Executive Summary / Key Takeaways

• Strategic Recalibration and Debt Resolution: The InterGroup Corporation ($INTG) is emerging from a challenging period, marked by the successful refinancing of its flagship Hilton San Francisco Financial District hotel debt and regaining Nasdaq listing compliance, signaling a crucial stabilization of its capital structure and operational foundation.
• Hotel Operations Driving Recovery: The Hilton San Francisco Financial District demonstrated robust operational improvements in fiscal year 2025, with a significant 23% increase in RevPAR and 10% growth in occupancy, outperforming its competitive set following extensive renovations.
• Diversified Real Estate as a Core Strength: INTG's in-house managed multifamily and commercial real estate portfolio continues to provide stable revenue growth and serves as a primary source of parent-level liquidity, offering a strategic buffer against hospitality market volatility.
• Navigating Investment Volatility and Market Concentration: While real estate operations provide stability, the company faces ongoing volatility in its concentrated marketable securities portfolio and significant exposure to the San Francisco market, necessitating disciplined asset management and strategic capital allocation.
• Operational Excellence Over Proprietary Technology: INTG's competitive edge stems primarily from its strategic asset management, recent property renovations, and efficient in-house real estate management, rather than disclosed proprietary technological differentiators or extensive R&D initiatives.

A Legacy of Real Estate and Strategic Evolution

The InterGroup Corporation, established in 1985 as the successor to the Mutual Real Estate Investment Trust (M-REIT from 1965), has a long-standing history as a publicly held entity, dating back to M-REIT's initial public offering in 1966. Founded on a commitment to social responsibility, initially focused on affordable housing, INTG broadened its mandate in 1985, transitioning to a corporate structure to pursue a wider array of investments aimed at increasing shareholder value. This strategic evolution has shaped its current diversified business model, encompassing hotel operations, a broad real estate portfolio, and investment activities.

INTG operates within a dynamic and competitive landscape, particularly in the hospitality and real estate sectors. Its primary asset, the Hilton San Francisco Financial District, positions it against global hospitality giants like Hilton Worldwide (HLT) and Marriott International (MAR), which boast greater brand recognition, extensive loyalty programs, and vast operational scale. In its real estate segment, INTG competes with specialized real estate investment trusts (REITs) such as Equity Residential (EQR) for multifamily properties and Realty Income Corporation (O) for commercial assets, which often benefit from concentrated expertise and larger portfolios. While INTG's diversified approach offers a unique value proposition and potential risk mitigation, its smaller scale compared to these industry leaders means its competitive advantage is rooted more in strategic asset management and operational efficiency than in proprietary technological innovation. The company's disclosures do not detail specific core differentiated technologies or significant R&D initiatives that provide a distinct technological moat. Instead, its competitive standing is bolstered by recent property enhancements and a hands-on, in-house management model for its non-hotel real estate.

The Hilton San Francisco: A Turnaround Story

The Hilton San Francisco Financial District, a 544-room hotel and a central component of INTG's consolidated revenues through its majority-owned subsidiary, Portsmouth Square, Inc., has recently undergone a significant transformation. Following extensive renovations to its guest rooms, public spaces, fitness center, corridors, and meeting areas, the hotel has demonstrated remarkable operational recovery. For the fiscal year ended June 30, 2025, hotel revenues increased by 10% year-over-year, reaching $46.36 million. This growth was underpinned by a 1% increase in Average Daily Rate (ADR) to $218 and a substantial 10% rise in average occupancy to 92%. Consequently, Revenue Per Available Room (RevPAR) surged by 23% to $200, dramatically outpacing its competitive set, which experienced an 8.30% decline over the same period. The hotel also achieved its highest annual Quality Assurance inspection score from Hilton in over a decade, receiving an "Outstanding" ranking of 96.70.

This operational resurgence is critical, especially given the challenges faced by Portsmouth. The subsidiary had previously encountered substantial doubt about its ability to continue as a going concern due to the maturity of its senior mortgage and mezzanine loans on January 1, 2024, leading to default notices. However, a comprehensive refinancing completed on March 28, 2025, successfully retired the prior debt, extended maturities, and improved pricing and covenant profiles. This refinancing included a $1.42 million gain on extinguishment of debt from waived default interest and forbearance fees. While hotel cash flows are now subject to a lender-controlled lockbox arrangement, restricting upstream distributions to InterGroup until specific Debt Service Coverage Ratio (DSCR) conditions are met, Portsmouth has remained current on all debt service obligations, and management forecasts indicate adequate liquidity for the next twelve months.

Diversified Real Estate Portfolio: Steady Income and Strategic Adjustments

Beyond its hotel operations, InterGroup maintains a diversified portfolio of real estate assets, including sixteen apartment complexes, one commercial property, and three single-family houses, primarily concentrated in Texas and Los Angeles County, California. This segment generated revenues of $18.02 million in fiscal year 2025, an increase from $16.25 million in fiscal year 2024, driven by higher occupancy and increased rental rates. Real estate operating expenses also saw a decrease, primarily due to reduced vacancy at the Missouri property, which is undergoing rebranding and renovation.

A key differentiator for INTG in this segment is its in-house property management model. Unlike the hotel, which is managed by Aimbridge Hospitality, InterGroup's multifamily and commercial real estate portfolio is overseen by company personnel. This approach provides direct owner oversight, enhanced responsiveness, and effective cost control, contributing to the segment's profitability and reflecting positively in consolidated operating statements. Management actively reviews and analyzes these operations to optimize occupancy and rental rates while reducing expenses. In a strategic move to enhance liquidity, the company initiated the sale of a non-core 12-unit multifamily property in Los Angeles in February 2025, classifying it as held for sale as of June 30, 2025.

Investment Transactions: A Volatile Component

InterGroup also engages in investment transactions, managing a portfolio of marketable securities and other investments. This segment, overseen by an Executive Strategic Real Estate and Securities Investment Committee, includes income-producing instruments, corporate debt and equity securities, and publicly traded investment funds. However, this segment has experienced increased volatility, reporting a net loss on marketable securities of $1.35 million for the year ended June 30, 2025, compared to a net loss of $485,000 in the prior year.

The marketable securities portfolio saw a significant reduction in fair value, from $7.45 million in fiscal year 2024 to $969,000 in fiscal year 2025. This decline was accompanied by a notable concentration, with common stock of American Realty Investors, Inc. (ARL) comprising approximately 99% of the total equity investment portfolio as of June 30, 2025. This high concentration introduces additional risk, as gains and losses on marketable securities can fluctuate significantly and are not necessarily predictive of future performance.

Financial Performance and Liquidity: Building a Foundation

The InterGroup Corporation reported a consolidated net loss of $7.55 million for the fiscal year ended June 30, 2025, a notable improvement from the $12.56 million net loss in fiscal year 2024. Income from operations saw a substantial increase to $7.64 million in fiscal 2025, up from $1.45 million in the previous year. This improvement was largely driven by the stronger performance of the Hotel segment and the gain on debt extinguishment.

The company's liquidity position shows a positive trend, with total cash, cash equivalents, and restricted cash increasing to $15.20 million as of June 30, 2025, from $8.69 million a year prior. While marketable securities decreased, they are considered liquid for near-term needs. InterGroup's parent-level liquidity is primarily supported by cash flows from its non-hotel real estate operations, supplemented by cash on hand and property-level financing. A critical component of its financial flexibility is the unsecured related-party revolving credit facility provided by InterGroup to Portsmouth. This facility was amended in March 2025 to increase borrowing capacity to $40.00 million and extend maturity to July 31, 2027, with the interest rate reduced to 9% in May 2025. As of June 30, 2025, Portsmouth owed InterGroup $38.11 million under this facility, which serves as a contingent source of liquidity.

Strategic Outlook and Key Initiatives

Management believes that existing liquidity sources, including current cash, expected cash flows from real estate operations, and access to property-level financing, are sufficient to meet parent-level material cash requirements for at least the next 12 months. Portsmouth's recent refinancing has significantly improved its maturity profile and liquidity, with the subsidiary remaining current on all debt service obligations.

The company is also assessing the potential impact of the "One Big Beautiful Bill Act" (OBBBA), enacted on July 4, 2025, which introduces significant changes to the U.S. federal tax system, including accelerated tax depreciation and immediate expensing of research and experimental expenditures. These legislative changes could influence INTG's future financial position and cash flows. Furthermore, InterGroup successfully regained compliance with Nasdaq Listing Rule 5550(b)(2) on September 17, 2025, ensuring its continued listing on The Nasdaq Capital Market.

Competitive Dynamics and Operational Edge

InterGroup's competitive positioning is a blend of localized strength and strategic diversification. The Hilton San Francisco Financial District, with its newly renovated rooms and "Outstanding" Hilton quality ranking, leverages its prime location in the Financial District to attract business travelers, a segment showing positive trends in San Francisco. The hotel's ability to significantly grow RevPAR while its competitive set declined highlights its operational effectiveness and market responsiveness.

In the broader real estate market, InterGroup's in-house management of its multifamily and commercial properties provides an operational edge by fostering enhanced responsiveness and cost control, a contrast to competitors who might rely on third-party managers. While the company does not disclose proprietary technological differentiators, its strategic focus on asset quality, location, and efficient internal operations serves as its primary competitive advantage against larger, more technologically advanced rivals in both the hospitality and real estate sectors. This approach allows INTG to compete effectively in its niche markets, even against companies with greater name recognition and financial resources.

Risks and Challenges: A Path Forward

Despite recent successes, InterGroup faces several pertinent risks. The concentration of its hotel operations in the San Francisco market exposes it to local economic downturns, public safety concerns, and competitive pressures, which could impact hotel operating results and restrict cash available for distributions to the parent company. The ongoing need for capital expenditures for renovations and improvements across its portfolio, coupled with substantial debt obligations, could strain liquidity if financing is not secured on favorable terms.

The company's business model also entails high fixed costs, such as property taxes and escalating insurance premiums, which are difficult to adjust in response to revenue fluctuations. The marketable securities portfolio remains susceptible to market volatility and concentration risk. Furthermore, management identified a material weakness in internal control over financial reporting related to complex stock-based compensation matters, which is currently undergoing remediation. An unresolved legal dispute with the City of San Francisco regarding the removal and financial responsibility for a pedestrian bridge connected to the Hotel also presents an unquantifiable contingent liability.

Conclusion

The InterGroup Corporation is navigating a pivotal period, marked by a determined effort to stabilize its financial foundation and optimize its diverse asset base. The successful refinancing of the Hilton San Francisco Financial District's debt and the hotel's impressive operational rebound underscore management's ability to execute strategic turnarounds in challenging environments. Coupled with the steady income and cost efficiencies derived from its in-house managed real estate portfolio, INTG is building a more resilient operational core.

While the company's investment portfolio introduces an element of volatility and its competitive advantage is rooted in strategic asset management rather than disclosed technological breakthroughs, the focus on operational excellence and disciplined capital allocation positions INTG for continued stability. Investors should closely monitor the sustained performance of the San Francisco hotel market, the effectiveness of ongoing cost control initiatives, and the strategic deployment of capital across its real estate holdings as key indicators of the company's long-term value creation.