NEGATIVE EFFECTS OF CIVIL AUTHORITY ACTIONS ON OUR BUSINESS


On February 25, 2020, the City of San Francisco issued the proclamation by the
Mayor declaring the existence of a local emergency. The negative effects of the
civil authority actions related to the novel strain of coronavirus ("COVID-19")
on our business have been significant. In March 2020, the World Health
Organization declared COVID-19 a global pandemic. This contagious virus, which
has continued to spread, has adversely affected workforces, customers,
economies, and financial markets globally. It has also disrupted the normal
operations of many businesses, including ours. To mitigate the harm from the
pandemic, on March 16, 2020, the City and County of San Francisco, along with a
group of five other Bay Area counties and the City of Berkeley, issued parallel
health officer orders imposing shelter in place limitations across the Bay Area,
requiring everyone to stay safe at home except for certain essential needs.
Since February 2020, several unfavorable events and civil authority actions have
unfolded causing demand for our hotel rooms to suffer including cancellations of
all citywide conventions, reduction of flights in and out of the Bay Area and
decline in both leisure and business travel.



24








In December 2020, due to the surge in COVID-19 cases and hospitalizations, the
Health Officer of the City and County of San Francisco suspended or restricted
certain activities. Health Order C19-07q (the "Order") incorporates suspensions,
reductions in capacity limits, and other restrictions contained in the Regional
Stay At Home Order issued by the California Department of Public Health on
December 3, 2020. Effective December 17, 2020, the Bay Area Region, including
San Francisco, was required to comply with the State's December 3, 2020 Regional
Stay-at-Home Order. The Order strongly discouraged anyone in the County from
travelling for leisure, recreation, business, or other purposes that could be
postponed until after the surge. With limited exceptions, this Order imposed a
mandatory quarantine on anyone traveling, moving, or returning to the County
from anywhere outside the Bay Area. Effective January 20, 2021, Health Order
C19- 07r revised and replaced the previous Order; it continued to temporarily
prohibit certain businesses and activities from resuming but allowed certain
other businesses, activities, travel, and governmental functions to occur
subject to specified health and safety restrictions, limitations, and conditions
to limit the transmission of COVID-19.



On March 24, 2021, the City and County of San Francisco announced it moved into
the orange tier which removed the suggested Shelter in Place for guests
travelling to San Francisco. This was a very positive step for the hotel
community. This tier opened activities in the city including expanded restaurant
capacities, museums, and attractions. For the hotel it allowed for guests to
gather in public spaces and for outlets and amenities to open at limited
capacities including fitness centers. It did not change the very stringent
cleaning and sanitation requirements set forth by the Health Officer of the City
and County of San Francisco which proved to be a costly measure to maintain.
Effective May 6, 2021, the City and County of San Francisco moved into the
yellow tier guidelines. We continue to closely monitor the very fluid changes
that the Center for Disease Control, San Francisco Department of Health and
other authorities implement with regards to the COVID-19 pandemic.



On August 20, 2021, San Francisco announced vaccination requirements for indoor
activities. This order requires restaurants, theaters, and entertainment venues
where food or drink is served inside, as well as gyms, recreation facilities,
yoga studios, dance studios and other fitness establishments, clubs involving
elevated breathing to show proof of vaccination.



On January 11, 2022, a new Health Order has been issued. The primary change to
the Order is to comply with changes the State made lowering the threshold for
mega events to 500 attendees indoor and 5,000 attendees outdoor beginning
January 15, 2022. On March 17, 2022, the State of California announced that
beginning on April 1, 2022, it will no longer require that people attending
Indoor Mega-Event (i.e., events with 1,000 or more attendees) provide proof of
vaccination or negative testing to gain entry. Instead, the State strongly
recommend that venues hosting Indoor Mega-Events continue to impose that
requirement.



The San Francisco hospitality market has seen the two largest citywide events go
virtual with DreamForce in September 2021 and JP Morgan Healthcare Conference in
January 2022. RSA Conference originally scheduled for February 2022 was moved to
June 2022 and Google Cloud Next was cancelled for 2022. As of the date of this
report, the market is seeing slow and steady improvement month over month. Rates
in the market grew roughly 20% from February 2022 to March 2022 as demand is
steadily increasing, particularly midweek where it has been the softest. Demand
generators are returning to the market with the largest being Game Developers
Conference in March 2022. Although it was approximately half of the pre-COVID
attendance, it lifted the market to the best RevPAR we have seen since March
2020. . April 2022 continued the trend with midweek rates rising and another
strong performance from the RIMS citywide. May was another strong month with
increasing leisure demand and another successful citywide in American Thoracic
Society, RevPAR grew 10% month over month. June was the strongest month since
the pandemic with rates growing $35 almost 15% just from the previous month
driven by strong summer travel and the most successful citywide since the
pandemic began in RSA. The hotel achieved a significant benchmark breaking the
$4MM mark in total revenues for the first time since January of 2020. July and
August 2022 performed strong as well as we closed out the expected demand from
summer travel along with an increase in much needed Business Travel and small
groups to the hotel.



25








As a result of the Coronavirus Aid, Relief, and Economic Security Act (the
"CARES Act") signed into law on March 27, 2020, additional avenues of relief may
be available to workers and families through enhanced unemployment insurance
provisions and to small businesses through programs administered by the Small
Business Administration ("SBA"). The CARES Act includes, among other things,
provisions relating to payroll tax credits and deferrals, net operating loss
carryback periods, alternative minimum tax credits and technical corrections to
tax depreciation methods for qualified improvement property. The CARES Act also
established a Paycheck Protection Program ("PPP"), whereby certain small
businesses are eligible for a loan to fund payroll expenses, rent, and related
costs. On April 9, 2020, Justice entered into a loan agreement ("SBA Loan -
Justice") with CIBC Bank USA under the CARES Act. Justice received proceeds of
$4,719,000 from the SBA Loan - Justice. In accordance with the requirements of
the CARES Act, Justice has used all proceeds from the SBA Loan for payroll costs
and other qualified expenses. The SBA Loan - Justice was scheduled to mature on
April 9, 2022 and had a 1.00% interest rate and was subject to the terms and
conditions applicable to loans administered by the U.S. Small Business
Administration under the CARES Act. On April 27, 2020, InterGroup entered into a
loan agreement ("SBA Loan - InterGroup") with CIBC Bank USA under the CARES Act
and received loan proceeds in the amount of $453,000. InterGroup used all the
$453,000 loan proceeds in qualified payroll expenses. The SBA Loan - InterGroup
was scheduled to mature on April 27, 2022 and had a 1.00% interest rate. Both
the SBA Loan - Justice and SBA Loan - InterGroup (collectively the "SBA Loans")
were forgiven in full by the SBA during the fiscal year ending June 30, 2021 and
$5,172,000 was recorded as gain on debt extinguishment on the consolidated
statement of operations for the fiscal year ended June 30, 2021.



On February 3, 2021, Justice entered into a second loan agreement ("Second SBA
Loan") with CIBC Bank USA administered by the SBA. Justice received proceeds of
$2,000,000 from the Second SBA Loan. As of June 30, 2021, Justice used all
proceeds from the Second SBA Loan primarily for payroll costs. The Second SBA
Loan was scheduled to mature on February 3, 2026, had a 1.00% interest rate, and
was subject to the terms and conditions applicable to loans administered by the
U.S. Small Business Administration under the CARES Act. On November 19, 2021,
the Second SBA Loan was forgiven in full and $2,000,000 was recorded as gain on
debt extinguishment on the consolidated statement of operations for the fiscal
year ended June 30, 2022.



RESULTS OF OPERATIONS



As of June 30, 2022, the Company owned approximately 75.0% 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 have been 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, 2022 Compared to Fiscal Year Ended June 30, 2021



The Company had a net loss of $10,616,000 or the year ended June 30, 2022
compared to a net income of $10,545,000 for the year ended June 30, 2021. Income
from operations was $3,671,000 for the year ended June 30, 2022 and loss from
operations was $4,870,000 for fiscal year ended June 30, 2021. The Company
recorded losses of $8,101,000 from marketable securities transactions during
fiscal year ended June 30, 2022 as compared to gains of $10,705,000 during
fiscal year ended June 30, 2021. Gain on debt forgiveness was $2,000,000 and
$5,172,000 during fiscal years ended June 30, 2022 and 2021, respectively. The
Company did not sell any of its properties during fiscal year ended June 30,
2022. During fiscal year ended June 30, 2021, Santa Fe sold its California
property and recorded a gain of $12,043,000 from the sale of real estate in
fiscal year ended June 30, 2021.



Hotel Operations



The Company had net loss of $2,776,000 from Hotel operations for the year ended
June 30, 2022 compared to net loss of $7,450,000 for the year ended June 30,
2021. The change was primarily attributable to the $16,866,000 increase in Hotel
revenue, offset by the $9,540,000 increase in operating expenses.



26

The following table sets forth a more detailed presentation of Hotel operations for the years ended June 30, 2022 and 2021.





For the year ended June 30,                             2022               2021
Hotel revenues:
Hotel rooms                                        $   26,599,000     $   12,138,000
Food and beverage                                       1,471,000            293,000
Garage                                                  3,112,000          2,117,000
Other operating departments                               352,000            120,000
Total hotel revenues                                   31,534,000         14,668,000
Operating expenses excluding depreciation and
amortization                                          (27,451,000 )      (17,911,000 )
Operating income (loss) before interest,
depreciation and amortization                           4,083,000         (3,243,000 )
Gain on disposal of assets                                      -             12,000
Gain on forgiveness of debt                             2,000,000          4,719,000
Interest expense - mortgage                            (6,549,000 )       (6,710,000 )
Depreciation and amortization expense                  (2,310,000 )       (2,228,000 )
Net loss from Hotel operations                     $   (2,776,000 )   $   (7,450,000 )




For the year ended June 30, 2022, the Hotel had operating income of $4,083,000
before non-recurring charges, interest, depreciation, and amortization on total
operating revenues of $31,534,000 compared to operating loss of $3,243,000
before non-recurring charges, interest, depreciation, and amortization on total
operating revenues of $14,668,000 for the year ended June 30, 2021. Room
revenues increased by $14,461,000 for the year ended June 30, 2022 compared to
the year ended June 30, 2021, food and beverage revenue increased by $1,178,000,
revenue from garage increased by $995,000, and revenue from other operating
departments increased by $232,000. The year over year increase in all areas are
result of recovery from the business interruption attributable to a variety of
responses by federal, state, and local civil authority to the COVID-19 outbreak
since March 2020.

The following table sets forth the monthly average occupancy percentage of the Hotel for the fiscal years ended June 30, 2022 and 2021.





           Month                Jul       Aug       Sep       Oct       Nov

Dec Jan Feb Mar Apr May Jun Fiscal Year


            Year               2021      2021      2021      2021      2021      2021      2022      2022      2022      2022      2022      2022       2021 - 2022
    Average Occupancy %           82 %      77 %      76 %      79 %      72 %      74 %      68 %      74 %      81 %      87 %      90 %      95 %              80 %




           Year               2020      2020      2020      2020      2020      2020      2021      2021      2021      2021      2021      2021       2020 - 2021

    Average Occupancy %          44 %      55 %      62 %      64 %      52 %      30 %      29 %      45 %      67 %      66 %      71 %      78 %              55 %

Total operating expenses increased by $9,540,000 due to increase in salaries and wages, union health insurance, repairs and maintenance, credit card fees, management fees, and franchise fees.





The following table sets forth the average daily room rate, average occupancy
percentage and room revenue per available room ("RevPAR") of the Hotel for the
year ended June 30, 2022 and 2021.



                                Average           Average

For the Year Ended June 30, Daily Rate Occupancy % RevPAR



2022                          $        168                80 %   $    134
2021                          $        111                55 %   $     61




27







The Hotel's revenues increased by 115% year over year. Average daily rate
increased by $57, average occupancy increased 25%, and RevPAR increased by $73
for the twelve months ended June 30, 2022 compared to the twelve months ended
June 30, 2021.



The Hotel has taken advantage of the softer demand to take on many improvement
projects. We have replaced the wall vinyl in several areas in the lobby and
replaced all the art to represent more of the iconic locations in San Francisco.
All lobby and restaurant rugs have been replaced and all public restrooms on the
first four floors have new vinyl. The Hotel has replaced most of the vinyl in
the common areas of the meeting floors and will complete the meeting rooms by
September 2022. All guest room carpet has been replaced and a new revised model
room that has been valued engineered has been presented to the Hilton design
team and is expected to be completed by mid-year 2023. Project to repurpose the
old Justice offices, accounting offices, Spa, and Executive Lounge has begun
which would add 15 additional income producing guest rooms to our inventory.
Part of the renovation will be funded by the Hotel's furniture, fixture, and
equipment reserve account with our senior lender.



Real Estate Operations



Revenue from real estate operations increased to $15,685,000 for the year ended
June 30, 2022 from $13,990,000 for the year ended June 30, 2021 primarily due to
$935,000 reduction in delinquent rents and $581,000 increase in gross potential
rent as a result of higher rental rates and higher occupancy. Real estate
operating expenses increased to $8,694,000 from $7,869,000 primarily due to
increased administrative expenses, salary expense, insurance expense, and
painting - contract labor. 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 $7,614,000 for the year
ended June 30, 2022 compared to a net gain on marketable securities of
$11,638,000 for the year ended June 30, 2021. For the year ended June 30, 2022,
the Company had a net realized loss of $2,581,000 related to the Company's
investment in the common stock of Comstock Mining Inc. ("Comstock" - NYSE MKT:
LODE). For the year ended June 30, 2021, the Company had a net gain (realized
and unrealized) of $3,390,000 related to the Company's investment in Comstock.



As of June 30, 2022 and 2021, investments in Comstock represent approximately 0%
and 4% of the Company's investment portfolio, respectively. For the year ended
June 30, 2022, the Company had a net realized loss of $2,206,000 and a net
unrealized loss of $5,408,000. For the year ended June 30, 2021, the Company had
a net realized gain of $876,000 and a net unrealized gain of $10,762,000.

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.





During the years ended June 30, 2022 and 2021, 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 $41,000
and $119,000, respectively.



The Company and its subsidiary Portsmouth, compute and file income tax returns
and prepare discrete income tax provisions for financial reporting. The income
tax benefit during the years ended June 30, 2022 and 2021 represents primarily
the combined income tax effect of Portsmouth's pretax loss which includes its
share in net loss from the Hotel and the pre-tax loss from InterGroup
(standalone).



28

MARKETABLE SECURITIES AND OTHER INVESTMENTS





As of June 30, 2022 and 2021, the Company had investments in marketable equity
securities of $11,049,000 and $35,792,000, respectively. The following table
shows the composition of the Company's marketable securities portfolio by
selected industry groups:



                                                    % of Total
      As of June 30, 2022                           Investment
        Industry Group             Fair Value       Securities
REITs and real estate companies   $  3,289,000             29.8 %
Communications Services              2,787,000             25.2 %
Financial services                   1,755,000             15.9 %
Technology                             815,000              7.4 %
Basic materials                        769,000              7.0 %
Consumer cyclical                      693,000              6.3 %
Industrial                             385,000              3.5 %
Energy                                 279,000              2.5 %
Other                                  277,000              2.4 %
                                  $ 11,049,000            100.0 %




                                                    % of Total
      As of June 30, 2021                           Investment
        Industry Group             Fair Value       Securities
REITs and real estate companies   $ 11,624,000             32.5 %
Energy                               6,374,000             17.8 %
Communications Services              4,872,000             13.6 %
Financial services                   3,873,000             10.8 %
Industrials                          3,746,000             10.5 %
Basic materials                      1,797,000              5.0 %
Consumer goods                       1,702,000              4.8 %
Healthcare                             981,000              2.7 %
Technology                             442,000              1.2 %
Other                                  381,000              1.1 %
                                  $ 35,792,000            100.0 %





As of June 30, 2022, the Company's investment portfolio is diversified with 38
different equity positions. The Company holds three equity securities that
comprised more than 10% of the equity value of the portfolio. The three largest
security positions represent 23%, 20%, and 13% of the portfolio and consists of
the common stock of Paramount Global - Preferred Stock (NASDAQ: PARAP), American
Realty Investors, Inc. (NASDAQ: ARL), and BlackRock Muni holdings California
Quality Fund Inc. (NASDAQ: MUC), which are included the Communications, REITs
and real estate companies, and Financial Services industry groups,
respectively.

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





For the years ended June 30,                   2022             2021

Net (loss) gain on marketable securities $ (7,614,000 ) $ 11,638,000 Impairment loss on other investments

            (41,000 )       (119,000 )
Dividend and interest income                    980,000          519,000
Margin interest expense                        (851,000 )       (810,000 )
Trading expenses                               (575,000 )       (523,000 )
Total                                      $ (8,101,000 )   $ 10,705,000




29

FINANCIAL CONDITION, LIQUIDITY AND CAPITAL SOURCES





Historically, our cash flows have been primarily generated from our Hotel and
real estate operations. However, the responses by federal, state, and local
civil authorities to the COVID-19 pandemic continues to have a material
detrimental impact on our liquidity. For the fiscal year ended June 30, 2022,
our net cash flow provided by operations was $921,000 . We have taken several
steps to preserve capital and increase liquidity at our Hotel, including
implementing strict cost management measures to eliminate non-essential
expenses, postponing capital expenditures, renegotiating certain reoccurring
expenses, and temporarily closing certain hotel services and outlets.



The Company had cash and cash equivalents of $14,367,000 and $6,808,000 as of
June 30, 2022 and 2021, respectively. The Company had restricted cash of
$8,982,000 and $8,584,000 as of June 30, 2022 and 2021, respectively. The
Company had marketable securities, net of margin due to securities brokers, of
$10,110,000 and $21,456,000 as of June 30, 2022 and 2021, respectively. These
marketable securities are short-term investments and liquid in nature.



On December 16, 2020, Justice and InterGroup entered into a loan modification
agreement which increased Justice's borrowing from InterGroup as needed up to
$10,000,000 and extended the maturity date of the loan to July 31, 2021. On July
7, 2021, the maturity date was extended to July 31, 2022. Upon the dissolution
of Justice in December 2021, Portsmouth assumed Justice's note payable to
InterGroup in the amount of $11,350,000. On December 31, 2021, Portsmouth and
InterGroup entered into a loan modification agreement which increased
Portsmouth's borrowing from InterGroup as needed up to $16,000,000. On July 20,
2022, the maturity date was extended to July 31, 2023. During the fiscal year
ending June 30, 2022, InterGroup advanced $7,550,000 to the Hotel, bringing the
total amount due to InterGroup to $14,200,000 on June 30, 2022.



During the fiscal year ending June 30, 2021, we completed refinancing on six of
our California properties and generated net proceeds of $6,762,000. During the
fiscal year ending June 30, 2022, we refinanced six of our properties' existing
mortgages and obtained a mortgage note payable on one of our California
properties, generating net proceeds totaling $16,683,000. We are currently
evaluating other refinancing opportunities and we could refinance additional
multifamily properties should the need arise, or should management consider the
interest rate environment favorable. The Company had an uncollateralized
$5,000,000 revolving line of credit ("LOC") from CIBC Bank USA ("CIBC") and the
entire $5,000,000 was available to be drawn down as of June 30, 2022 should
additional liquidity be necessary. In July 2022, the Company renewed the LOC for
a reduced amount of $2,000,000 and is available in its entirety.



On April 9, 2020, Justice entered into a loan agreement ("SBA Loan") with CIBC
Bank USA under the Coronavirus Aid, Relief, and Economic Security Act ("CARES
Act") administered by the U.S. Small Business Administration (the "SBA").
Justice received proceeds of $4,719,000 from the SBA Loan. In accordance with
the requirements of the CARES Act, Justice used the proceeds from the SBA Loan
for payroll costs and other qualified expenses. The SBA Loan was scheduled to
mature on April 9, 2022 with a 1.00% interest rate and was subject to the terms
and conditions applicable to loans administered by the U.S. Small Business
Administration under the CARES Act. On June 10, 2021, the SBA Loan was forgiven
in full and $4,719,000 was recorded as gain on debt extinguishment on the
consolidated statement of operations for the fiscal year ending June 30, 2021.



On April 27, 2020, InterGroup entered into a loan agreement ("SBA Loan -
InterGroup") with CIBC Bank USA under the CARES Act and received loan proceeds
in the amount of $453,000. InterGroup used all the $453,000 loan proceeds in
qualified payroll expenses. The SBA Loan - InterGroup was scheduled to mature on
April 27, 2022 and had a 1.00% interest rate. On March 17, 2021, SBA Loan -
InterGroup was forgiven in full and $453,000 was recorded as gain on debt
extinguishment on the consolidated statement of operations for the fiscal year
ending June 30, 2021.




On February 3, 2021, Justice entered into a second loan agreement ("Second SBA
Loan") with CIBC Bank USA administered by the SBA. Justice received proceeds of
$2,000,000 from the Second SBA Loan. As of June 30, 2021, Justice used all
proceeds from the Second SBA Loan primarily for payroll costs. The Second SBA
Loan was scheduled to mature on February 3, 2026, had a 1.00% interest rate, and
was subject to the terms and conditions applicable to loans administered by the
U.S. Small Business Administration under the CARES Act. On November 19, 2021,
the Second SBA Loan was forgiven in full and $2,000,000 was recorded as gain on
debt extinguishment on the consolidated statement of operations for the fiscal
year ending June 30, 2022.



30







Our known short-term liquidity requirements primarily consist of funds necessary
to pay for operating and other expenditures, including management and franchise
fees, corporate expenses, payroll and related costs, taxes, interest and
principal payments on our outstanding indebtedness, and repairs and maintenance
of the Hotel.



Our long-term liquidity requirements primarily consist of funds necessary to pay
for scheduled debt maturities and capital improvements of the Hotel and our real
estate properties. We will continue to finance our business activities primarily
with existing cash, including from the activities described above, and cash
generated from our operations. After considering our approach to liquidity and
accessing our available sources of cash, we believe that our cash position,
after giving effect to the transactions discussed above, will be adequate to
meet anticipated requirements for operating and other expenditures, including
corporate expenses, payroll and related benefits, taxes and compliance costs and
other commitments, for at least twelve months from the date of issuance of these
financial statements, even if current levels of low occupancy were to persist.
The objectives of our cash management policy are to maintain existing leverage
levels and the availability of liquidity, while minimizing operational costs. We
believe that our cash on hand, along with other potential sources of liquidity
that management may be able to obtain, will be sufficient to fund our working
capital needs, as well as our capital lease and debt obligations for at least
the next twelve months and beyond. However, there can be no guarantee that
management will be successful with its plan.

MATERIAL CONTRACTUAL OBLIGATIONS

The following table provides a summary as of June 30, 2022, the Company's material financial obligations which also includes interest payments.





                                                                    Year                Year               Year              Year              Year
                                                Total               2023                2024               2025              2026              2027           Thereafter

Mortgage and subordinated notes payable $ 195,400,000 $ 7,755,000 $ 108,574,000 $ 3,970,000 $ 1,174,000 $ 3,304,000 $ 70,623,000 Related party notes payable

                      3,521,000            567,000             567,000           567,000           567,000           462,000            791,000
Interest                                        35,822,000          9,075,000           5,630,000         2,491,000         2,371,000         2,264,000         13,991,000
Total                                       $  234,743,000      $

17,397,000 $ 114,771,000 $ 7,028,000 $ 4,112,000 $ 6,030,000 $ 85,405,000

OFF-BALANCE SHEET ARRANGEMENTS

The Company has no material off balance sheet arrangements.





IMPACT OF INFLATION



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

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

CRITICAL ACCOUNTING POLICIES 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, 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.

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