Quarterly Report for Quarter Ending September 30, 2025 (Form 10-Q)

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

FORWARD-LOOKING STATEMENTS AND PROJECTIONS

This quarterly report on Form 10-Q contains "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements include, without limitation, statements regarding our business strategy, operating performance, financial condition and results, liquidity and capital resources(including anticipated refinancing or repayment of indebtedness), capital expenditures, market conditions, and other plans and objectives. These statements are not historical facts and can be identified by words such as "believes," "expects," "anticipates," "intends," "plans," "estimates," "projects," "seeks," "may," "will," "should," "could," and similar expressions.

Forward-looking statements are based on our current expectations and assumptions and involve risks and uncertainties that could cause actual results to differ materially. Important factors include, among others: general economic conditions; interest-rate and inflation trends; availability and terms of financing and refinancing; operating performance of the Hilton San Francisco Financial District and conditions in the San Francisco hospitality market; competitive dynamics in our hotel and real estate markets; labor availability and costs; regulatory and legal developments; property-level operating risks (including maintenance, tax and insurance costs); capital market conditions; and other risks described in our Annual Report on Form 10-K for the fiscal year ended June 30, 2025, and in other reports we file with the SEC.

You should not place undue reliance on forward-looking statements, which speak only as of the date of this report. We undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise, except as required by law.

RESULTS OF OPERATIONS

As of September 30, 2025, the Company owned approximately 75.9% of the common shares of Portsmouth Square, Inc. The Company's principal sources of revenue are (i) revenues from the Hotel owned by Portsmouth, (ii) rental income from multifamily and commercial real estate, and (iii) income from investment of cash and securities. Portsmouth's primary asset is the 558-room Hilton San Francisco Financial District and related facilities (including a five-level underground garage). In addition to the Hotel operations, the Company generates income from owned and managed real estate, concentrated in Texas and Southern California.

Three Months Ended September 30, 2025 Compared to Three Months Ended September 30, 2024

The Company had a net loss of $535,000 and $398,000 for the three months ended September 30, 2025 and September 30, 2024, respectively. The increase loss primarily reflects the absence of an incentive management fee waiver that reduced Hotel operating expenses in the prior-year quarter, partially offset by improved operating income from the real estate segment (stronger occupancy and modest rate growth).

Hotel Operations

The Company had net loss from Hotel operations of $1,455,000 for the three months ended September 30, 2025, compared to net loss $725,000 for the three months ended September 30, 2024. The increased loss primarily reflects the absence of the prior-year incentive management fee waiver and higher compensation costs under new labor union agreements.

The following table sets forth a more detailed presentation of Hotel operations for the three months ended September 30, 2025 and 2024:

For the three months ended September 30,		2025				2024
Hotel revenues:
Hotel rooms		$	10,428,000			$	10,110,000
Food and beverage			912,000				733,000
Garage			900,000				875,000
Other operating departments			178,000				102,000
Total Hotel revenues			12,418,000				11,820,000
Operating expenses excluding depreciation and amortization			(10,481,000	)			(8,792,000	)
Operating income before interest, depreciation and amortization			1,937,000				3,028,000
Interest expense - mortgage			(2,493,000	)			(2,824,000	)
Depreciation and amortization expense			(899,000	)			(929,000	)
Net loss from Hotel operations		$	(1,455,000	)		$	(725,000	)

For the three months ended September 30, 2025, the Hotel had operating income of $1,937,000 before interest expense, depreciation, and amortization on total operating revenues of $12,418,000. For the three months ended September 30, 2024, the Hotel had operating income of $3,028,000 before interest expense, depreciation, and amortization on total operating revenues of $11,820,000.

The following table sets forth the average daily room rate, average occupancy percentage and RevPAR of the Hotel for the three months ended September 30, 2025 and 2024.

Three Months Ended September 30,		Average Daily Rate				Average Occupancy %				RevPAR
2025		$	218				95	%		$	207
2024		$	210				96	%		$	202

The Hotel's revenues increased by 5.1% this quarter compared to the previous comparable quarter. Average daily rate increased by $8, average occupancy decreased by 1.0%, and RevPAR increased by $5 for the three months ended September 30, 2025 compared to the three months ended September 30, 2024.

Real Estate Operations

Revenue from real estate operations increased to $5,495,000 for the three months ended September 30, 2025 from $5,086,000 for the three months ended September 30, 2024, driven by stronger multifamily occupancy. Operating expenses decreased to $2,338,000 from $2,457,000, reflecting reduced operating costs and improved property-level efficiency.

Investment Transactions

The Company had a net gain on marketable securities of $136,000 for the three months ended September 30, 2025 compared to a net gain of $129,000 for the three months ended September 30, 2024. For the quarter ended September 30, 2025, the Company recorded a net realized gain of $20,000 and a net unrealized gain of $116,000. Given the Company's relatively modest marketable securities balances ($966,000 at September 30, 2025), period-to-period gains/losses are not expected to be material to consolidated results. See "Marketable Securities" below. For the three months ended September 30, 2024, the Company had a net realized loss of $659,000 and a net unrealized gain of $788,000.

Tax Estimates

The Company and its subsidiary, Portsmouth, compute and file income tax returns separately and prepare discrete income tax provisions for financial reporting purposes. Income tax expense for the three months ended September 30, 2025 and September 30, 2024 primarily reflects the combined income tax effect of Portsmouth's pretax loss(which includes Hotel operations) and InterGroup's standalone pretax income. Both entities file their respective federal and state income tax returns on a calendar-year basis.

MARKETABLE SECURITIES

The following table shows the composition of the Company's marketable securities portfolio as of September 30, 2025 and June 30, 2025 by selected industry groups.

						% of Total
As of September 30, 2025						Investment
Industry Group		Fair Value				Securities
REITs and real estate companies		$	964,000				99.8	%
Technology			2,000				0.2	%
Total		$	966,000				100.0	%

						% of Total
As of June 30, 2025						Investment
Industry Group		Fair Value				Securities
REITs and real estate companies		$	966,000				99.70	%
Technology			3,000				0.30	%
		$	969,000				100.00	%

The following table shows the net loss on the Company's marketable securities and the associated margin interest and trading expenses for the respective periods:

For the three months ended September 30,		2025				2024
Net gain on marketable securities		$	136,000			$	129,000
Dividend and interest income			2,000				87,000
Margin interest expense			(188,000	)			(209,000	)
Trading and management expenses			(109,000	)			(115,000	)
Net loss from investment transactions		$	(159,000	)		$	(108,000	)

FINANCIAL CONDITION, LIQUIDITY AND CAPITAL SOURCES

As of September 30, 2025, the Company had:

	●	Cash and cash equivalents of $5,054,000 (including $11,000 classified as held for sale), compared to $5,092,000 (including $8,000 held for sale) at June 30, 2025
	●	Restricted cash of $8,337,000 (including $36,000 classified held for sale), compared to $10,103,000 (including $45,000 held for sale) at June 30, 2025.
	●	Marketable securities, net of margin balances, of $966,000 (compared to $969,000 at June 30, 2025).

Parent Company (InterGroup) - Liquidity and Capital Resources

InterGroup's liquidity is driven primarily by: (i) cash generated by its multifamily and commercial real estate portfolio; (ii) cash and cash equivalents held at the parent; (iii) proceeds from refinancings at InterGroup-owned properties; and (iv) limited amounts of marketable securities. InterGroup does not rely on Portsmouth for parent-level liquidity. Key expected uses of cash at the parent include corporate G&A, parent-level income taxes, debt service on InterGroup property-level mortgages, and capital expenditures for its multifamily and other real estate assets.

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

	●	Real estate operations: Net operating cash flows from apartment and commercial properties, primarily in Texas and Los Angeles County, California.
	●	Debt service and maturities: Scheduled principal and interest on InterGroup's property-level mortgages, including recently modified loans in St. Louis (maturity June 5, 2028) and Florence, Kentucky (maturity January 2035). InterGroup evaluates additional refinancing opportunities to optimize liquidity and interest costs.
	●	Capital expenditures: Routine unit turns and building systems maintenance; larger discretionary projects are prioritized based on expected returns and market conditions.
	●	Investments and other: Limited marketable securities activity; InterGroup may opportunistically recycle capital via selective asset sales or refinancings, subject to market conditions.

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

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

Related Party Credit Facility - (with InterGroup as lender)

Portsmouth maintains an unsecured related-party revolving credit facility with InterGroup for contingency liquidity. As of this report date, Hotel operations have been self-funded and no incremental draws have been required to support operating needs. Key modifications include:

	●	December 2021: Portsmouth assumed $11.35 million upon dissolution of Justice Investors L.P.
	●	July 2023: Available increased to $20,000,000; maturity extended to July 2025 (0.5% modification fee).
	●	March 2024: Availability increased to $30,000,000 (0.5% modification fee on incremental $10,000,000).
	●	March 2025: Availability increased to $40,000,000; maturity extended to July 31, 2027.
	●	May 2025: Rate reduced from 12% to 9%.

The facility bears 9% interest, is interest-only, and may be prepaid without penalty. During fiscal year 2025, Portsmouth borrowed $11,615,000 to fund refinancing and operations. As of June 30, 2025, the outstanding balance was $38,108,000, with no principal repayments to date. See also Note 9 - Related-Party and Other Financing Transactions. All material intercompany accounts and transactions have been eliminated in consolidation.

InterGroup Real Estate

During the three months ended September 30, 2025, the Company did not enter into any new financing arrangements, modifications, or refinancings related to its real estate properties.

All existing loans and mortgage obligations remained in good standing, and there were no material changes to the terms, maturities, or covenants of any existing debt instruments.

Liquidity Requirements

The Company's short-term liquidity needs include:

	●	Hotel operating costs, including payroll, utilities, franchise and management fees,
	●	Corporate overhead and tax obligations,
	●	Interest payments and required loan maintenance under both senior and mezzanine debt agreements, and
	●	Routine repair and maintenance capital expenditures at the Hotel.

Long-term liquidity requirements include:

	●	Scheduled debt maturities, including those disclosed in Note 12, and
	●	Capital improvements to maintain the competitiveness and operational standards of the Hotel under its Hilton franchise agreement.

The Company intends to meet these obligations using a combination of:

	●	Available cash on hand,
	●	Operating cash flows,
	●	Draws under the InterGroup credit facility, and
	●	Other potential financing or equity alternatives.

Management's Liquidity Assessment

The Company has taken proactive steps to stabilize its liquidity profile, including:

	●	Completion of a refinancing of its senior and mezzanine debt in March 2025,
	●	Continuing cost controls and selective capital expenditure deferrals,
	●	Maintenance of access to related-party financing capacity; and
	●	Maintenance of a lender-controlled lockbox cash management system (see the Notes to the Condensed Consolidated Financial Statements - Debt).

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

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

Going Concern - Portsmouth (Subsidiary Only)

InterGroup has not experienced conditions or events that raise substantial doubt about its ability to continue as a going concern. As previously disclosed, Portsmouth's prior going-concern uncertainty was alleviated as of June 30, 2025 following its refinancing. Since then, Portsmouth has remained current on required debt services and continued planned property improvements. Management's current evaluation concludes that no conditions or events exist that raise substantial doubt about Portsmouth's ability to continue as a going concern for at least twelve months. See Note 1 - Basis of Presentation (Going Concern).

OFF-BALANCE SHEET ARRANGEMENTS

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

MATERIAL CONTRACTUAL OBLIGATIONS

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

						9 Months				Year				Year				Year				Year
		Total				2026				2027				2028				2029				2030				Thereafter
Mortgage and subordinated notes payable		$	197,458,000			$	930,000			$	106,663,000			$	6,588,000			$	1,845,000			$	16,032,000			$	65,400,000
Other notes payable			1,838,000				425,000				463,000				317,000				317,000				316,000				-
Interest			38,526,000				8,711,000				14,091,000				2,645,000				2,580,000				2,436,000				8,063,000
Total		$	237,822,000			$	10,066,000			$	121,217,000			$	9,550,000			$	4,742,000			$	18,784,000			$	73,463,000

Of the amounts shown, Hotel-related mortgage and mezzanine balances are obligations of Portsmouth's subsidiaries; InterGroup's parent-level mortgages relate to its non-Hotel real estate portfolio.

IMPACT OF INFLATION

Hotel room rates are typically impacted by supply and demand factors, not inflation, since rental of a hotel room is usually for a limited number of nights. Room rates can be, and usually are, adjusted to account for inflationary cost increases. Since Aimbridge has the power and ability under the terms of its management agreement to adjust Hotel room rates on an ongoing basis, there should be minimal impact on the Company's revenues due to inflation. For the two most recent fiscal years, the impact of inflation on the Company's income is not viewed by management as material.

The Company's residential rental properties provide income from short-term operating leases, and no lease extends beyond one year. Rental increases are expected to offset anticipated increased property operating expenses.

CRITICAL ACCOUNTING POLICIES AND USE OF ESTIMATES

Critical accounting policies are those that are most significant to the portrayal of our financial position and results of operations and require judgments by management in order to make estimates about the effect of matters that are inherently uncertain. The preparation of these Condensed Consolidated Financial Statements requires us to make estimates and judgments that affect the reported amounts in our consolidated financial statements. We evaluate our estimates on an ongoing basis, including those related to the consolidation of our subsidiaries, recognition of our revenues, allowances for bad debts, accruals, asset impairments, other investments, income taxes and commitments and contingencies. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities. The actual results may differ from these estimates or our estimates may be affected by different assumptions or conditions. There have been no material changes to the Company's critical accounting policies during the three months ended September 30, 2025.

INCOME TAXES

We apply ASC 740 to account for income taxes. Significant judgment is required to estimate the future tax consequences of events recognized in our condensed consolidated financial statements and tax returns, including the realizability of deferred tax assets and the effects of changes in tax laws or their interpretation. Our income tax returns are subject to examination by the IRS and other taxing authorities; changes in our assessment of these matters could materially affect our consolidated financial statements. We evaluate tax positions taken or expected to be taken on a tax return and recognize benefits only when it is more-likely-than-not that the position will be sustained upon examination, based on the technical merits and assuming full knowledge by the taxing authority. For positions that meet this threshold, the recognized benefit is measured as the largest amount of tax benefit that is greater than 50% likely of being realized upon ultimate settlement. Positions that do not meet the recognition threshold are not recognized. Estimates, assumptions, and judgments are inherent in these evaluations, and changes in our assessments could materially affect our consolidated financial statements. We recognize interest and penalties related to uncertain tax positions in income tax expense.

DEFERRED INCOME TAXES - VALUATION ALLOWANCE

We assess the realizability of deferred tax assets ("DTA") each reporting period on a jurisdiction-by-jurisdiction basis. A valuation allowance is recorded when it is more-likely-than not that some or all DTAs will not be realized. In forming this conclusion, we weigh all available positive and negative evidence, placing significant weight on objectively verifiable evidence, including recent financial results.

Cumulative pre-tax losses over the preceding three years constitute significant negative evidence that DTAs may not be realizable, while cumulative pre-tax income provides objective positive evidence of our ability to generate taxable income. Consistent with GAAP, when there is a recent history of pre-tax losses, limited or no weight is placed on forecasts in assessing DTA realizability. When relevant, we use systematic and logical scheduling to estimate the timing of reversal of temporary differences (i.e., when deferred tax liabilities will generate taxable income and when DTAs will generate deductions). These assessments require assumptions and judgements and are inherently complex and subjective. Significant judgment will also be required to determine the timing and amount of any future release of the valuation allowance should our evidence change.

HOTEL ASSETS AND DEFINITE-LIVED INTANGIBLE ASSETS

We review hotel property and equipment and definite-lived intangible assets (together, "long-lived assets") each quarter and whenever events or changes in circumstances indicate that their carrying amounts may not be recoverable. We generally assess recoverability at the property (asset-group) level - the lowest level for which identifiable cash flows are largely independent.

When indicators of impairment exist, we compare the carrying amount to the sum of the asset group's undiscounted cash flows expected from use and eventual disposition. If not recoverable we measure an impairment loss as the excess of carrying amount over fair value. Fair value is estimated using market and/or income approaches, which require significant judgment, including assumptions about occupancy, ADR/RevPAR, operating margins, required capital expenditures, terminal values, and market discount and capitalization rates. Our indicators of impairment assessment considers industry conditions, property location, market dynamics, historical performance, and property-specific facts available at the time; conclusions may vary period to period as facts change.

Changes in economic or operating conditions could result in future impairment charges. Historically, changes in estimates used in our process have not resulted in material subsequent-period impairment charges.

There were no indicators of impairment for our hotel investments or definite-lived intangible assets, and no impairment losses were recorded for the three months ended September 30, 2025 and 2024, respectively.

STOCK-BASED COMPENSATION

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