MORTGAGE NOTES PAYABLE

12 Months Ended

Jun. 30, 2023

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.

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 matures 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”).

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, 2023 and 2022, 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. The DSCR for Operating had been below 1.00 from third quarter of fiscal year 2023 to fourth quarter of fiscal year 2023 while it is required to maintain a DSCR of at least 1.10 to 1.00 for two consecutive quarters. 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. Additionally, Operating’s DSCR for the fourth quarter of fiscal year 2023 was 0.23 for the Mortgage Loan and 0.19 for the Mezzanine Loan.

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.

In July 2021, the Company refinanced three of its California properties’ existing mortgages totaling $1,065,000 with three new mortgages totaling $3,450,000. The Company generated net proceeds totaling $2,325,000 as a result of the refinancing. Interest rate on the three new mortgages is fixed at 3.50% for five years and the mortgages mature in July 2051. In July 2021, the Company obtained an $830,000 mortgage note payable on one of its unencumbered California properties and received net proceeds of $826,000. The interest rate on the mortgage is fixed at 3.50% for five years and the mortgage note payable matures in August 2051.

On October 14, 2021, the Company refinanced its $15,900,000 mortgage note payable on its 358-unit apartment complex in Irving, Texas and obtained a new mortgage note payable for $28,800,000. The Company received net proceeds of $12,938,000 as a result of the refinance. The annual interest rate on the mortgage is fixed at 2.95% for ten years with interest-only payments for the first five years and 30-year amortization thereafter. The mortgage loan matures in November 2031.

On June 30, 2022, the Company refinanced its $5,283,000 mortgage note payable on its 30-unit apartment complex in West Los Angeles, California and obtained a new mortgage note payable for $5,850,000. The Company received net proceeds of $522,000 as a result of the refinance. The annual interest rate on the mortgage is fixed at 4.4% for the first five years and 5.44% thereafter. The mortgage loan matures in July 2052.

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.

Each mortgage notes payable is secured by real estate or the Hotel. As of June 30, 2023 and 2022, the mortgage notes payables are summarized as follows:

	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 2023	May 2025		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

	As of June 30, 2022
	Number		Note	Note	Mortgage			Interest
Property	of Units		Origination Date	Maturity Date	Balance			Rate
SF Hotel		544 rooms	December 2013	January 2024	$	89,114,000			5.28	%
SF Hotel		544 rooms	July 2019	January 2024		20,000,000			7.25	%
			Mortgage notes payable – Hotel			109,114,000
			Debt issuance costs			(367,000	)
			Total mortgage notes payable – Hotel		$	108,747,000
Florence		157	March 2015	April 2025	$	2,998,000			3.87	%
Las Colinas		358	October 2021	November 2031		28,801,000			2.95	%
Morris County		151	April 2020	May 2030		17,598,000			3.17	%
St. Louis		264	May 2013	May 2023		4,958,000			4.05	%
Los Angeles		4	July 2021	July 2051		1,135,000			3.50	%
Los Angeles		2	July 2021	July 2051		688,000			3.50	%
Los Angeles		1	June 2021	August 2051		904,000			3.50	%
Los Angeles		31	October 2020	November 2030		8,400,000			2.52	%
Los Angeles		30	June 2022	July 2052		5,850,000			4.40	%
Los Angeles		14	January 2021	February 2031		2,704,000			3.05	%
Los Angeles		12	June 2016	June 2026		2,026,000			3.59	%
Los Angeles		9	June 2020	July 2030		2,498,000			3.09	%
Los Angeles		9	November 2020	December 2030		1,934,000			3.05	%
Los Angeles		8	July 2021	July 2051		1,567,000			3.50	%
Los Angeles		7	August 2012	September 2042		774,000			3.75	%
Los Angeles		4	June 2021	August 2051		1,135,000			3.50	%
Los Angeles		1	June 2021	August 2051		545,000			3.50	%
Los Angeles		4	July 2021	August 2051		816,000			3.50	%
Los Angeles		1	September 2018	October 2048		956,000			4.75	%
			Mortgage notes payable – real estate			86,287,000
			Debt issuance costs			(850,000	)
			Total mortgage notes payable – real estate		$	85,437,000

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

For the year ending June 30,
2024	$	108,420,000
2025		9,318,000
2026		1,168,000
2027		3,299,000
2028		1,771,000
Thereafter		68,894,000
	$	192,870,000