Annual Report for Fiscal Year Ending June 30, 2025 (Form 10-K)

Management's Discussion and Analysis of Financial Condition and Results of Operations.

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

MARKET CONDITIONS IN SAN FRANCISCO

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

REAL ESTATE

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

RESULTS OF OPERATIONS

As of June 30, 2025, the Company owned approximately 75.9% of the common shares of Portsmouth Square, Inc. The Company's principal sources of revenue are revenues from the Hotel owned by Portsmouth, rental income from its investments in multi-family and commercial real estate properties, and income received from investment of its cash and securities assets.

Portsmouth's primary asset is a 544-room hotel property located at 750 Kearny Street, San Francisco, California 94108, known as the "Hilton San Francisco Financial District" (the "Hotel" or the "Property") and related facilities, including a five-level underground parking garage. The financial statements of Portsmouth are consolidated with those of the Company.

In addition to the operations of the Hotel, the Company also generates income from the ownership and management of its real estate. Properties include sixteen apartment complexes, one commercial real estate property, and three single-family houses as strategic investments. The properties are located throughout the United States but are concentrated in Texas and Southern California. The Company also has an investment in unimproved real property in Hawaii.

The Company acquires its investments in real estate and other investments utilizing cash, securities, or debt, subject to approval or guidelines of the Board of Directors. The Company also invests in income-producing instruments, equity and debt securities and will consider other investments if such investments offer growth or profit potential.

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

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

Hotel Operations

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

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

For the year ended June 30,		2025				2024
Hotel revenues:
Hotel rooms		$	39,648,000			$	35,239,000
Food and beverage			2,862,000				3,213,000
Garage			3,214,000				2,988,000
Other operating departments			639,000				446,000
Total Hotel revenues			46,363,000				41,886,000
Operating expenses excluding depreciation and amortization			(37,631,000	)			(36,139,000	)
Operating income before interest, depreciation and amortization			8,732,000				5,747,000
Gain on extinguishment of debt			1,416,000				-
Interest expense - mortgage			(10,680,000	)			(9,407,000	)
Depreciation and amortization expense			(3,634,000	)			(3,494,000	)
Net loss from Hotel operations		$	(4,166,000	)		$	(7,154,000	)

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

Month		Jul				Aug				Sep				Oct				Nov				Dec				Jan				Feb				Mar				Apr				May				Jun				Fiscal Year
Year		2024				2024				2024				2024				2024				2024				2025				2025				2025				2025				2025				2025				2024 - 2025
Average Occupancy %			96	%			96	%			96	%			94	%			83	%			87	%			90	%			86	%			91	%			91	%			93	%			93	%			92	%

Year		2023				2023				2023				2023				2023				2023				2024				2024				2024				2024				2024				2024				2023 - 2024
Average Occupancy %			81	%			89	%			93	%			83	%			79	%			80	%			80	%			78	%			76	%			73	%			78	%			87	%			82	%

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

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

For the Year Ended June 30,		Average Daily Rate				Average Occupancy %				RevPAR
2025		$	218				92	%		$	200
2024		$	217				82	%		$	177

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

Real Estate Operations

Revenues from real estate operations increased to $18,015,000 in fiscal 2025 and $16,254,000 in fiscal 2024, primarily as the result of higher occupancy and increased rental rates. Real estate operating expenses decreased to $9,550,000 from $9,836,000 primarily due to a decrease in vacancy at our Missouri property, which rebranding and is undergoing renovation. Management continues to review and analyze the Company's real estate operations to improve occupancy and rental rates and to reduce expenses and improve efficiencies.

Investment Transactions

The Company had a net loss on marketable securities of $1,347,000 for the year ended June 30, 2025 compared to a net loss on marketable securities of $485,000 for the year ended June 30, 2024.

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

Gains and losses on marketable securities may fluctuate significantly from period to period in the future and could have a significant impact on the Company's results of operations. However, the amount of gain or loss on marketable securities for any given period is not necessarily predictive, and variations from period to period may have limited analytical value. For a more detailed description of the composition of the Company's marketable securities see the Marketable Securities section below.

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

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

MARKETABLE SECURITIES AND OTHER INVESTMENTS

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

As of June 30, 2025 Industry Group		Fair Value				% of Total Investment Securities
REITs and real estate companies		$	966,000				99.6	%
Technology			3,000				0.4	%
		$	969,000				100.0	%

As of June 30, 2024 Industry Group		Fair Value				% of Total Investment Securities
REITs and real estate companies		$	3,358,000				45.1	%
Communication services			1,994,000				26.7	%
T-Notes			933,000				12.5	%
Energy			303,000				4.1	%
Financial services			269,000				3.6	%
Healthcare			179,000				2.4	%
Utilities			163,000				2.2	%
Industrial			159,000				2.1	%
Basic materials			75,000				1.0	%
Technology			21,000				0.3	%
		$	7,454,000				100.0	%

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

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

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

For the years ended June 30,		2025				2024
Net loss on marketable securities		$	(1,347,000	)		$	(485,000	)
Impairment loss on other investments			-				(5,000	)
Dividend and interest income			161,000				405,000
Margin interest expense			(806,000	)			(1,013,000	)
Trading expenses			(510,000	)			(535,000	)
Net loss from marketable securities operations		$	(2,502,000	)		$	(1,633,000	)

FINANCIAL CONDITION, LIQUIDITY AND CAPITAL SOURCES

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

Parent Company (InterGroup) - Liquidity and Capital Resources

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

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

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

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

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

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

Related Party Credit Facility - InterGroup

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

Key modifications include:

	●	December 2021: Portsmouth assumed $11.35 million in outstanding debt upon the dissolution of Justice Investors L.P.
	●	July 2023: Increased available borrowings to $20,000,000 and extended maturity to July 31, 2025 with a 0.5% loan modification fee.
	●	March 2024: Increased available borrowings to $30,000,000 with a 0.5% loan modification fee
	●	March 2025: Further increased available borrowing capacity to $40,000,000 and extended the maturity to July 31, 2027.
	●	May 2025: Reduction of interest rate from 12% to 9%.

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

Intergroup Real Estate - Recent Financing Activity

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

During the fiscal year ending June 30, 2024, the Company obtained a second mortgage on its 358-unit apartment located in Las Colinas, Texas in the amount of $4,573,000. The term of the loan is approximately 7 years with an interest rate of 7.60%.

Liquidity Requirements and Material Cash Requirements

Material Cash Requirements

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

Parent-level (InterGroup) liquidity and cash requirements

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

Near-term parent cash requirements include:

	●	Debt service and required escrows on InterGroup's property-level mortgages within the multifamily and commercial portfolio (see Note 10 for terms and maturities).
	●	Recurring capital expenditures to maintain safety, habitability, and competitiveness of our properties. We expect to fund these primarily from property operating cash flows and, as needed, property-level financing.
	●	Corporate G&A and income taxes.
	●	Board-authorized share repurchases, if any, which are discretionary and subject to market conditions and liquidity.

Longer-term parent cash requirements include:

	●	Scheduled mortgage maturities and potential refinancings within our real estate portfolio (see the contractual obligations table under "Material Contractual Obligations" in this MD&A and Note 10).
	●	Value-add and repositioning capital for select properties, evaluated based on expected returns and available liquidity.

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

Consolidated (including Portsmouth) liquidity and cash requirements

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

	●	Hotel debt service consisting of interest-only payments on the senior mortgage loan with Prime Finance and the mezzanine loan with CRED REIT Holdco LLC, as well as required reserve deposits (taxes, insurance, and FF&E) and compliance with lender-approved budgets. See Note 10 - Mortgage Notes Payable for terms.
	●	Cash Management Agreement. Under the Cash Management Agreement with Prime Finance and Wells Fargo Bank, all Hotel receipts are deposited into a lender-controlled account and disbursed for approved operating expenses, debt service and required reserves. A cash sweep applies during periods when DSCR thresholds are not met. These arrangements restrict upstream distributions from the Hotel until the applicable conditions are satisfied. See Note 17 - Commitments and Contingencies.

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

Contractual obligations and maturities

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

Outlook

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

Management's Liquidity Assessment

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

	●	Completion of a refinancing of its senior and mezzanine debt in March 2025,
	●	Continuing cost controls and selective capital expenditure deferrals,
	●	Strategic use of related party financing, and
	●	Maintenance of a lender-controlled lockbox cash management system.

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

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

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

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

Going Concern - Portsmouth (Subsidiary Only)

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

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

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

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

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

MATERIAL CASH REQUIREMENTS FROM CONTRACTUAL AND OTHER OBLIGATIONS

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

						Year				Year				Year				Year				Year
		Total				2026				2027				2028				2029				2030				Thereafter
Mortgage and subordinated notes payable		$	197,760,000			$	1,229,000			$	106,663,000			$	6,588,000			$	1,845,000			$	16,032,000			$	65,403,000
Other notes payable			1,979,000				567,000				463,000				317,000				317,000				315,000				-
Interest			40,807,000				11,665,000				13,418,000				2,645,000				2,580,000				2,436,000				8,063,000
Total		$	240,546,000			$	13,461,000			$	120,544,000			$	9,550,000			$	4,742,000			$	18,783,000			$	73,466,000

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

OFF-BALANCE SHEET ARRANGEMENTS

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

IMPACT OF INFLATION

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

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

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Critical accounting policies are those that are most significant to the portrayal of our financial position and results of operations and require judgments by management in order to make estimates about the effect of matters that are inherently uncertain. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts in our consolidated financial statements. We evaluate our estimates on an on-going basis, including those related to the consolidation of our subsidiaries, revenues, allowance for doubtful accounts, accruals, asset impairments, other investments, income taxes, and commitments and contingencies. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities. The actual results may differ from these estimates, and different assumptions or conditions could materially affect such estimates.

INCOME TAXES

Judgment is required in addressing the future tax consequences of events that have been recognized in our consolidated financial statements or tax returns (e.g., realization of deferred tax assets, changes in tax laws, or interpretations thereof). In addition, we are subject to examination of our income tax returns by the IRS and other tax authorities. A change in the assessment of the outcomes of such matters could materially impact our consolidated financial statements. We evaluate tax positions taken or expected to be taken on a tax return to determine whether they are more likely than not of being sustained, assuming that the tax reporting positions will be examined by taxing authorities with full knowledge of all relevant information, prior to recording the related tax benefit in our consolidated financial statements. If a position does not meet the more likely than not standard, the benefit cannot be recognized. Assumptions, judgment, and the use of estimates are required in determining if the "more likely than not" standard has been met when developing the provision for income taxes. A change in the assessment of the "more likely than not" standard with respect to a position could materially impact our consolidated financial statements.

DEFERRED INCOME TAXES - VALUATION ALLOWANCE

We assess the realizability of our deferred tax assets quarterly and recognize a valuation allowance when it is more likely than not that some or all of our deferred tax assets are not realizable. This assessment is completed by tax jurisdiction and relies on the weight of both positive and negative evidence available, with significant weight placed on recent financial results. Cumulative pre-tax losses for the three-year period are considered significant objective negative evidence that some or all of our deferred tax assets may not be realizable. Cumulative reported pre-tax income is considered objectively verifiable positive evidence of our ability to generate positive pre-tax income in the future. In accordance with GAAP, when there is a recent history of pre-tax losses, there is little or no weight placed on forecasts for purposes of assessing the recoverability of our deferred tax assets. When necessary, we use systematic and logical methods to estimate when deferred tax liabilities will reverse and generate taxable income and when deferred tax assets will reverse and generate tax deductions. Assumptions, judgment, and the use of estimates are required when scheduling the reversal of deferred tax assets and liabilities, and the exercise is inherently complex and subjective. However, significant judgment will be required to determine the timing and amount of any reversal of the valuation allowance in future periods.

HOTEL ASSETS AND DEFINITE-LIVED INTANGIBLE ASSETS

We evaluate property and equipment, and definite-lived intangible assets for impairment quarterly, and when events or circumstances indicate the carrying value may not be recoverable, we evaluate the net book value of the assets by comparing to the projected undiscounted cash flows of the assets. We use judgment to determine whether indications of impairment exist and consider our knowledge of the hospitality industry, historical experience, location of the property, market conditions, and property-specific information available at the time of the assessment. The results of our analysis could vary from period to period depending on how our judgment is applied and the facts and circumstances available at the time of the analysis. When an indicator of impairment exists, judgment is also required in determining the assumptions and estimates to use within the recoverability analysis and when calculating the fair value of the asset or asset group, if applicable. Changes in economic and operating conditions impacting the judgments used could result in impairments to our long-lived assets in future periods. Historically, changes in estimates used in the property and equipment and definite-lived intangible assets impairment assessment process have not resulted in material impairment charges in subsequent periods as a result of changes made to those estimates. There were no indicators of Hotel investments or intangible assets, and accordingly there were no impairment losses recorded for the years ended June 30, 2025 and 2024.

STOCK-BASED COMPENSATION

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