UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

xQUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended December 31, 2018

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   13-3293645
(State or other jurisdiction of   (I.R.S. Employer
Incorporation or organization)   Identification No.)

 

11620 Wilshire Boulevard, Suite 350, Los Angeles, California 90025

(Address of principal executive offices) (Zip Code)

 

(310) 889-2500

(Registrant’s telephone number, including area code)

 

 

 

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 (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). 

x Yes ¨ No

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.

 

  Large accelerated filer ¨ Accelerated filer ¨  
       
  Non-accelerated filer ¨ 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 number of shares outstanding of registrant’s Common Stock, as of January 31, 2019 was 2,329,713.

 

 

 

 

 

 

TABLE OF CONTENTS

 

  Page
     
  PART I – FINANCIAL INFORMATION  
     
Item 1. Financial Statements  
     
  Condensed Consolidated Balance Sheets as of December 31, 2018 and June 30, 2018 (Unaudited) 3
  Condensed Consolidated Statements of Operations for the Three Months ended December 31, 2018 and 2017 (Unaudited) 4
  Condensed Consolidated Statements of Operations for the Six Months ended December 31, 2018 and 2017 (Unaudited) 5
  Condensed Consolidated Statements of Shareholders’ Deficit for the Quarters Ended December 31, 2018 and 2017 (Unaudited) 6
  Condensed Consolidated Statements of Cash Flows for the Six Months ended December 31, 2018 and 2017 (Unaudited) 7
  Notes to the Condensed Consolidated Financial Statements 8-19
     
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 19
     
Item 3. Quantitative and Qualitative Disclosures About Market Risk 27
     
Item 4. Controls and Procedures 27
     
  PART II – OTHER INFORMATION  
     
Item 1. Legal Proceedings 27
     
Item 1A. Risk Factors 27
     
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 27
     
Item 3. Defaults Upon Senior Securities 28
     
Item 4. Mine Safety Disclosures 28
     
Item 5. Other Information 28
     
Item 6. Exhibits 28
     
Signatures 28

 

 - 2 - 

 

 

PART I

FINANCIAL INFORMATION

 

Item 1 - Condensed Consolidated Financial Statements

 

THE INTERGROUP CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

 

As of  December 31, 2018   June 30, 2018 
ASSETS          
Investment in hotel, net  $40,258,000   $40,961,000 
Investment in real estate, net   52,562,000    53,369,000 
Investment in marketable securities   7,586,000    13,841,000 
Other investments, net   733,000    813,000 
Cash and cash equivalents   8,978,000    8,053,000 
Restricted cash   10,551,000    9,458,000 
Other assets, net   4,736,000    5,185,000 
Total assets  $125,404,000   $131,680,000 
           
           
LIABILITIES AND SHAREHOLDERS' DEFICIT          
Liabilities:          
Accounts payable and other liabilities  $3,215,000   $3,299,000 
Accounts payable and other liabilities - Hotel   8,765,000    9,946,000 
Due to securities broker   412,000    1,887,000 
Obligations for securities sold   -    1,935,000 
Related party and other notes payable   5,550,000    5,735,000 
Capital leases   1,243,000    1,355,000 
Line of credit payable   2,985,000    - 
Mortgage notes payable - Hotel, net   113,789,000    114,372,000 
Mortgage notes payable - real estate, net   59,311,000    62,873,000 
Deferred tax liability   515,000    245,000 
Total liabilities   195,785,000    201,647,000 
           
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 and 3,395,616 issued; 2,329,713 and 2,334,197 outstanding, respectively   33,000    33,000 
Additional paid-in capital   10,550,000    10,522,000 
Accumulated deficit   (41,614,000)   (41,217,000)
Treasury stock, at cost, 1,075,269 and 1,061,419 shares, respectively   (13,732,000)   (13,268,000)
Total InterGroup shareholders' deficit   (44,763,000)   (43,930,000)
Noncontrolling interest   (25,618,000)   (26,037,000)
Total shareholders' deficit   (70,381,000)   (69,967,000)
           
Total liabilities and shareholders' equity  $125,404,000   $131,680,000 

 

The accompanying notes are an integral part of these (unaudited) condensed consolidated financial statements.

 

 - 3 - 

 

 

THE INTERGROUP CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

 

For the three months ended December 31,  2018   2017 
Revenues:          
Hotel  $13,997,000   $13,187,000 
Real estate   3,752,000    3,625,000 
Total revenues   17,749,000    16,812,000 
Costs and operating expenses:          
Hotel operating expenses   (11,236,000)   (10,743,000)
Real estate operating expenses   (1,866,000)   (2,102,000)
Depreciation and amortization expenses   (1,249,000)   (1,267,000)
General and administrative expenses   (479,000)   (730,000)
           
Total costs and operating expenses   (14,830,000)   (14,842,000)
           
Income from operations   2,919,000    1,970,000 
           
Other income (expense):          
Interest expense - mortgages   (2,405,000)   (2,490,000)
Net (loss) gain on marketable securities   (1,945,000)   907,000 
Net loss on marketable securities - Comstock   (26,000)   (2,085,000)
Impairment loss on other investments   -    (200,000)
Dividend and interest income   88,000    48,000 
Trading and margin interest expense   (193,000)   (313,000)
Total other expense, net   (4,481,000)   (4,133,000)
           
Loss before income taxes   (1,562,000)   (2,163,000)
Income tax benefit (expense)   440,000    (344,000)
Net loss   (1,122,000)   (2,507,000)
Less:  Net loss attributable to the noncontrolling interest   95,000    1,302,000 
Net loss attributable to InterGroup Corporation  $(1,027,000)  $(1,205,000)
           
Net loss per share          
Basic and diluted  $(0.48)  $(1.06)
           
Net loss per share attributable to InterGroup Corporation          
Basic and diluted  $(0.44)  $(0.51)
           
Weighted average number of basic and diluted common shares outstanding   2,327,007    2,371,125 

 

The accompanying notes are an integral part of these (unaudited) condensed consolidated financial statements.

 

 - 4 - 

 

 

THE INTERGROUP CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

 

For the six months ended December 31,  2018   2017 
Revenues:          
Hotel  $29,807,000   $27,624,000 
Real estate   7,431,000    7,302,000 
Total revenues   37,238,000    34,926,000 
Costs and operating expenses:          
Hotel operating expenses   (22,046,000)   (21,332,000)
Real estate operating expenses   (3,878,000)   (3,997,000)
Depreciation and amortization expenses   (2,492,000)   (2,541,000)
General and administrative expenses   (1,122,000)   (1,561,000)
           
Total costs and operating expenses   (29,538,000)   (29,431,000)
           
Income from operations   7,700,000    5,495,000 
           
Other income (expense):          
Interest expense - mortgages   (4,970,000)   (4,983,000)
Net (loss) gain on marketable securities   (1,680,000)   554,000 
Net loss on marketable securities - Comstock   (462,000)   (2,754,000)
Impairment loss on other investments   -    (200,000)
Dividend and interest income   185,000    131,000 
Trading and margin interest expense   (497,000)   (626,000)
Total other expense, net   (7,424,000)   (7,878,000)
           
Income (loss) before income taxes   276,000    (2,383,000)
Income tax expense   (270,000)   (419,000)
Net income (loss)   6,000    (2,802,000)
Less:  Net (income) loss attributable to the noncontrolling interest   (403,000)   1,185,000 
Net loss attributable to InterGroup Corporation  $(397,000)  $(1,617,000)
           
Net income (loss) per share          
Basic  $0.003   $(1.18)
Diluted  $0.002   $(1.18)
           
Net loss per share attributable to InterGroup Corporation          
Basic and diluted  $(0.17)  $(0.68)
           
Weighted average number of basic common shares outstanding   2,330,213    2,371,445 
Weighted average number of diluted common shares outstanding   2,657,008    2,371,445 

 

The accompanying notes are an integral part of these (unaudited) condensed consolidated financial statements.

 

 - 5 - 

 

 

THE INTERGROUP CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' DEFICIT

(Unaudited)

 

           Additional           InterGroup       Total 
   Common Stock   Paid-in       Treasury   Shareholders'   Noncontrolling   Shareholders' 
   Shares   Amount   Capital   Accumulated Deficit   Stock   Deficit   Interest   Deficit 
                                 
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   -    -    -    630,000    -    630,000    498,000    1,128,000 
                                         
Stock options expense   -    -    30,000    -    -    30,000    -    30,000 
                                         
Purchase of treasury stock   -    -    -    -    (198,000)   (198,000)   -    (198,000)
                                         
Balance at September 30, 2018   3,395,616    33,000    10,552,000    (40,587,000)   (13,466,000)   (43,468,000)   (25,539,000)   (69,007,000)
                                         
Issuance of stock   9,366    -    -    -    -    -    -    - 
                                         
Net loss   -    -    -    (1,027,000)   -    (1,027,000)   (95,000)   (1,122,000)
                                         
Stock options expense   -    -    29,000    -    -    29,000    -    29,000 
                                         
Investment in Santa Fe   -    -    (31,000)   -    -    (31,000)   16,000    (15,000)
                                         
Purchase of treasury stock   -    -    -    -    (266,000)   (266,000)   -    (266,000)
                                         
Balance at December 31, 2018   3,404,982   $33,000   $10,550,000   $(41,614,000)  $(13,732,000)  $(44,763,000)  $(25,618,000)  $(70,381,000)

 

           Additional           InterGroup       Total 
   Common Stock   Paid-in       Treasury   Shareholders'   Noncontrolling   Shareholders' 
   Shares   Amount   Capital   Accumulated Deficit   Stock   Deficit   Interest   Deficit 
                                 
Balance at July 1, 2017   3,395,616   $33,000   $10,346,000   $(45,298,000)  $(12,626,000)  $(47,545,000)  $(27,773,000)  $(75,318,000)
                                         
Net (loss) Income   -    -    -    (412,000)   -    (412,000)   117,000    (295,000)
                                         
Stock options expense   -    -    62,000    -    -    62,000    -    62,000 
                                         
Balance at September 30, 2017   3,395,616    33,000    10,408,000    (45,710,000)   (12,626,000)   (47,895,000)   (27,656,000)   (75,551,000)
                                         
Net loss   -    -    -    (1,205,000)   -    (1,205,000)   (1,302,000)   (2,507,000)
                                         
Stock options expense   -    -    60,000    -    -    60,000    -    60,000 
                                         
Purchase of treasury stock   -    -    -    -    (109,000)   (109,000)   -    (109,000)
                                         
Balance at December 31, 2017   3,395,616   $33,000   $10,468,000   $(46,915,000)  $(12,735,000)  $(49,149,000)  $(28,958,000)  $(78,107,000)

 

The accompanying notes are an integral part of these consolidated financial statements.

 

 - 6 - 

 

 

THE INTERGROUP CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

 

For the six months ended December 31,  2018   2017 
Cash flows from operating activities:          
Net income (loss)  $6,000   $(2,802,000)
Adjustments to reconcile net loss to net cash provided by operating activities:          
Depreciation and amortization   2,461,000    2,597,000 
Deferred taxes   270,000    419,000 
Net unrealized loss on marketable securities   2,664,000    2,081,000 
Impairment loss on other investments   -    200,000 
Stock compensation expense   59,000    122,000 
Changes in operating assets and liabilities:          
Investment in marketable securities   3,591,000    1,887,000 
Other assets   449,000    290,000 
Accounts payable and other liabilities   (1,265,000)   (939,000)
Due to securities broker   (1,475,000)   (220,000)
Obligations for securities sold   (1,935,000)   (1,639,000)
Net cash provided by operating activities   4,825,000    1,996,000 
           
Cash flows from investing activities:          
Payments for hotel investments   (583,000)   (109,000)
Payments for real estate investments   (399,000)   (578,000)
Payments for investment in Santa Fe   (15,000)   - 
Proceeds from other investments   80,000    48,000 
Net cash used in investing activities   (917,000)   (639,000)
           
Cash flows from financing activities:          
Net payments of mortgage and other notes payable   (4,411,000)   (1,526,000)
Proceeds from line of credit   2,985,000    - 
Purchase of treasury stock   (464,000)   (109,000)
Net cash used in financing activities   (1,890,000)   (1,635,000)
           
Net increase (decrease) in cash, cash equivalents and restricted cash   2,018,000    (278,000)
Cash, cash equivalents and restricted cash at the beginning of the period   17,511,000    10,273,000 
Cash, cash equivalents and restricted cash at the end of the period  $19,529,000   $9,995,000 
           
Supplemental information:          
Interest paid  $5,081,000   $5,336,000 
Taxes paid  $265,000   $489,000 

 

The accompanying notes are an integral part of these (unaudited) condensed consolidated financial statements.

 

 - 7 - 

 

 

THE INTERGROUP CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

NOTE 1. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES

 

The condensed consolidated financial statements included herein have been prepared by The InterGroup Corporation (“InterGroup” or the “Company”), without audit, according to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in the condensed consolidated financial statements prepared in accordance with generally accepted accounting principles (U.S. GAAP) have been condensed or omitted pursuant to such rules and regulations, although the Company believes the disclosures that are made are adequate to make the information presented not misleading. Further, the condensed consolidated financial statements reflect, in the opinion of management, all adjustments (which included only normal recurring adjustments) necessary for a fair statement of the financial position, cash flows and results of operations as of and for the periods indicated. It is suggested that these financial statements be read in conjunction with the audited financial statements of InterGroup and the notes therein included in the Company's Annual Report on Form 10-K for the year ended June 30, 2018. The December 31, 2018 Condensed Consolidated Balance Sheet was derived from the Company’s Form 10-K for the year ended June 30, 2018.

 

The results of operations for the six months ended December 31, 2018 are not necessarily indicative of results to be expected for the full fiscal year ending June 30, 2019.

 

Basic and diluted loss per share is computed by dividing net loss available to common stockholders by the weighted average number of common shares outstanding. The computation of diluted income per share is similar to the computation of basic earnings 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. The Company's only potentially dilutive common shares are stock options.

 

As of December 31, 2018, the Company had the power to vote 85.9% 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 4% interest in the common stock in Santa Fe owned by the Company’s Chairman and President pursuant to a voting trust agreement entered into on June 30, 1998.

 

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’s primary business is conducted through its general and limited partnership interest in Justice Investors Limited Partnership; a California limited partnership (“Justice” or the “Partnership”). InterGroup also directly owns approximately 13.4% of the common stock of Portsmouth.

 

Justice, through its subsidiaries Justice Operating Company, LLC (“Operating”), Justice Mezzanine Company, LLC (“Mezzanine”) and Kearny Street Parking, LLC (“Parking”) owns 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 and Parking are both wholly-owned subsidiaries 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 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 on the HMA, base management fee payable to Interstate shall be one and seven-tenths percent (1.70%) of total Hotel revenue.

 

The Company began managing the parking garage that is part of the Hotel in-house in 2016. Effective February 3, 2017, Interstate took over the management of the parking garage along with the Hotel.

 

 - 8 - 

 

 

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 Dallas, Texas and Southern California. The Company also has an investment in unimproved real property. As of December 31, 2018, all of the Company’s residential and commercial rental properties are managed in-house.

 

Due to Securities Broker

 

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.

 

Obligations 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 condensed consolidated statements of operations.

 

Income Tax

 

The Company consolidates Justice (“Hotel”) for financial reporting purposes and is not taxed on its non-controlling interest in the Hotel. The income tax expense during the six months ended December 31, 2018 and 2017 represents primarily the income tax effect of the pretax loss at InterGroup and the pretax income of Portsmouth which includes its share in net income of the Hotel. For the quarter ended December 31, 2017, a provisional net charge of $879,000 was included in the income tax expense as a result of reducing our deferred tax asset to the lower federal base rate of 21%.

 

Financial Condition and Liquidity

 

The Company’s cash flows are primarily generated from the ownership and management of real estate.

 

To fund the redemption of limited partnership interests and to repay the prior mortgage of $42,940,000, Justice obtained a $97,000,000 mortgage loan and a $20,000,000 mezzanine loan. 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 with interest only payments due through January 2017. Beginning in February 2017, the loan began to amortize over a thirty-year period through its maturity date of January 2024. Outstanding principal balance on the loan was $94,349,000 and $95,018,000 as of December 31, 2018 and June 30, 2018, respectively. As additional security for the mortgage loan, there is a limited 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 interest only loan bears interest at 9.75% per annum and matures in January 2024. As additional security for the mezzanine loan, there is a limited guaranty executed by Portsmouth in favor of the mezzanine lender.

 

Effective as of May 11, 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 December 31, 2018, InterGroup is in compliance with both requirements.

 

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 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 Los Angeles, California and is 55.4% and 44.6% owned by Santa Fe and the Company, respectively. 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 are due in July 2019. The $2,969,000 mortgage due to InterGroup carries same terms as InterGroup’s RLOC.

 

 - 9 - 

 

 

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.

 

Despite an uncertain economy, the Hotel has continued to generate positive operating income. While the debt service requirements related the loans may create some additional risk for the Company and its ability to generate cash flows in the future, management believes that cash flows from the operations of the Hotel and the garage will continue to be sufficient to meet all of the Partnership’s current and future obligations and financial requirements.

 

The Company has invested in short-term, income-producing instruments and in equity and debt securities when deemed appropriate. The Company's marketable securities are classified as trading with unrealized gains and losses recorded through the consolidated statements of operations.

 

Management believes that its cash, marketable securities, and the cash flows generated from its real estate assets, will be adequate to meet the Company’s current and future obligations. Additionally, management believes there is significant appreciated value in the Hotel property to support additional borrowings, if necessary.

 

The following table provides a summary as of December 31, 2018, the Company’s material financial obligations which also includes interest payments.

 

       6 Months   Year   Year   Year   Year     
   Total   2019   2020   2021   2022   2023   Thereafter 
Mortgage and subordinated notes payable  $173,972,000   $1,508,000   $3,061,000   $12,490,000   $3,102,000   $37,820,000   $115,991,000 
Other notes payable   9,778,000    504,000    3,918,000    913,000    927,000    641,000    2,875,000 
Interest   45,160,000    4,635,000    9,508,000    9,132,000    8,644,000    7,636,000    5,605,000 
    Total  $228,910,000   $6,647,000   $16,487,000   $22,535,000   $12,673,000   $46,097,000   $124,471,000 

 

Recently Issued and Adopted Accounting Pronouncements

 

In November 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standard Update (“ASU”) 2016-18, Restricted Cash. ASU 2016-18 requires companies to include restricted cash and restricted cash equivalents with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. Additionally, ASU 2016-18 requires a disclosure of a reconciliation between the statement of financial position and the statement of cash flows when the balance sheet includes more than one line item for cash, cash equivalents, restricted cash, and restricted cash equivalents. ASU 2016-18 is effective for reporting periods beginning after December 15, 2017, with early adoption permitted, and will be applied retrospectively to all periods presented. The Company adopted ASU 2018-16 effective July 1, 2018. The adoption of ASU 2016-18 impacted the presentation of cash flows with inclusion of restricted cash flows for each of the presented periods.

 

In May 2014, the FASB issued Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers (Topic 606) (ASU 2014-09), which amends the existing accounting standards for revenue recognition. In August 2015, the FASB issued ASU No. 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date, which delays the effective date of ASU 2014-09 by one year. The FASB also agreed to allow entities to choose to adopt the standard as of the original effective date. In March 2016, the FASB issued Accounting Standards Update No. 2016-08, Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net) (ASU 2016-08) which clarifies the implementation guidance on principal versus agent considerations. The guidance includes indicators to assist an entity in determining whether it controls a specified good or service before it is transferred to the customers. The new standard permits two methods of adoption: retrospectively to each prior reporting period presented (full retrospective method), or retrospectively with the cumulative effect of initially applying the guidance recognized at the date of initial application (the modified retrospective method). We applied the modified retrospective transition method to all contracts upon the adoption of ASU 2014-09 effective July 1, 2018. We provided the additional required disclosures, but the cumulative adjustment from our comparative periods was zero in our condensed consolidated financial statements. See Note 2.

 

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) (ASU 2016-02), which supersedes existing guidance on accounting for leases in Leases (Topic 840) and generally requires all leases, including operating leases, to be recognized in the statement of financial position as right-of-use assets and lease liabilities by lessees. The provisions of ASU 2016-02 are to be applied using a modified retrospective approach and are effective for reporting periods beginning after December 15, 2018; early adoption is permitted. We intend to adopt the standard on July 1, 2019. The Company is currently reviewing the effect of ASU No. 2016-02.

 

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, 2020. The Company is currently reviewing the effect of ASU No. 2016-13.

 

 - 10 - 

 

 

NOTE 2 – REVENUE

 

On July 1, 2018, we adopted ASC 606, Revenue from Contracts with Customers, as described in Note 1, 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.

 

The following table present our hotel revenues disaggregated by revenue streams. Revenues from real estate are not affected by the new guidance.

 

For the three months ended December 31,  2018   2017 
Hotel revenues:          
Hotel rooms  $11,565,000   $10,710,000 
Food and beverage   1,565,000    1,614,000 
Garage   734,000    735,000 
Other operating departments   133,000    128,000 
Total hotel revenue  $13,997,000   $13,187,000 

 

For the six months ended December 31,  2018   2017 
Hotel revenues:          
Hotel rooms  $25,087,000   $22,552,000 
Food and beverage   3,014,000    3,373,000 
Garage   1,508,000    1,516,000 
Other operating departments   198,000    183,000 
Total hotel revenue  $29,807,000   $27,624,000 

 

Performance obligations

 

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.

 

 - 11 - 

 

 

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 December 31, 2018 and June 30, 2018 other than trade and other receivables, net on our Condensed Consolidated Balance Sheet. 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 Condensed Consolidated Balance Sheets. Contract liabilities increased to $1,255,000 as of December 31, 2018 from $571,000 as of June 30, 2018. The increase for the six months ended December 31, 2018 was primarily driven by deposits received from upcoming groups, partially offset by $560,000 revenue recognized that was included in the advanced deposits balance as of June 30, 2018.

 

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 and lease agreements do not extend beyond one year.

 

NOTE 3 – INVESTMENT IN HOTEL, NET

 

Investment in hotel consisted of the following as of:

 

       Accumulated   Net Book 
December 31, 2018  Cost   Depreciation   Value 
             
Land  $2,738,000   $-   $2,738,000 
Furniture and equipment   29,932,000    (26,418,000)   3,514,000 
Building and improvements   64,336,000    (30,330,000)   34,006,000 
   $97,006,000   $(56,748,000)  $40,258,000 

 

       Accumulated   Net Book 
June 30, 2018  Cost   Depreciation   Value 
             
Land  $2,738,000   $-   $2,738,000 
Furniture and equipment   29,350,000    (25,876,000)   3,474,000 
Building and improvements   64,336,000    (29,587,000)   34,749,000 
   $96,424,000   $(55,463,000)  $40,961,000 

 

NOTE 4 – INVESTMENT IN REAL ESTATE, NET

 

The Company’s investment in real estate includes 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 Dallas, Texas and Southern California. The Company also has an investment in unimproved real property. Investment in real estate consisted of the following:

 

 - 12 - 

 

 

As of  December 31, 2018   June 30, 2018 
Land  $25,033,000   $25,033,000 
Buildings, improvements and equipment   67,936,000    67,536,000 
Accumulated depreciation   (40,407,000)   (39,200,000)
Investment in real estate, net  $52,562,000   $53,369,000 

 

NOTE 5 – 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 transfer to its shareholders through income and/or capital gain.

 

At December 31, 2018 and June 30, 2018, 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:

 

       Gross   Gross   Net   Fair 
Investment  Cost   Unrealized Gain   Unrealized Loss   Unrealized Loss   Value 
                     
As of December 31, 2018                         
Corporate Equities  $18,847,000  $934,000   $(12,195,000)  $(11,261,000)  $7,586,000 
                          
As of June 30, 2018                         
Corporate Equities  $22,388,000   $2,450,000   $(10,997,000)  $(8,547,000)  $13,841,000 

 

As of December 31, 2018, and June 30, 2018, the Company had unrealized losses of $11,495,000 and $10,819,000, respectively, related to securities held for over one year. As of December 31, 2018, and June 30, 2018, unrealized losses related to the Company’s investment in Comstock Mining Inc. (“Comstock” - NYSE AMERICAN: LODE) were $11,107,000 and $10,646,000, respectively.

 

Net loss on marketable securities on the statement of operations is comprised of realized and unrealized gains (losses). Below is the composition of net loss on marketable securities for the respective periods:

 

For the three months ended December 31,  2018   2017 
Realized gain on marketable securities  $530,000   $181,000 
Unrealized (loss) gain on marketable securities   (2,475,000)   726,000 
Unrealized loss on marketable securities related to Comstock   (26,000)   (2,085,000)
Net loss on marketable securities  $(1,971,000)  $(1,178,000)

 

 - 13 - 

 

 

For the six months ended December 31,  2018   2017 
Realized gain (loss) on marketable securities  $522,000   $(119,000)
Unrealized (loss) gain on marketable securities   (2,202,000)   673,000 
Unrealized loss on marketable securities related to Comstock   (462,000)   (2,754,000)
Net loss on marketable securities  $(2,142,000)  $(2,200,000)

 

NOTE 6 – OTHER INVESTMENTS, NET

 

The Company may also invest, with the approval of the securities investment committee and other Company guidelines, in private investment equity funds and other unlisted securities, such as convertible notes through private placements. 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. Other investments also include non-marketable warrants carried at fair value.

 

Other investments, net consist of the following:

 

Type  December 31, 2018   June 30, 2018 
Private equity hedge fund, at cost  $474,000   $554,000 
Other preferred stock, at cost   259,000    259,000 
   $733,000   $813,000 

 

NOTE 7 - FAIR VALUE MEASUREMENTS

 

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 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  12/31/2018   6/30/2018 
  Total - Level 1   Total - Level 1 
Assets:        
Investment in marketable securities:          
REITs and real estate companies  $1,664,000   $4,300,000 
Corporate Bonds   2,415,000    2,282,000 
Energy   774,000    311,000 
Technology   656,000    1,813,000 
Healthcare   653,000    1,777,000 
Industrials   519,000    404,000 
Basic material   496,000    1,038,000 
Communications   -    1,071,000 
Other   409,000    845,000 
   $7,586,000   $13,841,000 

 

 - 14 - 

 

 

The fair values of investments in marketable securities are determined by the most recently traded price of each security at the balance sheet date.

 

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   December 31, 2018   Net loss for the six months
ended December 31, 2018
 
                
Other non-marketable investments  $733,000   $733,000   $- 

 

           Net loss for the six months 
Assets  Level 3   June 30, 2018   ended December 31, 2017 
                
Other non-marketable investments  $813,000   $813,000   $- 

 

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 and holds less than 20% ownership in each of the 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.

 

NOTE 8 – CASH, CASH EQUIVALENTS AND RESTRICTED CASH

 

The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported within the condensed consolidated balance sheets that sum to the total of the same such amounts shown in the condensed consolidated statement of cash flows.

 

As of  12/31/2018   6/30/2018 
         
Cash and cash equivalents  $8,978,000   $8,053,000  
Restricted cash   10,551,000    9,458,000 
Total cash, cash equivalents, and restricted cash
shown in the condensed consolidated statement of cash flows
  $19,529,000   $17,511,000  

 

Restricted cash is comprised of amounts held by lenders for payment of real estate taxes, insurance, replacement and capital addition reserves. It also includes key money received from Interstate that is restricted for capital improvements for the Hotel.

 

NOTE 9 – STOCK BASED COMPENSATION PLANS

 

The Company follows Accounting Standard Codification (ASC) Topic 718 “Compensation – Stock Compensation”, which addresses accounting for equity-based compensation arrangements, including employee stock options and restricted stock units.

 

Please refer to Note 16 – Stock Based Compensation Plans in the Company's Form 10-K for the year ended June 30, 2018 for more detailed information on the Company’s stock-based compensation plans.

 

During the three months ended December 31, 2018 and 2017, the Company recorded stock option compensation cost of $29,000 and $60,000, respectively, related to stock options that were previously issued. During the six months ended December 31, 2018 and 2017, the Company recorded stock option compensation cost of $59,000 and $122,000, respectively, related to stock options that were previously issued. As of December 31, 2018, there was a total of $61,000 of unamortized compensation related to stock options which is expected to be recognized over the weighted-average period of 3.17 years.

 

 - 15 - 

 

 

In December 2018, the Company’s President and Chief Executive Officer (CEO), John V. Winfield exercised 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.

 

Option-pricing models require the input of various subjective assumptions, including the option’s expected life 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, 2017 through December 31, 2018:

 

      Number of   Weighted Average   Weighted Average  Aggregate 
      Shares   Exercise Price   Remaining Life  Intrinsic Value 
                   
Oustanding at  July 1, 2017   368,000   $17.21   5.17 years  $3,046,000 
Granted      -    -         
Exercised      -    -         
Forfeited      -    -         
Exchanged      -    -         
Outstanding at  June 30, 2018   368,000   $17.21   4.17 years  $3,505,000 
Exercisable at  June 30, 2018   318,000   $16.47   3.79 years  $3,257,000 
Vested and Expected to vest at  June 30, 2018   368,000   $17.21   4.17 years  $3,505,000 
                      
Oustanding at  July 1, 2018   368,000   $17.21   4.17 years  $3,505,000 
Granted      -    -         
Exercised      (26,805)   20.52         
Forfeited      -    -         
Exchanged                     
Outstanding at  December 31, 2018   341,195   $16.95   3.57 years  $5,195,000 
Exercisable at  December 31, 2018   326,795   $16.50   3.36 years  $5,125,000 
Vested and Expected to vest at  December 31, 2018   341,195   $16.95   3.57 years  $5,195,000 

 

NOTE 10 – 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 three and six months ended December 31, 2018 and 2017. Operating income from hotel operations consist of the operation of the hotel and operation of the garage. Operating income for rental properties consist of rental income. Operating loss for investment transactions consist of net investment gain (loss), impairment loss on other investments, net unrealized gain (loss) on other investments, dividend and interest income and trading and margin interest expense. The other segment consists of corporate general and administrative expenses and the income tax expense for the entire Company.

 

 - 16 - 

 

 

As of and for the three months  Hotel   Real Estate   Investment         
ended December 31, 2018  Operations   Operations   Transactions   Corporate   Total 
Revenues  $13,997,000   $3,752,000   $-   $-   $17,749,000 
Segment operating expenses   (11,236,000)   (1,866,000)   -    (479,000)   (13,581,000)
Segment income (loss) from operations   2,761,000    1,886,000    -    (479,000)   4,168,000 
Interest expense - mortgage   (1,797,000)   (608,000)   -    -    (2,405,000)
Depreciation and amortization expense   (643,000)   (606,000)   -    -    (1,249,000)
Loss from investments   -    -    (2,076,000)   -    (2,076,000)
Income tax benefit   -    -    -    440,000    440,000 
Net income (loss)  $321,000   $672,000   $(2,076,000)  $(39,000)  $(1,122,000)
Total assets  $58,380,000   $52,562,000   $8,319,000   $6,143,000   $125,404,000 

 

For the three months  Hotel   Real Estate   Investment         
ended December 31, 2017  Operations   Operations   Transactions   Corporate   Total 
Revenues  $13,187,000   $3,625,000   $-   $-   $16,812,000 
Segment operating expenses   (10,743,000)   (2,102,000)   -    (730,000)   (13,575,000)
Segment income (loss) from operations   2,444,000    1,523,000    -    (730,000)   3,237,000 
Interest expense - mortgage   (1,850,000)   (640,000)   -    -    (2,490,000)
Depreciation and amortization expense   (682,000)   (585,000)   -    -    (1,267,000)
Loss from investments   -    -    (1,643,000)   -    (1,643,000)
Income tax expense   -    -    -    (344,000)   (344,000)
Net income (loss)  $(88,000)  $298,000   $(1,643,000)  $(1,074,000)  $(2,507,000)

 

As of and for the six months  Hotel   Real Estate   Investment         
ended December 31, 2018  Operations   Operations   Transactions   Corporate   Total 
Revenues  $29,807,000   $7,431,000   $-   $-   $37,238,000 
Segment operating expenses   (22,046,000)   (3,878,000)   -    (1,122,000)   (27,046,000)
Segment income (loss) from operations   7,761,000    3,553,000    -    (1,122,000)   10,192,000 
Interest expense - mortgage   (3,611,000)   (1,359,000)   -    -    (4,970,000)
Depreciation and amortization expense   (1,285,000)   (1,207,000)   -    -    (2,492,000)
Loss from investments   -    -    (2,454,000)   -    (2,454,000)
Income tax expense   -    -    -    (270,000)   (270,000)
Net income (loss)  $2,865,000   $987,000   $(2,454,000)  $(1,392,000)  $6,000 
Total assets  $58,380,000   $52,562,000   $8,319,000   $6,143,000   $125,404,000 

 

For the six months  Hotel   Real Estate   Investment         
ended December 31, 2017  Operations   Operations   Transactions   Corporate   Total 
Revenues  $27,624,000   $7,302,000   $-   $-   $34,926,000 
Segment operating expenses   (21,332,000)   (3,997,000)   -    (1,561,000)   (26,890,000)
Segment income (loss) from operations   6,292,000    3,305,000    -    (1,561,000)   8,036,000 
Interest expense - mortgage   (3,703,000)   (1,280,000)   -    -    (4,983,000)
Depreciation and amortization expense   (1,381,000)   (1,160,000)   -    -    (2,541,000)
Loss from investments   -    -    (2,895,000)   -    (2,895,000)
Income tax expense   -    -    -    (419,000)   (419,000)
Net income (loss)  $1,208,000   $865,000   $(2,895,000)  $(1,980,000)  $(2,802,000)

 

 - 17 - 

 

 

NOTE 11 – RELATED PARTY AND OTHER FINANCING TRANSACTIONS

 

On July 2, 2014, the Partnership obtained from the Company 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 current loan balance of $3,000,000 was extended to June 30, 2019. During the fiscal year ended June 30, 2018, the Partnership made principal paydown of $1,250,000.

 

The balance of related party note payable at December 31, 2018 includes obligation to Hilton (Franchisor) in the form of 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. The outstanding balance of the note as of December 31, 2018 and June 30, 2018, was $3,483,000 and $3,642,000, respectively.

 

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. The $2,000,000 is included in restricted cash and related party note payable balances in the condensed consolidated balance sheets as of December 31, 2018 and June 30, 2018.

 

In April 2017, Portsmouth obtained from InterGroup an unsecured short-term loan in the amount of $1,000,000 at 5% per year fixed interest, with a term of five months and maturing September 6, 2017. On September 1st 2017, the short-term loan was extended to September 15, 2017 and paid off on September 13, 2017.

 

As of December 31, 2018, the Company had capital lease obligations outstanding of $1,243,000. These capital leases expire in various years through 2023 at rates ranging from 5.77% to 6.53% per annum. Minimum future lease payments for assets under capital leases as of December 31, 2018 are as follows:

 

For the year ending June 30,    
2019  $168,000 
2020   384,000 
2021   384,000 
2022   376,000 
2023   77,000 
Total minimum lease payments   1,389,000 
Less interest on capital lease   (146,000)
Present value of future minimum lease payments  $1,243,000 

 

Future minimum principal payments for all related party and other financing transactions are as follows:

 

For the year ending June 30,    
2019  $504,000 
2020   3,918,000 
2021   913,000 
2022   927,000 
2023   641,000 
Thereafter   2,875,000 
   $9,778,000 

 

 - 18 - 

 

 

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 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 Los Angeles, California and is 55.4% and 44.6% owned by Santa Fe and the Company, respectively. 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 are due in July 2019. The $2,969,000 mortgage due to InterGroup carries same terms as InterGroup’s RLOC.

 

Effective May 12, 2017, InterGroup agreed to become an additional guarantor under the limited guaranty and an additional indemnitor under environmental indemnity for Justice Investors limited partnership’s $97,000,000 mortgage loan and the $20,000,000 mezzanine loan, in order to maintain certain minimum net worth and liquidity guarantor covenant requirements that Portsmouth was unable to satisfy independently as of March 31, 2017.

 

In connection with the redemption of the limited partnership interest 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 the partnership interests, refinancing of the Justices 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 December 31, 2018, $200,000 of these fees remain payable and are included in related party and other notes payable on the accompanying condensed consolidated balance sheets.

 

As of September 30, 2017, Justice had an outstanding accounts payable balance to InterGroup for $116,000 for management of the Hotel from June to December of 2016. The balance was paid in full as of December 31, 2017.

 

Four of the Portsmouth directors serve as directors of InterGroup. Three of those directors also serve as directors of Santa Fe. The three Santa Fe directors also serve as directors of InterGroup.

 

As Chairman of the 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. 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.

 

Item 2 - MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

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,” “will”, “would” and similar expressions, are intended to identify forward-looking statements. These statements are subject to certain risks and uncertainties, such as 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 and securities markets, energy and fuel costs, natural disasters, general economic conditions and competition in the hotel industry in the San Francisco area, seasonality, labor relations and labor disruptions, actual and threatened pandemics such as swine flu, 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 ended June 30, 2018, that 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.

 

 - 19 - 

 

 

RESULTS OF OPERATIONS

 

As of December 31, 2018, the Company owned approximately 81.9% 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 13.4% of the common shares of Portsmouth. The Company's principal source of revenue continues to be derived from the general and limited partnership interests of its subsidiary, Portsmouth, in the Justice Investors limited partnership (“Justice” or the “Partnership”) inclusive of hotel room revenue, food and beverage revenue, garage revenue, and revenue from other operating departments. The Company also generates income from its investments in real estate properties and from investment of its cash and securities assets. Justice owns the Hotel 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 Franchise License Agreement (the “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 opening date, 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. The key money cash incentives were received on July 1, 2015.

 

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 HMA is for an initial period of ten 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 parking garage that is part of the Hotel property was managed by Ace Parking pursuant to a contract with the Partnership. The contract was terminated with an effective termination date of October 4, 2016. The Company began managing the parking garage in-house after the termination of Ace Parking. Effective February 3, 2017, Interstate took over the management of the parking garage along with the Hotel.

 

In addition to the operations of the Hotel, the Company also generates income from the ownership and management 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 throughout the United States, but are concentrated in Texas and Southern 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 and will consider other investments if such investments offer growth or profit potential.

 

Three Months Ended December 31, 2018 Compared to the Three Months Ended December 31, 2017

 

The Company had a net loss of $1,122,000 for the three months ended December 31, 2018 compared to net loss of $2,507,000 for the three months ended December 31, 2017. The change is primarily attributable to increased revenue from Hotel operations.

 

Hotel Operations

 

The Company had net income from Hotel operations of $321,000 for the three months ended December 31, 2018 compared to net loss of $88,000 for the three months ended December 31, 2017. The change from net loss to net income is primarily due to increased room revenue.

 

The following table sets forth a more detailed presentation of Hotel operations for the three months ended December 31, 2018 and 2017.

 

 - 20 - 

 

 

For the three months ended December 31,  2018   2017 
Hotel revenues:          
Hotel rooms  $11,565,000   $10,710,000 
Food and beverage   1,565,000    1,614,000 
Garage   734,000    735,000 
Other operating departments   133,000    128,000 
Total hotel revenues   13,997,000    13,187,000 
Operating expenses excluding depreciation and amortization   (11,236,000)   (10,743,000)
Operating income before interest, depreciation and amortization   2,761,000    2,444,000 
Interest expense - mortgage   (1,797,000)   (1,850,000)
Depreciation and amortization expense   (643,000)   (682,000)
Net income (loss) from Hotel operations  $321,000   $(88,000)

 

For the three months ended December 31, 2018, the Hotel had operating income of $2,761,000 before interest expense, depreciation and amortization on total operating revenues of $13,997,000 compared to operating income of $2,444,000 before interest expense, depreciation and amortization on total operating revenues of $13,187,000 for the three months ended December 31, 2017. Room revenues increased by $855,000 for the three months ended December 31, 2018 compared to the three months ended December 31, 2017 due to our change in strategy to limit midweek group business in order to capture higher rate transient occupancy and to grow occupancy on shoulder dates with group rooms. Food and beverage revenue decreased by $49,000 as a result of limiting midweek group business. Revenue from garage and other operating departments remained relatively consistent year over year.

 

Total operating expenses increased by $493,000 this quarter primarily due to increase in group commission, management fees, and increased labor costs as a result of increased occupancy.

 

The following table sets forth the average daily room rate, average occupancy percentage and RevPAR of the Hotel for the three months ended December 31, 2018 and 2017.

 

Three Months

Ended December 31,

 

Average

Daily Rate

  

Average

Occupancy %

  

 

RevPAR

 
             
2018  $239    97%  $232 
2017  $240    89%  $212 

 

The Hotel’s revenues increased by 6.1% this quarter as compared to the previous comparable quarter. Average daily rate decreased by $1, average occupancy increased from 89% to 97%, and RevPAR increased by $20 for the three months ended December 31, 2018 compared to the three months ended December 31, 2017.

 

Real Estate Operations

 

Net income from real estate operations for the three months ended December 31, 2018 increased by $374,000 compare to the three months ended December 31, 2017 due to reduction in real estate taxes and increase in revenue as a result of increased occupancy. All of 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 $1,971,000 for the three months ended December 31, 2018 compared to a net loss on marketable securities of $1,178,000 for the three months ended December 31, 2017. For the three months ended December 31, 2018, the Company had a net realized gain of $530,000 and a net unrealized loss of $2,501,000. For the three months ended December 31, 2017, the Company had a net realized gain of $181,000 and a net unrealized loss of $1,359,000. Gains and losses on marketable securities may fluctuate significantly from period to period in the future and could have a significant impact on the Company’s results of operations. However, the amount of gain or loss on marketable securities for any given period may have no predictive value and variations in amount from period to period may have no analytical value. For a more detailed description of the composition of the Company’s marketable securities see the Marketable Securities section below.

 - 21 - 

 

 

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 (expense) during the three months ended December 31, 2018 and 2017 represents primarily the income tax effect of the pretax loss at InterGroup and the pretax loss of Portsmouth which includes its share in net income of the Hotel.

 

Six Months Ended December 31, 2018 Compared to the Six Months Ended December 31, 2017

 

The Company had a net income of $6,000 for the six months ended December 31, 2018 compared to net loss of $2,802,000 for the six months ended December 31, 2017. The change is primarily attributable to increased revenue from Hotel operations.

 

Hotel Operations

 

Net income from Hotel operations was $2,865,000 for the six months ended December 31, 2018 compared to net income of $1,208,000 for the six months ended December 31, 2017. The increase in net income is primarily due to increase in revenue.

 

The following table sets forth a more detailed presentation of Hotel operations for the six months ended December 31, 2018 and 2017.

 

For the six months ended December 31,  2018   2017 
Hotel revenues:          
Hotel rooms  $25,087,000   $22,552,000 
Food and beverage   3,014,000    3,373,000 
Garage   1,508,000    1,516,000 
Other operating departments   198,000    183,000 
Total hotel revenues   29,807,000    27,624,000 
Operating expenses excluding depreciation and amortization   (22,046,000)   (21,332,000)
Operating income before interest, depreciation and amortization   7,761,000    6,292,000 
Interest expense - mortgage   (3,611,000)   (3,703,000)
Depreciation and amortization expense   (1,285,000)   (1,381,000)
Net income from Hotel operations  $2,865,000   $1,208,000 

 

For the six months ended December 31, 2018, the Hotel had operating income of $7,761,000 before interest, depreciation and amortization on total operating revenues of $29,807,000 compared to operating income of $6,292,000 before interest, depreciation and amortization on total operating revenues of $27,624,000 for the six months ended December 31, 2017.  Room revenues increased by $2,535,000 for the six months ended December 31, 2018 compared to the six months ended December 31, 2017 primarily as the result of taking the right amount of group business with ancillary spending while growing higher rated transient segments. Food and beverage revenue decreased by $359,000 as the result of fewer in-house banquet events. Garage revenue remained relatively consistent year over year. Revenue from other operating departments increased by $15,000 as a result of collecting forfeited deposits.

 

Total operating expenses increased by $714,000 for the six months ended December 31, 2018 as compared to the six months ended December 31, 2017 primarily due to increased group commission, franchise fees, as well as management 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 six months ended December 31, 2018 and 2017.

 

Six months

Ended December 31,

 

Average

Daily Rate

  

Average

Occupancy %

  

 

RevPAR

 
             
2018  $258    97%  $250 
2017  $247    91%  $225 

 

 - 22 - 

 

 

The Hotel’s total revenues increased by 11.2% for the six months ended December 31, 2018 as compared to the six months ended December 31, 2017. Average daily rate increased by $11 and RevPAR increased by $25 for the six months ended December 31, 2018 compared to the six months ended December 31, 2017. Average occupancy increased by 6% during the six months ended December 31, 2018 versus the comparable period.

 

Real Estate Operations

 

Net income from real estate operations for the six months ended December 31, 2018 increased by $122,000 compare to the six months ended December 31, 2017 due to reduction in salary expense and increase in revenue as a result of increased occupancy. All of 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 $2,142,000 for the six months ended December 31, 2018 compared to a net loss on marketable securities of $2,200,000 for the six months ended December 31, 2017. For the six months ended December 31, 2018, the Company had a net realized gain of $522,000 and a net unrealized loss of $2,664,000. For the six months ended December 31, 2017, the Company had a net realized loss of $119,000 and a net unrealized loss of $2,081,000. Gains and losses on marketable securities may fluctuate significantly from period to period in the future and could have a significant impact on the Company’s results of operations. However, the amount of gain or loss on marketable securities for any given period may have no predictive value and variations in amount from period to period may have no analytical value. For a more detailed description of the composition of the Company’s marketable securities see the Marketable Securities section below.

 

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 expense during the six months ended December 31, 2018 and 2017 represents primarily the income tax effect of the pretax loss at InterGroup and the pretax (income) loss of Portsmouth which includes its share in net income of the Hotel.

 

MARKETABLE SECURITIES

 

The following table shows the composition of the Company’s marketable securities portfolio as of December 31, 2018 and June 30, 2018 by selected industry groups.

 

 - 23 - 

 

 

       % of Total 
As of December 31, 2018      Investment 
Industry Group  Fair Value   Securities 
         
REIT's and real estate ompanies  $1,664,000    22.1%
Corporate Bonds   2,415,000    31.8%
Energy   774,000    10.2%
Technology   656,000    8.6%
Healthcare   653,000    8.6%
Industrials   519,000    6.8%
Basic material   496,000    6.5%
Other   409,000    5.4%
   $7,586,000    100.0%

 

       % of Total 
As of June 30, 2018      Investment 
Industry Group  Fair Value   Securities 
         
REIT's and real estate ompanies  $4,300,000    31.2%
Corporate Bonds   2,282,000    16.5%
Technology   1,813,000    13.1%
Healthcare   1,777,000    12.8%
Communications   1,071,000    7.7%
Basic material   1,038,000    7.5%
Industrials   404,000    2.9%
Energy   311,000    2.2%
Other   845,000    6.1%
   $13,841,000    100.0%

 

As of December 31, 2018, 20% of the Company’s investment in marketable securities portfolio consist of the common stock of American Realty Investors, Inc. (NYSE: ARL) which is included in the REITs and real estate companies industry group.

 

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

 

 - 24 - 

 

 

For the three months ended December 31,  2018   2017 
Net loss on marketable securities  $(1,971,000)  $(1,178,000)
Impairment loss on other investments   -    (200,000)
Dividend and interest income   88,000    48,000 
Margin interest expense   (132,000)   (162,000)
Trading and management expenses   (61,000)   (151,000)
Net loss from investment transactions  $(2,076,000)  $(1,643,000)

 

For the six months ended December 31,  2018   2017 
Net loss on marketable securities  $(2,142,000)  $(2,200,000)
Impairment loss on other investments   -    (200,000)
Dividend and interest income   185,000    131,000 
Margin interest expense   (288,000)   (352,000)
Trading and management expenses   (209,000)   (274,000)
Net loss from investment transactions  $(2,454,000)  $(2,895,000)

 

FINANCIAL CONDITION AND LIQUIDITY

 

The Company’s cash flows are primarily generated from its Hotel operations, its real estate operations, and the investment of its cash in marketable securities and other investments.

 

To fund the redemption of limited partnership interests and to repay the prior mortgage, Justice obtained a $97,000,000 mortgage loan and a $20,000,000 mezzanine loan in December of 2013. 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. Outstanding principal balance on the loan was $94,349,000 and $95,018,000 as of December 31, 2018 and June 30, 2018, respectively. As additional security for the mortgage loan, there is a limited guaranty executed by the Portsmouth in favor of the mortgage lender. The mezzanine loan is a secured by the Operating membership interest held by Mezzanine and is subordinated to the Mortgage Loan. The mezzanine loan bears interest at 9.75% per annum and matures in January 2024. As additional security for the mezzanine loan, there is a limited guaranty executed by Portsmouth in favor of the mezzanine lender. 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.

 

On July 2, 2014, the Partnership obtained from the Company 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 current loan balance of $3,000,000 was extended to June 30, 2019. During the fiscal year ended June 30, 2018, the Partnership made principal paydown of $1,250,000.

 

In April 2017, Portsmouth obtained from InterGroup an unsecured short-term loan in the amount of $1,000,000 at 5% per year fixed interest, with a term of five months and maturing September 6, 2017. On September 1st 2017, the short-term loan was extended to September 15, 2017 and paid off on September 13, 2017.

 

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 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 Los Angeles, California and is 55.4% and 44.6% owned by Santa Fe and the Company, respectively. 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 are due in July 2019. The $2,969,000 mortgage due to InterGroup carries same terms as InterGroup’s RLOC.

 

 - 25 - 

 

 

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.

 

Despite an uncertain economy, the Hotel has continued to generate positive operating income. While the debt service requirements related the loans may create some additional risk for the Company and its ability to generate cash flows in the future, management believes that cash flows from the operations of the Hotel and the garage will continue to be sufficient to meet all of the Partnership’s current and future obligations and financial requirements.

 

The Company has invested in short-term, income-producing instruments and in equity and debt securities when deemed appropriate. The Company's marketable securities are classified as trading with unrealized gains and losses recorded through the consolidated statements of operations.

 

Management believes that its cash, marketable securities, and the cash flows generated from those assets and from the partnership management fees, will be adequate to meet the Company’s current and future obligations. Additionally, management believes there is significant appreciated value in the Hotel property to support additional borrowings, if necessary.

 

OFF-BALANCE SHEET ARRANGEMENTS

 

The Company has no off balance sheet arrangements.

 

MATERIAL CONTRACTUAL OBLIGATIONS

 

The following table provides a summary as of December 31, 2018, the Company’s material financial obligations which also includes interest payments.

 

       6 Months   Year   Year   Year   Year     
   Total   2019   2020   2021   2022   2023   Thereafter 
Mortgage and subordinated notes payable  $173,972,000   $1,508,000   $3,061,000   $12,490,000   $3,102,000   $37,820,000   $115,991,000 
Other notes payable   9,778,000    504,000    3,918,000    913,000    927,000    641,000    2,875,000 
Interest   45,160,000    4,635,000    9,508,000    9,132,000    8,644,000    7,636,000    5,605,000 
Total  $228,910,000   $6,647,000   $16,487,000   $22,535,000   $12,673,000   $46,097,000   $124,471,000 

 

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 the Company 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.

 

 - 26 - 

 

 

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 ended December 31, 2018 except for the adoption of ASU 2016-18 and ASC 606. Please refer to the Company’s Annual Report on Form 10-K for the year ended June 30, 2018 for a summary of the critical accounting policies.

 

Item 3. Quantitative and Qualitative Disclosures about Market Risk

 

We are a smaller reporting company and therefore, we are not required to provide information required by this Item of Form 10-Q.

 

Item 4. 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) and 15d-15(e) under the Exchange Act) as of the end of the quarterly period covered by this Quarterly Report on Form 10-Q. Based upon such evaluation and on the material weakness noted below, the Chief Executive Officer and Principal Financial Officer have concluded that, as of the end of such period, the Company’s disclosure controls and procedures are not 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.

 

CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING

 

As stated in the Company’s Annual Report on Form 10-K for the year ended June 30, 2017, we identified a material weakness in internal control over financial reporting related to our deferred income taxes and income tax expense during the fourth quarter of fiscal 2017. During the quarter ended September 30, 2017, we hired a new tax CPA specialist to perform a detailed analysis which was completed for the year ended June 30, 2017. We also assigned our audit committee with oversight responsibilities for the process. The material weakness related to tax provision preparation had not been remediated in fiscal year 2018. While significant progress was made as of June 30, 2018, these controls were not operating completely effectively. The Company has taken further steps, including increased scrutiny over the tax provision preparation process, to remediate the material weakness and improved its internal control over financial reporting during the six months ended December 31, 2018.

 

PART II.

OTHER INFORMATION

 

Item 1. LEGAL PROCEEDINGS

 

During the period ending December 31, 2018, there were pending or threatened legal actions as follows:

 

NONE

 

Item 1A. RISK FACTORS

 

As a smaller reporting company, we are not required to provide the information required by this Item.

 

Item 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

 

There have been no events that are required to be reported under this Item.

 

 - 27 - 

 

 

Item 3. DEFAULTS UPON SENIOR SECURITIES

 

There have been no events that are required to be reported under this Item.

 

Item 4. MINE SAFETY DISCLOSURES

 

There have been no events that are required to be reported under this Item.

 

Item 5. OTHER INFORMATION

 

There have been no events that are required to be reported under this Item.

 

Item 6. EXHIBITS

 

31.1   Certification of Principal Executive Officer of Periodic Report Pursuant to Rule 13a-14(a) and Rule 15d-14(a).
     
31.2   Certification of Principal Financial Officer of Periodic Report Pursuant to Rule 13a-14(a) and Rule 15d-14(a).
     
32.1   Certification of Principal Executive Officer Pursuant to 18 U.S.C. Section 1350.
     
32.2   Certification of Principal Financial Officer Pursuant to 18 U.S.C. Section 1350.

 

101.INS   XBRL Instance Document
     
101.SCH   XBRL Taxonomy Extension Schema
     
101.CAL   XBRL Taxonomy Extension Calculation Linkbase
     
101.DEF   XBRL Taxonomy Extension Definition Linkbase
     
101.LAB   XBRL Taxonomy Extension Label Linkbase
     
101.PRE   XBRL Taxonomy Extension Presentation Linkbase

 

SIGNATURES

 

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.

 

  THE INTERGROUP CORPORATION
  (Registrant)
     
Date: February 1, 2019 by /s/ John V. Winfield
    John V. Winfield
    President, Chairman of the Board and
    Chief Executive Officer
   

(Principal Executive Officer)

 

Date: February 1, 2019 by /s/ Danfeng Xu
    Danfeng Xu
    Treasurer and Controller
    (Principal Financial Officer)

 

 - 28 - 

 

EXHIBIT 31.1

CERTIFICATION

 

I, John V. Winfield, certify that:

 

1. I have reviewed this Quarterly Report on Form 10-Q of The InterGroup Corporation;

 

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: February 1, 2019

 

/s/ John V. Winfield                                 

John V. Winfield

President and Chief Executive Officer

(Principal Executive Officer)

 

 

 

EXHIBIT 31.2

CERTIFICATION

 

I, Danfeng Xu, certify that:

 

1. I have reviewed this Quarterly Report on Form 10-Q of The InterGroup Corporation;

 

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: February 1, 2019

 

/s/ Danfeng Xu                        

Danfeng Xu

Treasurer and Controller

(Principal Financial Officer)

 

 

EXHIBIT 32.1

 

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

  

In connection with the Quarterly Report of The InterGroup Corporation (the "Company") on Form 10-Q for the quarter ended December 31, 2018, 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: February 1, 2019

 

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.

 

 

EXHIBIT 32.2

 

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

 

In connection with the Quarterly Report of The InterGroup Corporation (the "Company") on Form 10-Q for the quarter ended December 31, 2018, 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: February 1, 2019

 

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.

 

 

v3.10.0.1
Document And Entity Information - shares
6 Months Ended
Dec. 31, 2018
Jan. 31, 2019
Document Information [Line Items]    
Document Type 10-Q  
Amendment Flag false  
Document Period End Date Dec. 31, 2018  
Document Fiscal Year Focus 2019  
Document Fiscal Period Focus Q2  
Entity Registrant Name INTERGROUP CORP  
Entity Central Index Key 0000069422  
Current Fiscal Year End Date --06-30  
Entity Filer Category Non-accelerated Filer  
Trading Symbol INTG  
Entity Common Stock, Shares Outstanding   2,329,713
Entity Emerging Growth Company false  
Entity Small Business true  
v3.10.0.1
CONDENSED CONSOLIDATED BALANCE SHEETS - USD ($)
Dec. 31, 2018
Jun. 30, 2018
ASSETS    
Investment in hotel, net $ 40,258,000 $ 40,961,000
Investment in real estate, net 52,562,000 53,369,000
Investment in marketable securities 7,586,000 13,841,000
Other investments, net 733,000 813,000
Cash and cash equivalents 8,978,000 8,053,000
Restricted cash 10,551,000 9,458,000
Other assets, net 4,736,000 5,185,000
Total assets 125,404,000 131,680,000
Liabilities:    
Accounts payable and other liabilities 3,215,000 3,299,000
Accounts payable and other liabilities - Hotel 8,765,000 9,946,000
Due to securities broker 412,000 1,887,000
Obligations for securities sold 0 1,935,000
Related party and other notes payable 5,550,000 5,735,000
Capital leases 1,243,000 1,355,000
Line of credit payable 2,985,000 0
Mortgage notes payable - Hotel, net 113,789,000 114,372,000
Mortgage notes payable - real estate, net 59,311,000 62,873,000
Deferred tax liability 515,000 245,000
Total liabilities 195,785,000 201,647,000
Shareholders' deficit:    
Preferred stock, $.01 par value, 100,000 shares authorized; none issued 0 0
Common stock, $.01 par value, 4,000,000 shares authorized; 3,404,982 and 3,395,616 issued; 2,329,713 and 2,334,197 outstanding, respectively 33,000 33,000
Additional paid-in capital 10,550,000 10,522,000
Accumulated deficit (41,614,000) (41,217,000)
Treasury stock, at cost, 1,075,269 and 1,061,419 shares, respectively (13,732,000) (13,268,000)
Total InterGroup shareholders' deficit (44,763,000) (43,930,000)
Noncontrolling interest (25,618,000) (26,037,000)
Total shareholders' deficit (70,381,000) (69,967,000)
Total liabilities and shareholders' equity $ 125,404,000 $ 131,680,000
v3.10.0.1
CONDENSED CONSOLIDATED BALANCE SHEETS [Parenthetical] - $ / shares
Dec. 31, 2018
Jun. 30, 2018
Preferred stock, par value (in dollars per share) $ 0.01 $ 0.01
Preferred stock, shares authorized 100,000 100,000
Preferred stock , shares issued 0 0
Common stock, par value (in dollars per share) $ 0.01 $ 0.01
Common stock, shares authorized 4,000,000 4,000,000
Common stock, shares issued 3,404,982 3,395,616
Common stock, shares outstanding 2,329,713 2,334,197
Treasury stock, shares 1,075,269 1,061,419
v3.10.0.1
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS - USD ($)
3 Months Ended 6 Months Ended
Dec. 31, 2018
Dec. 31, 2017
Dec. 31, 2018
Dec. 31, 2017
Revenues:        
Total revenues $ 17,749,000 $ 16,812,000 $ 37,238,000 $ 34,926,000
Costs and operating expenses:        
Hotel operating expenses (11,236,000) (10,743,000) (22,046,000) (21,332,000)
Real estate operating expenses (1,866,000) (2,102,000) (3,878,000) (3,997,000)
Depreciation and amortization expenses (1,249,000) (1,267,000) (2,492,000) (2,541,000)
General and administrative expenses (479,000) (730,000) (1,122,000) (1,561,000)
Total costs and operating expenses (14,830,000) (14,842,000) (29,538,000) (29,431,000)
Income from operations 2,919,000 1,970,000 7,700,000 5,495,000
Other income (expense):        
Interest expense - mortgages (2,405,000) (2,490,000) (4,970,000) (4,983,000)
Net (loss) gain on marketable securities (1,945,000) 907,000 (1,680,000) 554,000
Net loss on marketable securities - Comstock (26,000) (2,085,000) (462,000) (2,754,000)
Impairment loss on other investments 0 (200,000) 0 (200,000)
Dividend and interest income 88,000 48,000 185,000 131,000
Trading and margin interest expense (193,000) (313,000) (497,000) (626,000)
Total other expense, net (4,481,000) (4,133,000) (7,424,000) (7,878,000)
Income (loss) before income taxes (1,562,000) (2,163,000) 276,000 (2,383,000)
Income tax benefit (expense) 440,000 (344,000) (270,000) (419,000)
Net income (loss) (1,122,000) (2,507,000) 6,000 (2,802,000)
Less: Net (income) loss attributable to the noncontrolling interest 95,000 1,302,000 (403,000) 1,185,000
Net loss attributable to InterGroup Corporation $ (1,027,000) $ (1,205,000) $ (397,000) $ (1,617,000)
Net income (loss) per share        
Basic and diluted $ (0.48) $ (1.06)    
Basic     $ 0.003 $ (1.18)
Diluted     0.002 (1.18)
Net loss per share attributable to InterGroup Corporation        
Basic and diluted $ (0.44) $ (0.51) $ (0.17) $ (0.68)
Weighted average number of basic common shares outstanding     2,330,213 2,371,445
Weighted average number of diluted common shares outstanding 2,327,007 2,371,125 2,657,008 2,371,445
Hotel [Member]        
Revenues:        
Total revenues $ 13,997,000 $ 13,187,000 $ 29,807,000 $ 27,624,000
Real Estate [Member]        
Revenues:        
Total revenues $ 3,752,000 $ 3,625,000 $ 7,431,000 $ 7,302,000
v3.10.0.1
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' DEFICIT - USD ($)
Total
Common Stock [Member]
Additional Paid-in Capital [Member]
Accumulated Deficit [Member]
Treasury Stock [Member]
InterGroup Shareholders' Deficit [Member]
Noncontrolling Interest [Member]
Beginning Balance at Jun. 30, 2017 $ (75,318,000) $ 33,000 $ 10,346,000 $ (45,298,000) $ (12,626,000) $ (47,545,000) $ (27,773,000)
Beginning Balance (in shares) at Jun. 30, 2017   3,395,616          
Net (loss) Income (295,000) $ 0 0 (412,000) 0 (412,000) 117,000
Stock options expense 62,000 0 62,000 0 0 62,000 0
Ending Balance at Sep. 30, 2017 (75,551,000) $ 33,000 10,408,000 (45,710,000) (12,626,000) (47,895,000) (27,656,000)
Ending Balance (in shares) at Sep. 30, 2017   3,395,616          
Beginning Balance at Jun. 30, 2017 (75,318,000) $ 33,000 10,346,000 (45,298,000) (12,626,000) (47,545,000) (27,773,000)
Beginning Balance (in shares) at Jun. 30, 2017   3,395,616          
Net (loss) Income (2,802,000)            
Ending Balance at Dec. 31, 2017 (78,107,000) $ 33,000 10,468,000 (46,915,000) (12,735,000) (49,149,000) (28,958,000)
Ending Balance (in shares) at Dec. 31, 2017   3,395,616          
Beginning Balance at Sep. 30, 2017 (75,551,000) $ 33,000 10,408,000 (45,710,000) (12,626,000) (47,895,000) (27,656,000)
Beginning Balance (in shares) at Sep. 30, 2017   3,395,616          
Net (loss) Income (2,507,000) $ 0 0 (1,205,000) 0 (1,205,000) (1,302,000)
Stock options expense 60,000 0 60,000 0 0 60,000 0
Purchase of treasury stock (109,000) 0 0 0 (109,000) (109,000) 0
Ending Balance at Dec. 31, 2017 (78,107,000) $ 33,000 10,468,000 (46,915,000) (12,735,000) (49,149,000) (28,958,000)
Ending Balance (in shares) at Dec. 31, 2017   3,395,616          
Beginning Balance at Jun. 30, 2018 (69,967,000) $ 33,000 10,522,000 (41,217,000) (13,268,000) (43,930,000) (26,037,000)
Beginning Balance (in shares) at Jun. 30, 2018   3,395,616          
Net (loss) Income 1,128,000 $ 0 0 630,000 0 630,000 498,000
Stock options expense 30,000 0 30,000 0 0 30,000 0
Purchase of treasury stock (198,000) 0 0 0 (198,000) (198,000) 0
Ending Balance at Sep. 30, 2018 (69,007,000) $ 33,000 10,552,000 (40,587,000) (13,466,000) (43,468,000) (25,539,000)
Ending Balance (in shares) at Sep. 30, 2018   3,395,616          
Beginning Balance at Jun. 30, 2018 (69,967,000) $ 33,000 10,522,000 (41,217,000) (13,268,000) (43,930,000) (26,037,000)
Beginning Balance (in shares) at Jun. 30, 2018   3,395,616          
Net (loss) Income 6,000            
Ending Balance at Dec. 31, 2018 (70,381,000) $ 33,000 10,550,000 (41,614,000) (13,732,000) (44,763,000) (25,618,000)
Ending Balance (in shares) at Dec. 31, 2018   3,404,982          
Beginning Balance at Sep. 30, 2018 (69,007,000) $ 33,000 10,552,000 (40,587,000) (13,466,000) (43,468,000) (25,539,000)
Beginning Balance (in shares) at Sep. 30, 2018   3,395,616          
Issuance of stock for compensation 0 $ 0 0 0 0 0 0
Issuance of stock for compensation (in shares)   9,366          
Net (loss) Income (1,122,000) $ 0 0 (1,027,000) 0 (1,027,000) (95,000)
Stock options expense 29,000 0 29,000 0 0 29,000 0
Investment in Santa Fe (15,000) 0 (31,000) 0 0 (31,000) 16,000
Purchase of treasury stock (266,000) 0 0 0 (266,000) (266,000) 0
Ending Balance at Dec. 31, 2018 $ (70,381,000) $ 33,000 $ 10,550,000 $ (41,614,000) $ (13,732,000) $ (44,763,000) $ (25,618,000)
Ending Balance (in shares) at Dec. 31, 2018   3,404,982          
v3.10.0.1
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - USD ($)
6 Months Ended
Dec. 31, 2018
Dec. 31, 2017
Cash flows from operating activities:    
Net income (loss) $ 6,000 $ (2,802,000)
Adjustments to reconcile net loss to net cash provided by operating activities:    
Depreciation and amortization 2,461,000 2,597,000
Deferred taxes 270,000 419,000
Net unrealized loss on marketable securities 2,664,000 2,081,000
Impairment loss on other investments 0 200,000
Stock compensation expense 59,000 122,000
Changes in operating assets and liabilities:    
Investment in marketable securities 3,591,000 1,887,000
Other assets 449,000 290,000
Accounts payable and other liabilities (1,265,000) (939,000)
Due to securities broker (1,475,000) (220,000)
Obligations for securities sold (1,935,000) (1,639,000)
Net cash provided by operating activities 4,825,000 1,996,000
Cash flows from investing activities:    
Payments for hotel investments (583,000) (109,000)
Payments for real estate investments (399,000) (578,000)
Payments for investment in Santa Fe (15,000) 0
Proceeds from other investments 80,000 48,000
Net cash used in investing activities (917,000) (639,000)
Cash flows from financing activities:    
Net payments of mortgage and other notes payable (4,411,000) (1,526,000)
Proceeds from line of credit 2,985,000 0
Purchase of treasury stock (464,000) (109,000)
Net cash used in financing activities (1,890,000) (1,635,000)
Net increase (decrease) in cash, cash equivalents and restricted cash 2,018,000 (278,000)
Cash, cash equivalents and restricted cash at the beginning of the period 17,511,000 10,273,000
Cash, cash equivalents and restricted cash at the end of the period 19,529,000 9,995,000
Supplemental information:    
Interest paid 5,081,000 5,336,000
Taxes paid $ 265,000 $ 489,000
v3.10.0.1
BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
6 Months Ended
Dec. 31, 2018
Accounting Policies [Abstract]  
Basis of Presentation and Significant Accounting Policies [Text Block]
NOTE 1. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
 
The condensed consolidated financial statements included herein have been prepared by The InterGroup Corporation (“InterGroup” or the “Company”), without audit, according to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in the condensed consolidated financial statements prepared in accordance with generally accepted accounting principles (U.S. GAAP) have been condensed or omitted pursuant to such rules and regulations, although the Company believes the disclosures that are made are adequate to make the information presented not misleading. Further, the condensed consolidated financial statements reflect, in the opinion of management, all adjustments (which included only normal recurring adjustments) necessary for a fair statement of the financial position, cash flows and results of operations as of and for the periods indicated. It is suggested that these financial statements be read in conjunction with the audited financial statements of InterGroup and the notes therein included in the Company's Annual Report on Form 10-K for the year ended June 30, 2018. The December 31, 2018 Condensed Consolidated Balance Sheet was derived from the Company’s Form 10-K for the year ended June 30, 2018.
 
The results of operations for the six months ended December 31, 2018 are not necessarily indicative of results to be expected for the full fiscal year ending June 30, 2019.
 
Basic and diluted loss per share is computed by dividing net loss available to common stockholders by the weighted average number of common shares outstanding. The computation of diluted income per share is similar to the computation of basic earnings 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. The Company's only potentially dilutive common shares are stock options.
 
As of December 31, 2018, the Company had the power to vote 85.9% 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 4% interest in the common stock in Santa Fe owned by the Company’s Chairman and President pursuant to a voting trust agreement entered into on June 30, 1998.
 
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’s primary business is conducted through its general and limited partnership interest in Justice Investors Limited Partnership; a California limited partnership (“Justice” or the “Partnership”). InterGroup also directly owns approximately 13.4% of the common stock of Portsmouth.
 
Justice, through its subsidiaries Justice Operating Company, LLC (“Operating”), Justice Mezzanine Company, LLC (“Mezzanine”) and Kearny Street Parking, LLC (“Parking”) owns 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 and Parking are both wholly-owned subsidiaries 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 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 on the HMA, base management fee payable to Interstate shall be one and seven-tenths percent (1.70%) of total Hotel revenue.
 
The Company began managing the parking garage that is part of the Hotel in-house in 2016. Effective February 3, 2017, Interstate took over the management of the parking garage along with the Hotel.
 
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 Dallas, Texas and Southern California. The Company also has an investment in unimproved real property. As of December 31, 2018, all of the Company’s residential and commercial rental properties are managed in-house.
 
Due to Securities Broker
 
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.
 
Obligations 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 condensed consolidated statements of operations.
 
Income Tax
 
The Company consolidates Justice (“Hotel”) for financial reporting purposes and is not taxed on its non-controlling interest in the Hotel. The income tax expense during the six months ended December 31, 2018 and 2017
represents primarily the income tax effect of the pretax loss at InterGroup and the pretax income of Portsmouth which includes its share in net income of the Hotel. For the quarter ended
December 31, 2017, a provisional net charge of $879,000 was included in the income tax expense as a result of reducing our deferred tax asset to the lower federal base rate of 21%.
 
Financial Condition and Liquidity
 
The Company’s cash flows are primarily generated from the ownership and management of real estate.
 
To fund the redemption of limited partnership interests and to repay the prior mortgage of $42,940,000, Justice obtained a $97,000,000 mortgage loan and a $20,000,000 mezzanine loan. 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 with interest only payments due through January 2017. Beginning in February 2017, the loan began to amortize over a thirty-year period through its maturity date of January 2024. Outstanding principal balance on the loan was $94,349,000 and $95,018,000 as of December 31, 2018 and June 30, 2018, respectively. As additional security for the mortgage loan, there is a limited 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 interest only loan bears interest at 9.75% per annum and matures in January 2024. As additional security for the mezzanine loan, there is a limited guaranty executed by Portsmouth in favor of the mezzanine lender.
 
Effective as of May 11, 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 December 31, 2018, InterGroup is in compliance with both requirements.
 
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 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 Los Angeles, California and is 55.4% and 44.6% owned by Santa Fe and the Company, respectively. 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 are due in July 2019. The $2,969,000 mortgage due to InterGroup carries same terms as InterGroup’s RLOC.
 
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.
 
Despite an uncertain economy, the Hotel has continued to generate positive operating income. While the debt service requirements related the loans may create some additional risk for the Company and its ability to generate cash flows in the future, management believes that cash flows from the operations of the Hotel and the garage will continue to be sufficient to meet all of the Partnership’s current and future obligations and financial requirements.
 
The Company has invested in short-term, income-producing instruments and in equity and debt securities when deemed appropriate. The Company's marketable securities are classified as trading with unrealized gains and losses recorded through the consolidated statements of operations.
 
Management believes that its cash, marketable securities, and the cash flows generated from its real estate assets, will be adequate to meet the Company’s current and future obligations. Additionally, management believes there is significant appreciated value in the Hotel property to support additional borrowings, if necessary.
 
 
The following table provides a summary as of December 31, 2018, the Company’s material financial obligations which also includes interest payments.
 
     6 Months  Year  Year  Year  Year    
  Total  2019  2020  2021  2022  2023  Thereafter 
Mortgage and subordinated notes payable $173,972,000  $1,508,000  $3,061,000  $12,490,000  $3,102,000  $37,820,000  $115,991,000 
Other notes payable  9,778,000   504,000   3,918,000   913,000   927,000   641,000   2,875,000 
Interest  45,160,000   4,635,000   9,508,000   9,132,000   8,644,000   7,636,000   5,605,000 
    Total $228,910,000  $6,647,000  $16,487,000  $22,535,000  $12,673,000  $46,097,000  $124,471,000 
 
Recently Issued and Adopted Accounting Pronouncements
 
In November 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standard Update (“ASU”) 2016-18, Restricted Cash. ASU 2016-18 requires companies to include restricted cash and restricted cash equivalents with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. Additionally, ASU 2016-18 requires a disclosure of a reconciliation between the statement of financial position and the statement of cash flows when the balance sheet includes more than one line item for cash, cash equivalents, restricted cash, and restricted cash equivalents. ASU 2016-18 is effective for reporting periods beginning after December 15, 2017, with early adoption permitted, and will be applied retrospectively to all periods presented. The Company adopted ASU 2018-16 effective July 1, 2018. The adoption of ASU 2016-18 impacted the presentation of cash flows with inclusion of restricted cash flows for each of the presented periods.
 
In May 2014, the FASB issued Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers (Topic 606) (ASU 2014-09), which amends the existing accounting standards for revenue recognition. In August 2015, the FASB issued ASU No. 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date, which delays the effective date of ASU 2014-09 by one year. The FASB also agreed to allow entities to choose to adopt the standard as of the original effective date. In March 2016, the FASB issued Accounting Standards Update No. 2016-08, Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net) (ASU 2016-08) which clarifies the implementation guidance on principal versus agent considerations. The guidance includes indicators to assist an entity in determining whether it controls a specified good or service before it is transferred to the customers. The new standard permits two methods of adoption: retrospectively to each prior reporting period presented (full retrospective method), or retrospectively with the cumulative effect of initially applying the guidance recognized at the date of initial application (the modified retrospective method). We applied the modified retrospective transition method to all contracts upon the adoption of ASU 2014-09 effective July 1, 2018. We provided the additional required disclosures, but the cumulative adjustment from our comparative periods was zero in our condensed consolidated financial statements. See Note 2.
 
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) (ASU 2016-02), which supersedes existing guidance on accounting for leases in Leases (Topic 840) and generally requires all leases, including operating leases, to be recognized in the statement of financial position as right-of-use assets and lease liabilities by lessees. The provisions of ASU 2016-02 are to be applied using a modified retrospective approach and are effective for reporting periods beginning after December 15, 2018; early adoption is permitted. We intend to adopt the standard on July 1, 2019. The Company is currently reviewing the effect of ASU No. 2016-02.
 
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, 2020. The Company is currently reviewing the effect of ASU No. 2016-13.
v3.10.0.1
REVENUE
6 Months Ended
Dec. 31, 2018
Revenue from Contract with Customer [Abstract]  
Revenue from Contract with Customer [Text Block]
NOTE 2 – REVENUE
 
On July 1, 2018, we adopted ASC 606, 
Revenue from Contracts with Customers, 
as described in Note 1, 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.
 
The following table present our hotel revenues disaggregated by revenue streams. Revenues from real estate are not affected by the new guidance.
 
For the three months ended December 31,
 
2018
 
 
2017
 
Hotel revenues:
 
 
 
 
 
 
 
 
Hotel rooms
 
$
11,565,000
 
 
$
10,710,000
 
Food and beverage
 
 
1,565,000
 
 
 
1,614,000
 
Garage
 
 
734,000
 
 
 
735,000
 
Other operating departments
 
 
133,000
 
 
 
128,000
 
Total hotel revenue
 
$
13,997,000
 
 
$
13,187,000
 
 
For the six months ended December 31,
 
2018
 
 
2017
 
Hotel revenues:
 
 
 
 
 
 
 
 
Hotel rooms
 
$
25,087,000
 
 
$
22,552,000
 
Food and beverage
 
 
3,014,000
 
 
 
3,373,000
 
Garage
 
 
1,508,000
 
 
 
1,516,000
 
Other operating departments
 
 
198,000
 
 
 
183,000
 
Total hotel revenue
 
$
29,807,000
 
 
$
27,624,000
 
 
Performance obligations
 
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.
 
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 December 31, 2018 and June 30, 2018 other than trade and other receivables, net on our Condensed Consolidated Balance Sheet. 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 Condensed Consolidated Balance Sheets. Contract liabilities increased to $1,255,000 as of December 31, 2018 from $571,000 as of June 30, 2018. The increase for the six months ended December 31, 2018 was primarily driven by deposits received from upcoming groups, partially offset by $560,000 revenue recognized that was included in the advanced deposits balance as of June 30, 2018.
 
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 and lease agreements do not extend beyond one year.
v3.10.0.1
INVESTMENT IN HOTEL, NET
6 Months Ended
Dec. 31, 2018
Real Estate [Abstract]  
Real Estate Disclosure [Text Block]
NOTE 3 – INVESTMENT IN HOTEL, NET
 
Investment in hotel consisted of the following as of:
 
 
 
 
 
 
Accumulated
 
 
Net Book
 
December 31, 2018
 
Cost
 
 
Depreciation
 
 
Value
 
 
 
 
 
 
 
 
 
 
 
Land
 
$
2,738,000
 
 
$
-
 
 
$
2,738,000
 
Furniture and equipment
 
 
29,932,000
 
 
 
(26,418,000
)
 
 
3,514,000
 
Building and improvements
 
 
64,336,000
 
 
 
(30,330,000
)
 
 
34,006,000
 
 
 
$
97,006,000
 
 
$
(56,748,000
)
 
$
40,258,000
 
 
 
 
 
 
 
Accumulated
 
 
Net Book
 
June 30, 2018
 
Cost
 
 
Depreciation
 
 
Value
 
 
 
 
 
 
 
 
 
 
 
Land
 
$
2,738,000
 
 
$
-
 
 
$
2,738,000
 
Furniture and equipment
 
 
29,350,000
 
 
 
(25,876,000
)
 
 
3,474,000
 
Building and improvements
 
 
64,336,000
 
 
 
(29,587,000
)
 
 
34,749,000
 
 
 
$
96,424,000
 
 
$
(55,463,000
)
 
$
40,961,000
 
v3.10.0.1
INVESTMENT IN REAL ESTATE, NET
6 Months Ended
Dec. 31, 2018
Real Estate [Abstract]  
Investment In Real Estate [Text Block]
NOTE 4 – INVESTMENT IN REAL ESTATE, NET
 
The Company’s investment in real estate includes 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 Dallas, Texas and Southern California. The Company also has an investment in unimproved real property. Investment in real estate consisted of the following:
 
As of
 
December 31, 2018
 
 
June 30, 2018
 
Land
 
$
25,033,000
 
 
$
25,033,000
 
Buildings, improvements and equipment
 
 
67,936,000
 
 
 
67,536,000
 
Accumulated depreciation
 
 
(40,407,000
)
 
 
(39,200,000
)
Investment in real estate, net
 
$
52,562,000
 
 
$
53,369,000
 
v3.10.0.1
INVESTMENT IN MARKETABLE SECURITIES
6 Months Ended
Dec. 31, 2018
Investments, Debt and Equity Securities [Abstract]  
Investments in Debt and Marketable Equity Securities (and Certain Trading Assets) Disclosure [Text Block]
NOTE 5 – 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 transfer to its shareholders through income and/or capital gain.
 
At December 31, 2018 and June 30, 2018, 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:
 
 
 
 
 
 
Gross
 
 
Gross
 
 
Net
 
 
Fair
 
Investment
 
Cost
 
 
Unrealized Gain
 
 
Unrealized Loss
 
 
Unrealized Loss
 
 
Value
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
As of December 31, 2018
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Corporate Equities
 
$
18,847,000
 
 
$
934,000
 
 
$
(12,195,000
)
 
$
(11,261,000
)
 
$
7,586,000
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
As of June 30, 2018
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Corporate Equities
 
$
22,388,000
 
 
$
2,450,000
 
 
$
(10,997,000
)
 
$
(8,547,000
)
 
$
13,841,000
 
 
As of December 31, 2018, and June 30, 2018, the Company had unrealized losses of $11,495,000 and $10,819,000, respectively, related to securities held for over one year. As of December 31, 2018, and June 30, 2018, unrealized losses related to the Company’s investment in Comstock Mining Inc. (“Comstock” - NYSE AMERICAN: LODE) were $11,107,000 and $10,646,000, respectively.
 
Net loss on marketable securities on the statement of operations is comprised of realized and unrealized gains (losses). Below is the composition of net loss on marketable securities for the respective periods:
 
For the three months ended December 31,
 
2018
 
 
2017
 
Realized gain on marketable securities
 
$
530,000
 
 
$
181,000
 
Unrealized (loss) gain on marketable securities
 
 
(2,475,000
)
 
 
726,000
 
Unrealized loss on marketable securities related to Comstock
 
 
(26,000
)
 
 
(2,085,000
)
Net loss on marketable securities
 
$
(1,971,000
)
 
$
(1,178,000
)
 
For the six months ended December 31,
 
2018
 
 
2017
 
Realized gain (loss) on marketable securities
 
$
522,000
 
 
$
(119,000
)
Unrealized (loss) gain on marketable securities
 
 
(2,202,000
)
 
 
673,000
 
Unrealized loss on marketable securities related to Comstock
 
 
(462,000
)
 
 
(2,754,000
)
Net loss on marketable securities
 
$
(2,142,000
)
 
$
(2,200,000
)
v3.10.0.1
OTHER INVESTMENTS, NET
6 Months Ended
Dec. 31, 2018
Other Investments [Abstract]  
Other Investments Disclosure [Text Block]
NOTE 6 – OTHER INVESTMENTS, NET
 
The Company may also invest, with the approval of the securities investment committee and other Company guidelines, in private investment equity funds and other unlisted securities, such as convertible notes through private placements. 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. Other investments also include non-marketable warrants carried at fair value.
 
Other investments, net consist of the following:
 
Type
 
December 31, 2018
 
 
June 30, 2018
 
Private equity hedge fund, at cost
 
$
474,000
 
 
$
554,000
 
Other preferred stock, at cost
 
 
259,000
 
 
 
259,000
 
 
 
$
733,000
 
 
$
813,000
 
v3.10.0.1
FAIR VALUE MEASUREMENTS
6 Months Ended
Dec. 31, 2018
Fair Value Disclosures [Abstract]  
Fair Value Disclosures [Text Block]
NOTE 7 - FAIR VALUE MEASUREMENTS
 
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 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
 
12/31/2018
 
 
6/30/2018
 
 
 
Total - Level 1
 
 
Total - Level 1
 
Assets:
 
 
 
 
 
 
Investment in marketable securities:
 
 
 
 
 
 
 
 
REITs and real estate companies
 
$
1,664,000
 
 
$
4,300,000
 
Corporate Bonds
 
 
2,415,000
 
 
 
2,282,000
 
Energy
 
 
774,000
 
 
 
311,000
 
Technology
 
 
656,000
 
 
 
1,813,000
 
Healthcare
 
 
653,000
 
 
 
1,777,000
 
Industrials
 
 
519,000
 
 
 
404,000
 
Basic material
 
 
496,000
 
 
 
1,038,000
 
Communications
 
 
-
 
 
 
1,071,000
 
Other
 
 
409,000
 
 
 
845,000
 
 
 
$
7,586,000
 
 
$
13,841,000
 
 
The fair values of investments in marketable securities are determined by the most recently traded price of each security at the balance sheet date.
 
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
 
 
December 31, 2018
 
 
Net loss for the six months

ended December 31, 2018
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Other non-marketable investments
 
$
733,000
 
 
$
733,000
 
 
$
-
 
 
 
 
 
 
 
 
 
 
Net loss for the six months
 
Assets
 
Level 3
 
 
June 30, 2018
 
 
ended December 31, 2017
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Other non-marketable investments
 
$
813,000
 
 
$
813,000
 
 
$
-
 
 
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 and holds less than 20% ownership in each of the 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.
v3.10.0.1
CASH, CASH EQUIVALENTS AND RESTRICTED CASH
6 Months Ended
Dec. 31, 2018
Cash and Cash Equivalents [Abstract]  
Cash and Cash Equivalents Disclosure [Text Block]
NOTE 8 – CASH, CASH EQUIVALENTS AND RESTRICTED CASH
 
The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported within the condensed consolidated balance sheets that sum to the total of the same such amounts shown in the condensed consolidated statement of cash flows.
 
As of
 
12/31/2018
 
 
6/30/2018
 
 
 
 
 
 
 
 
Cash and cash equivalents
 
$
8,978,000
 
 
$
8,053,000
 
Restricted cash
 
 
10,551,000
 
 
 
9,458,000
 
Total cash, cash equivalents, and restricted cash

shown in the condensed consolidated statement of cash flows
 
$
19,529,000
 
 
$
17,511,000
 
 
Restricted cash is comprised of amounts held by lenders for payment of real estate taxes, insurance, replacement and capital addition reserves. It also includes key money received from Interstate that is restricted for capital improvements for the Hotel.
v3.10.0.1
STOCK BASED COMPENSATION PLANS
6 Months Ended
Dec. 31, 2018
Disclosure of Compensation Related Costs, Share-based Payments [Abstract]  
Disclosure of Compensation Related Costs, Share-based Payments [Text Block]
NOTE 9 – STOCK BASED COMPENSATION PLANS
 
The Company follows Accounting Standard Codification (ASC) Topic 718 “Compensation – Stock Compensation”, which addresses accounting for equity-based compensation arrangements, including employee stock options and restricted stock units.
 
Please refer to Note 16 – Stock Based Compensation Plans in the Company's Form 10-K for the year ended June 30, 2018 for more detailed information on the Company’s stock-based compensation plans.
 
During the three months ended December 31, 2018 and 2017, the Company recorded stock option compensation cost of $29,000 and $60,000, respectively, related to stock options that were previously issued. During the six months ended December 31, 2018 and 2017, the Company recorded stock option compensation cost of $59,000 and $122,000, respectively, related to stock options that were previously issued. As of December 31, 2018, there was a total of $61,000 of unamortized compensation related to stock options which is expected to be recognized over the weighted-average period of 3.17 years.
 
In December 2018, the Company’s President and Chief Executive Officer (CEO), John V. Winfield exercised 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.
 
Option-pricing models require the input of various subjective assumptions, including the option’s expected life 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, 2017 through December 31, 2018:
 
 
 
 
 
Number of
 
 
Weighted Average
 
 
Weighted Average
 
Aggregate
 
 
 
 
 
Shares
 
 
Exercise Price
 
 
Remaining Life
 
Intrinsic Value
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Oustanding at
 
July 1, 2017
 
 
368,000
 
 
$
17.21
 
 
5.17 years
 
$
3,046,000
 
Granted
 
 
 
 
-
 
 
 
-
 
 
 
 
 
 
 
Exercised
 
 
 
 
-
 
 
 
-
 
 
 
 
 
 
 
Forfeited
 
 
 
 
-
 
 
 
-
 
 
 
 
 
 
 
Exchanged
 
 
 
 
-
 
 
 
-
 
 
 
 
 
 
 
Outstanding at
 
June 30, 2018
 
 
368,000
 
 
$
17.21
 
 
4.17 years
 
$
3,505,000
 
Exercisable at
 
June 30, 2018
 
 
318,000
 
 
$
16.47
 
 
3.79 years
 
$
3,257,000
 
Vested and Expected to vest at
 
June 30, 2018
 
 
368,000
 
 
$
17.21
 
 
4.17 years
 
$
3,505,000
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Oustanding at
 
July 1, 2018
 
 
368,000
 
 
$
17.21
 
 
4.17 years
 
$
3,505,000
 
Granted
 
 
 
 
-
 
 
 
-
 
 
 
 
 
 
 
Exercised
 
 
 
 
(26,805
)
 
 
20.52
 
 
 
 
 
 
 
Forfeited
 
 
 
 
-
 
 
 
-
 
 
 
 
 
 
 
Exchanged
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Outstanding at
 
December 31, 2018
 
 
341,195
 
 
$
16.95
 
 
3.57 years
 
$
5,195,000
 
Exercisable at
 
December 31, 2018
 
 
326,795
 
 
$
16.50
 
 
3.36 years
 
$
5,125,000
 
Vested and Expected to vest at
 
December 31, 2018
 
 
341,195
 
 
$
16.95
 
 
3.57 years
 
$
5,195,000
 
v3.10.0.1
SEGMENT INFORMATION
6 Months Ended
Dec. 31, 2018
Segment Reporting [Abstract]  
Segment Reporting Disclosure [Text Block]
NOTE 10 – 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 three and six months ended December 31, 2018 and 2017. Operating income from hotel operations consist of the operation of the hotel and operation of the garage. Operating income for rental properties consist of rental income. Operating loss for investment transactions consist of net investment gain (loss), impairment loss on other investments, net unrealized gain (loss) on other investments, dividend and interest income and trading and margin interest expense. The other segment consists of corporate general and administrative expenses and the income tax expense for the entire Company.
 
As of and for the three months
 
Hotel
 
 
Real Estate
 
 
Investment
 
 
 
 
 
 
 
ended December 31, 2018
 
Operations
 
 
Operations
 
 
Transactions
 
 
Corporate
 
 
Total
 
Revenues
 
$
13,997,000
 
 
$
3,752,000
 
 
$
-
 
 
$
-
 
 
$
17,749,000
 
Segment operating expenses
 
 
(11,236,000
)
 
 
(1,866,000
)
 
 
-
 
 
 
(479,000
)
 
 
(13,581,000
)
Segment income (loss) from operations
 
 
2,761,000
 
 
 
1,886,000
 
 
 
-
 
 
 
(479,000
)
 
 
4,168,000
 
Interest expense - mortgage
 
 
(1,797,000
)
 
 
(608,000
)
 
 
-
 
 
 
-
 
 
 
(2,405,000
)
Depreciation and amortization expense
 
 
(643,000
)
 
 
(606,000
)
 
 
-
 
 
 
-
 
 
 
(1,249,000
)
Loss from investments
 
 
-
 
 
 
-
 
 
 
(2,076,000
)
 
 
-
 
 
 
(2,076,000
)
Income tax benefit
 
 
-
 
 
 
-
 
 
 
-
 
 
 
440,000
 
 
 
440,000
 
Net income (loss)
 
$
321,000
 
 
$
672,000
 
 
$
(2,076,000
)
 
$
(39,000
)
 
$
(1,122,000
)
Total assets
 
$
58,380,000
 
 
$
52,562,000
 
 
$
8,319,000
 
 
$
6,143,000
 
 
$
125,404,000
 
 
For the three months
 
Hotel
 
 
Real Estate
 
 
Investment
 
 
 
 
 
 
 
ended December 31, 2017
 
Operations
 
 
Operations
 
 
Transactions
 
 
Corporate
 
 
Total
 
Revenues
 
$
13,187,000
 
 
$
3,625,000
 
 
$
-
 
 
$
-
 
 
$
16,812,000
 
Segment operating expenses
 
 
(10,743,000
)
 
 
(2,102,000
)
 
 
-
 
 
 
(730,000
)
 
 
(13,575,000
)
Segment income (loss) from operations
 
 
2,444,000
 
 
 
1,523,000
 
 
 
-
 
 
 
(730,000
)
 
 
3,237,000
 
Interest expense - mortgage
 
 
(1,850,000
)
 
 
(640,000
)
 
 
-
 
 
 
-
 
 
 
(2,490,000
)
Depreciation and amortization expense
 
 
(682,000
)
 
 
(585,000
)
 
 
-
 
 
 
-
 
 
 
(1,267,000
)
Loss from investments
 
 
-
 
 
 
-
 
 
 
(1,643,000
)
 
 
-
 
 
 
(1,643,000
)
Income tax expense
 
 
-
 
 
 
-
 
 
 
-
 
 
 
(344,000
)
 
 
(344,000
)
Net income (loss)
 
$
(88,000
)
 
$
298,000
 
 
$
(1,643,000
)
 
$
(1,074,000
)
 
$
(2,507,000
)
 
As of and for the six months
 
Hotel
 
 
Real Estate
 
 
Investment
 
 
 
 
 
 
 
ended December 31, 2018
 
Operations
 
 
Operations
 
 
Transactions
 
 
Corporate
 
 
Total
 
Revenues
 
$
29,807,000
 
 
$
7,431,000
 
 
$
-
 
 
$
-
 
 
$
37,238,000
 
Segment operating expenses
 
 
(22,046,000
)
 
 
(3,878,000
)
 
 
-
 
 
 
(1,122,000
)
 
 
(27,046,000
)
Segment income (loss) from operations
 
 
7,761,000
 
 
 
3,553,000
 
 
 
-
 
 
 
(1,122,000
)
 
 
10,192,000
 
Interest expense - mortgage
 
 
(3,611,000
)
 
 
(1,359,000
)
 
 
-
 
 
 
-
 
 
 
(4,970,000
)
Depreciation and amortization expense
 
 
(1,285,000
)
 
 
(1,207,000
)
 
 
-
 
 
 
-
 
 
 
(2,492,000
)
Loss from investments
 
 
-
 
 
 
-
 
 
 
(2,454,000
)
 
 
-
 
 
 
(2,454,000
)
Income tax expense
 
 
-
 
 
 
-
 
 
 
-
 
 
 
(270,000
)
 
 
(270,000
)
Net income (loss)
 
$
2,865,000
 
 
$
987,000
 
 
$
(2,454,000
)
 
$
(1,392,000
)
 
$
6,000
 
Total assets
 
$
58,380,000
 
 
$
52,562,000
 
 
$
8,319,000
 
 
$
6,143,000
 
 
$
125,404,000
 
 
For the six months
 
Hotel
 
 
Real Estate
 
 
Investment
 
 
 
 
 
 
 
ended December 31, 2017
 
Operations
 
 
Operations
 
 
Transactions
 
 
Corporate
 
 
Total
 
Revenues
 
$
27,624,000
 
 
$
7,302,000
 
 
$
-
 
 
$
-
 
 
$
34,926,000
 
Segment operating expenses
 
 
(21,332,000
)
 
 
(3,997,000
)
 
 
-
 
 
 
(1,561,000
)
 
 
(26,890,000
)
Segment income (loss) from operations
 
 
6,292,000
 
 
 
3,305,000
 
 
 
-
 
 
 
(1,561,000
)
 
 
8,036,000
 
Interest expense - mortgage
 
 
(3,703,000
)
 
 
(1,280,000
)
 
 
-
 
 
 
-
 
 
 
(4,983,000
)
Depreciation and amortization expense
 
 
(1,381,000
)
 
 
(1,160,000
)
 
 
-
 
 
 
-
 
 
 
(2,541,000
)
Loss from investments
 
 
-
 
 
 
-
 
 
 
(2,895,000
)
 
 
-
 
 
 
(2,895,000
)
Income tax expense
 
 
-
 
 
 
-
 
 
 
-
 
 
 
(419,000
)
 
 
(419,000
)
Net income (loss)
 
$
1,208,000
 
 
$
865,000
 
 
$
(2,895,000
)
 
$
(1,980,000
)
 
$
(2,802,000
)
v3.10.0.1
RELATED PARTY AND OTHER FINANCING TRANSACTIONS
6 Months Ended
Dec. 31, 2018
Related Party And Other Notes Payable [Abstract]  
Related Party and Other Financing Transactions [Text Block]
NOTE 11 – RELATED PARTY AND OTHER FINANCING TRANSACTIONS
 
On July 2, 2014, the Partnership obtained from the Company 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 current loan balance of $3,000,000 was extended to June 30, 2019. During the fiscal year ended June 30, 2018, the Partnership made principal paydown of $1,250,000.
 
The balance of related party note payable at December 31, 2018 includes obligation to Hilton (Franchisor) in the form of 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. The outstanding balance of the note as of December 31, 2018 and June 30, 2018, was $3,483,000 and $3,642,000, respectively.
 
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 (2
nd
) anniversary of the takeover date. The $2,000,000 is included in restricted cash and related party note payable balances in the condensed consolidated balance sheets as of December 31, 2018 and June 30, 2018.
 
In April 2017, Portsmouth obtained from InterGroup an unsecured short-term loan in the amount of $1,000,000 at 5% per year fixed interest, with a term of five months and maturing September 6, 2017. On September 1
st
2017, the short-term loan was extended to September 15, 2017 and paid off on September 13, 2017.
 
As of December 31, 2018, the Company had capital lease obligations outstanding of $1,243,000. These capital leases expire in various years through 2023 at rates ranging from 5.77% to 6.53% per annum. Minimum future lease payments for assets under capital leases as of December 31, 2018 are as follows:
 
For the year ending June 30,
 
 
 
2019
 
$
168,000
 
2020
 
 
384,000
 
2021
 
 
384,000
 
2022
 
 
376,000
 
2023
 
 
77,000
 
Total minimum lease payments
 
 
1,389,000
 
Less interest on capital lease
 
 
(146,000
)
Present value of future minimum lease payments
 
$
1,243,000
 
 
Future minimum principal payments for all related party and other financing transactions are as follows:
 
For the year ending June 30,
 
 
 
2019
 
$
504,000
 
2020
 
 
3,918,000
 
2021
 
 
913,000
 
2022
 
 
927,000
 
2023
 
 
641,000
 
Thereafter
 
 
2,875,000
 
 
 
$
9,778,000
 
 
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 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 Los Angeles, California and is 55.4% and 44.6% owned by Santa Fe and the Company, respectively. 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 are due in July 2019. The $2,969,000 mortgage due to InterGroup carries same terms as InterGroup’s RLOC.
 
Effective May 12, 2017, InterGroup agreed to become an additional guarantor under the limited guaranty and an additional indemnitor under environmental indemnity for Justice Investors limited partnership’s $97,000,000 mortgage loan and the $20,000,000 mezzanine loan, in order to maintain certain minimum net worth and liquidity guarantor covenant requirements that Portsmouth was unable to satisfy independently as of March 31, 2017.
 
In connection with the redemption of the limited partnership interest 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 the partnership interests, refinancing of the Justices 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 December 31, 2018, $200,000 of these fees remain payable and are included in related party and other notes payable on the accompanying condensed consolidated balance sheets.
 
As of September 30, 2017, Justice had an outstanding accounts payable balance to InterGroup for $116,000 for management of the Hotel from June to December of 2016. The balance was paid in full as of December 31, 2017.
 
Four of the Portsmouth directors serve as directors of InterGroup. Three of those directors also serve as directors of Santa Fe. The three Santa Fe directors also serve as directors of InterGroup.
 
As Chairman of the 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. 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.
 
v3.10.0.1
BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES (Policies)
6 Months Ended
Dec. 31, 2018
Accounting Policies [Abstract]  
Due To And From Broker Dealers [Policy Text Block]
Due to Securities Broker
 
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.
Obligations For Securities Sold Policy [Policy Text Block]
Obligations 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 condensed consolidated statements of operations.
Income Tax, Policy [Policy Text Block]
Income Tax
 
The Company consolidates Justice (“Hotel”) for financial reporting purposes and is not taxed on its non-controlling interest in the Hotel. The income tax expense during the six months ended December 31, 2018 and 2017
represents primarily the income tax effect of the pretax loss at InterGroup and the pretax income of Portsmouth which includes its share in net income of the Hotel. For the quarter ended
December 31, 2017, a provisional net charge of $879,000 was included in the income tax expense as a result of reducing our deferred tax asset to the lower federal base rate of 21%.
Financial Condition And Liquidity Policy [Policy Text Block]
Financial Condition and Liquidity
 
The Company’s cash flows are primarily generated from the ownership and management of real estate.
 
To fund the redemption of limited partnership interests and to repay the prior mortgage of $42,940,000, Justice obtained a $97,000,000 mortgage loan and a $20,000,000 mezzanine loan. 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 with interest only payments due through January 2017. Beginning in February 2017, the loan began to amortize over a thirty-year period through its maturity date of January 2024. Outstanding principal balance on the loan was $94,349,000 and $95,018,000 as of December 31, 2018 and June 30, 2018, respectively. As additional security for the mortgage loan, there is a limited 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 interest only loan bears interest at 9.75% per annum and matures in January 2024. As additional security for the mezzanine loan, there is a limited guaranty executed by Portsmouth in favor of the mezzanine lender.
 
Effective as of May 11, 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 December 31, 2018, InterGroup is in compliance with both requirements.
 
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 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 Los Angeles, California and is 55.4% and 44.6% owned by Santa Fe and the Company, respectively. 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 are due in July 2019. The $2,969,000 mortgage due to InterGroup carries same terms as InterGroup’s RLOC.
 
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.
 
Despite an uncertain economy, the Hotel has continued to generate positive operating income. While the debt service requirements related the loans may create some additional risk for the Company and its ability to generate cash flows in the future, management believes that cash flows from the operations of the Hotel and the garage will continue to be sufficient to meet all of the Partnership’s current and future obligations and financial requirements.
 
The Company has invested in short-term, income-producing instruments and in equity and debt securities when deemed appropriate. The Company's marketable securities are classified as trading with unrealized gains and losses recorded through the consolidated statements of operations.
 
Management believes that its cash, marketable securities, and the cash flows generated from its real estate assets, will be adequate to meet the Company’s current and future obligations. Additionally, management believes there is significant appreciated value in the Hotel property to support additional borrowings, if necessary.
 
 
The following table provides a summary as of December 31, 2018, the Company’s material financial obligations which also includes interest payments.
 
     6 Months  Year  Year  Year  Year    
  Total  2019  2020  2021  2022  2023  Thereafter 
Mortgage and subordinated notes payable $173,972,000  $1,508,000  $3,061,000  $12,490,000  $3,102,000  $37,820,000  $115,991,000 
Other notes payable  9,778,000   504,000   3,918,000   913,000   927,000   641,000   2,875,000 
Interest  45,160,000   4,635,000   9,508,000   9,132,000   8,644,000   7,636,000   5,605,000 
    Total $228,910,000  $6,647,000  $16,487,000  $22,535,000  $12,673,000  $46,097,000  $124,471,000 
New Accounting Pronouncements, Policy [Policy Text Block]
Recently Issued and Adopted Accounting Pronouncements
 
In November 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standard Update (“ASU”) 2016-18, Restricted Cash. ASU 2016-18 requires companies to include restricted cash and restricted cash equivalents with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. Additionally, ASU 2016-18 requires a disclosure of a reconciliation between the statement of financial position and the statement of cash flows when the balance sheet includes more than one line item for cash, cash equivalents, restricted cash, and restricted cash equivalents. ASU 2016-18 is effective for reporting periods beginning after December 15, 2017, with early adoption permitted, and will be applied retrospectively to all periods presented. The Company adopted ASU 2018-16 effective July 1, 2018. The adoption of ASU 2016-18 impacted the presentation of cash flows with inclusion of restricted cash flows for each of the presented periods.
 
In May 2014, the FASB issued Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers (Topic 606) (ASU 2014-09), which amends the existing accounting standards for revenue recognition. In August 2015, the FASB issued ASU No. 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date, which delays the effective date of ASU 2014-09 by one year. The FASB also agreed to allow entities to choose to adopt the standard as of the original effective date. In March 2016, the FASB issued Accounting Standards Update No. 2016-08, Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net) (ASU 2016-08) which clarifies the implementation guidance on principal versus agent considerations. The guidance includes indicators to assist an entity in determining whether it controls a specified good or service before it is transferred to the customers. The new standard permits two methods of adoption: retrospectively to each prior reporting period presented (full retrospective method), or retrospectively with the cumulative effect of initially applying the guidance recognized at the date of initial application (the modified retrospective method). We applied the modified retrospective transition method to all contracts upon the adoption of ASU 2014-09 effective July 1, 2018. We provided the additional required disclosures, but the cumulative adjustment from our comparative periods was zero in our condensed consolidated financial statements. See Note 2.
 
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) (ASU 2016-02), which supersedes existing guidance on accounting for leases in Leases (Topic 840) and generally requires all leases, including operating leases, to be recognized in the statement of financial position as right-of-use assets and lease liabilities by lessees. The provisions of ASU 2016-02 are to be applied using a modified retrospective approach and are effective for reporting periods beginning after December 15, 2018; early adoption is permitted. We intend to adopt the standard on July 1, 2019. The Company is currently reviewing the effect of ASU No. 2016-02.
 
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, 2020. The Company is currently reviewing the effect of ASU No. 2016-13.
v3.10.0.1
BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES (Tables)
6 Months Ended
Dec. 31, 2018
Accounting Policies [Abstract]  
Schedule Of Financial Obligations Including Interest Payments [Table Text Block]
The following table provides a summary as of December 31, 2018, the Company’s material financial obligations which also includes interest payments.
 
     6 Months  Year  Year  Year  Year    
  Total  2019  2020  2021  2022  2023  Thereafter 
Mortgage and subordinated notes payable $173,972,000  $1,508,000  $3,061,000  $12,490,000  $3,102,000  $37,820,000  $115,991,000 
Other notes payable  9,778,000   504,000   3,918,000   913,000   927,000   641,000   2,875,000 
Interest  45,160,000   4,635,000   9,508,000   9,132,000   8,644,000   7,636,000   5,605,000 
    Total $228,910,000  $6,647,000  $16,487,000  $22,535,000  $12,673,000  $46,097,000  $124,471,000 
v3.10.0.1
REVENUE (Tables)
6 Months Ended
Dec. 31, 2018
Revenue from Contract with Customer [Abstract]  
Disaggregation of Revenue [Table Text Block]
The following table present our hotel revenues disaggregated by revenue streams. Revenues from real estate are not affected by the new guidance.
 
For the three months ended December 31,
 
2018
 
 
2017
 
Hotel revenues:
 
 
 
 
 
 
 
 
Hotel rooms
 
$
11,565,000
 
 
$
10,710,000
 
Food and beverage
 
 
1,565,000
 
 
 
1,614,000
 
Garage
 
 
734,000
 
 
 
735,000
 
Other operating departments
 
 
133,000
 
 
 
128,000
 
Total hotel revenue
 
$
13,997,000
 
 
$
13,187,000
 
 
For the six months ended December 31,
 
2018
 
 
2017
 
Hotel revenues:
 
 
 
 
 
 
 
 
Hotel rooms
 
$
25,087,000
 
 
$
22,552,000
 
Food and beverage
 
 
3,014,000
 
 
 
3,373,000
 
Garage
 
 
1,508,000
 
 
 
1,516,000
 
Other operating departments
 
 
198,000
 
 
 
183,000
 
Total hotel revenue
 
$
29,807,000
 
 
$
27,624,000
 
v3.10.0.1
INVESTMENT IN HOTEL, NET (Tables)
6 Months Ended
Dec. 31, 2018
Real Estate [Abstract]  
Schedule of Real Estate Properties [Table Text Block]
Investment in hotel consisted of the following as of:
 
 
 
 
 
 
Accumulated
 
 
Net Book
 
December 31, 2018
 
Cost
 
 
Depreciation
 
 
Value
 
 
 
 
 
 
 
 
 
 
 
Land
 
$
2,738,000
 
 
$
-
 
 
$
2,738,000
 
Furniture and equipment
 
 
29,932,000
 
 
 
(26,418,000
)
 
 
3,514,000
 
Building and improvements
 
 
64,336,000
 
 
 
(30,330,000
)
 
 
34,006,000
 
 
 
$
97,006,000
 
 
$
(56,748,000
)
 
$
40,258,000
 
 
 
 
 
 
 
Accumulated
 
 
Net Book
 
June 30, 2018
 
Cost
 
 
Depreciation
 
 
Value
 
 
 
 
 
 
 
 
 
 
 
Land
 
$
2,738,000
 
 
$
-
 
 
$
2,738,000
 
Furniture and equipment
 
 
29,350,000
 
 
 
(25,876,000
)
 
 
3,474,000
 
Building and improvements
 
 
64,336,000
 
 
 
(29,587,000
)
 
 
34,749,000
 
 
 
$
96,424,000
 
 
$
(55,463,000
)
 
$
40,961,000
 
v3.10.0.1
INVESTMENT IN REAL ESTATE, NET (Tables)
6 Months Ended
Dec. 31, 2018
Real Estate [Abstract]  
Schedule Of Investment In Real Estate [Table Text Block] The Company also has an investment in unimproved real property. Investment in real estate consisted of the following:
 
As of
 
December 31, 2018
 
 
June 30, 2018
 
Land
 
$
25,033,000
 
 
$
25,033,000
 
Buildings, improvements and equipment
 
 
67,936,000
 
 
 
67,536,000
 
Accumulated depreciation
 
 
(40,407,000
)
 
 
(39,200,000
)
Investment in real estate, net
 
$
52,562,000
 
 
$
53,369,000
 
v3.10.0.1
INVESTMENT IN MARKETABLE SECURITIES (Tables)
6 Months Ended
Dec. 31, 2018
Investments, Debt and Equity Securities [Abstract]  
Marketable Securities [Table Text Block]
At December 31, 2018 and June 30, 2018, 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:
 
 
 
 
 
 
Gross
 
 
Gross
 
 
Net
 
 
Fair
 
Investment
 
Cost
 
 
Unrealized Gain
 
 
Unrealized Loss
 
 
Unrealized Loss
 
 
Value
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
As of December 31, 2018
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Corporate Equities
 
$
18,847,000
 
 
$
934,000
 
 
$
(12,195,000
)
 
$
(11,261,000
)
 
$
7,586,000
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
As of June 30, 2018
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Corporate Equities
 
$
22,388,000
 
 
$
2,450,000
 
 
$
(10,997,000
)
 
$
(8,547,000
)
 
$
13,841,000
 
Gain (Loss) on Investments [Table Text Block]
Net loss on marketable securities on the statement of operations is comprised of realized and unrealized gains (losses). Below is the composition of net loss on marketable securities for the respective periods:
 
For the three months ended December 31,
 
2018
 
 
2017
 
Realized gain on marketable securities
 
$
530,000
 
 
$
181,000
 
Unrealized (loss) gain on marketable securities
 
 
(2,475,000
)
 
 
726,000
 
Unrealized loss on marketable securities related to Comstock
 
 
(26,000
)
 
 
(2,085,000
)
Net loss on marketable securities
 
$
(1,971,000
)
 
$
(1,178,000
)
 
For the six months ended December 31,
 
2018
 
 
2017
 
Realized gain (loss) on marketable securities
 
$
522,000
 
 
$
(119,000
)
Unrealized (loss) gain on marketable securities
 
 
(2,202,000
)
 
 
673,000
 
Unrealized loss on marketable securities related to Comstock
 
 
(462,000
)
 
 
(2,754,000
)
Net loss on marketable securities
 
$
(2,142,000
)
 
$
(2,200,000
)
v3.10.0.1
OTHER INVESTMENTS, NET (Tables)
6 Months Ended
Dec. 31, 2018
Other Investments [Abstract]  
Other Investments Not Readily Marketable [Table Text Block]
Other investments, net consist of the following:
 
Type
 
December 31, 2018
 
 
June 30, 2018
 
Private equity hedge fund, at cost
 
$
474,000
 
 
$
554,000
 
Other preferred stock, at cost
 
 
259,000
 
 
 
259,000
 
 
 
$
733,000
 
 
$
813,000
 
v3.10.0.1
FAIR VALUE MEASUREMENTS (Tables)
6 Months Ended
Dec. 31, 2018
Fair Value Disclosures [Abstract]  
Fair Value, Assets Measured on Recurring Basis [Table Text Block]
The assets measured at fair value on a recurring basis are as follows:
 
As of
 
12/31/2018
 
 
6/30/2018
 
 
 
Total - Level 1
 
 
Total - Level 1
 
Assets:
 
 
 
 
 
 
Investment in marketable securities:
 
 
 
 
 
 
 
 
REITs and real estate companies
 
$
1,664,000
 
 
$
4,300,000
 
Corporate Bonds
 
 
2,415,000
 
 
 
2,282,000
 
Energy
 
 
774,000
 
 
 
311,000
 
Technology
 
 
656,000
 
 
 
1,813,000
 
Healthcare
 
 
653,000
 
 
 
1,777,000
 
Industrials
 
 
519,000
 
 
 
404,000
 
Basic material
 
 
496,000
 
 
 
1,038,000
 
Communications
 
 
-
 
 
 
1,071,000
 
Other
 
 
409,000
 
 
 
845,000
 
 
 
$
7,586,000
 
 
$
13,841,000
 
Fair Value Measurements, Nonrecurring [Table Text Block]
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
 
 
December 31, 2018
 
 
Net loss for the six months

ended December 31, 2018
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Other non-marketable investments
 
$
733,000
 
 
$
733,000
 
 
$
-
 
 
 
 
 
 
 
 
 
 
Net loss for the six months
 
Assets
 
Level 3
 
 
June 30, 2018
 
 
ended December 31, 2017
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Other non-marketable investments
 
$
813,000
 
 
$
813,000
 
 
$
-
 
v3.10.0.1
CASH, CASH EQUIVALENTS AND RESTRICTED CASH (Tables)
6 Months Ended
Dec. 31, 2018
Cash and Cash Equivalents [Abstract]  
Schedule of Cash Cash Equivalents and Restricted Cash [Table Text Block]
The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported within the condensed consolidated balance sheets that sum to the total of the same such amounts shown in the condensed consolidated statement of cash flows.
 
As of
 
12/31/2018
 
 
6/30/2018
 
 
 
 
 
 
 
 
Cash and cash equivalents
 
$
8,978,000
 
 
$
8,053,000
 
Restricted cash
 
 
10,551,000
 
 
 
9,458,000
 
Total cash, cash equivalents, and restricted cash

shown in the condensed consolidated statement of cash flows
 
$
19,529,000
 
 
$
17,511,000
 
v3.10.0.1
STOCK BASED COMPENSATION PLANS (Tables)
6 Months Ended
Dec. 31, 2018
Disclosure of Compensation Related Costs, Share-based Payments [Abstract]  
Share-based Compensation, Stock Options, Activity [Table Text Block]
The following table summarizes the stock options activity from July 1, 2017 through December 31, 2018:
 
 
 
 
 
Number of
 
 
Weighted Average
 
 
Weighted Average
 
Aggregate
 
 
 
 
 
Shares
 
 
Exercise Price
 
 
Remaining Life
 
Intrinsic Value
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Oustanding at
 
July 1, 2017
 
 
368,000
 
 
$
17.21
 
 
5.17 years
 
$
3,046,000
 
Granted
 
 
 
 
-
 
 
 
-
 
 
 
 
 
 
 
Exercised
 
 
 
 
-
 
 
 
-
 
 
 
 
 
 
 
Forfeited
 
 
 
 
-
 
 
 
-
 
 
 
 
 
 
 
Exchanged
 
 
 
 
-
 
 
 
-
 
 
 
 
 
 
 
Outstanding at
 
June 30, 2018
 
 
368,000
 
 
$
17.21
 
 
4.17 years
 
$
3,505,000
 
Exercisable at
 
June 30, 2018
 
 
318,000
 
 
$
16.47
 
 
3.79 years
 
$
3,257,000
 
Vested and Expected to vest at
 
June 30, 2018
 
 
368,000
 
 
$
17.21
 
 
4.17 years
 
$
3,505,000
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Oustanding at
 
July 1, 2018
 
 
368,000
 
 
$
17.21
 
 
4.17 years
 
$
3,505,000
 
Granted
 
 
 
 
-
 
 
 
-
 
 
 
 
 
 
 
Exercised
 
 
 
 
(26,805
)
 
 
20.52
 
 
 
 
 
 
 
Forfeited
 
 
 
 
-
 
 
 
-
 
 
 
 
 
 
 
Exchanged
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Outstanding at
 
December 31, 2018
 
 
341,195
 
 
$
16.95
 
 
3.57 years
 
$
5,195,000
 
Exercisable at
 
December 31, 2018
 
 
326,795
 
 
$
16.50
 
 
3.36 years
 
$
5,125,000
 
Vested and Expected to vest at
 
December 31, 2018
 
 
341,195
 
 
$
16.95
 
 
3.57 years
 
$
5,195,000
 
v3.10.0.1
SEGMENT INFORMATION (Tables)
6 Months Ended
Dec. 31, 2018
Segment Reporting [Abstract]  
Schedule of Segment Reporting Information, by Segment [Table Text Block]
The other segment consists of corporate general and administrative expenses and the income tax expense for the entire Company.
 
As of and for the three months
 
Hotel
 
 
Real Estate
 
 
Investment
 
 
 
 
 
 
 
ended December 31, 2018
 
Operations
 
 
Operations
 
 
Transactions
 
 
Corporate
 
 
Total
 
Revenues
 
$
13,997,000
 
 
$
3,752,000
 
 
$
-
 
 
$
-
 
 
$
17,749,000
 
Segment operating expenses
 
 
(11,236,000
)
 
 
(1,866,000
)
 
 
-
 
 
 
(479,000
)
 
 
(13,581,000
)
Segment income (loss) from operations
 
 
2,761,000
 
 
 
1,886,000
 
 
 
-
 
 
 
(479,000
)
 
 
4,168,000
 
Interest expense - mortgage
 
 
(1,797,000
)
 
 
(608,000
)
 
 
-
 
 
 
-
 
 
 
(2,405,000
)
Depreciation and amortization expense
 
 
(643,000
)
 
 
(606,000
)
 
 
-
 
 
 
-
 
 
 
(1,249,000
)
Loss from investments
 
 
-
 
 
 
-
 
 
 
(2,076,000
)
 
 
-
 
 
 
(2,076,000
)
Income tax benefit
 
 
-
 
 
 
-
 
 
 
-
 
 
 
440,000
 
 
 
440,000
 
Net income (loss)
 
$
321,000
 
 
$
672,000
 
 
$
(2,076,000
)
 
$
(39,000
)
 
$
(1,122,000
)
Total assets
 
$
58,380,000
 
 
$
52,562,000
 
 
$
8,319,000
 
 
$
6,143,000
 
 
$
125,404,000
 
 
For the three months
 
Hotel
 
 
Real Estate
 
 
Investment
 
 
 
 
 
 
 
ended December 31, 2017
 
Operations
 
 
Operations
 
 
Transactions
 
 
Corporate
 
 
Total
 
Revenues
 
$
13,187,000
 
 
$
3,625,000
 
 
$
-
 
 
$
-
 
 
$
16,812,000
 
Segment operating expenses
 
 
(10,743,000
)
 
 
(2,102,000
)
 
 
-
 
 
 
(730,000
)
 
 
(13,575,000
)
Segment income (loss) from operations
 
 
2,444,000
 
 
 
1,523,000
 
 
 
-
 
 
 
(730,000
)
 
 
3,237,000
 
Interest expense - mortgage
 
 
(1,850,000
)
 
 
(640,000
)
 
 
-
 
 
 
-
 
 
 
(2,490,000
)
Depreciation and amortization expense
 
 
(682,000
)
 
 
(585,000
)
 
 
-
 
 
 
-
 
 
 
(1,267,000
)
Loss from investments
 
 
-
 
 
 
-
 
 
 
(1,643,000
)
 
 
-
 
 
 
(1,643,000
)
Income tax expense
 
 
-
 
 
 
-
 
 
 
-
 
 
 
(344,000
)
 
 
(344,000
)
Net income (loss)
 
$
(88,000
)
 
$
298,000
 
 
$
(1,643,000
)
 
$
(1,074,000
)
 
$
(2,507,000
)
 
As of and for the six months
 
Hotel
 
 
Real Estate
 
 
Investment
 
 
 
 
 
 
 
ended December 31, 2018
 
Operations
 
 
Operations
 
 
Transactions
 
 
Corporate
 
 
Total
 
Revenues
 
$
29,807,000
 
 
$
7,431,000
 
 
$
-
 
 
$
-
 
 
$
37,238,000
 
Segment operating expenses
 
 
(22,046,000
)
 
 
(3,878,000
)
 
 
-
 
 
 
(1,122,000
)
 
 
(27,046,000
)
Segment income (loss) from operations
 
 
7,761,000
 
 
 
3,553,000
 
 
 
-
 
 
 
(1,122,000
)
 
 
10,192,000
 
Interest expense - mortgage
 
 
(3,611,000
)
 
 
(1,359,000
)
 
 
-
 
 
 
-
 
 
 
(4,970,000
)
Depreciation and amortization expense
 
 
(1,285,000
)
 
 
(1,207,000
)
 
 
-
 
 
 
-
 
 
 
(2,492,000
)
Loss from investments
 
 
-
 
 
 
-
 
 
 
(2,454,000
)
 
 
-
 
 
 
(2,454,000
)
Income tax expense
 
 
-
 
 
 
-
 
 
 
-
 
 
 
(270,000
)
 
 
(270,000
)
Net income (loss)
 
$
2,865,000
 
 
$
987,000
 
 
$
(2,454,000
)
 
$
(1,392,000
)
 
$
6,000
 
Total assets
 
$
58,380,000
 
 
$
52,562,000
 
 
$
8,319,000
 
 
$
6,143,000
 
 
$
125,404,000
 
 
For the six months
 
Hotel
 
 
Real Estate
 
 
Investment
 
 
 
 
 
 
 
ended December 31, 2017
 
Operations
 
 
Operations
 
 
Transactions
 
 
Corporate
 
 
Total
 
Revenues
 
$
27,624,000
 
 
$
7,302,000
 
 
$
-
 
 
$
-
 
 
$
34,926,000
 
Segment operating expenses
 
 
(21,332,000
)
 
 
(3,997,000
)
 
 
-
 
 
 
(1,561,000
)
 
 
(26,890,000
)
Segment income (loss) from operations
 
 
6,292,000
 
 
 
3,305,000
 
 
 
-
 
 
 
(1,561,000
)
 
 
8,036,000
 
Interest expense - mortgage
 
 
(3,703,000
)
 
 
(1,280,000
)
 
 
-
 
 
 
-
 
 
 
(4,983,000
)
Depreciation and amortization expense
 
 
(1,381,000
)
 
 
(1,160,000
)
 
 
-
 
 
 
-
 
 
 
(2,541,000
)
Loss from investments
 
 
-
 
 
 
-
 
 
 
(2,895,000
)
 
 
-
 
 
 
(2,895,000
)
Income tax expense
 
 
-
 
 
 
-
 
 
 
-
 
 
 
(419,000
)
 
 
(419,000
)
Net income (loss)
 
$
1,208,000
 
 
$
865,000
 
 
$
(2,895,000
)
 
$
(1,980,000
)
 
$
(2,802,000
)
v3.10.0.1
RELATED PARTY AND OTHER FINANCING TRANSACTIONS (Tables)
6 Months Ended
Dec. 31, 2018
Schedule of Future Minimum Lease Payments for Capital Leases [Table Text Block] Minimum future lease payments for assets under capital leases as of December 31, 2018 are as follows:
 
For the year ending June 30,
 
 
 
2019
 
$
168,000
 
2020
 
 
384,000
 
2021
 
 
384,000
 
2022
 
 
376,000
 
2023
 
 
77,000
 
Total minimum lease payments
 
 
1,389,000
 
Less interest on capital lease
 
 
(146,000
)
Present value of future minimum lease payments
 
$
1,243,000
 
Notes Payable, Other Payables [Member]  
Schedule of Maturities of Long-term Debt [Table Text Block]
Future minimum principal payments for all related party and other financing transactions are as follows:
 
For the year ending June 30,
 
 
 
2019
 
$
504,000
 
2020
 
 
3,918,000
 
2021
 
 
913,000
 
2022
 
 
927,000
 
2023
 
 
641,000
 
Thereafter
 
 
2,875,000
 
 
 
$
9,778,000
 
v3.10.0.1
BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES (Details)
Dec. 31, 2018
USD ($)
Total $ 228,910,000
6 Months 2019 6,647,000
Year 2020 16,487,000
Year 2021 22,535,000
Year 2022 12,673,000
Year 2023 46,097,000
Thereafter 124,471,000
Mortgage and subordinated notes payable  
Total 173,972,000
6 Months 2019 1,508,000
Year 2020 3,061,000
Year 2021 12,490,000
Year 2022 3,102,000
Year 2023 37,820,000
Thereafter 115,991,000
Other notes payable  
Total 9,778,000
6 Months 2019 504,000
Year 2020 3,918,000
Year 2021 913,000
Year 2022 927,000
Year 2023 641,000
Thereafter 2,875,000
Interest  
Total 45,160,000
6 Months 2019 4,635,000
Year 2020 9,508,000
Year 2021 9,132,000
Year 2022 8,644,000
Year 2023 7,636,000
Thereafter $ 5,605,000
v3.10.0.1
BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES (Details Textual) - USD ($)
1 Months Ended 3 Months Ended 6 Months Ended
Sep. 28, 2018
Aug. 31, 2018
Jul. 31, 2018
Dec. 31, 2018
Dec. 31, 2017
Dec. 31, 2018
Dec. 31, 2017
Jun. 30, 2018
Basis Of Presentation And Significant Accounting Policies [Line Items]                
Equity Method Investment, Ownership Percentage     44.60%          
Management Services Agreement Term           10 years    
Effective Income Tax Rate Reconciliation, at Federal Statutory Income Tax Rate, Percent         21.00%      
Line of Credit Facility, Maximum Borrowing Capacity     $ 5,000,000          
Proceeds from Lines of Credit $ 1,000,000 $ 1,005,000 $ 2,969,000     $ 2,985,000 $ 0  
Debt Instrument, Description of Variable Rate Basis     LIBOR plus 3%          
Debt Instrument, Basis Spread on Variable Rate     3.00%          
Long-term Line of Credit, Noncurrent     $ 2,969,000 $ 2,985,000   $ 2,985,000   $ 0
Debt Instrument, Interest Rate Terms 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.              
Debt Instrument, Interest Rate, Stated Percentage 4.75%              
Debt Instrument Expiration or Due Date Month and Year Oct. 31, 2048              
Proceeds from Other Debt $ 995,000              
Management Fee Payable Percentage on Hotel Revenue           (1.70%)    
Proceeds from Sale of Loans and Leases Held-for-investment           $ 42,940,000    
SEC Schedule, 12-29, Real Estate Companies, Investment in Mortgage Loans on Real Estate, Face Amount of Mortgages       97,000,000   $ 97,000,000    
SEC Schedule, 12-29, Real Estate Companies, Investment in Mortgage Loans on Real Estate, Interest Rate           5.275%    
SEC Schedule, 12-29, Real Estate Companies, Investment in Mortgage Loans on Real Estate, Final Maturity Date           Jan. 31, 2024    
Income Tax Expense (Benefit)       (440,000) $ 344,000 $ 270,000 $ 419,000  
SEC Schedule, 12-29, Real Estate Companies, Investment in Mortgage Loans on Real Estate       $ 94,349,000   $ 94,349,000   $ 95,018,000
Portsmouth [Member]                
Basis Of Presentation And Significant Accounting Policies [Line Items]                
Equity Method Investment, Ownership Percentage       68.80%   68.80%    
Noncontrolling Interest, Ownership Percentage by Parent       13.40%   13.40%    
Mezzanine Loan [Member]                
Basis Of Presentation And Significant Accounting Policies [Line Items]                
SEC Schedule, 12-29, Real Estate Companies, Investment in Mortgage Loans on Real Estate, Face Amount of Mortgages       $ 20,000,000   $ 20,000,000    
SEC Schedule, 12-29, Real Estate Companies, Investment in Mortgage Loans on Real Estate, Interest Rate           9.75%    
Justice Investors [Member]                
Basis Of Presentation And Significant Accounting Policies [Line Items]                
Income Tax Expense (Benefit)         $ 879,000      
Santa Fe [Member]                
Basis Of Presentation And Significant Accounting Policies [Line Items]                
Business Acquisition, Percentage of Voting Interests Acquired       85.90%   85.90%    
Percentage Of Voting Shares In Common Stock       4.00%   4.00%    
Santa Fe [Member] | Woodland Village Inc [Member]                
Basis Of Presentation And Significant Accounting Policies [Line Items]                
Equity Method Investment, Ownership Percentage     55.40%          
v3.10.0.1
REVENUE (Details) - USD ($)
3 Months Ended 6 Months Ended
Dec. 31, 2018
Dec. 31, 2017
Dec. 31, 2018
Dec. 31, 2017
Hotel revenues:        
Revenues $ 17,749,000 $ 16,812,000 $ 37,238,000 $ 34,926,000
Hotel Rooms [Member]        
Hotel revenues:        
Revenues 11,565,000 10,710,000 25,087,000 22,552,000
Food and Beverage [Member]        
Hotel revenues:        
Revenues 1,565,000 1,614,000 3,014,000 3,373,000
Garage [Member]        
Hotel revenues:        
Revenues 734,000 735,000 1,508,000 1,516,000
Other Operating Departments [Member]        
Hotel revenues:        
Revenues 133,000 128,000 198,000 183,000
Hotel [Member]        
Hotel revenues:        
Revenues $ 13,997,000 $ 13,187,000 $ 29,807,000 $ 27,624,000
v3.10.0.1
REVENUE (Details Textual) - USD ($)
6 Months Ended
Dec. 31, 2018
Jun. 30, 2018
Disaggregation of Revenue [Line Items]    
Contract with Customer, Liability $ 1,255,000 $ 571,000
Contract with Customer, Liability, Revenue Recognized $ 560,000  
v3.10.0.1
INVESTMENT IN HOTEL, NET (Details) - USD ($)
Dec. 31, 2018
Jun. 30, 2018
Property, Plant and Equipment [Line Items]    
Net Book Value $ 40,258,000 $ 40,961,000
Hotel [Member]    
Property, Plant and Equipment [Line Items]    
Cost 97,006,000 96,424,000
Accumulated Depreciation (56,748,000) (55,463,000)
Net Book Value 40,258,000 40,961,000
Land [Member] | Hotel [Member]    
Property, Plant and Equipment [Line Items]    
Cost 2,738,000 2,738,000
Accumulated Depreciation 0 0
Net Book Value 2,738,000 2,738,000
Furniture and equipment [Member] | Hotel [Member]    
Property, Plant and Equipment [Line Items]    
Cost 29,932,000 29,350,000
Accumulated Depreciation (26,418,000) (25,876,000)
Net Book Value 3,514,000 3,474,000
Building and improvements [Member] | Hotel [Member]    
Property, Plant and Equipment [Line Items]    
Cost 64,336,000 64,336,000
Accumulated Depreciation (30,330,000) (29,587,000)
Net Book Value $ 34,006,000 $ 34,749,000
v3.10.0.1
INVESTMENT IN REAL ESTATE, NET (Details) - USD ($)
Dec. 31, 2018
Jun. 30, 2018
Property, Plant and Equipment [Line Items]    
Investment in real estate, net $ 52,562,000 $ 53,369,000
Apartment Building [Member]    
Property, Plant and Equipment [Line Items]    
Accumulated depreciation (40,407,000) (39,200,000)
Apartment Building [Member] | Land [Member]    
Property, Plant and Equipment [Line Items]    
Cost 25,033,000 25,033,000
Apartment Building [Member] | Buildings, improvements and equipment [Member]    
Property, Plant and Equipment [Line Items]    
Cost $ 67,936,000 $ 67,536,000
v3.10.0.1
INVESTMENT IN MARKETABLE SECURITIES (Details) - USD ($)
3 Months Ended 6 Months Ended
Dec. 31, 2018
Jun. 30, 2018
Dec. 31, 2017
Dec. 31, 2018
Dec. 31, 2017
Debt and Equity Securities, FV-NI [Line Items]          
Gross Unrealized Loss       $ (2,664,000) $ (2,081,000)
Net Unrealized Loss $ (2,475,000)   $ 726,000 (2,202,000) $ 673,000
Fair Value 7,586,000 $ 13,841,000   7,586,000  
Corporate Equities [Member]          
Debt and Equity Securities, FV-NI [Line Items]          
Cost 18,847,000 22,388,000   18,847,000  
Gross Unrealized Gain   2,450,000   934,000  
Gross Unrealized Loss   (10,997,000)   (12,195,000)  
Net Unrealized Loss   (8,547,000)   (11,261,000)  
Fair Value $ 7,586,000 $ 13,841,000   $ 7,586,000  
v3.10.0.1
INVESTMENT IN MARKETABLE SECURITIES (Details 1) - USD ($)
3 Months Ended 6 Months Ended
Dec. 31, 2018
Dec. 31, 2017
Dec. 31, 2018
Dec. 31, 2017
Debt and Equity Securities, FV-NI [Line Items]        
Realized gain (loss) on marketable securities $ 530,000 $ 181,000 $ 522,000 $ (119,000)
Unrealized (loss) gain on marketable securities (2,475,000) 726,000 (2,202,000) 673,000
Unrealized loss on marketable securities related to Comstock (26,000) (2,085,000) (462,000) (2,754,000)
Net loss on marketable securities $ (1,971,000) $ (1,178,000) $ (2,142,000) $ (2,200,000)
v3.10.0.1
INVESTMENT IN MARKETABLE SECURITIES (Details Textual) - USD ($)
3 Months Ended 6 Months Ended
Jun. 30, 2018
Dec. 31, 2018
Debt and Equity Securities, FV-NI [Line Items]    
Trading Securities, Continuous Unrealized Loss Position, 12 Months or Longer, Aggregate Loss $ 10,819,000 $ 11,495,000
Comstock Mining Inc [Member]    
Debt and Equity Securities, FV-NI [Line Items]    
Trading Securities, Continuous Unrealized Loss Position, 12 Months or Longer, Aggregate Loss $ 10,646,000 $ 11,107,000
v3.10.0.1
OTHER INVESTMENTS, NET (Details) - USD ($)
Dec. 31, 2018
Jun. 30, 2018
Other Investment [Line Items]    
Other investments, net $ 733,000 $ 813,000
Private equity hedge fund, at cost [Member]    
Other Investment [Line Items]    
Other investments, net 474,000 554,000
Other preferred stock, at cost [Member]    
Other Investment [Line Items]    
Other investments, net $ 259,000 $ 259,000
v3.10.0.1
FAIR VALUE MEASUREMENTS (Details) - USD ($)
Dec. 31, 2018
Jun. 30, 2018
Assets:    
Investment in marketable securities $ 7,586,000 $ 13,841,000
Fair Value, Inputs, Level 1 [Member] | Fair Value, Measurements, Recurring [Member]    
Assets:    
Investment in marketable securities 7,586,000 13,841,000
Fair Value, Inputs, Level 1 [Member] | Fair Value, Measurements, Recurring [Member] | REITs and real estate companies [Member]    
Assets:    
Investment in marketable securities 1,664,000 4,300,000
Fair Value, Inputs, Level 1 [Member] | Fair Value, Measurements, Recurring [Member] | Corporate bonds [Member]    
Assets:    
Investment in marketable securities 2,415,000 2,282,000
Fair Value, Inputs, Level 1 [Member] | Fair Value, Measurements, Recurring [Member] | Energy [Member]    
Assets:    
Investment in marketable securities 774,000 311,000
Fair Value, Inputs, Level 1 [Member] | Fair Value, Measurements, Recurring [Member] | Technology [Member]    
Assets:    
Investment in marketable securities 656,000 1,813,000
Fair Value, Inputs, Level 1 [Member] | Fair Value, Measurements, Recurring [Member] | Healthcare [Member]    
Assets:    
Investment in marketable securities 653,000 1,777,000
Fair Value, Inputs, Level 1 [Member] | Fair Value, Measurements, Recurring [Member] | Industrials [Member]    
Assets:    
Investment in marketable securities 519,000 404,000
Fair Value, Inputs, Level 1 [Member] | Fair Value, Measurements, Recurring [Member] | Basic material [Member]    
Assets:    
Investment in marketable securities 496,000 1,038,000
Fair Value, Inputs, Level 1 [Member] | Fair Value, Measurements, Recurring [Member] | Communications [Member]    
Assets:    
Investment in marketable securities 0 1,071,000
Fair Value, Inputs, Level 1 [Member] | Fair Value, Measurements, Recurring [Member] | Other [Member]    
Assets:    
Investment in marketable securities $ 409,000 $ 845,000
v3.10.0.1
FAIR VALUE MEASUREMENTS (Details 1) - USD ($)
6 Months Ended
Dec. 31, 2018
Dec. 31, 2017
Jun. 30, 2018
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]      
Net loss $ 0 $ 0  
Other Investments [Member]      
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]      
Other non-marketable investments 733,000   $ 813,000
Other Investments [Member] | Fair Value, Inputs, Level 3 [Member]      
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]      
Other non-marketable investments $ 733,000   $ 813,000
v3.10.0.1
CASH, CASH EQUIVALENTS AND RESTRICTED CASH (Details) - USD ($)
Dec. 31, 2018
Jun. 30, 2018
Dec. 31, 2017
Jun. 30, 2017
Cash and Cash Equivalents [Line Items]        
Cash and cash equivalents $ 8,978,000 $ 8,053,000    
Restricted cash 10,551,000 9,458,000    
Total cash, cash equivalents, and restricted cash shown in the condensed consolidated statement of cash flows $ 19,529,000 $ 17,511,000 $ 9,995,000 $ 10,273,000
v3.10.0.1
STOCK BASED COMPENSATION PLANS (Details) - Equity Option [Member] - USD ($)
6 Months Ended 12 Months Ended
Dec. 31, 2018
Jun. 30, 2018
Jun. 30, 2017
Stock Based Compensation [Line Items]      
Oustanding, Number of Shares 368,000 368,000  
Granted, Number of Shares 0 0  
Exercised, Number of Shares (26,805) 0  
Forfeited, Number of Shares 0 0  
Exchanged, Number of Shares   0  
Oustanding, Number of Shares 341,195 368,000 368,000
Exercisable, Number of Shares 326,795 318,000  
Vested and Expected to vest, Number of Shares 341,195 368,000  
Oustanding, Weighted Average Exercise Price $ 17.21 $ 17.21  
Granted, Weighted Average Exercise Price 0 0  
Exercised, Weighted Average Exercise Price 20.52 0  
Forfeited, Weighted Average Exercise Price 0 0  
Exchanged, Weighted Average Exercise Price   0  
Oustanding, Weighted Average Exercise Price 16.95 17.21 $ 17.21
Exercisable, Weighted Average Exercise Price 16.50 16.47  
Vested and Expected to vest, Weighted Average Exercise Price $ 16.95 $ 17.21  
Oustanding at Weighted Average Remaining Life 3 years 6 months 25 days 4 years 2 months 1 day 5 years 2 months 1 day
Exercisable, Weighted Average Remaining Life 3 years 4 months 10 days 3 years 9 months 14 days  
Vested and Expected to vest, Weighted Average Remaining Life 3 years 6 months 25 days 4 years 2 months 1 day  
Outstanding, Aggregate Intrinsic Value $ 3,505,000 $ 3,046,000  
Outstanding, Aggregate Intrinsic Value 5,195,000 3,505,000 $ 3,046,000
Exercisable, Aggregate Intrinsic Value 5,125,000 3,257,000  
Vested and Expected to vest, Aggregate Intrinsic Value $ 5,195,000 $ 3,505,000  
v3.10.0.1
STOCK BASED COMPENSATION PLANS (Details Textual) - USD ($)
3 Months Ended 6 Months Ended
Dec. 31, 2018
Dec. 31, 2017
Dec. 31, 2018
Dec. 31, 2017
Jun. 30, 2018
Stock Based Compensation [Line Items]          
Employee Service Share-based Compensation, Allocation of Recognized Period Costs, Capitalized Amount $ 29,000 $ 60,000      
Employee Service Share-based Compensation, Nonvested Awards, Compensation Cost Not yet Recognized $ 61,000   $ 61,000    
Share-Based Compensation Arrangement By Share-Based Payment Award Award Vesting Period 1     3 years 2 months 1 day    
Allocated Share-based Compensation Expense     $ 59,000 $ 122,000  
Common Stock, Shares, Issued 3,404,982   3,404,982   3,395,616
Chief Executive Officer [Member]          
Stock Based Compensation [Line Items]          
Share-based Compensation Arrangement by Share-based Payment Award, Options, Exercises in Period     26,805    
Common Stock, Shares, Issued 17,439   17,439    
Stock Issued During Period, Shares, New Issues     9,366    
v3.10.0.1
SEGMENT INFORMATION (Details) - USD ($)
3 Months Ended 6 Months Ended
Dec. 31, 2018
Sep. 30, 2018
Dec. 31, 2017
Sep. 30, 2017
Dec. 31, 2018
Dec. 31, 2017
Jun. 30, 2018
Segment Reporting Information [Line Items]              
Revenues $ 17,749,000   $ 16,812,000   $ 37,238,000 $ 34,926,000  
Segment income (loss) from operations 2,919,000   1,970,000   7,700,000 5,495,000  
Interest expense - mortgage (2,405,000)   (2,490,000)   (4,970,000) (4,983,000)  
Depreciation and amortization expense (1,249,000)   (1,267,000)   (2,492,000) (2,541,000)  
Income tax expense 440,000   (344,000)   (270,000) (419,000)  
Net income (loss) (1,122,000) $ 1,128,000 (2,507,000) $ (295,000) 6,000 (2,802,000)  
Total assets 125,404,000       125,404,000   $ 131,680,000
Operating Segments [Member]              
Segment Reporting Information [Line Items]              
Revenues 17,749,000   16,812,000   37,238,000 34,926,000  
Segment operating expenses (13,581,000)   (13,575,000)   (27,046,000) (26,890,000)  
Segment income (loss) from operations 4,168,000   3,237,000   10,192,000 8,036,000  
Interest expense - mortgage (2,405,000)   (2,490,000)   (4,970,000) (4,983,000)  
Depreciation and amortization expense (1,249,000)   (1,267,000)   (2,492,000) (2,541,000)  
Loss from investments (2,076,000)   (1,643,000)   (2,454,000) (2,895,000)  
Income tax expense 440,000   (344,000)   (270,000) (419,000)  
Net income (loss) (1,122,000)   (2,507,000)   6,000 (2,802,000)  
Total assets 125,404,000       125,404,000    
Hotel Operations [Member] | Operating Segments [Member]              
Segment Reporting Information [Line Items]              
Revenues 13,997,000   13,187,000   29,807,000 27,624,000  
Segment operating expenses (11,236,000)   (10,743,000)   (22,046,000) (21,332,000)  
Segment income (loss) from operations 2,761,000   2,444,000   7,761,000 6,292,000  
Interest expense - mortgage (1,797,000)   (1,850,000)   (3,611,000) (3,703,000)  
Depreciation and amortization expense (643,000)   (682,000)   (1,285,000) (1,381,000)  
Loss from investments 0   0   0 0  
Income tax expense 0   0   0 0  
Net income (loss) 321,000   (88,000)   2,865,000 1,208,000  
Total assets 58,380,000       58,380,000    
Real Estate Operations [Member] | Operating Segments [Member]              
Segment Reporting Information [Line Items]              
Revenues 3,752,000   3,625,000   7,431,000 7,302,000  
Segment operating expenses (1,866,000)   (2,102,000)   (3,878,000) (3,997,000)  
Segment income (loss) from operations 1,886,000   1,523,000   3,553,000 3,305,000  
Interest expense - mortgage (608,000)   (640,000)   (1,359,000) (1,280,000)  
Depreciation and amortization expense (606,000)   (585,000)   (1,207,000) (1,160,000)  
Loss from investments 0   0   0 0  
Income tax expense 0   0   0 0  
Net income (loss) 672,000   298,000   987,000 865,000  
Total assets 52,562,000       52,562,000    
Investment Transactions [Member] | Operating Segments [Member]              
Segment Reporting Information [Line Items]              
Revenues 0   0   0 0  
Segment operating expenses 0   0   0 0  
Segment income (loss) from operations 0   0   0 0  
Interest expense - mortgage 0   0   0 0  
Depreciation and amortization expense 0   0   0 0  
Loss from investments (2,076,000)   (1,643,000)   (2,454,000) (2,895,000)  
Income tax expense 0   0   0 0  
Net income (loss) (2,076,000)   (1,643,000)   (2,454,000) (2,895,000)  
Total assets 8,319,000       8,319,000    
Corporate Segment [Member] | Operating Segments [Member]              
Segment Reporting Information [Line Items]              
Revenues 0   0   0 0  
Segment operating expenses (479,000)   (730,000)   (1,122,000) (1,561,000)  
Segment income (loss) from operations (479,000)   (730,000)   (1,122,000) (1,561,000)  
Interest expense - mortgage 0   0   0 0  
Depreciation and amortization expense 0   0   0 0  
Loss from investments 0   0   0 0  
Income tax expense 440,000   (344,000)   (270,000) (419,000)  
Net income (loss) (39,000)   $ (1,074,000)   (1,392,000) $ (1,980,000)  
Total assets $ 6,143,000       $ 6,143,000    
v3.10.0.1
RELATED PARTY AND OTHER FINANCING TRANSACTIONS (Details)
Dec. 31, 2018
USD ($)
2019 $ 168,000
2020 384,000
2021 384,000
2022 376,000
2023 77,000
Total minimum lease payments 1,389,000
Less interest on capital lease (146,000)
Present value of future minimum lease payments $ 1,243,000
v3.10.0.1
RELATED PARTY AND OTHER FINANCING TRANSACTIONS (Details 1) - Notes Payable, Other Payables [Member]
Dec. 31, 2018
USD ($)
2019 $ 504,000
2020 3,918,000
2021 913,000
2022 927,000
2023 641,000
Thereafter 2,875,000
Long-term Debt $ 9,778,000
v3.10.0.1
RELATED PARTY AND OTHER FINANCING TRANSACTIONS (Details Textual) - USD ($)
1 Months Ended 6 Months Ended 12 Months Ended
Sep. 28, 2018
Aug. 31, 2018
Jul. 31, 2018
May 12, 2017
Apr. 30, 2017
Jul. 02, 2014
Dec. 31, 2018
Dec. 31, 2017
Jun. 30, 2018
Jun. 30, 2019
Sep. 30, 2017
Key Money Incentive Advance To Related Party             $ 2,000,000   $ 2,000,000    
Management Services Agreement Term             10 years        
Debt Instrument, Interest Rate, Stated Percentage 4.75%                    
Capital Lease Obligations             $ 1,243,000   1,355,000    
Long Term Debt Expiration Terms             These capital leases expire in various years through 2023 at rates ranging from 5.77% to 6.53% per annum.        
Other Notes Payable             $ 5,550,000   5,735,000    
Repayments of Long-term Debt                 1,250,000    
Due from Related Parties             2,000,000        
Line of Credit Facility, Maximum Borrowing Capacity     $ 5,000,000                
Proceeds from Lines of Credit $ 1,000,000 $ 1,005,000 $ 2,969,000       2,985,000 $ 0      
Equity Method Investment, Ownership Percentage     44.60%                
Debt Instrument, Description of Variable Rate Basis     LIBOR plus 3%                
Debt Instrument, Basis Spread on Variable Rate     3.00%                
Long-term Line of Credit, Noncurrent     $ 2,969,000       2,985,000   0    
Payments to Acquire Limited Partnership Interests             1,550,000        
Management Fee Payable             $ 200,000        
Intergroup [Member]                      
Debt Instrument, Face Amount           $ 4,250,000       $ 3,000,000  
Debt Instrument, Interest Rate, Stated Percentage           12.00%          
Debt Instrument, Term           2 years          
Debt Instrument Fee Percentage           3.00%          
Debt Instrument, Maturity Date           Jun. 30, 2019 Dec. 31, 2018        
Portsmouth Square Inc [Member]                      
Debt Instrument, Face Amount         $ 1,000,000            
Debt Instrument, Interest Rate, Stated Percentage         5.00%            
Additional Indemnitor [Member] | Mortgage Loans [Member]                      
Related Party Transaction, Amounts of Transaction       $ 20,000,000              
Additional Guarantor [Member] | Mortgage Loans [Member]                      
Related Party Transaction, Amounts of Transaction       $ 97,000,000              
Justice [Member]                      
Accounts Receivable, Related Parties                     $ 116,000
Interest Free Development Incentive Note [Member]                      
Notes Reduction             $ 316,000        
Other Notes Payable             $ 3,483,000   $ 3,642,000    
Woodland Village Inc [Member]                      
Equity Method Investment, Ownership Percentage     44.60%                
Woodland Village Inc [Member] | Santa Fe [Member]                      
Equity Method Investment, Ownership Percentage     55.40%                
Portsmouth [Member]                      
Debt Instrument, Term         5 months