MORTGAGE NOTES PAYABLE

12 Months Ended

Jun. 30, 2024

Debt Disclosure [Abstract]

MORTGAGE NOTES PAYABLE

NOTE 10 – MORTGAGE NOTES PAYABLE

On December 18, 2013: (i) Justice Operating Company, LLC, a Delaware limited liability company (“Operating”), entered into a loan agreement (“Mortgage Loan Agreement”) with Bank of America (“Mortgage Lender”); and (ii) Justice Mezzanine Company, a Delaware limited liability company (“Mezzanine”), entered into a mezzanine loan agreement (“Mezzanine Loan Agreement” and, together with the Mortgage Loan Agreement, the “Loan Agreements”) with ISBI San Francisco Mezz Lender LLC (“Mezzanine Lender” and, together with Mortgage Lender, the “Lenders”). The Partnership was the sole member of Mezzanine until its dissolution in December 2021 when Portsmouth replaced the Partnership as the sole member of Mezzanine. Mezzanine is the sole member of Operating.

The Loan Agreements provide for a $97,000,000 Mortgage Loan and a $20,000,000 Mezzanine Loan. The proceeds of the Loan Agreements were used to fund the redemption of limited partnership interests and the pay-off of the prior mortgage.

The Mortgage Loan is secured by Operating’s principal asset, the Hilton San Francisco-Financial District (the “Property”). The Mortgage Loan bears an interest rate of 5.275% per annum and matures in January 2024. The term of the loan is 10 years with interest only due in the first three years and principal and interest on the remaining seven years of the loan based on a thirty-year amortization schedule. The Mortgage Loan also requires payments for impounds related to property tax, insurance and capital improvement reserves. As additional security for the Mortgage Loan, there is a limited guaranty (“Mortgage Guaranty”) executed by Portsmouth in favor of the Mortgage Lender. On April 29, 2024, U.S. Bank National Association and other lenders (“Lender”) entered into a Forbearance Agreement (the “Mortgage Loan Forbearance Agreement”), all capitalized terms are used in this paragraph as defined in this agreement with Operating. Assuming no Termination Event occurs, Lender agrees to not take any action with respect to the loan facility set forth therein prior to January 1, 2025. During the Forbearance Period, Operating shall make all regularly scheduled payments to the Lender. The Mortgage Loan Forbearance Agreement also contains amended terms as to financial covenants and a 10% principal paydown in the amount of $8,589,706.44 to be applied by the Lender upon execution of the Mortgage Loan Forbearance Agreement. Retroactive to January 1, 2024, Operating is required to accrue an additional 4% default interest, due and payable to Lender at the new maturity or loan prepayment. In addition, Operating paid 1% forbearance fee or $858,971 to Lender upon execution of the Forbearance Agreement.

The Mezzanine Loan is secured by the Operating membership interest held by Mezzanine and is subordinated to the Mortgage Loan. The Mezzanine Loan had an interest rate of 9.75% per annum and a maturity date of January 1, 2024. Interest only payments were due monthly. On July 31, 2019, Mezzanine refinanced the Mezzanine Loan by entering into a new mezzanine loan agreement (“New Mezzanine Loan Agreement”) with Cred Reit Holdco LLC in the amount of $20,000,000. The prior Mezzanine Loan was paid off. Interest rate on the new mezzanine loan is 7.25% and the loan matured on January 1, 2024. Interest only payments are due monthly. As additional security for the new mezzanine loan, there is a limited guaranty executed by Portsmouth in favor of Cred Reit Holdco LLC (the “Mezzanine Guaranty” and, together with the Mortgage Guaranty, the “Guaranties”). On April 29, 2024, CRED REIT HOLDCO LLC (“Mezz Lender”) entered into a Forbearance Agreement (the “Mezz Forbearance Agreement”), all capitalized terms in this paragraph are used as defined in the Mezz Forbearance Agreement) with Mezzanine, an indirect subsidiary of the Company. Assuming no termination event occurs, Mezz Lender agrees to not take any action with respect to the loan facility set forth therein prior to January 1, 2025. The Mezz Lender also has advanced $4.5 million for payment of the 10% principal paydown with respect to the Mortgage Loan Forbearance Agreement (defined below). Retroactive to January 1, 2024, Mezzanine will be required to accrue an additional 4% default interest and a 1% forbearance fee or $245,000. During the Forbearance Period, no payments will be due to the Mezz Lender until the new maturity date or loan prepayment. Both forbearance agreements also contain customary and usual terms, events of default, transaction fees, and representations and warranties and covenants for like transactions.

In order to refinance the Hotel’s aforementioned debt, in May 2024, the Company entered into a financing procurement agreement with a global provider of financial advisory services to real estate owners. The Company will endeavor to refinance the aforementioned loans prior to their new maturity.

The Guaranties are limited to what are commonly referred to as “bad boy” acts, including: (i) fraud or intentional misrepresentations; (ii) gross negligence or willful misconduct; (iii) misapplication or misappropriation of rents, security deposits, insurance, or condemnation proceeds; and (iv) failure to pay taxes or insurance. The Guaranties are full recourse guaranties under identified circumstances, including failure to maintain “single purpose” status which is a factor in a consolidation of Operating or Mezzanine in a bankruptcy of another person, transfer, or encumbrance of the Property in violation of the applicable loan documents, Operating or Mezzanine incurring debts that are not permitted, and the Property becoming subject to a bankruptcy proceeding. Pursuant to the Guaranties, the Partnership was required to maintain a certain minimum net worth and liquidity. Effective as of May 12, 2017, InterGroup agreed to become an additional guarantor under the limited guaranty and an additional indemnitor under the environmental indemnity for the $97,000,000 mortgage loan and the $20,000,000 mezzanine loan. Pursuant to the agreement, InterGroup is required to maintain a certain net worth and liquidity. As of June 30, 2024 and 2023, InterGroup is in compliance with both requirements. Justice Operating Company, LLC is not meeting certain of its loan covenants such as the Debt Service Coverage Ratio (“DSCR”) which would trigger the creation of a lockbox and cash sweep by the Lender for all cash collected by the Hotel, and under certain terms, would allow the Lender to request Operating to replace its hotel management company. However, such lockbox has been created and utilized from the loan inception and will be in place up to loan maturity regardless of the DSCR. Justice has not missed any of its debt service payments and does not anticipate missing any debt obligations for at least the next twelve months and beyond.

Each of the Loan Agreements contains customary representations and warranties, events of default, reporting requirements, affirmative covenants and negative covenants, which impose restrictions on, among other things, organizational changes of the respective borrower, operations of the Property, agreements with affiliates and third parties. Each of the Loan Agreements also provides for mandatory prepayments under certain circumstances (including casualty or condemnation events) and voluntary prepayments, subject to satisfaction of prescribed conditions set forth in the Loan Agreements.

On May 31, 2023, the Company refinanced its St. Louis, Missouri $4,823,000 mortgage with a two-year $5,360,000 mortgage with a floating monthly rate of the 30-day SOFR (capped at 5.5%) plus SOFR margin of 3.10%, interest-only payments are due for the first 12 months and $5,500 principal paydowns commencing in June 2024.

On December 15, 2023, the Company obtained a second mortgage note payable in the amount of $4,573,000 on its 358-unit apartment complex in Las Colinas, Texas. The term of the loan is approximately 7 years with an interest rate of 7.60%. The mortgage loan matures in November 2031.

Each mortgage notes payable is secured by real estate or the Hotel. As of June 30, 2024 and 2023, the mortgage notes payables are summarized as follows:

	As of June 30, 2024
	Number	Note	Note	Mortgage			Interest
Property	of Units	Origination Date	Maturity Date	Balance			Rate
SF Hotel	544 rooms	December 2013	January 2025	$	76,962,000			5.28	%
								plus 4% default rate
SF Hotel	544 rooms	July 2019	January 2025		24,500,000			7.25	%
								plus 4% default rate
		Mortgage notes payable – Hotel			101,462,000
		Debt issuance costs			(679,000	)
		Total mortgage notes payable – Hotel		$	100,783,000
Florence	157	March 2015	April 2025	$	2,834,000			3.87	%
Las Colinas	358	October 2021	November 2031		28,800,000			2.95	%
Las Colinas	358	December 2023	November 2031		4,573,000			7.60	%
Morris County	151	April 2020	May 2030		16,807,000			3.17	%
St. Louis	264	May 2023	May 2025		5,355,000			8.60	%
Los Angeles	4	July 2021	July 2051		1,088,000			3.50	%
Los Angeles	2	July 2021	July 2051		659,000			3.50	%
Los Angeles	1	June 2021	August 2051		867,000			3.50	%
Los Angeles	31	October 2020	November 2030		8,102,000			2.52	%
Los Angeles	30	June 2022	July 2052		5,662,000			4.40	%
Los Angeles	14	January 2021	February 2031		2,585,000			3.05	%
Los Angeles	12	June 2016	June 2026		1,919,000			3.59	%
Los Angeles	9	June 2020	July 2030		2,386,000			3.09	%
Los Angeles	9	November 2020	December 2030		1,848,000			3.05	%
Los Angeles	8	July 2021	July 2051		1,503,000			3.50	%
Los Angeles	7	August 2012	September 2042		733,000			3.75	%
Los Angeles	4	June 2021	August 2051		1,088,000			3.50	%
Los Angeles	1	June 2021	August 2051		523,000			3.50	%
Los Angeles	4	July 2021	August 2051		783,000			3.50	%
Los Angeles	1	September 2018	October 2048		910,000			3.50	%
		Mortgage notes payable – real estate			89,025,000
		Debt issuance costs			(852,000	)
		Total mortgage notes payable – real estate		$	88,173,000

	As of June 30, 2023
	Number	Note	Note	Mortgage			Interest
Property	of Units	Origination Date	Maturity Date	Balance			Rate
SF Hotel	544 rooms	December 2013	January 2024	$	87,240,000			5.28	%
SF Hotel	544 rooms	July 2019	January 2024		20,000,000			7.25	%
		Mortgage notes payable – Hotel			107,240,000
		Debt issuance costs			(123,000	)
		Total mortgage notes payable – Hotel		$	107,117,000
Florence	157	March 2015	April 2025	$	2,917,000			3.87	%
Las Colinas	358	October 2021	November 2031		28,800,000			2.95	%
Morris County	151	April 2020	May 2030		17,208,000			3.17	%
St. Louis	264	May 2013	May 2023		5,360,000			8.60	%
Los Angeles	4	July 2021	July 2051		1,112,000			3.50	%
Los Angeles	2	July 2021	July 2051		674,000			3.50	%
Los Angeles	1	June 2021	August 2051		886,000			3.50	%
Los Angeles	31	October 2020	November 2030		8,291,000			2.52	%
Los Angeles	30	June 2022	July 2052		5,762,000			4.40	%
Los Angeles	14	January 2021	February 2031		2,645,000			3.05	%
Los Angeles	12	June 2016	June 2026		1,974,000			3.59	%
Los Angeles	9	June 2020	July 2030		2,443,000			3.09	%
Los Angeles	9	November 2020	December 2030		1,891,000			3.05	%
Los Angeles	8	July 2021	July 2051		1,535,000			3.50	%
Los Angeles	7	August 2012	September 2042		751,000			3.75	%
Los Angeles	4	June 2021	August 2051		1,112,000			3.50	%
Los Angeles	1	June 2021	August 2051		534,000			3.50	%
Los Angeles	4	July 2021	August 2051		800,000			3.50	%
Los Angeles	1	September 2018	October 2048		934,000			3.50	%
		Mortgage notes payable – real estate			85,629,000
		Debt issuance costs			(872,000	)
		Total mortgage notes payable – real estate		$	84,757,000

Future minimum payments for all mortgage notes payable are as follows:

For the year ending June 30,
2025	$	110,778,000
2026		1,161,000
2027		3,295,000
2028		1,768,000
2029		1,843,000
Thereafter		71,642,000
	$	190,487,000