is so that the Board may extend the term of the
100,000 options granted to John Winfield on March 16, 2010 from ten years to sixteen years so that these options will
terminate on March 16, 2026 instead of on March 16, 2020, in recognition of Mr. Winfield’s contributions to and leadership
of our Company. The recommended amendments were approved by shareholders on February 25, 2020. During the fiscal
year ended June 30, 2020, the Company recorded additional stock option compensation expense in the amount of $116,000
as a result of the aforementioned amendments.
In February 2012, the Compensation Committee awarded 90,000 stock options to the Company’s Chairman, President and
Chief Executive, John V. Winfield to purchase up to 90,000 shares of common stock. The per share exercise price of the
options is $19.77 which is the fair value of the Company’s Common Stock as reported on NASDAQ on February 28, 2012.
The options expire ten years from the date of grant. The options are subject to both time and market based vesting
requirements, each of which must be satisfied before the options are fully vested and eligible to be exercised. Pursuant to
the time vesting requirements, the options vest over a period of five years, with 18,000 options vesting upon each one-year
anniversary of the date of grant. Pursuant to the market vesting requirements, the options vest in increments of 18,000
shares upon each increase of $2.00 or more in the market price of the Company’s common stock above the exercise price
($19.77) of the options. To satisfy this requirement, the common stock must trade at that increased level for a period of at
least ten trading days during any one quarter. As of June 30, 2020, all of these options have met the market vesting
requirements.
On December 26, 2013, the Compensation Committee authorized, subject to shareholder approval, a grant of non-qualified
and incentive stock options for an aggregate of 160,000 shares (the “Option Grant”) to the Company’s President and Chief
Executive Officer, John V. Winfield. The stock option grant was approved by shareholders on February 19, 2014. The grant
of stock options was made pursuant to, and consistent with, the 2010 Incentive Plan, as proposed to be amended. The non-
qualified stock options are for 133,195 shares and have a term of ten years, expiring on December 26, 2023, with an
exercise price of $18.65 per share. The incentive stock options are for 26,805 shares and have a term of five years, expiring
on December 26, 2018, with an exercise price of $20.52 per share. In accordance with the terms of the 2010 Incentive Plan,
the exercise prices were based on 100% and 110%, respectively, of the fair market value of the Company’s common stock
as determined by reference to the closing price of the Company’s common stock as reported on the NASDAQ Capital
Market on the date of grant. The stock options are subject to time vesting requirements, with 20% of the options vesting
annually commencing on the first anniversary of the grant date. In December 2018, Mr. Winfield exercised the 26,805
vested incentive stock options by surrendering 17,439 shares of the Company’s common stock at fair value as payment of
the exercise price, resulting in a net issuance to him of 9,366 shares. No additional compensation expense was recorded
related to the issuance.
52
In March 2017, the Compensation Committee awarded 18,000 stock options to the Company’s Vice President of Real
Estate, David C. Gonzalez, to purchase up to 18,000 shares of common stock. The per share exercise price of the options is
$27.30 which is the fair value of the Company’s Common Stock as reported on NASDAQ Capital Market on March 2,
2017. The options expire ten years from the date of grant. Pursuant to the time vesting requirements, the options vest over a
period of five years, with 3,600 options vesting upon each one-year anniversary of the date of grant.
During the years ended June 30, 2020 and 2019, the Company recorded stock option compensation expense of $142,000
and $76,000, respectively, related to stock options previously issued and amending the 2010 Incentive Plan. As of June 30,
2020, there was an estimated total of $18,000 unamortized compensation related to stock options which is expected to be
recognized over the weighted average of 1.67 years.
Option-pricing models require the input of various subjective assumptions, including the option’s expected life, estimated
forfeiture rates and the price volatility of the underlying stock. The expected stock price volatility is based on analysis of
the Company’s stock price history. The Company has selected to use the simplified method for estimating the expected
term. The risk-free interest rate is based on the U.S. Treasury interest rates whose term is consistent with the expected life
of the stock options. No dividend yield is included as the Company has not issued any dividends and does not anticipate
issuing any dividends in the future.
The following table summarizes the stock options activity from July 1, 2018 through June 30, 2020:
Number of
Weighted
Average
Shares
Exercise Price
Weighted
Average
Remaining
Life
Aggregate
Intrinsic Value
Outstanding at
Granted
Exercised
Forfeited
Exchanged
Outstanding at
Exercisable at
Vested and Expected to vest at
Outstanding at
Granted
Exercised
Forfeited
Exchanged
Outstanding at
Exercisable at
Vested and Expected to vest at
July 1, 2018
368,000 $
-
(26,805)
-
-
341,195 $
330,395 $
341,195 $
June 30, 2019
June 30, 2019
June 30, 2019
July 1, 2019
341,195 $
June 30, 2020
June 30, 2020
June 30, 2020
-
-
-
-
341,195 $
323,195 $
341,195 $
53
17.21
-
20.52
-
-
16.95
16.62
16.95
16.95
-
-
-
-
16.95
16.38
16.95
4.17 years $
-
-
-
-
3.07 years $
2.92 years $
3.07 years $
3.07 years $
-
-
-
-
3.83 years $
3.67 years $
3.83 years $
3,505,000
-
-
-
-
4,680,000
4,643,000
4,680,000
4,680,000
-
-
-
-
3,271,000
3,271,000
3,271,000
NOTE 17 – RELATED PARTY TRANSACTIONS
As discussed in Note 10 – Related Party and Other Financing Transactions, 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 two
years, payable interest only each month. InterGroup received a 3% loan fee. The loan may be prepaid at any time without
penalty. The proceeds of the loan were applied to the July 2014 payments to Justice Holdings Company, LLC (“Holdings”)
in connection with the redemption of limited partnership interests. The loan was extended to July 1, 2021. The balance of
this loan is $3,000,000 as of June 30, 2020 and 2019, and is eliminated in the consolidated balance sheets.
In connection with the redemption of limited partnership interests of Justice, Justice Operating Company, LLC agreed to
pay a total of $1,550,000 in fees to certain officers and directors of the Company for services rendered in connection with
the redemption of partnership interests, refinancing of Justice’s properties and reorganization of Justice. This agreement
was superseded by a letter dated December 11, 2013 from Justice, in which Justice assumed the payment obligations of
Justice Operating Company, LLC. As of June 30, 2018, $200,000 of these fees remained payable and were paid off as of
June 30, 2019.
On February 5, 2020, the Company entered into a Contribution Agreement (the “Contribution Agreement”) with Santa Fe
pursuant to which the Company received 97,500 shares of common stock, par value $0.10 per share, of Santa Fe, in
exchange for its contribution to Santa Fe of 4,460 shares of common stock (the “Common Stock”) of Intergroup Woodland
Village, Inc., an Ohio corporation (“Transaction”). As a result of the contribution, Woodland Village became a wholly
owned subsidiary of Santa Fe. Before the issuance of the stock referenced in the preceding sentence, the Company had the
power to vote 86.3% of the voting shares of Santa Fe, which includes the power to vote an approximately 4% interest in the
common stock in Santa Fe owned by the Company’s Chairman and CEO, John V. Winfield, pursuant to a voting trust
agreement entered into on June 30, 1998. Subsequent to this issuance, the Company has the power to vote 87.4% of the
issued and outstanding common stock of Santa Fe, which includes the power to vote an approximately 3.7% interest in the
common stock in Santa Fe under the aforementioned voting trust agreement. Mr. Winfield, Chairman of the Board of both
the Company and Santa Fe, is a control person of both entities.
On February 5, 2020, after review by independent directors of the Company, and by the unanimous vote of all directors of
the Company (with Mr. Winfield abstaining), the Board approved the entry into the Contribution Agreement and the
consummation of the Transaction. The Company’s Board approved the Transaction after the receipt of a fairness opinion
from a third-party independent firm. The Board was first made aware of the Transaction in early January 2020, received
information to review on or about January 17, 2020 and was given multiple opportunities to discuss the materials with
management before the February 5, 2020 Board meeting. The Contribution Agreement also contains a provision for a
potential subsequent earn out to InterGroup pursuant to terms set forth therein.
As Chairman of the Executive Strategic Real Estate and Securities Investment Committee, the Company’s President and
Chief Executive Officer (CEO), John V. Winfield, directs the investment activity of the Company in public and private
markets pursuant to authority granted by the Board of Directors. Mr. Winfield also serves as Chief Executive Officer and
Chairman of the Board of Portsmouth and Santa Fe and oversees the investment activity of those companies. Effective June
2016, Mr. Winfield became the Managing Director of Justice. Depending on certain market conditions and various risk
factors, the Chief Executive Officer, Portsmouth and Santa Fe may, at times, invest in the same companies in which the
Company invests. Such investments align the interests of the Company with the interests of related parties because it places
the personal resources of the Chief Executive Officer and the resources of the Portsmouth and Santa Fe, at risk in
substantially the same manner as the Company in connection with investment decisions made on behalf of the Company.
NOTE 18 – COMMITMENTS AND CONTINGENCIES
Cash Management Agreement
As part of the Hotel refinancing effective December 18, 2013, Operating entered into a Cash Management Agreement with
Bank of America, N.A. (“Lender”) and Wells Fargo Bank, N.A. (“Cash Management Bank”) whereby all cash received by
Operating is to be deposited into a business checking account controlled by the Cash Management Bank up to the loan
maturity date. Additionally, other terms of the Cash Management Agreement provide that effective February 2019 or upon
a Property Improvement Plan (“PIP”) requirement by Hilton (“Franchisor”) deemed the “Cash Sweep Period” during which
all excess cash generated by Operating beyond the monthly budgeted expenses and debt services including principal and
interest, insurance reserves, real estate taxes reserve, furniture fixtures and equipment (“FF&E”) reserves, for the senior and
mezzanine loans, will be held by the Cash Management Bank for future hotel improvements as required by the date or a
PIP. Currently, any and all funds are being controlled by the Cash Management Bank according to the Cash Management
Agreement.
54
Franchise Agreements
The Partnership entered into a Franchise License Agreement (the “License Agreement”) with the HLT Existing Franchise
Holding LLC (“Hilton”) on November 24, 2004. The term of the License agreement was for an initial period of 15 years
commencing on the date the Hotel began operating as a Hilton hotel, with an option to extend the License Agreement for
another five years, subject to certain conditions. On June 26, 2015, Operating and Hilton entered into an amended franchise
agreement which amongst other things extended the License Agreement through 2030, and also provided the Partnership
certain key money cash incentives to be earned through 2030.
Since the opening of the Hotel as a full brand Hilton in January 2006, the Partnership has incurred monthly royalties,
program fees and information technology recapture charges equal to a percentage of the Hotel’s gross room revenue. Fees
for such services during fiscal year 2020 and 2019 totaled approximately $3.0 million and $4.1 million, respectively.
Hotel Employees
Effective February 3, 2017, the Partnership had no employees. On February 3, 2017, Interstate assumed all labor union
agreements and retained employees of their choice to continue providing services to the Hotel. As of June 30, 2020,
approximately 87% of those employees were represented by one of three labor unions, and their terms of employment were
determined under various collective bargaining agreements (“CBAs”) to which the Partnership was a party. During the
fiscal year ended June 30, 2020, the Partnership renewed the CBA for Local 2 (Hotel and Restaurant Employees). CBA for
Local 856 (International Brotherhood of Teamsters) will expire on December 31, 2022. CBA for Local 39 (Stationary
Engineers) will expire on July 31, 2024.
Negotiation of collective bargaining agreements, which includes not just terms and conditions of employment, but scope
and coverage of employees, is a regular and expected course of business operations for the Partnership and Interstate. The
Partnership expects and anticipates that the terms of conditions of CBAs will have an impact on wage and benefit costs,
operating expenses, and certain hotel operations during the life of each CBA, and incorporates these principles into its
operating and budgetary practices.
Legal Matters
The Company may be subject to legal proceedings, claims, and litigation arising in the ordinary course of business. The
Company will defend itself vigorously against any such claims. Management does not believe that the impact of such
matters will have a material effect on the financial conditions or result of operations when resolved.
NOTE 19 – SUBSEQUENT EVENTS
In July 2020, the Company entered into a second modification agreement with CIBC Bank USA (“CIBC”) which extended
the maturity date of its $8,000,000 RLOC to July 21, 2021.
On August 19, 2020, Operating entered into a consent agreement whereby the Lender agreed to release certain PIP deposits
held in escrow for the benefit of Operating but restricted to be utilized specifically for a future PIP. Since Franchisor will
not require a PIP until the expiration of the franchise agreement in January 2030 or upon the sale of the Hotel, on August
19, 2020, Operating received PIP deposits in the amount of $2,379,000 held by Lender. The funds were utilized to fund
operating expenses, including franchise and management fees and other expenses.
On August 28, 2020, Santa Fe sold its 27-unit apartment complex located in Santa Monica, California for $15,650,000 and
realized a gain on the sale of approximately $12,026,000. Santa Fe will manage its federal and state income tax liability,
and anticipates the utilization of its available net operating losses and capital loss carryforwards. Santa Fe received net
proceeds of $12,163,000 after selling costs and repayment of InterGroup’s RLOC of $2,985,000 as InterGroup had drawn
on its RLOC in July 2018 to pay off the previous Fannie Mae mortgage on the property. Furthermore, pursuant to the
Contribution Agreement between Santa Fe and InterGroup, Santa Fe paid InterGroup $662,000 from the sale. Santa Fe will
not seek a replacement property.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
None.
55
Item 9A. Controls and Procedures.
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)
or 15d-15(e) under the Exchange Act) as of the end of the fiscal period covered by this Annual Report on Form 10-K.
Based upon such evaluation, management has concluded that the disclosure controls and procedures are effective in
ensuring that information required to be disclosed in this filing is accumulated and communicated to management and is
recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange
Commission rules and forms.
MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
Management is responsible for establishing and maintaining internal control over financial reporting, as such term is
defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act. The internal control over financial reporting is a process,
under the supervision of our Chief Executive Officer and Principal Financial Officer, designed to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of our financial statements for external
purposes in accordance with accounting principles generally accepted in the United States of America.
The internal control over financial reporting include those policies and procedures that:
● pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect our transactions and
dispositions of our assets;
● provide reasonable assurance that our transactions are recorded as necessary to permit preparation of our financial
statements in accordance with accounting principles generally accepted in the United States of America, and that our
receipts and expenditures are being made only in accordance with authorizations of our management and our directors; and
● provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of
our assets that could have a material effect on the financial statements.
Management, including our Chief Executive Officer and Principal Financial Officer, conducted an evaluation of the
effectiveness of our internal control over financial reporting using the criteria set forth by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO) in Internal Control-Integrated Framework. Based on its evaluation
under that framework, management concluded that the Company’s internal control over financial reporting was effective as
of June 30, 2020.
This annual report does not include an attestation report of our independent registered public accounting firm regarding
internal control over financial reporting. Management’s report was not subject to attestation by our independent registered
public accounting firm, pursuant to provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act that
permit us to provide only management’s report in this Annual Report on Form 10-K.
CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING
There have been no changes in the Company’s internal control over financial reporting during the fiscal year covered by
this Annual Report on Form 10-K that have materially affected, or are reasonably likely to materially affect, the Company’s
internal control over financial reporting.
Item 9B. Other Information.
None.
56
Item 10. Directors, Executive Officers and Corporate Governance
PART III
The following table sets forth certain information with respect to the Directors and Executive Officers of the Company as of
June 30, 2020:
Name
Position with the Company
Age
Term to Expire
Class A Directors:
John V. Winfield (4)
Chairman of the Board; President
and Chief Executive Officer
73
Fiscal 2021 Annual Meeting
Jerold R. Babin (3)
Director
87
Fiscal 2021 Annual Meeting
Class B Directors:
Yvonne L. Murphy (1) (2) (4)
William J. Nance (2) (3) (4)
Class C Director:
Director
Director
63
Fiscal 2022 Annual Meeting
76
Fiscal 2022 Annual Meeting
John C. Love (1) (2) (3)
Director
80
Fiscal 2020 Annual Meeting
Executive Officers:
David C. Gonzalez
Danfeng Xu
Vice President Real Estate, Advisor of
Executive Strategic Real Estate and
Securities Investment Committee
53 N/A
Treasurer, Controller (Principal
Financial Officer), and Secretary
33 N/A
(1) Member of the Nominating Committee
(2) Member of the Compensation Committee
(3) Member of the Audit Committee
(4) Member of the Executive Strategic Real Estate and Securities Investment Committee
Business Experience:
The principal occupation and business experience during the last five years for each of the Directors and Executive Officers
of the Company are as follows:
John V. Winfield — Mr. Winfield was first appointed to the Board in 1982. He currently serves as the Company’s
Chairman of the Board, President and Chief Executive Officer, having first been appointed as such in 1987. Mr. Winfield
also serves as President, Chairman and Chief Executive Officer of the Company’s subsidiaries, Santa Fe and Portsmouth,
both public companies. Effective June 2016, Mr. Winfield became the Managing Director of Justice. Mr. Winfield’s
extensive experience as an entrepreneur and investor, as well as his managerial and leadership experience from serving as a
chief executive officer and director of public companies, led to the Board’s conclusion that he should serve as a director of
the Company.
Jerold R. Babin — Mr. Babin was first appointed as a Director of the Portsmouth, a subsidiary of the Company, in
February 1996. Mr. Babin was elected to the Board of InterGroup in February 2014. Mr. Babin is a retail securities broker.
From 1974 to 1989, he worked at Drexel Burnham and from 1989 to June 30, 2010, he worked for Prudential Securities
(later Wachovia Securities and now Wells Fargo Advisors) where he held the title of First Vice-President. Mr. Babin retired
from his position at Wells Fargo advisors in June 2010. For the past 20 years, until present, Mr. Babin has also served as an
arbitrator for FINRA (formerly NASD). Mr. Babin’s extensive experience in the securities and financial markets as well
has his experience in the securities and public company regulatory industry led to the Board’s conclusion that he should
serve as a director of the Company.
57
Yvonne L. Murphy — Mrs. Murphy was elected to the Board of InterGroup in February 2014 and to the Board of
Portsmouth, a subsidiary of the Company, in February 2019. She resigned from the Board of Portsmouth in December
2019. She was a member of Governor Kenny C. Guinn’s executive staff in Nevada, and was employed for years by the
prestigious Jones Vargas law firm in Reno, Nevada. She served in nine legislative sessions during the most challenging
years in Nevada’s history. Prior to starting her own lobbying firm, Ms. Murphy worked for RR Partners in its corporate
office in Las Vegas, Nevada and in the Government Affairs Division in Reno. She has a Doctorate and a Master’s in
Business Administration from the California Pacific University. Mrs. Murphy’s impressive experience in corporate
management, legal research and legislative lobbying led to the Board’s conclusion that she should serve as a director of the
Company.
William J. Nance — Mr. Nance is a Certified Public Accountant and private consultant to the real estate and banking
industries. He is also President of Century Plaza Printers Inc. Mr. Nance was first elected to the Board in 1984. He served
as the Company’s Chief Financial Officer from 1987 to 1990 and as Treasurer from 1987 to June 2002. Mr. Nance is also a
Director of Santa Fe and Portsmouth. Mr. Nance also serves as a director of Comstock Mining, Inc. Mr. Nance’s extensive
experience as a CPA and in numerous phases of the real estate industry, his business and management experience gained in
running his own businesses, his service as a director and audit committee member for other public companies and his
knowledge and understanding of finance and financial reporting, led to the Board’s conclusion that he should serve as a
director of the Company.
John C. Love — Mr. Love was appointed to the Board in 1998. Mr. Love is an international hospitality and tourism
consultant. He is a retired partner in the national CPA and consulting firm of Pannell Kerr Forster and, for the last 30 years,
a lecturer in hospitality industry management control systems and competition & strategy at Golden Gate University and
San Francisco State University. He is Chairman Emeritus of the Board of Trustees of Golden Gate University and the
Executive Secretary of the Hotel and Restaurant Foundation. Mr. Love is also a Director of Portsmouth and served on the
Board of Santa Fe from March 1998 to December 2019. Mr. Love’s extensive experience as a CPA and in the hospitality
industry, including teaching at the university level for the last 30 years in management control systems, and his knowledge
and understanding of finance and financial reporting, led to the Board’s conclusion that he should serve as a director of the
Company.
David C. Gonzalez — Mr. Gonzalez was appointed Vice President Real Estate of the Company on January 31, 2001. Since
1989, Mr. Gonzalez has served in numerous capacities with the Company, including Controller and Director of Real Estate.
Mr. Gonzalez was appointed advisor of the Executive Strategic Real Estate and Securities Investment Committee of the
Company, Portsmouth and Santa Fe in February 2020.
Danfeng Xu – Ms. Xu was appointed as Treasurer and Controller of the Company on October 16, 2017. Ms. Xu also serves
as Treasurer and Controller of Portsmouth and Santa Fe, having been appointed to those positions on October 16, 2017. On
June 1, 2018, she was appointed Secretary of the Company, Portsmouth and Santa Fe. Prior to joining the Company, she
had served as Controller and worked in other positions at the Hotel from July 2010 to February 2017. She obtained her
Bachelor of Science degree in Business Administration, Accounting and Finance from The Ohio State University and her
Master of Professional Accounting, with a concentration in Audit and Assurance from University of Washington.
Family Relationships: There are no family relationships among directors, executive officers, or persons nominated or
chosen by the Company to become directors or executive officers.
Involvement in Certain Legal Proceedings: No director or executive officer, or person nominated or chosen to become a
director or executive officer, was involved in any legal proceeding requiring disclosure.
Compliance with Section 16(a) of the Securities Exchange Act of 1934
Section 16(a) of the Securities Exchange Act of 1934 requires the Company’s officers and directors, and each beneficial
owner of more than ten percent of the Common Stock of the Company, to file reports of ownership and changes in
ownership with the Securities and Exchange Commission. Officers, directors and greater than ten-percent shareholders are
required by SEC regulations to furnish the Company with copies of all Section 16(a) forms they file.
Based solely on its review of the copies of Forms 3 and 4 and amendments thereto furnished to the Company during its
most recent fiscal year and Forms 5 and amendments thereto furnished to the Company with respect to its most recent fiscal
year, or written representations from certain reporting persons that no Forms 5 were required for those persons, the
Company believes that during fiscal 2020 all filing requirements applicable to its officers, directors, and greater than ten-
percent beneficial owners were complied with.
58
Code of Ethics.
The Company has adopted a Code of Ethics that applies to its principal executive officer, principal financial officer,
principal accounting officer or controller, or persons performing similar functions, including its Board of Directors. A copy
of the Code of Ethics is posted on the Company’s website at www.intgla.com. The Company will provide to any person
without charge, upon request, a copy of its Code of Ethics by sending such request to: The InterGroup Corporation, Attn:
Treasurer, 12121 Wilshire Blvd., Suite 610, Los Angeles, CA, 90025. The Company will promptly disclose any
amendments or waivers to its Code of Ethics on Form 8-K and will post such information on its website.
BOARD AND COMMITTEE INFORMATION
InterGroup’s common stock is listed on the NASDAQ Capital Market tier of the NASDAQ Stock Market, LLC
(“NASDAQ”). InterGroup is a Smaller Reporting Company under the rules and regulations of the Securities and Exchange
Commission (“SEC”). With the exception of the Company’s President and CEO, John V. Winfield, all of InterGroup’s
Board of Directors consists of “independent” directors as independence is defined by the applicable rules of the SEC and
NASDAQ.
Nominating Committee
The Company’s Nominating Committee is comprised of two “independent” directors as independence is defined by the
applicable rules of the SEC and NASDAQ. Directors Love and Murphy serve as the current members of the Nominating
Committee. The Company has not established a charter for the Nominating Committee, and the Committee has no policy
with regard to consideration of any director candidates recommended by security holders. As a smaller reporting company
whose directors own in excess of sixty percent of the voting shares of the Company, InterGroup has not deemed it
appropriate to institute such a policy. There have not been any material changes to the procedures by which security holders
may recommend nominees to the Company’s board of directors.
Audit Committee and Audit Committee Financial Expert
The Company is a Smaller Reporting Company under SEC rules and regulations. The Company’s Audit Committee is
currently comprised of three members: Directors Nance (Chairperson), Babin and Love, each of whom meets the
independence requirements of the SEC and NASDAQ as modified or supplemented from time to time. The Company’s
Board of Directors has determined that Directors Nance and Love also meet the Audit Committee Financial Expert
requirement as defined by the SEC and NASDAQ based on their qualifications and business experience discussed above in
this Item 10.
Compensation Committee
The Company’s Compensation Committee (the “Compensation Committee”) is comprised of three “independent” members
of the Board of Directors as independence is defined by the applicable rules of the SEC and NASDAQ. Mr. Nance serves as
Chairman of the Compensation Committee. The Company has not established a charter for the Compensation Committee.
The Compensation Committee reviews and recommends to the Board of Directors the compensation for the Company’s
Chief Executive Officer and other executive officers, including equity or performance-based compensation and plans. The
Compensation Committee seeks to design and set compensation to attract and retain highly qualified executive officers and
to align their interests with those of long-term owners of the Company. The Compensation Committee may also make
recommendations to the Board of Directors as to the amount and form of director compensation. The Compensation
Committee has not engaged any compensation consultants in determining the amount or form of executive of director
compensation but does review and monitor published compensation surveys and studies. The Compensation Committee
may delegate to the Company’s Chief Executive Officer the authority to determine the compensation of certain executive
officers. The Compensation Committee also oversees the Company’s 2010 Incentive Plan.
Item 11.Executive Compensation
The following table provides certain summary information concerning compensation awarded to, earned by, or paid to the
Company’s principal executive officer and other named executive officers of the Company whose total compensation
exceeded $100,000 for all services rendered to the Company and its subsidiaries for each of the Company’s last two
completed fiscal years ended June 30, 2020 and 2019. There was no non-equity incentive plan compensation or
nonqualified deferred compensation earnings. There are currently no employment contracts with the executive officers.
59
SUMMARY COMPENSATION TABLE
Name and Position
Fiscal Year
Salary
Bonus
Other
Compensation
Total
John V. Winfield
Chairman, President and
Chief Executive Officer
David C. Gonzalez
Vice President Real Estate
Danfeng Xu
Treasurer and Controller
(Principal Financial Officer)
2020
2019
2020
2019
2020
2019
$
$
$
$
$
$
844,000(1) $
844,000(1) $
- $
- $
56,000(2) $
64,000(2) $
900,000
908,000
324,000
324,000
154,000
144,000
$
$
$
$
- $
270,000 $
9,000 $
8,000 $
-
-
-
-
$
$
$
$
324,000
594,000
163,000(3)
152,000(3)
(1) Mr. Winfield also serves as President and Chairman of the Board of the Company’s subsidiary, Santa Fe, and Santa Fe’s
subsidiary, Portsmouth. Mr. Winfield received a salary from Santa Fe and Portsmouth in the aggregate amount of $440,000
from those entities for the fiscal years 2020 and 2019, respectively. The amounts include director’s fees totaling $12,000 for
each year.
(2) Compensation for a portion of the salary of an assistant to Mr. Winfield.
(3) Compensation is allocated approximately 50% to the Company and 50% to Santa Fe and Portsmouth.
Outstanding Equity Awards at Fiscal Year Ended June 30, 2020
The following table sets forth information concerning option awards and stock awards for each named executive officer that
were outstanding as of the end of the Company’s last completed fiscal year ended June 30, 2020. There were no other
equity incentive plan awards that were outstanding.
Option Awards
Number of
securities
underlying
unexercised
options (#)
exercisable
Number of
securities
underlying
unexercised
options (#)
unexercisable
Option
exercise
price $
Option
expiration
date
100,000(1)
90,000(2)
133,195(3)
10,800(4)
- $
- $
- $
7,200 $
10.30
19.77
18.65
27.30
3/16/26
2/28/22
12/26/23
3/2/27
Name
John V. Winfield
John V. Winfield
John V. Winfield
David C. Gonzalez
(1) Stock options issued to Mr. Winfield pursuant to the Company’s 2010 Incentive Plan are subject to both time and
performance-based vesting requirements, each of which must be satisfied before the options are fully vested and eligible to
be exercised. Pursuant to the time vesting requirements, the options vest over a period of five years, with 20,000 options
vesting upon each one-year anniversary of the date of grant, March 16, 2010. Pursuant to the performance vesting
requirements, the options vest in increments of 20,000 shares upon each increase of $2.00 or more in the market price of the
Company’s common stock above the exercise price ($10.30) of the options. To satisfy this requirement, the common stock
must trade at that increased level for a period of at least ten trading days during any one quarter. As of June 30, 2020, the
performance vesting requirements of the options were satisfied.
(2) Stock options issued to Mr. Winfield pursuant to the Company’s 2010 Incentive Plan are subject to both time and
performance-based vesting requirements, each of which must be satisfied before the options are fully vested and eligible to
be exercised. Pursuant to the time vesting requirements, the options vest over a period of five years, with 18,000 options
vesting upon each one-year anniversary of the date of grant, February 28, 2012. Pursuant to the performance vesting
requirements, the options vest in increments of 18,000 shares upon each increase of $2.00 or more in the market price of the
Company’s common stock above the exercise price ($19.77) of the options. To satisfy this requirement, the common stock
must trade at that increased level for a period of at least ten trading days during any one quarter. As of June 30, 2020, all of
these options have met the market vesting requirements.
60
(3) On December 26, 2013, the Compensation Committee authorized, subject to shareholder approval, a grant of non-
qualified and incentive stock options for an aggregate of 160,000 shares (the “Option Grant”) to the Company’s President
and Chief Executive Officer, John V. Winfield. The stock option grant was approved by shareholders on February 19, 2014.
The grant of stock options was made pursuant to, and consistent with, the 2010 Incentive Plan, as proposed to be amended.
The non-qualified stock options are for 133,195 shares and have a term of ten years, expiring on December 26, 2023, with
an exercise price of $18.65 per share. The incentive stock options are for 26,805 shares and have a term of five years,
expiring on December 26, 2018, with an exercise price of $20.52 per share. In accordance with the terms of the 2010
Incentive Plan, the exercise prices were based on 100% and 110%, respectively, of the fair market value of the Company’s
common stock as determined by reference to the closing price of the Company’s common stock as reported on the
NASDAQ Capital Market on the date of grant. The stock options are subject to time vesting requirements, with 20% of the
options vesting annually commencing on the first anniversary of the grant date. In December 2018, Mr. Winfield exercised
the 26,805 vested incentive stock options by surrendering 17,439 shares of the Company’s common stock at fair value as
payment of the exercise price, resulting in a net issuance to him of 9,366 shares. No additional compensation expense was
recorded related to the issuance.
(4) Mr. Gonzalez’s stock options vest over a period of five years, with 3,600 options vesting upon each one-year anniversary
of the date of grant, March 2, 2017.
Internal Revenue Code Limitations
Section 162(m) of the Internal Revenue Code of 1986, as amended (the “Code”), provides that, in the case of a publicly
held corporation, the corporation is not generally allowed to deduct remuneration paid to its chief executive officer and
certain other highly compensated officers to the extent that such remuneration exceeds $1,000,000 for the taxable year.
Certain remuneration, however, is not subject to disallowance, including compensation paid on a commission basis and, if
certain requirements prescribed by the Code are satisfied, other performance-based compensation. Since InterGroup, Santa
Fe and Portsmouth are all public companies, the $1,000,000 limitation applies separately to the compensation paid by each
entity. Stock option expenses are also amortized over a several years. For fiscal years 2020 and 2019, no compensation paid
by the Company to its CEO or other executive officers was subject the deduction disallowance prescribed by Section 162
(m) of the Code.
EQUITY COMPENSATION PLANS
The Company currently has one equity compensation plan, which has been approved by the Company’s stockholders.
However, any outstanding stock options issued under the Company’s prior equity compensation plans remain effective in
accordance with their terms.
The purpose of the Company’s equity compensation plans is to provide a means whereby officers, directors and key
employees of the Company develop a sense of proprietorship and personal involvement in the development and financial
success of the Company, and to encourage them to devote their best efforts to the business of the Company, thereby
advancing the interests of the Company and its shareholders. A further purpose of these plans is to provide a means through
which the Company may attract able individuals to become employees or serve as directors of the Company and to provide
a means for such individuals to acquire and maintain stock ownership in the Company, thereby strengthening their concern
for the welfare of the Company.
The InterGroup Corporation 2010 Omnibus Employee Incentive Plan
On February 24, 2010, the shareholders of the Company approved The InterGroup Corporation 2010 Omnibus Employee
Incentive Plan (the “2010 Incentive Plan”), which was formally adopted by the Board of Directors following the annual
meeting of shareholders. The 2010 Incentive Plan as modified in December 2013, authorizes a total of up to 400,000 shares
of common stock to be issued as equity compensation to officers and employees of the Company in an amount and in a
manner to be determined by the Compensation Committee in accordance with the terms of the Plan. The 2010 Incentive
Plan authorizes the awards of several types of equity compensation including stock options, stock appreciation rights,
performance awards and other stock-based compensation.
The 2010 Incentive Plan had an original expiration date of February 23, 2020, if not terminated sooner by the Board of
Directors upon recommendation of the Compensation Committee. Any awards issued under the Plan will expire under the
terms of the grant agreement.
61
The shares of common stock to be issued under the 2010 Incentive Plan have been registered under the Securities Act,
pursuant to a registration statement filed on Form S-8 by the Company on June 16, 2010. Once received, shares of common
stock issued under the Plan will be freely transferable subject to any requirements of Section 16(b) of the Exchange Act.
On March 16, 2010, the Compensation Committee authorized the grant of 100,000 stock options to the Company’s
Chairman, President and Chief Executive, John V. Winfield to purchase up to 100,000 shares of the Company’s common
stock pursuant to the 2010 Incentive Plan. The exercise price of the options is $10.30, which is 100% of the fair market
value of the Company’s Common Stock as determined by reference to the closing price of the Company’s Common Stock
as reported on the NASDAQ Capital Market on March 16, 2010, the date of grant. The options expire ten years from the
date of grant, unless earlier terminated in accordance with the terms of the 2010 Incentive Plan. The options shall be subject
to both time and market based vesting requirements, each of which must be satisfied before options are fully vested and
eligible to be exercised. Pursuant to the time vesting requirements, the options vest over a period of five years, with 20,000
options vesting upon each one-year anniversary of the date of grant. Pursuant to the market vesting requirements, the
options vest in increments of 20,000 shares upon each increase of $2.00 or more in the market price of the Company’s
common stock above the exercise price ($10.30) of the options. To satisfy this requirement, the common stock must trade at
that increased level for a period of at least ten trading days during any one quarter. As of June 30, 2020, all the market
vesting requirements have been met.
On December 28, 2019, the Compensation Committee of the Board of Directors recommended to the Board amendments to
the 2010 Incentive Plan which would amend Section 1.3 to extend the term from ten years to sixteen years, and Section 6.4
to change “tenth (10th) anniversary date” to “twentieth (20th) anniversary date”. This would increase the term of the 2010
Incentive Plan to twenty years (expiring in February 2030 instead of February 2020) and also permit the existence of
options with a term longer than ten years. The purpose of the amendment to the term is to extend its existence as our only
incentive plan. The purpose of amendment of the allowable term of options is so that the Board may extend the term of the
100,000 options granted to John Winfield on March 16, 2010 from ten years to sixteen years so that these options will
terminate on March 16, 2026 instead of on March 16, 2020, in recognition of Mr. Winfield’s contributions to and leadership
of our Company. The recommended amendments were approved by shareholders on February 25, 2020. During the fiscal
year ended June 30, 2020, the Company recorded additional stock option compensation expense in the amount of $116,000
as a result of the aforementioned amendments.
On February 28, 2012, the Compensation Committee authorized the grant of 90,000 stock options to the Company’s
Chairman, President and Chief Executive, John V. Winfield to purchase up to 90,000 shares of the Company’s common
stock pursuant to the 2010 Incentive Plan. The exercise price of the options is $19.77, which equals 100% of the fair market
value of the Company’s common stock as determined by reference to the closing price of the Company’s common stock as
reported on the NASDAQ Capital Market on February 28, 2012 the date of grant. The options expire ten years from the
date of grant, unless earlier terminated in accordance with the terms of the 2010 Plan. The options shall be subject to both
time and market based vesting requirements, each of which must be satisfied before options are fully vested and eligible to
be exercised. Pursuant to the time vesting requirements, the options vest over a period of five years, with 18,000 options
vesting upon each one-year anniversary of the date of grant. Pursuant to the market vesting requirements, the options vest in
increments of 18,000 shares upon each increase of $2.00 or more in the market price of the Company’s common stock
above the exercise price ($19.77) of the options. To satisfy this requirement, the common stock must trade at that increased
level for a period of at least ten trading days during any one quarter. As of June 30, 2020, all of these options have met the
market vesting requirements.
On December 26, 2013, the Compensation Committee authorized, subject to shareholder approval, a grant of non-qualified
and incentive stock options for an aggregate of 160,000 shares (the “Option Grant”) to the Company’s President and Chief
Executive Officer, John V. Winfield. The stock option grant was approved by shareholders on February 19, 2014. The grant
of stock options was made pursuant to, and consistent with, the 2010 Incentive Plan, as proposed to be amended. The non-
qualified stock options are for 133,195 shares and have a term of ten years, expiring on December 26, 2023, with an
exercise price of $18.65 per share. The incentive stock options are for 26,805 shares and have a term of five years, expiring
on December 26, 2018, with an exercise price of $20.52 per share. In accordance with the terms of the 2010 Incentive Plan,
the exercise prices were based on 100% and 110%, respectively, of the fair market value of the Company’s common stock
as determined by reference to the closing price of the Company’s common stock as reported on the NASDAQ Capital
Market on the date of grant. The stock options are subject to time vesting requirements, with 20% of the options vesting
annually commencing on the first anniversary of the grant date. In December 2018, Mr. Winfield exercised the 26,805
vested incentive stock options by surrendering 17,439 shares of the Company’s common stock at fair value as payment of
the exercise price, resulting in a net issuance to him of 9,366 shares. No additional compensation expense was recorded
related to the issuance.
In March 2017, the Compensation Committee awarded 18,000 stock options to the Company’s Vice President of Real
Estate, David C. Gonzalez, to purchase up to 18,000 shares of common stock. The exercise price of the options is $27.30
which is the fair value of the Company’s Common Stock as reported on NASDAQ on March 2, 2017. The options expire
ten years from the date of grant. Pursuant to the time vesting requirements, the options vest over a period of five years, with
3,600 options vesting upon each one-year anniversary of the date of grant.
62
Compensation of Directors
Effective as of fiscal year ended June 30, 2011, annual cash compensation payable to non-employee directors has been
$12,000. With the exception of members of the Audit Committee, non-employee directors do not receive any additional
fees for attending Board or Committee meetings, but are entitled to reimbursement of their reasonable expenses to attend
such meetings. Members of the Audit Committee are paid a fee of $1,000 per quarter, with the Chair of that Committee to
receive $1,500 per quarter. As an executive officer, the Company’s Chairman has elected to forego his annual board fees.
The following table sets forth the compensation paid to directors during the fiscal year ended June 30, 2020:
Name
John C. Love
William J. Nance
Jerold R. Babin
Yvonne L. Murphy
John V. Winfield (5)
DIRECTOR COMPENSATION
Fees Earned or
Paid in Cash*
Stock Awards
All Other
Compensation
Total
$
$
$
$
50,000(1)
56,000(2)
44,000(3)
38,000(4)
-
-
-
-
-
-
- $
50,000
56,000
44,000
38,000
- $
- $
- $
-
*Amounts shown include board retainer fees, committee fees and meeting fees.
(1) Mr. Love also serves as director of the Company’s subsidiary, Portsmouth and served on the Board of Santa Fe from
March 1998 to December 2019. Amounts shown include $4,000 in regular board and audit committee fees paid by Santa Fe
and $8,000 in regular board and audit committee fees paid by Portsmouth.
(2) Mr. Nance also serves as a director of the Company’s subsidiaries, Santa Fe and Portsmouth. Amounts shown include
$8,000 in regular board and audit committee fees paid by Santa Fe and $8,000 in regular board and audit committee fees
paid by Portsmouth.
(3) Mr. Babin also serves as a director of the Company’s subsidiary, Portsmouth. Amounts shown include $6,000 in regular
board fees paid by Portsmouth.
(4) Mrs. Murphy also served as a director of the Company’s subsidiary, Portsmouth, from February 2019 to December 2019.
Amounts shown include $3,000 in regular board fees paid by Portsmouth.
(5) As Chief Executive Officer, the Company’s Chairman, John V. Winfield, was not paid any board, committee or meetings
fees. Mr. Winfield did receive a total of $12,000 in regular board fees from the Company’s subsidiaries, which is reported
on the Summary Compensation Table.
Change in Control or Other Arrangements
Except for the foregoing, there are no other arrangements for compensation of Directors and there are no employment
contracts between the Company and its Directors or any change in control arrangements.
63
Item 12.Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Security Ownership of Certain Beneficial Owners.
The following table sets forth, as of September 9, 2020, certain information with respect to the beneficial ownership of
Common Stock of the Company owned by those persons or groups known by the Company to own more than five percent
of the outstanding shares of Common Stock.
Name and Address of Beneficial Owner
Amount and Nature of
Beneficial Ownership (1)
Percent
of Class (2)
John V. Winfield
12121 Wilshire Boulevard, Suite 610
Los Angeles, CA 90025
1,721,468(3)
65.9%
(1) Unless otherwise indicated and subject to applicable community property laws, each person has sole voting and
investment power with respect to the shares beneficially owned.
(2) Percentages are calculated on the basis of 2,287,147 shares of Common Stock outstanding at September 9, 2020, plus any
securities that person has the right to acquire within 60 days pursuant to options, warrants, conversion privileges or other
rights.
(3) Includes 323,195 shares that Mr. Winfield has a right to acquire pursuant to vested stock options.
Security Ownership of Management.
The following table sets forth, as of September 9, 2020, certain information with respect to the beneficial ownership of
Common Stock of the Company owned by (i) each Director and each of the named Executive Officers, and (ii) all Directors
and Executive Officers as a group.
Name of Beneficial Owner
Amount and Nature of
Beneficial Ownership (1)
Percent
of Class (2)
John V. Winfield
William J. Nance
John C. Love
David C. Gonzalez
Jerold R. Babin
Yvonne L. Murphy
1,721,468(3)
47,946
19,161
26,769
2,282
.
2,282
65.9%
1.8%
0.7%
1.0%
*
*
All Directors and Executive Officers as a Group (6 persons)
1,819,908
69.7%
* Ownership does not exceed 1%.
(1) Unless otherwise indicated and subject to applicable community property laws, each person has sole voting and
investment power with respect to the shares beneficially owned.
(2) Percentages are calculated on the basis of 2,287,147 shares of Common Stock outstanding at September 9, 2020, plus any
securities that person has the right to acquire within 60 days pursuant to options, warrants, conversion privileges or other
rights.
(3) Includes 323,195 shares that Mr. Winfield has a right to acquire pursuant to vested stock options.
Changes in Control.
There are no arrangements that may result in a change in control of the Company.
64
SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS.
The following table sets forth information as of June 30, 2020 with respect to compensation plans (including individual
compensation arrangements) under which equity securities of the Company are authorized for issuance, aggregated as
follows:
Plan category
Equity compensation plans approved
by security holders
Equity compensation plans not
approved by security holders
Total
Number of securities
to be issued upon
exercise of outstanding
options, warrants and
rights
(a)
Weighted-average
exercise price of
outstanding options
warrants and
rights
(b)
Remaining available for
future issuance under
equity compensation
plans (excluding securities
reflected in column (a))
(c)
341,195 $
None
341,195 $
16.95
N/A
16.95
None
None
None
(a) There were 341,195 stock options outstanding as of June 30, 2020.
(b) Reflects the weighted average exercise price of all outstanding options.
Item 13. Certain Relationships and Related Transactions, and Director Independence.
On June 30, 1998, the Company’s Chairman and President entered into a voting trust agreement with the Company giving
the Company the power to vote his 4.0% interest in the outstanding shares of the Santa Fe common stock.
In connection with the redemption of limited partnership interests of Justice Investors, Limited Partnership, Justice
Operating Company, LLC agreed to pay a total of $1,550,000 in fees to certain officers and directors of the Company for
services rendered in connection with the redemption of partnership interests, refinancing of Justice’s properties and
reorganization of Justice Investors. This agreement was superseded by a letter dated December 11, 2013 from Justice
Investors, Limited Partnership, in which Justice Investors Limited Partnership assumed the payment obligations of Justice
Operating Company, LLC. The first payment under this agreement was made concurrently with the closing of the loan
agreements, with the remaining payments due upon Justice Investor’s having adequate available cash as described in the
letter. As of June 30, 2018, $200,000 of these fees remained payable and were paid off as of June 30, 2019.
Two general partners provided services to the Partnership through December 17, 2013. On December 18, 2013, the
Partnership redeemed Evon’s partnership interest and Portsmouth Square became the sole general partner. The
Partnership’s obligation to pay Evon, Justice’s former general partner, terminated as of December 18, 2013. Under the
terms of the Justice Partnership Agreement, its current general partner, Portsmouth, receives annual compensation of one
percent of Hotel Revenue. During each of the years ended June 30, 2020 and 2019, total compensation paid to Portsmouth
under the new and previous agreements was $428,000 and $598,000, respectively. Amounts paid to Portsmouth are
eliminated in consolidation.
As Chairman of the Executive Strategic Real Estate and Securities Investment Committee, the Company’s President and
Chief Executive Officer (CEO), John V. Winfield, directs the investment activity of the Company in public and private
markets pursuant to authority granted by the Board of Directors. Mr. Winfield also serves as Chief Executive Officer and
Chairman of the Portsmouth and Santa Fe and oversees the investment activity of those companies. Effective June 2016,
Mr. Winfield became the Managing Director of Justice. Depending on certain market conditions and various risk factors,
the Chief Executive Officer, Portsmouth and Santa Fe may, at times, invest in the same companies in which the Company
invests. Such investments align the interests of the Company with the interests of related parties because it places the
personal resources of the Chief Executive Officer and the resources of the Portsmouth and Santa Fe, at risk in substantially
the same manner as the Company in connection with investment decisions made on behalf of the Company.
Director Independence
InterGroup’s common stock is listed on the NASDAQ Capital Market tier of the NASDAQ Stock Market LLC
(“NASDAQ”). InterGroup is a Smaller Reporting Company under the rules and regulations of the SEC. The Board of
Directors of InterGroup currently consists of five members. With the exception of the Company’s President and CEO, John
V. Winfield, all of InterGroup’s Board of Directors consists of “independent” directors as independence is defined by the
applicable rules of the SEC and NASDAQ. There are no members of the Company’s compensation, nominating or audit
committees that do not meet those independence standards.
65
Item 14. Principal Accounting Fees and Services
On November 16, 2017, the Audit Committee appointed Moss Adams LLP (“Moss Adams”) as the Company’s
independent registered public accounting firm. The aggregate fees billed for each of the last two fiscal years ended June 30,
2020 and 2019 for professional services rendered by Moss Adams are set forth in the tables below. These fees were billed
for audit of the Company’s annual financial statements, review of financial statements included in the Company’s Form
10-Q reports, and services provided in connection with statutory and regulatory filings and engagements for those fiscal
years.
Audit fees
Tax fees
TOTAL:
Audit Committee Pre-Approval Policies
Fiscal Year
2020
2019
$
$
265,000
147,000
412,000
$
$
255,000
82,000
337,000
The Audit Committee shall pre-approve all auditing services and permitted non-audit services (including the fees and terms
thereof) to be performed for the Company by its independent registered public accounting firm, subject to any de minimis
exceptions that may be set for non-audit services described in Section 10A(i)(1)(B) of the Exchange Act which are
approved by the Committee prior to the completion of the audit. The Committee may form and delegate authority to
subcommittees consisting of one or more members when appropriate, including the authority to grant pre-approvals of audit
and permitted non-audit services, provided that decisions of such subcommittee to grant pre-approvals shall be presented to
the full Committee at its next scheduled meeting. All of the services described herein were approved by the Audit
Committee pursuant to its pre-approval policies.
None of the hours expended on the independent registered public accounting firms’ engagement to audit the Company’s
financial statements for the most recent fiscal year were attributed to work performed by persons other than the independent
registered public accounting firm’s full-time permanent employees.
Item 15. Exhibits, Financial Statement Schedules.
(a)(1) Financial Statements
PART IV
The following financial statements of the Company are included in Part II, Item 8 of this Report at pages 28
through 56:
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets - June 30, 2020 and 2019
Consolidated Statements of Operations for Years Ended June 30, 2020 and 2019
Consolidated Statements of Shareholders’ Deficit for Years Ended June 30, 2020 and 2019
Consolidated Statements of Cash Flows for Years Ended June 30, 2020 and 2019
Notes to the Consolidated Financial Statements
66
(a)(2) Financial Statement Schedules
All other schedules for which provision is made in Regulation S-X have been omitted because they are not
required or are not applicable or the required information is shown in the consolidated financial statements or notes to the
consolidated financial statements.
(a)(3) Exhibits
Set forth below is an index of applicable exhibits filed with this report according to exhibit table number.
Exhibit Number Description
3.(i)
3.1
3.2
3.3
3.4
3.(ii)
4.
9.
10.
10.1
10.2
10.3
10.4
Articles of Incorporation:
Certificate of Incorporation, dated September 11, 1985, incorporated by reference to Exhibit 3.1 of the
Company’s Registration Statement on Form S-4, filed on September 6, 1985 (Registration No. 33-
00126) and Amendment 1 to that Registration Statement filed on October 23, 1985.
Restated Certificate of Incorporation, dated March 9, 1998, incorporated by reference to Exhibit 3 of the
Company’s Amended Quarterly Report on Form 10-QSB/A for the period ended March 31, 1998, as
filed on May 19, 1998.
Certificate of Amendment to Certificate of Incorporation, dated October 2, 1998, incorporated by
reference to Exhibit 3 of the Company’s Quarterly report on Form 10-QSB for the period ended
September 30, 1998, as filed on November 13, 1998.
Certificate of Amendment of Certificate of Incorporation filed with the Delaware Secretary of State on
August 6, 2007, incorporated by reference to Exhibit 3.4 of the Company’s Annual Report on Form 10-
KSB for the year ended June 30, 2007 as filed on September 28, 2007.
Amended and Restated By-Laws of The InterGroup Corporation, effective as of December 10, 2007,
incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K as filed on
December 12, 2007.
Instruments defining the rights of security holders including indentures*
Voting Trust Agreement: Voting Trust Agreement dated June 30, 1998 between John V. Winfield and
The InterGroup Corporation is incorporated by reference to the Company’s Annual Report on Form 10-
KSB filed with the Commission on September 28, 1998.
Material Contracts:
1998 Stock Option Plan for Non-Employee Directors approved by the Board of Directors on December
8, 1998 and ratified by the shareholders on January 27, 1999 (incorporated by reference to the
Company’s Proxy Statement on Schedule 14A filed with the Commission on December 21, 1998).
1998 Stock Option Plan for Selected Key Officers, Employees and Consultants approved by the Board
of Directors on December 8, 1998 and ratified by the shareholders on January 27, 1999 (incorporated by
reference to the Company’s Proxy Statement on Schedule 14A filed with the Commission on December
21, 1998).
The InterGroup Corporation 2007 Stock Compensation Plan for Non-Employee Directors (incorporated
by reference to the Company’s Proxy Statement on Schedule 14A filed with the Commission on
January 26, 2007).
Amended and Restated Agreement of Limited Partnership of Justice Investors, effective November 30,
2010 (incorporated by reference to Exhibit 10.1 to the Company’s Form 10-Q Report for the quarterly
period ended December 31, 2010, filed with the Commission on February 11, 2011).
67
10.5
10.6
10.7
10.8
10.9
10.10
10.11
10.12
10.13
10.16
14.
21.
31.1
31.2
32.1
32.2
General Partner Compensation Agreement, dated December 1, 2008 (incorporated by reference to
Exhibit 10.2 to Company’s Form 10-Q Report for the quarterly period ended December 31, 2008, filed
with the Commission on February 13, 2009).
The InterGroup Corporation 2008 Restricted Stock Unit Plan, adopted by the Board of Directors on
December 3, 2008, and ratified by the shareholders on February 18, 2009 (incorporated by reference to
the Company’s Proxy Statement on Schedule 14A, filed with the Commission on January 21, 2009).
Restricted Stock Unit Agreement, dated February 18, 2009, between The InterGroup Corporation and
John V. Winfield (incorporated by reference to Exhibit 10.7 of the Company’s Annual Report on Form
10-K for the fiscal year ended June 30, 2009, as filed with the Commission on October 13, 2009).
The InterGroup Corporation 2010 Omnibus Employee Incentive Plan, approved by the shareholders and
adopted by the Board of Directors on February 24, 2010 (incorporated by reference to the Company’s
Proxy Statement on Schedule 14A, filed with the Commission on January 27, 2010).
Employee Stock Option Agreement, dated March 16, 2010, between The InterGroup Corporation and
John V. Winfield (incorporated by reference to Exhibit 10.9 of the Company’s report on Form 10-K for
the fiscal year ended June 30, 2010, as filed with the Commission on September 27, 2010).
Franchise License Agreement, dated December 10, 2004, between Justice Investors and Hilton Hotels
(incorporated by reference to Exhibit 10.10 of the Company’s amended report on Form 10-K/A for the
fiscal year ended June 30, 2011, as filed with the Commission on August 24, 2012).
Management Agreement, dated February 2, 2012, between Justice Investors and Prism Hospitality, L.P.
(incorporated by reference to Exhibit 10.11 of the Company’s amended report on Form 10-K/A for the
fiscal year ended June 30, 2011, as filed with the Commission on August 24, 2012).
Management Agreement, dated August 1, 2005, between Century West Properties, Inc. and The
InterGroup Corporation (incorporated by reference to Exhibit 10.12 of the Company’s amended report
on Form 10-K/A for the fiscal year ended June 30, 2011, as filed with the Commission on August 24,
2012).
Employee Stock Option Agreement, dated February 28, 2012, between The InterGroup Corporation and
John V. Winfield (incorporated by reference to Exhibit 10.13 of the Company’s annual report on Form
10-K for the fiscal year ended June 30, 2014, as filed with the Commission on September 20, 2012).
Management Agreement, dated February 1, 2017, between Justice Operating Company, LLC and
Interstate Management Company, LLC. (incorporated by reference to Exhibit 10.5 of the Company’s
Form 10-K Report for the fiscal year ended June 30, 2017, as filed with the Commission on October 13,
2017). *
Code of Ethics (filed herewith).
Subsidiaries (filed herewith).
Certification of Principal Executive Officer of Periodic Report Pursuant to Rule 13a-14(a) and Rule
15d-14(a) (filed herewith).
Certification of Principal Financial Officer of Periodic Report Pursuant to Rule 13a-14(a) and Rule 15d-
14(a) (filed herewith).
Certification of Principal Executive Officer Pursuant to 18 U.S.C. Section 1350 (filed herewith).
Certification of Principal Financial Officer Pursuant to 18 U.S.C. Section 1350 (filed herewith).
* All Exhibits marked by one asterisk are incorporated herein by reference to the Trust’s Registration Statement on Form
S-4 as filed with the Securities and Exchange Commission on September 6, 1985, Amendment No. 1 to Form S-4 as filed
with the Securities and Exchange Commission on October 23, 1985, Exhibit 14 to Form 8 Amendment No. 1 to Form 8
filed with the Securities & Exchange Commission November 1987 and Form 8 Amendment No. 1 Item 4 filed with the
Securities & Exchange Commission October 1988.
68
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned, thereunto duly authorized.
SIGNATURES
Date: September 9, 2020
Date: September 9, 2020
THE INTERGROUP CORPORATION
(Registrant)
by /s/ John V. Winfield
John V. Winfield, President,
Chairman of the Board and
Chief Executive Officer
by /s/ Danfeng Xu
Danfeng Xu, Treasurer
and Controller
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following
persons on behalf of the registrant and in the capacities and on the dates indicated.
Signatures
Title and Position
Date
/s/ John V Winfield
John V. Winfield
/s/ Danfeng Xu
Danfeng Xu
/s/ Jerold R. Babin
Jerold R. Babin
/s/ John C. Love
John C. Love
/s/ Yvonne L. Murphy
Yvonne L. Murphy
/s/ William J. Nance
William J. Nance
President, Chief Executive Officer and Chairman
of the Board (Principal Executive Officer)
September 9, 2020
Treasurer and Controller (Principal Financial Officer)
September 9, 2020
Director
Director
Director
Director
69
September 9, 2020
September 9, 2020
September 9, 2020
September 9, 2020
THE INTERGROUP CORPORATION
CODE OF ETHICS
FOR
SENIOR FINANCIAL OFFICERS
EXHIBIT 14
This Code of Ethics applies to The InterGroup Corporation (“InterGroup” or the “Company”) Senior Financial Officers.
“Senior Financial Officers” shall include the principal executive officer, the principal accounting officer or controller, or
persons performing similar functions, including InterGroup’s President and Chief Executive Officer, Chief Financial
Officer, Treasurer, Controller, Vice President, the Company’s Board of Directors and such other individuals as determined
from time to time by the Audit Committee of the Company for purposes of this Code of Ethics. The Company expects all
employees, in carrying out their job responsibilities, to act in accordance with the highest standards of personal and
professional integrity, to comply with all applicable laws, and to abide by InterGroup’s other corporate policies and
procedures adopted from time to time by the Company. This Code of Ethics supplements the foregoing with respect to all
Senior Financial Officers.
InterGroup’s Senior Financial Officers will:
1. Engage in and promote honest and ethical conduct, acting with integrity and exercising at all times their best
independent judgment;
2. Avoid actual or apparent conflicts of interest between personal and professional relationships and disclose to the
Company’s Audit Committee and counsel any material transaction or relationship that reasonably could be expected to give
rise to such a conflict;
3. Produce full, fair, accurate, timely and understandable disclosure in reports and documents that InterGroup files
with, or submits to, the Securities and Exchange Commission and in other public communications made by InterGroup;
4. Comply with applicable governmental laws, rules and regulations, as well as the rules and regulations of self-
regulatory organizations of which InterGroup is a member;
5. Maintain the confidentiality of Company information, except when authorized or otherwise required to make
any disclosure, and avoid the use of any Company information for personal advantage;
6. Promote ethical and honest behavior among employees under your supervision; and
7. Promptly report any possible violation of this Code of Ethics to the Audit Committee and the Company’s
counsel.
All Senior Financial Officers are prohibited from directly or indirectly taking any action to coerce, manipulate, mislead or
fraudulently influence InterGroup’s independent public accountant engaged in the performance of an audit or review of the
financial statements of the Company for the purpose of rendering the financial statements of InterGroup misleading.
The Audit Committee of the Board of Directors shall approve any waiver or amendment of this Code of Ethics, and any
such waiver or amendment shall be disclosed promptly as required by law and SEC regulations.
All Senior Financial Officers will be held accountable for their adherence to this Code of Ethics. Failure to observe the
terms of this Code of Ethics may result in disciplinary action, up to and including termination of employment. Violations of
this Code of Ethics may also constitute violations of law, and may result in civil and criminal penalties for the individual,
his or her supervisor and/or InterGroup.
If a Senior Financial Officer has any questions regarding the best course of action in a particular situation, he or she should
promptly contact the Chairman of the Audit Committee or the Company’s counsel. An individual may choose to remain
anonymous in reporting any possible violation of this Code of Ethics.
EXHIBIT 21
SUBSIDAIRIES OF THE INTERGROUP CORPORATION
(1) Intergroup Summit Hills, Inc. (incorporated on August 12, 1993 in TX)
(2) Intergroup Mariposa, Inc. (incorporated on June 23, 1994 in TX)
(3) Intergroup Arlington Arms, Inc. (incorporated on August 5, 1993 in TX)
(4) Woodland Village, LLC (converted to a CA LLC from InterGroup Woodland Village, Inc. on May 20, 2020)
(5) Intergroup Cross Keys, Inc. (incorporated on April 1, 1994 in MO)
(6) Intergroup Bridgeton, Inc. (incorporated on May 12, 1994 in MO)
(7) Intergroup Whisperwood, Inc. (incorporated on June 20, 1994 in PA)
(8) Intergroup Entertainment Corp. (incorporated on December 23, 1993 in DE)
(9) Mutual Real Estate Corp. (incorporated on March 10, 1994 in TX)
(10) Broadview Enterprises, Inc. (incorporated April 14, 1995 in MO)
(11) Wayward, Inc. (incorporated April 18, 1995 in MO)
(12) Golden West Entertainment, Inc. (incorporated February 15, 1990 in CA)
(13) Golden West Television Productions, Inc. (incorporated September 17, 1991 in CA)
(14) Golden West Television Productions, Inc. (incorporated March 17, 1986 in NY)
(15) Intergroup Meadowbrook Gardens, Inc. (incorporated on June 23, 1994 in NJ)
(16) Intergroup Pine Lake, Inc. (incorporated on February 9, 1996 in KY)
(17) Bellagio Capital Fund, LLC (established on June 18, 1997 in NV)
(18) Healthy Planet Communications, Inc. (incorporated July 3, 1997 in CA)
(19) Santa Fe Financial Corporation (incorporated July 25, 1967 in NV) *
(20) Portsmouth Square, Inc. (incorporated July 6, 1967 in CA) **
(21) 2301 Bel-Air Equity, Inc. (incorporated May 25, 2000 in CA)
(22) 11371 Ovada Properties, Inc. (incorporated May 25, 2000 in CA)
(23) 11361 Ovada Properties, Inc. (incorporated June 1, 2000 in CA)
(24) 11680 Bellagio Properties, Inc. (incorporated May 25, 2000 in CA)
(25) North Sepulveda Properties, Inc. (incorporated June 21, 2000 in CA)
(26) 11650 Bellagio Properties, Inc. (incorporated August 17, 2000 in CA)
(27) 11720 Bellagio Properties, Inc. (incorporated January 17, 2001 in CA)
(28) 636 Acanto Properties, Inc. (incorporated February 15, 2001 in CA)
(29) 614 Acanto Properties, Inc. (incorporated November 7, 2001 in CA)
(30) Intergroup Uluniu, Inc. (incorporated August 12, 2004 in HI) ***
(31) 850 Moraga Properties LLC (formed on October 19, 2010 in CA)
(32) 855 Moraga Properties LLC (formed on October 19, 2010 in CA)
(33) 11666 Bellagio Properties LLC (formed on July 8, 2015 in CA)
(34) 801 26th Street Properties LLC (formed on June 23, 2016 in CA)
Unless otherwise indicated, all subsidiaries are 100%-owned.
* Santa Fe Financial Corporation is an approximately 83.7%-owned subsidiary of The InterGroup Corporation.
** Santa Fe owns approximately 68.8% of Portsmouth Square, Inc. and The InterGroup Corporation owns approximately
13.7% of Portsmouth Square.
*** The InterGroup Corporation owns 50% of Intergroup Uluniu, Inc. and Portsmouth Square, Inc. owns 50%.
EXHIBIT 31.1
I, John V. Winfield, certify that:
1. I have reviewed this annual report on Form 10-K of The InterGroup Corporation;
CERTIFICATION
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements and other financial information included in this report, fairly present in
all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods
presented in this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal controls over financial reporting (as
defined in Exchange Act Rules 13a-15(f) and 15(d)-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be
designed under our supervision, to ensure that material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being
prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting
to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report
our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this
report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred
during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that
has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting;
and
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control
over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons
performing equivalent functions):
(a) All significant deficiencies and material weakness in the design or operation of internal control over financial
reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report
financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role
in the registrant’s internal control over financial reporting.
Date: September 9, 2020
/s/ John V. Winfield
John V. Winfield
President and Chief Executive Officer
(Principal Executive Officer)
EXHIBIT 31.2
I, Danfeng Xu, certify that:
1. I have reviewed this annual report on Form 10-K of The InterGroup Corporation;
CERTIFICATION
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements and other financial information included in this report, fairly present in
all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods
presented in this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal controls over financial reporting (as
defined in Exchange Act Rules 13a-15(f) and 15(d)-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be
designed under our supervision, to ensure that material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being
prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting
to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report
our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this
report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred
during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that
has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting;
and
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control
over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons
performing equivalent functions):
(a) All significant deficiencies and material weakness in the design or operation of internal control over financial
reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report
financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role
in the registrant’s internal control over financial reporting.
Date: September 9, 2020
/s/ Danfeng Xu
Danfeng Xu
Treasurer and Controller
(Principal Financial Officer)
Certification of Principal Executive Officer Pursuant to
18 U.S.C. Section 1350,
As Adopted Pursuant to
Section 906 of The Sarbanes-Oxley Act Of 2002
EXHIBIT 32.1
In connection with the Annual Report of The InterGroup Corporation (the “Company”) on Form 10-K for the fiscal year
ended June 30, 2020, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, John V.
Winfield, President and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, to the best of my knowledge, that:
● The Report fully complies with the requirements of Section 13(a) or 5(d) of the Securities Exchange Act of 1934;
and
● The information contained in the Report fairly presents, in all material respects, the financial condition and results
of operations of the Company.
/s/ John V. Winfield
John V. Winfield
President and Chief Executive Officer
(Principal Executive Officer)
Date: September 9, 2020
A signed original of this written statement required by Section 906 has been provided to The InterGroup Corporation and
will be retained by The InterGroup Corporation and furnished to the Securities and Exchange Commission or its staff upon
request.
Certification of Principal Financial Officer Pursuant to
18 U.S.C. Section 1350,
As Adopted Pursuant to
Section 906 of The Sarbanes-Oxley Act Of 2002
EXHIBIT 32.2
In connection with the Annual Report of The InterGroup Corporation (the “Company”) on Form 10-K for the fiscal year
ended June 30, 2020, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Danfeng
Xu, Treasurer and Controller of the Company, serving as its Principal Financial Officer, certify, pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, to the best of my knowledge, that:
● The Report fully complies with the requirements of Section 13(a) or 5(d) of the Securities Exchange Act of 1934;
and
● The information contained in the Report fairly presents, in all material respects, the financial condition and results
of operations of the Company.
/s/ Danfeng Xu
Danfeng Xu
Treasurer and Controller
(Principal Financial Officer)
Date: September 9, 2020
A signed original of this written statement required by Section 906 has been provided to The InterGroup Corporation and
will be retained by The InterGroup Corporation and furnished to the Securities and Exchange Commission or its staff upon
request.