THE INTERGROUP CORPORATION NEGATIVE EFFECTS OF CIVIL AUTHORITY ACTIONS ON OUR BUSINESS
OnFebruary 25, 2020 , theCity of San Francisco issued the proclamation by the Mayor declaring the existence of a local emergency. The negative effects of the civil authority actions related to the novel strain of coronavirus ("COVID-19") on our business have been significant. InMarch 2020 , theWorld Health Organization declared COVID-19 a global pandemic. This contagious virus, which has continued to spread, has adversely affected workforces, customers, economies and financial markets globally. It has also disrupted the normal operations of many businesses, including ours. To mitigate the harm from the pandemic, onMarch 16, 2020 , the City and County ofSan Francisco , along with a group of five otherBay Area counties and theCity of Berkeley , issued parallel health officer orders imposing shelter in place limitations across theBay Area , requiring everyone to stay safe at home except for certain essential needs. SinceFebruary 2020 , several unfavorable events and civil authority actions have unfolded causing demand for our hotel rooms to suffer including cancellations of all citywide conventions, reduction of flights in and out of theBay Area and decline in both leisure and business travel. InDecember 2020 , due to the surge in COVID-19 cases and hospitalizations, the Health Officer of the City and County ofSan Francisco has suspended or restricted certain activities. Health Order C19-07q (the "Order") incorporates suspensions, reductions in capacity limits, and other restrictions contained in the Regional Stay At Home Order issued by theCalifornia Department of Public Health onDecember 3, 2020 . EffectiveDecember 17, 2020 , theBay Area Region , includingSan Francisco , is required to comply with the State'sDecember 3, 2020 Regional Stay-at-Home Order. The Order strongly discourages anyone in the County from travelling for leisure, recreation, business or other purposes that can be postponed until after the current surge. With limited exceptions, this Order imposed a mandatory quarantine on anyone traveling, moving, or returning to the County from anywhere outside theBay Area . EffectiveJanuary 20, 2021 , Health Order C19- 07r revised and replaced the previous Order; it continues to temporarily prohibit certain businesses and activities from resuming but allows certain other businesses, activities, travel and governmental functions to occur subject to specified health and safety restrictions, limitations, and conditions to limit the transmission of COVID-19. Quarantine and isolation requirements and recommendations upon moving to, traveling to, or returning to the County have not changed from the previous Order. 21
OnMarch 24, 2021 , the City and County ofSan Francisco announced it moved into the orange tier which removed the suggested Shelter in Place for guests travelling toSan Francisco . This was a very positive step for the hotel community. This tier opens up activities in the city including expanded restaurant capacities, museums and attractions. For the hotel it allows for guests to gather in public spaces and for outlets and amenities to open up at limited capacities including fitness centers. It does not change the very stringent cleaning and sanitation requirements set forth by the Health Officer of the City and County ofSan Francisco which proves to be a costly measure to maintain. EffectiveMay 6, 2021 , the City and County ofSan Francisco moved
into the yellow tier guidelines. In response to the decrease in demand, we have since furloughed all managers at the Hotel except for members of the executive team and continue to limit hourly staff to a minimum. By the end ofMarch 2020 , we had temporarily closed all of our food and beverage outlets, valet parking, concierge and bell services, fitness center, as well as the executive lounge facility. We continue to implement social distancing standards and cleaning processes designed by Interstate and Hilton to keep employees and guests safe. The full impact and duration of the COVID-19 outbreak continues to evolve as of the date of this Annual Report. The pandemic effectively eliminated our ability to generate any profits, due to the drastic decline in both leisure and business travel. As a result, management believes the ongoing length and severity of the economic downturn caused by the pandemic will have a material adverse impact on our future business, financial condition, liquidity and financial results. We are also assessing the potential impact on the impairment analysis of our long-lived assets and the realization of our deferred tax assets. As of the date of this report, the effects of the pandemic continue to affect our economy, business and leisure travel, and our needs to continue to curtail certain revenue generating activities at the Hotel. We expect that the effects will have a material adverse effect on our business until the pandemic ends. As a result of the Coronavirus Aid, Relief, and Economic Security Act (the "CARES Act") signed into law onMarch 27, 2020 , additional avenues of relief may be available to workers and families through enhanced unemployment insurance provisions and to small businesses through programs administered by theSmall Business Administration ("SBA"). The CARES Act includes, among other things, provisions relating to payroll tax credits and deferrals, net operating loss carryback periods, alternative minimum tax credits and technical corrections to tax depreciation methods for qualified improvement property. The CARES Act also established a Paycheck Protection Program ("PPP"), whereby certain small businesses are eligible for a loan to fund payroll expenses, rent, and related costs. OnApril 9, 2020 , Justice entered into a loan agreement ("SBA Loan - Justice") withCIBC Bank USA under the CARES Act. Justice received proceeds of$4,719,000 from the SBA Loan - Justice. In accordance with the requirements of the CARES Act, Justice has used all proceeds from the SBA Loan for payroll costs and other qualified expenses. The SBA Loan - Justice was scheduled to mature onApril 9, 2022 and had a 1.00% interest rate and was subject to the terms and conditions applicable to loans administered by theU.S. Small Business Administration under the CARES Act. OnApril 27, 2020 , InterGroup entered into a loan agreement ("SBA Loan - InterGroup") withCIBC Bank USA under the CARES Act and received loan proceeds in the amount of$453,000 . As ofJune 30, 2021 , InterGroup had used all of the$453,000 loan proceeds in qualified payroll expenses. The SBA Loan - InterGroup was scheduled to mature onApril 27, 2022 and had a 1.00% interest rate. Both the SBA Loan - Justice and SBA Loan - InterGroup (collectively the "SBA Loans") were forgiven in full by the SBA
as ofJune 30, 2021 .
OnFebruary 3, 2021 , Justice entered into a second loan agreement ("Second SBA Loan") withCIBC Bank USA administered by the SBA. Justice received proceeds of$2,000,000 from the Second SBA Loan. As ofJune 30, 2021 , Justice had used all proceeds from the Second SBA Loan primarily for payroll costs. The Second SBA Loan is scheduled to mature onFebruary 3, 2026 and has a 1.00% interest rate and is subject to the terms and conditions applicable to loans administered by theU.S. Small Business Administration under the CARES Act. All payments of principal and interest are deferred until either: (a) if the SBA approves the forgiveness amount, the date the forgiveness amount is remitted by the SBA to CIBC; or (b) if Justice does not apply for forgiveness within 10 months after the last day of the covered period specified in the loan agreement or if the forgiveness amount is not approved, the date that is 10 months after the last day of the covered period. The loan may be forgiven if the funds are used for payroll and other qualified expenses. All unforgiven portion of the principal and accrued interest will be due at maturity. Justice submitted its application for full loan forgiveness onSeptember 3, 2021 . RESULTS OF OPERATIONS As ofJune 30, 2021 , the Company owned approximately 74.9% of the common shares ofPortsmouth Square, Inc. Historically, the Company's principal sources of revenue continues to be derived from the general and limited partnership interests of its subsidiary, Portsmouth, in theJustice Investors limited partnership ("Justice" or the "Partnership"), rental income from its investments in multi-family and commercial real estate properties, and income received from investment of its cash and securities assets. Justice owns a 544-room hotel property located at750 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 Justice have been consolidated with those of the Company. However, the impact of the COVID-19 pandemic is highly uncertain and management expects that the ongoing length and severity of the economic downturn will have a material adverse impact on our business, financial condition, liquidity and financial results. 22 The Hotel is operated by the Partnership as a full-service Hilton brand hotel pursuant to a License Agreement with Hilton. The Partnership entered into the License Agreement onDecember 10, 2004 . The term of the License Agreement was for an initial period of 15 years commencing on the reopening date, upon completion of a major renovation, with an option to extend the License Agreement for another five years, subject to certain conditions. OnJune 26, 2015 , the Partnership and Hilton entered into an amended franchise agreement which extended the License Agreement through 2030, modified the monthly royalty rate, extended geographic protection to the Partnership and also provided the Partnership certain key money cash incentives to be earned through 2030 in the form of a self-exhausting, interest free note. The key money cash incentive fee of$4,750,000 was received onJuly 1, 2015 . As ofJune 30, 2021 and 2020, the balance of the note was$3,008,000 and$3,325,000 , respectively, and are included in related party and other notes payable in the consolidated balance sheets. OnFebruary 1, 2017 , Justice entered into a Hotel management agreement ("HMA") withInterstate Management Company, LLC ("Interstate") to manage the Hotel with an effective takeover date ofFebruary 3, 2017 . The term of 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 the 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. As ofJune 30, 2020 , balance of the key money including accrued interest was$1,009,000 and is included in restricted cash in the consolidated balance sheets. As ofJune 30, 2021 , the key money balance was zero as the Hotel obtained approval from Interstate to use the funds for hotel operations during the first quarter of fiscal year 2021. As ofJune 30, 2021 and 2020, balance of the unamortized portion of the key money are$1,396,000 and$1,646,000 , respectively, and are included in the related party notes payable in the consolidated balance sheets. OnOctober 25, 2019 , Interstate merged withAimbridge Hospitality ,North America's largest independent hotel management firm. With the completion of the merger, the newly combined company will be positioned under theAimbridge Hospitality name in theAmericas . 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 throughoutthe United States , but are concentrated inTexas andSouthern California . The Company also has an investment in unimproved real property
inHawaii . 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 EndedJune 30, 2021 Compared to Fiscal Year EndedJune 30, 2020 The Company had a net income of$10,545,000 for the year endedJune 30, 2021 compared to a net loss of$5,089,000 for the year endedJune 30, 2020 . Income from operations decreased by$9,761,000 while the company recorded$12,043,000 in gains from the sale of real estate in fiscal year endedJune 30, 2021 and gains from marketable securities increased by$13,551,000 year over year.Hotel Operations The Company had net loss from Hotel operations of$7,450,000 for the year endedJune 30, 2021 compared to net loss of$3,768,000 for the year endedJune 30, 2020 . The change was primarily attributable to the$28,171,000 decrease in Hotel revenue, offset by the$19,422,000 decrease in operating expenses and the gain on forgiveness of debt of$4,719,000 . 23
The following table sets forth a more detailed presentation of Hotel operations
for the years ended
For the year ended June 30, 2021 2020 Hotel revenues: Hotel rooms$ 12,138,000 $ 36,465,000 Food and beverage 293,000 3,529,000 Garage 2,117,000 2,368,000 Other operating departments 120,000 477,000 Total hotel revenues 14,668,000 42,839,000 Operating expenses excluding depreciation and amortization (17,911,000 ) (37,333,000 ) Operating (loss) income before interest, depreciation and amortization (3,243,000 )
5,506,000 Gain on disposal of assets 12,000 - Gain on forgiveness of debt 4,719,000 - Interest expense - mortgage (6,710,000 ) (6,885,000 ) Depreciation and amortization expense (2,228,000 ) (2,389,000 ) Net loss from Hotel operations$ (7,450,000 ) $ (3,768,000 ) For the year endedJune 30, 2021 , the Hotel generated operating loss of$3,243,000 before non-recurring charges, interest, depreciation, and amortization on total operating revenues of$14,668,000 compared to operating income of$5,506,000 before non-recurring charges, interest, depreciation, and amortization on total operating revenues of$42,839,000 for the year endedJune 30, 2020 . Room revenues decreased by$24,327,000 for the year endedJune 30, 2021 compared to the year endedJune 30, 2020 , food and beverage revenue decreased by$3,236,000 , and revenue from garage and other decreased by$608,000 . The year over year decline in all areas are result of the business interruption attributable to a variety of responses by federal, state, and local civil authority to the COVID-19 outbreak inMarch 2020 which continues to affect us. Revenue from other operating departments increased year over year mainly due to increase in cancellation revenue. The following table sets forth the monthly average occupancy percentage of the Hotel for the fiscal years endedJune 30, 2021 and 2020. Month July August September October November December January February March April May June Fiscal Year 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 % Month July August September October November December January February March April May June Fiscal Year Year 2019 2019 2019 2019 2019 2019 2020 2020 2020 2020 2020 2020 2019 - 2020 Average Occupancy % 98 % 99 % 98 % 97 % 99 % 98 % 96 % 96 % 35 % 10 % 27 % 34 % 74 % Operating expenses decreased by$19,422,000 for the year endedJune 30, 2021 to$17,911,000 compared to the year endedJune 30, 2020 of$37,333,000 primarily due to decrease in salaries and wages, rooms commission, legal fees, food and beverage expenses, advertising and sales expenses, credit card fees, management fees, and franchise fees. The following table sets forth the average daily room rate, average occupancy percentage and room revenue per available room ("RevPAR") of the Hotel for the year endedJune 30, 2021 and 2020. For the Year Average Average Ended June 30, Daily Rate Occupancy % RevPAR 2021$ 111 55 %$ 61 2020$ 248 74 %$ 183 The Hotel's revenues decreased by 65% year over year. Average daily rate decreased by$137 , average occupancy dropped 19%, and RevPAR decreased by$122 for the twelve months endedJune 30, 2021 compared to the twelve months endedJune 30, 2020 .
In order to provide our guests with best-in-class technology experience, we completed the upgrade of our new internet system from Cisco including a complete hotel re-cabling with the latest Ethernet and fiber and installed new 55" smart 4K televisions and Hilton's stay connected internet streaming products, including Netflix streaming. We also replaced mattresses and pillows in all guestrooms during the fiscal year endedJune 30, 2020 . Replacement of all corridor floor coverings was completed inJuly 2021 and a guestroom carpet replacement program commenced inJune 2021 and is scheduled to be completed prior to fiscal year endingJune 30, 2022 . The COVID-19 pandemic and design delays have pushed back the plans for the conversion of the Justice offices, Fitness Center, SPA andExecutive Lounge ; projects that would add 19 guest rooms to our inventory. The long-term value of these rooms is in utilizing them as income producing guest rooms, and we will work to implement a new timeline as business returns. Part of this renovation will be funded by the Hotel's furniture, fixture and equipment reserve account with our lender. Lastly, the Hotel completed the installation of a complete exterior building maintenance system which will enable periodic window washing, replaced and upgraded all computers in the business center and administrative offices. 24 Real Estate Operations Revenue from real estate operations decreased to$13,990,000 for the year endedJune 30, 2021 from$15,178,000 for the year endedJune 30, 2020 primarily as a result of allowance for doubtful accounts from delinquent rents and increased vacancy loss as a result of the COVID-19 pandemic. Management continues to work with its tenants as well as respective governmental entities to realize the collection of its current delinquency. Real estate operating expenses decreased to$7,869,000 from$8,051,000 primarily as a result of$189,000 insurance reimbursement proceeds received due to fire damage at our property inKentucky . 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 gain on marketable securities of$11,638,000 for the year endedJune 30, 2021 compared to a net loss on marketable securities of$1,913,000 for the year endedJune 30, 2020 . For the year endedJune 30, 2021 and 2020, the Company had a net unrealized gain of$1,520,000 and zero, respectively, related to the Company's investment in the common stock of Comstock Mining Inc. ("Comstock" - NYSE MKT: LODE). As ofJune 30, 2021 and 2020, investments in Comstock represent approximately 4% and 11% of the Company's investment portfolio, respectively. For the year endedJune 30, 2021 , the Company had a net realized gain of$876,000 and a net unrealized gain of$10,762,000 . For the year endedJune 30, 2020 , the Company had a net realized loss of$641,000 and a net unrealized loss of$1,272,000 .
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
During the years endedJune 30, 2021 and 2020, 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$119,000 and$219,000 , 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 endedJune 30, 2021 and 2020 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 income from InterGroup (standalone).
MARKETABLE SECURITIES AND OTHER INVESTMENTS
As of
% 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 %
25
% of Total
As of June 30, 2020 Investment
Industry Group Fair Value Securities
REITs and real estate companies $ 2,365,000 38.3 %
Basic materials 1,209,000 19.6 %
Energy 767,000 12.4 %
Industrials 484,000 7.8 %
Corporate bonds 417,000 6.7 %
Other 936,000 15.2 %
$ 6,178,000 100.0 %
As ofJune 30, 2021 , the Company's investment portfolio is diversified with 83 different equity positions. The Company holds two equity securities that comprised more than 10% of the equity value of the portfolio. The two largest security positions represent 12% and 11% of the portfolio and consists of the common stock ofDigitalBridge Group, Inc. (NASDAQ: DBRG) and ViacomCBS, Inc. (NASDAQ: VIACP), which are included in the REITs and real estate companies and Communications industry group, respectively.
The following table shows the net gain (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, 2021 2020
Net gain (loss) on marketable securities
(119,000 ) (219,000 )
Dividend and interest income 519,000 363,000
Margin interest expense (810,000 ) (452,000 )
Trading expenses (523,000 ) (545,000 )
$ 10,705,000 $ (2,766,000 ) FINANCIAL CONDITION AND LIQUIDITY
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 has had a material detrimental impact on our liquidity. Our net cash flow used in operations was$20,259,000 and$3,454,000 for fiscal years endedJune 30, 2021 andJune 30, 2020 , respectively. We have taken decisive actions 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. For further discussion, see "Item 7 - Negative Effects of Civil Authority Actions on Our Business" included in this Annual Report. The Company had cash and cash equivalents of$6,808,000 and$14,163,000 as ofJune 30, 2021 andJune 30, 2020 , respectively. The Company had net funds available from its investments in marketable securities of$21,456,000 as ofJune 30, 2021 after$7,917,000 due to securities broker and$6,419,000 obligations for securities sold. As ofJune 30, 2020 , the Company had net funds available from investments in marketable securities of$4,308,000 after$1,576,000 due to securities broker and$294,000 obligations for securities sold. In addition, the Hotel had$8,591,000 and$5,785,000 of restricted cash held by its senior lenderWells Fargo Bank, N.A. ("Lender") as ofJune 30, 2021 andJune 30, 2020 , respectively. Of the$10,666,000 restricted cash held as ofJune 30, 2020 ,$2,432,000 was for a possible future property improvement plan ("PIP") requested by our franchisor, Hilton. However, Hilton has confirmed that it will not require a PIP for our Hotel until relicensing which shall occur at the earlier of (i)January 2030 , which is six years after the maturity date of our current senior and mezzanine loans, or (ii) upon the sale of our Hotel. OnAugust 19, 2020 , Lender released PIP deposits in the amount of$2,379,000 to the Hotel. The funds were utilized to fund operating expenses, including franchise and management fees and other expenses. 26 We may also receive cash generated from the investment of our cash and marketable securities, other investments, and other sources. In order to increase our liquidity position and to take advantage of the favorable interest rate environment, during fiscal year endedJune 30, 2021 , the Company refinanced six of itsCalifornia properties with various interest rates ranging from 2.52% to 3.50% and generated net proceeds of approximately$6,762,000 . The Company refinanced its 151-unit apartment complex inParsippany, New Jersey onApril 30, 2020 , generating net proceeds of$6,814,000 . InJune 2020 , the Company refinanced one of itsCalifornia properties and generated net proceeds of$1,144,000 . We are currently evaluating other refinancing opportunities. The Company has an uncollateralized$8,000,000 revolving line of credit fromCIBC Bank USA ("CIBC") and the entire$8,000,000 is available to be drawn down as ofJune 30, 2021 .
As ofJune 30, 2021 , we had cash, cash equivalents, and restricted cash of$15,392,000 which included$6,222,000 of restricted cash held by our Hotel senior lenderWells Fargo Bank, N.A. ("Lender"). During fiscal year endedJune 30, 2021 , Hilton confirmed that it will not require a property improvement plan ("PIP")for our Hotel until relicensing which shall occur at the earlier of (i)January 2030 , which is six years after the maturity date of our current senior and mezzanine loans, or (ii) upon the sale of our Hotel; therefore, onAugust 19, 2020 , Operating received PIP deposits in the amount of$2,379,000 held by Lender and was no longer required to make PIP installments with its debt service. The funds were utilized to fund operating expenses, including franchise and management fees and other expenses. OnApril 9, 2020 , Justice entered into a loan agreement ("SBA Loan - Justice") withCIBC Bank USA under the recently enacted CARES Act administered by theU.S. Small Business Administration . The Partnership received proceeds of$4,719,000 from the SBA Loan - Justice. In accordance with the requirements of the CARES Act, Justice has used proceeds from the loan primarily for payroll costs. As ofJune 30, 2021 , Justice had used$3,568,000 in qualified expenses such as payroll expenses, mortgage interests, utilities, etc., and had a balance of$1,151,000 available for future qualified expenses. The SBA Loan - Justice was scheduled to mature onApril 9, 2022 and had a 1.00% interest rate. OnApril 27, 2020 , InterGroup entered into a loan agreement ("SBA Loan - InterGroup") withCIBC Bank USA under the CARES Act and received loan proceeds in the amount of$453,000 . As ofJune 30, 2021 , InterGroup had used all of the$453,000 loan proceeds in qualified payroll expenses. The SBA Loan - InterGroup was scheduled to mature onApril 27, 2022 and has a 1.00% interest rate. Both the SBA Loan - Justice and SBA Loan - InterGroup (collectively the "SBA Loans") were forgiven in full on by the SBA onJune 10, 2021 . We cannot presently estimate the full financial impact of the unprecedented COVID-19 pandemic on our business or predict the related federal, state and local civil authority actions, which are highly dependent on the severity and duration of the pandemic, and we expect that the COVID-19 closures and other imposed restrictions will continue to have a significant adverse impact on our results of operations, at least through the first and second quarters of fiscal year 2021, if not longer. Due to the uncertainties associated with the COVID-19 pandemic and the indeterminate length of time it will affect the hospitality industry, we have taken proactive measures to secure our liquidity position to be able to meet our obligations for the foreseeable future, 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. 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. Additionally, the Partnership may make capital calls to its limited partners from time to time to cover its cash needs, according to its partnership agreement and amendments thereto. 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. OnAugust 28, 2020 , theBoard of InterGroup passed resolutions to provide funding to Portsmouth if necessary. The objectives of our cash management policy are to maintain existing leverage levels and the availability of liquidity, while minimizing operational costs. We believe that our cash on hand, along with other potential aforementioned sources of liquidity that management may be able to obtain, will be sufficient to fund our working capital needs, as well as our capital lease and debt obligations for at least the next twelve months and beyond. However, there can be no guarantee that management will be successful with its plan. 27
MATERIAL CONTRACTUAL OBLIGATIONS
The following table provides a summary of the Company's material financial obligations which also includes interest.
Year Year Year Year Year
Total 2022 2023 2024 2025 2026 Thereafter
Mortgage notes payable $ 181,631,000 $ 3,209,000
2,664,000 $ 481,000 $ 183,000 $ - $ - $ 2,000,000 $ -
Related party and other notes payable 4,088,000 567,000
567,000 567,000 567,000 567,000 1,253,000
Interest 29,907,000 8,821,000 8,025,000 4,802,000 1,287,000 1,172,000 5,800,000
Total $ 218,290,000 $ 13,078,000 $ 37,255,000 $ 113,787,000 $ 5,662,000 $ 4,745,000 $ 43,763,000 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 Interstate 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
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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