FORWARD-LOOKING STATEMENTS AND PROJECTIONS
The Company may from time to time make forward-looking statements and projections concerning future expectations. When used in this discussion, the words "anticipate," "estimate," "expect," "project," "intend," "plan," "believe," "may," "could," "might" and similar expressions, are intended to identify forward-looking statements.
Such statements are subject to certain risks and uncertainties. These risks and uncertainties include, but are not limited to, the following: national and worldwide economic conditions, including the impact of recessionary conditions on tourism, travel and the lodging industry; the impact of terrorism and war on the national and international economies, including tourism, securities markets, energy and fuel costs; natural disasters; general economic conditions and competition in the hotel industry in theSan Francisco area; seasonality, labor relations and labor disruptions; actual and threatened pandemics such as swine flu or the outbreak of COVID-19 or similar outbreaks; partnership distributions; the ability to obtain financing at favorable interest rates and terms; securities markets, regulatory factors, litigation and other factors discussed below in this Report and in the Company's Annual Report on Form 10-K for the fiscal year endedJune 30, 2021 . These risks and uncertainties could cause actual results to differ materially from those projected. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as to the date hereof. The Company undertakes no obligation to publicly release the results of any revisions to those forward-looking statements, which may be made to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events.
NEGATIVE EFFECTS OF CIVIL AUTHORITY ACTIONS ON OUR BUSINESS
OnFebruary 25, 2020 , theCity 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. InMarch 2020 , theWorld 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, onMarch 16, 2020 , the City and County ofSan Francisco , along with a group of five otherBay Area counties and theCity of Berkeley , issued parallel health officer orders imposing shelter in place limitations across theBay Area , requiring everyone to stay safe at home except for certain essential needs. SinceFebruary 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 theBay Area and decline in both leisure and business travel. InDecember 2020 , due to the surge in COVID-19 cases and hospitalizations, the Health Officer of the City and County ofSan Francisco has suspended or restricted certain activities. Health Order C19-07q (the "Order") incorporates suspensions, reductions in capacity limits, and other restrictions contained in the Regional Stay At Home Order issued by theCalifornia Department of Public Health onDecember 3, 2020 . EffectiveDecember 17, 2020 , theBay Area Region , includingSan Francisco , is required to comply with the State'sDecember 3, 2020 Regional Stay-at-Home Order. The Order strongly discourages anyone in the County from travelling for leisure, recreation, business or other purposes that can be postponed until after the current surge. With limited exceptions, this Order imposed a mandatory quarantine on anyone traveling, moving, or returning to the County from anywhere outside theBay Area . EffectiveJanuary 20, 2021 , Health Order C19- 07r revised and replaced the previous Order; it continues to temporarily prohibit certain businesses and activities from resuming but allows certain other businesses, activities, travel and governmental functions to occur subject to specified health and safety restrictions, limitations, and conditions to limit the transmission of COVID-19. Quarantine and isolation requirements and recommendations upon moving to, traveling to, or returning to the County have not changed from the previous Order. OnMarch 24, 2021 , the City and County ofSan Francisco announced it moved into the orange tier which removed the suggested Shelter in Place for guests travelling toSan Francisco . This was a very positive step for the hotel community. This tier opens up activities in the city including expanded restaurant capacities, museums and attractions. For the hotel it allows for guests to gather in public spaces and for outlets and amenities to open up at limited capacities including fitness centers. It does not change the very stringent cleaning and sanitation requirements set forth by the Health Officer of the City and County ofSan Francisco which proves to be a costly measure to maintain. EffectiveMay 6, 2021 , the City and County ofSan Francisco moved into the yellow tier guidelines. We continue to closely monitor the very fluid changes that theCenter for Disease Control ,San Francisco Department of Health and other authorities implement with regards to the COVID-19 pandemic. OnAugust 20, 2021 ,San Francisco announced vaccination requirements for indoor activities. This order requires restaurants, theaters, and entertainment venues where food or drink is served inside, as well as gyms, recreation facilities, yoga studios, dance studios and other fitness establishments, clubs involving elevated breathing to show proof of vaccination. OnJanuary 11, 2022 , a new Health Order has been issued. The primary change to the Order is to comply with changes the state made lowering the threshold for mega events to 500 attendees indoor and 5,000 attendees outdoor beginningJanuary 15, 2022 . This will have significant impact on the demand for major event drivers, primarily citywide events that many attendees will not be able to attend due to vaccination status along with the organizers cancelling events based on decreased anticipated attendance because of these regulations. TheSan Francisco hospitality market has seen the two largest citywide events go virtual with DreamForce inSeptember 2021 andJP Morgan Healthcare Conference inJanuary 2022 .RSA Conference originally scheduled forFebruary 2022 was moved toJune 2022 andMarch 2020 , we had temporarily closed all 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 Aimbridge 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 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. We expect that the effects will have a material adverse effect on our business until the pandemic ends.
As a result of the Coronavirus Aid, Relief, and Economic Security Act (the "CARES Act") signed into law onMarch 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 theSmall 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. OnApril 9, 2020 , Justice entered into a loan agreement ("SBA Loan - Justice") withCIBC Bank USA under the CARES Act. Justice received proceeds of$4,719,000 from the SBA Loan - Justice. In accordance with the requirements of the CARES Act, Justice has used all proceeds from the SBA Loan for payroll costs and other qualified expenses. The SBA Loan - Justice was scheduled to mature onApril 9, 2022 and had a 1.00% interest rate and was subject to the terms and conditions applicable to loans administered by theU.S. Small Business Administration under the CARES Act. OnApril 27, 2020 , InterGroup entered into a loan agreement ("SBA Loan - InterGroup") withCIBC Bank USA under the CARES Act and received loan proceeds in the amount of$453,000 . As ofJune 30, 2021 , InterGroup had used all the$453,000 loan proceeds in qualified payroll expenses. The SBA Loan - InterGroup was scheduled to mature onApril 27, 2022 and had a 1.00% interest rate. Both the SBA Loan - Justice and SBA Loan - InterGroup (collectively the "SBA Loans") were forgiven in full by the SBA
as ofJune 30, 2021 .
OnFebruary 3, 2021 , Justice entered into a second loan agreement ("Second SBA Loan") withCIBC Bank USA administered by the SBA. Justice received proceeds of$2,000,000 from the Second SBA Loan. As ofJune 30, 2021 , Justice had used all proceeds from the Second SBA Loan primarily for payroll costs. The Second SBA Loan was scheduled to mature onFebruary 3, 2026 , had a 1.00% interest rate, and is subject to the terms and conditions applicable to loans administered by theU.S. Small Business Administration under the CARES Act. OnNovember 19, 2021 , the Second SBA Loan was forgiven in full and$2,000,000 was recorded as gain on debt extinguishment on the condensed consolidated statement of operations for the six months endedDecember 31, 2021 . RESULTS OF OPERATIONS As ofDecember 31, 2021 , the Company owns approximately 75% of the common shares ofPortsmouth Square, Inc. Historically, the Company's principal source of revenue is derived from the investment of its subsidiary, Portsmouth, in theJustice Investors Limited Partnership ("Justice" or the "Partnership") inclusive of hotel room revenue, food and beverage revenue, garage revenue, and revenue from other operating departments. Justice owned the Hotel and related facilities, including a five-level underground parking garage up to its dissolution onDecember 23, 2021 when Portsmouth replaced Justice as the owner of the Hotel. The financial statements of Justice had been consolidated with those of the Company. However, the impact of the COVID-19 pandemic is highly uncertain and management expects that the ongoing length and severity of the economic downturn will have a material adverse impact on our business, financial condition, liquidity and financial results. The Hotel is a full-service Hilton brand hotel pursuant to a Franchise License Agreement (the "License Agreement") with Hilton. The Partnership entered into the License Agreement onDecember 10, 2004 . The term of the License Agreement was for an initial period of 15 years commencing on the opening date, with an option to extend the License Agreement for another five years, subject to certain conditions. OnJune 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. The key money cash incentives were received onJuly 1, 2015 .
Operating entered into a Hotel management agreement ("HMA") withAimbridge Hospitality ("Aimbridge") to manage the Hotel, along with its five-level parking garage, with an effective date ofFebruary 3, 2017 . The term of the management agreement is for an initial period of ten years commencing on theFebruary 3, 2017 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 on the HMA, base management fee payable to Aimbridge shall be one and seven-tenths percent (1.70%) of total Hotel revenue. -23- 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 as strategic investments. The properties are located throughoutthe United States , but are concentrated inTexas andSouthern California . The Company also has an investment in unimproved real property. All of the Company's residential and commercial rental operating 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. The Company also invests in income-producing instruments, equity, and debt securities from time to time and will consider other investments if such investments offer growth or profit potential.
Three Months Ended
The Company had a net loss of$2,243,000 for the three months endedDecember 31, 2021 compared to a net loss of$1,063,000 for the three months endedDecember 31, 2020 . The change is primarily attributable to$2,351,000 loss on marketable securities in the three months endedDecember 31, 2021 .Hotel Operations The Company had net loss from Hotel operations of$324,000 for the three months endedDecember 31, 2021 compared to net loss of$4,274,000 for the three months endedDecember 31, 2020 . The change is primarily attributable to the increase in Hotel revenue.
The following table sets forth a more detailed presentation of Hotel operations
for the three months ended
For the three months endedDecember 31, 2021
2020 Hotel revenues: Hotel rooms$ 5,218,000 $ 2,584,000 Food and beverage 296,000 76,000 Garage 768,000 424,000 Other operating departments 66,000 25,000 Total hotel revenues 6,348,000 3,109,000 Operating expenses excluding depreciation and amortization (6,479,000 ) (5,133,000 ) Operating loss before interest, depreciation and amortization (131,000 ) (2,024,000 ) Gain on extinguishment of debt 2,000,000
-
Interest expense - mortgage (1,654,000 ) (1,668,000 ) Depreciation and amortization expense (539,000 ) (582,000 ) Net loss from Hotel operations$ (324,000 ) $ (4,274,000 )
For the three months endedDecember 31, 2021 , the Hotel had operating loss of$131,000 before interest expense, depreciation, and amortization on total operating revenues of$6,348,000 compared to operating loss of$2,024,000 before interest expense, depreciation, and amortization on total operating revenues of$3,109,000 for the three months endedDecember 31, 2020 . For the three months endedDecember 31, 2021 , room revenues increased by$2,634,000 , food and beverage revenue increased by$220,000 , and garage revenue increased by$344,000 , compared to the three months endedDecember 31, 2020 . The year over year increase in all the revenue sources are result of the recovery from the business interruption attributable to a variety of responses by federal, state, and local civil authority to the COVID-19 outbreak sinceMarch 2020 . Total operating expenses increased by$1,346,000 due to increase in salaries and wages, rooms commission, credit card fees, management fees, and franchise fees. -24- The following table sets forth the average daily room rate, average occupancy percentage and RevPAR of the Hotel for the three months endedDecember 31 ,
2021 and 2020. Three Months Average Average Ended December 31, Daily Rate Occupancy % RevPAR 2021$ 138 75 %$ 104 2020$ 107 48 %$ 52
The Hotel's revenues increased by 104% this quarter as compared to the previous
comparable quarter. Average daily rate increased by
Real Estate Operations
Net income from real estate operations for the three months endedDecember 31, 2021 increased by$85,000 compared to the three months endedDecember 31, 2020 due to increase in revenue. Revenue from real estate operations increased by$312,000 year over year due to increase in market rent and reduction in bad debt. All the Company's properties are managed in-house. 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$2,351,000 for the three months endedDecember 31, 2021 compared to a net gain on marketable securities of$3,457,000 for the three months endedDecember 31, 2020 . For the three months endedDecember 31, 2021 , the Company had a net realized loss of$3,254,000 and a net unrealized gain of$903,000 . For the three months ended December, 31, 2021, Company had a net realized loss of$2,441,000 from its investment inComstock . For the three months endedDecember 31, 2020 , the Company had a net realized loss of$672,000 and a net unrealized gain of$4,129,000 . Gains and losses on marketable securities may fluctuate significantly from period to period in the future and could have a significant impact on the Company's results of operations. However, the amount of gain or loss on marketable securities for any given period may have no predictive value and variations in amount from period to period may have no analytical value. For a more detailed description of the composition of the Company's marketable securities see theMarketable Securities section below. The Company and its subsidiary Portsmouth compute and file income tax returns and prepare discrete income tax provisions for financial reporting. The income tax benefit during the three months endedDecember 31, 2021 and 2020 represent primarily the income tax effect of the pretax (loss) income at InterGroup and Portsmouth, which includes its share in net loss of the Hotel.
Six Months Ended
The Company had net loss of$5,149,000 for the six months endedDecember 31, 2021 compared to net income of$3,756,000 for the six months endedDecember 31, 2020 . The change is primarily attributable to the$12,043,000 gain from sale of real estate inAugust 2020 and$4,519,000 loss on marketable securities in the six months endedDecember 31, 2021 .Hotel Operations The Company had net loss from Hotel operations of$2,067,000 for the six months endedDecember 31, 2021 compared to net loss of$8,161,000 for the six months endedDecember 31, 2020 . The change is primarily attributable to the increase in Hotel revenue. -25-
The following table sets forth a more detailed presentation of Hotel operations
for the six months ended
For the six months endedDecember 31, 2021
2020 Hotel revenues: Hotel rooms$ 10,780,000 $ 5,474,000 Food and beverage 562,000 113,000 Garage 1,675,000 894,000 Other operating departments 136,000 53,000 Total hotel revenues 13,153,000 6,534,000 Operating expenses excluding depreciation and amortization (12,812,000 ) (10,166,000 ) Operating income (loss) before interest, depreciation and amortization 341,000 (3,632,000 ) Gain on extinguishment of debt 2,000,000
-
Interest expense - mortgage (3,315,000 ) (3,368,000 ) Depreciation and amortization expense (1,093,000 ) (1,161,000 ) Net loss from Hotel operations$ (2,067,000 ) $ (8,161,000 )
For the six months endedDecember 31, 2021 , the Hotel had operating income of$341,000 before interest expense, depreciation, and amortization on total operating revenues of$13,153,000 compared to operating loss of$3,632,000 before interest expense, depreciation, and amortization on total operating revenues of$6,534,000 for the six months endedDecember 31, 2020 . For the six months endedDecember 31, 2021 , room revenues increased by$5,306,000 , food and beverage revenue increased by$449,000 , and garage revenue increased by$781,000 , compared to the six months endedDecember 31, 2020 . The year over year increase in all the revenue sources are result of the recovery from the business interruption attributable to a variety of responses by federal, state, and local civil authority to the COVID-19 outbreak sinceMarch 2020 . Total operating expenses increased by$2,646,000 due to increase in salaries and wages, rooms commission, credit card fees, management fees, and franchise fees. The following table sets forth the average daily room rate, average occupancy percentage and RevPAR of the Hotel for the six months endedDecember 31, 2021 and 2020. Six Months Average Average Ended December 31, Daily Rate Occupancy % RevPAR 2021$ 139 77 %$ 107 2020$ 107 51 %$ 55 The Hotel's revenues increased by 101% for the six months endedDecember 31, 2021 as compared to the six months endedDecember 31, 2020 . Average daily rate increased by$32 , average occupancy increased by 26%, and RevPAR increased by$52 for the six months endedDecember 31, 2021 compared to the six months endedDecember 31, 2020 . Real Estate Operations Net income from real estate operations for the six months endedDecember 31, 2021 decreased by$11,796,000 compared to the six months endedDecember 31, 2020 due to the$12,043,000 gain from sale of real estate inAugust 2020 . Revenue from real estate operations increased by$944,000 year over year due to reduction in vacancy and bad debt. All the Company's properties are managed in-house. 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$4,519,000 for the six months endedDecember 31, 2021 compared to a net gain on marketable securities of$3,299,000 for the six months endedDecember 31, 2020 . For the six months endedDecember 31, 2021 , the Company had a net realized loss of$1,001,000 and a net unrealized loss of$3,518,000 . For the six months ended December, 31, 2021, Company had a net realized loss of$2,581,000 from its investment inComstock . For the six months endedDecember 31, 2020 , the Company had a net realized loss of$934,000 and a net unrealized gain of$4,233,000 . Gains and losses on marketable securities may fluctuate significantly from period to period in the future and could have a significant impact on the Company's results of operations. However, the amount of gain or loss on marketable securities for any given period may have no predictive value and variations in amount from period to period may have no analytical value. For a more detailed description of the composition of the Company's marketable securities see theMarketable Securities section below. -26- MARKETABLE SECURITIES The following table shows the composition of the Company's marketable securities portfolio as ofDecember 31, 2021 andJune 30, 2021 by selected industry groups. % of Total As of December 31, 2021 Investment Industry Group Fair Value Securities REITs and real estate companies$ 7,014,000 33.2 % Communication services 4,732,000 22.4 % Financial services 2,951,000 14.0 % Technology 1,930,000 9.1 % Industrials 1,487,000 7.0 % Energy 1,427,000 6.7 % Consumer cyclical 745,000 3.5 % Basic material 357,000 1.7 % Utilities 268,000 1.3 % Healthcare 237,000 1.1 %$ 21,148,000 100.0 % % of Total As of June 30, 2021 Investment Industry Group Fair Value Securities REITs and real estate companies$ 11,624,000 32.5 % Energy 6,374,000 17.8 % Communication services 4,872,000 13.6 % Financial services 3,873,000 10.8 % Industrials 3,746,000 10.5 % Basic material 1,797,000 5.0 % Consumer cyclical 1,702,000 4.8 % Healthcare 981,000 2.7 % Technology 442,000 1.2 % Other 381,000 1.1 %$ 35,792,000 100.0 %
As ofDecember 31, 2021 , the Company's investment portfolio is diversified with 69 different equity positions. The Company held one equity security that is more than 10% of the equity value of the portfolio. The largest security position represents 21% of the portfolio and consists of the common stock ofViacom CBS, Inc. (NASDAQ: VIACP) which is included in the communication services industry group.
As ofJune 30, 2021 , the Company's investment portfolio is diversified with 83 different equity positions. The Company holds two equity securities that comprised more than 10% of the equity value of the portfolio. The two largest security positions represent 12% and 11% of the portfolio and consists of the common stock ofDigitalBridge Group, Inc. (NASDAQ: DBRG) andViacom CBS, Inc. (NASDAQ: VIACP), which are included in the REITs and real estate companies and communication services industry group, respectively.
The following table shows the net (loss) gain on the Company's marketable securities and the associated margin interest and trading expenses for the respective periods:
For the three months ended December 31, 2021 2020 Net (loss) gain on marketable securities$ (120,000 ) $ 3,501,000 Net (loss) on marketable securities - Comstock (2,231,000 ) (44,000 ) Impairment loss on other investments (41,000 ) (27,000 ) Dividend and interest income 462,000 81,000 Margin interest expense (204,000 ) (161,000 ) Trading and management expenses (156,000 )
(126,000 )
Net (loss) gain from investment transactions
-27- For the six months endedDecember 31, 2021
2020
Net (loss) gain on marketable securities$ (1,938,000 ) $
3,248,000
Net (loss) gain on marketable securities -
(41,000 ) (89,000 ) Dividend and interest income 649,000 205,000 Margin interest expense (426,000 ) (281,000 ) Trading and management expenses (288,000 )
(275,000 )
Net (loss) gain from investment transactions
FINANCIAL CONDITION AND LIQUIDITY
The Company had cash and cash equivalents of$12,168,000 and$6,808,000 as ofDecember 31, 2021 andJune 30, 2021 , respectively. The Company had marketable securities, net of margin due to securities brokers, of$18,184,000 and$21,456,000 as ofDecember 31, 2021 andJune 30, 2020 , respectively. These marketable securities are short-term investments and liquid in nature. OnDecember 16, 2020 , Justice and InterGroup entered into a loan modification agreement which increased Justice's borrowing from InterGroup as needed up to$10,000,000 . Upon the dissolution of Justice inDecember 2021 , Portsmouth assumed Justice's note payable to InterGroup in the amount of$11,350,000 . OnDecember 31, 2021 , Portsmouth and InterGroup entered into a loan modification agreement which increased Portsmouth's borrowing from InterGroup as needed up to$16,000,000 . During the six months endingDecember 31, 2021 , InterGroup advanced$4,700,000 to the Hotel, bringing the total amount due to InterGroup to$11,350,000 atDecember 31, 2021 . Portsmouth could amend its by-laws and increase the number of authorized shares in order to issue additional shares to raise capital in the public markets if needed. In order to increase our liquidity position and to take advantage of the favorable interest rate environment, we refinanced our 151-unit apartment complex inParsippany, New Jersey onApril 30, 2020 , generating net proceeds of$6,814,000 . InJune 2020 , we refinanced one of ourCalifornia properties and generated net proceeds of$1,144,000 . During the fiscal year endedJune 30, 2021 , we completed refinancing on six of ourCalifornia properties and generated net proceeds of$6,762,000 . During the six months endingDecember 31, 2021 , we refinanced five of our properties' existing mortgages and obtained a mortgage note payable on one of ourCalifornia properties, generating net proceeds totaling$16,099,000 as a result. We are currently evaluating other refinancing opportunities and we could refinance additional multifamily properties should the need arise, or should management consider the interest rate environment favorable. The Company has an uncollateralized$5,000,000 revolving line of credit fromCIBC Bank USA ("CIBC") and the entire$5,000,000 is available to be drawn down as ofDecember 31, 2021 should additional liquidity be necessary. OnApril 9, 2020 , Justice entered into a loan agreement ("SBA Loan") withCIBC Bank USA under the Coronavirus Aid, Relief, and Economic Security Act ("CARES Act") administered by theU.S. Small Business Administration (the "SBA"). Justice received proceeds of$4,719,000 from the SBA Loan. In accordance with the requirements of the CARES Act, Justice used the proceeds from the SBA Loan for payroll costs and other qualified expenses. The SBA Loan was scheduled to mature onApril 9, 2022 with a 1.00% interest rate and is subject to the terms and conditions applicable to loans administered by theU.S. Small Business Administration under the CARES Act. OnJune 10, 2021 , the SBA Loan was forgiven in full. OnApril 27, 2020 , InterGroup entered into a loan agreement ("SBA Loan - InterGroup") withCIBC Bank USA under the CARES Act and received loan proceeds in the amount of$453,000 . InterGroup had used all of the$453,000 loan proceeds in qualified payroll expenses. The SBA Loan - InterGroup was scheduled to mature onApril 27, 2022 and had a 1.00% interest rate. OnMarch 17, 2021 , SBA Loan - InterGroup was forgiven in full. OnFebruary 3, 2021 , Justice entered into a second loan agreement ("Second SBA Loan") withCIBC Bank USA administered by the SBA. Justice received proceeds of$2,000,000 from the Second SBA Loan. As ofJune 30, 2021 , Justice had used all proceeds from the Second SBA Loan primarily for payroll costs. The Second SBA Loan was scheduled to mature onFebruary 3, 2026 , had a 1.00% interest rate, and is subject to the terms and conditions applicable to loans administered by theU.S. Small Business Administration under the CARES Act. OnNovember 19, 2021 , the Second SBA Loan was forgiven in full and$2,000,000 was recorded as gain on debt extinguishment on the condensed consolidated statement of operations for the six months endedDecember 31, 2021 . -28- 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.
OFF-BALANCE SHEET ARRANGEMENTS
The Company has no off-balance sheet arrangements.
MATERIAL CONTRACTUAL OBLIGATIONS
The following table provides a summary as of
6 Months Year Year Year Year Total 2022 2023 2024 2025 2026 Thereafter
Mortgage and subordinated notes payable
3,804,000 283,000 567,000 567,000 567,000 567,000 1,253,000 Interest 34,564,000 4,533,000 8,723,000 5,376,000 2,241,000 2,126,000 11,565,000 Total$ 234,486,000 $ 6,247,000 $ 22,250,000 $ 114,264,000 $ 6,674,000 $ 3,759,000 $ 81,292,000 IMPACT OF INFLATION Hotel room rates are typically impacted by supply and demand factors, not inflation, since rental of a hotel room is usually for a limited number of nights. Room rates can be, and usually are, adjusted to account for inflationary cost increases. Since Aimbridge has the power and ability 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.
-29-
CRITICAL ACCOUNTING POLICIES AND USE OF ESTIMATES
Critical accounting policies are those that are most significant to the presentation 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 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. There have been no material changes to the Company's critical accounting policies during the six months endedDecember 31, 2021 . Please refer to the Company's Annual Report on Form 10-K for the year endedJune 30, 2021 for a summary of the critical accounting policies.
© Edgar Online, source