10-Q 1 sf10q93010.txt SANTA FE 10-Q 9-30-2010 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D. C. 20549 FORM 10-Q [X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2010 [ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ______ to _____ Commission File Number: 0-6877 SANTA FE FINANCIAL CORPORATION ------------------------------ (Exact name of registrant as specified in its charter) NEVADA 95-2452529 ------------------------------ ------------------ (State or other jurisdiction of (IRS Employer incorporation or organization) Identification No.) 10940 Wilshire Blvd., Suite 2150, Los Angeles, CA 90024 ------------------------------------------------------- (Address of principal executive offices) (310) 889-2500 ----------------------------- (Registrant's telephone number) Indicate by check mark whether the registrant (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. [x] Yes [ ] No Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. Large accelerated filer [ ] Accelerated filer [ ] Non-accelerated filer [ ] Smaller reporting company [x] Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.) [ ] Yes [x] No The number of shares outstanding of issuer's Common Stock, as of November 10, 2010, was 1,241,810. INDEX SANTA FE FINANCIAL CORPORATION PART I. FINANCIAL INFORMATION PAGE Item 1. Condensed Consolidated Financial Statements Condensed Consolidated Balance Sheets As of September 30, 2010(Unaudited) and June 30, 2010 3 Condensed Consolidated Statements of Operations(Unaudited) For the Three Months ended September 30, 2010 and 2009 4 Condensed Consolidated Statements of Cash Flows(Unaudited) For the Three Months ended September 30, 2010 and 2009 5 Notes to Condensed Consolidated Financial Statements (Unaudited) 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 14 Item 4. Controls and Procedures 22 PART II. OTHER INFORMATION Item 6. Exhibits 22 SIGNATURES 23 -2- PART I FINANCIAL INFORMATION Item 1 - Condensed Consolidated Financial Statements SANTA FE FINANCIAL CORPORATION CONDENSED CONSOLIDATED BALANCE SHEETS September 30, 2010 June 30, 2010 (Unaudited) ------------------ ------------- ASSETS Investment in hotel, net $ 36,747,000 $ 37,561,000 Investment in real estate, net 5,217,000 5,228,000 Investment in marketable securities 4,870,000 4,332,000 Other investments, net 4,003,000 4,124,000 Cash and cash equivalents 1,342,000 632,000 Accounts receivable, net 1,364,000 1,573,000 Other assets, net 1,728,000 1,680,000 Deferred tax asset 4,932,000 4,891,000 ----------- ----------- Total assets $ 60,203,000 $ 60,021,000 =========== =========== LIABILITIES AND SHAREHOLDERS' DEFICIT Liabilities Accounts payable and other liabilities $ 8,102,000 $ 8,019,000 Due to securities broker 1,635,000 889,000 Obligations for securities sold 553,000 708,000 Other notes payable 3,397,000 3,688,000 Mortgage notes payable - real estate 2,047,000 2,067,000 Mortgage notes payable - hotel 45,791,000 45,990,000 ----------- ----------- Total liabilities 61,525,000 61,361,000 ----------- ----------- Commitments and contingencies Shareholders' deficit: Common stock - par value $.10 per share Authorized - 2,000,000 Issued 1,339,638 and outstanding 1,241,810 134,000 134,000 Additional paid-in capital 8,808,000 8,808,000 Accumulated deficit (2,667,000) (2,588,000) Treasury stock, at cost, 97,828 shares (951,000) (951,000) ----------- ----------- Total Santa Fe shareholders' equity 5,324,000 5,403,000 Noncontrolling interest deficit (6,646,000) (6,743,000) ----------- ----------- Total shareholders' deficit (1,322,000) (1,340,000) ----------- ----------- Total liabilities and shareholders' deficit $ 60,203,000 $ 60,021,000 =========== ===========
The accompanying notes are an integral part of these condensed consolidated financial statements. -3- SANTA FE FINANCIAL CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) For the three months ended September 30, 2010 2009 ---------- ----------- Revenues: Hotel $ 9,526,000 $ 8,530,000 Real estate 136,000 136,000 ---------- ----------- Total revenues 9,662,000 8,666,000 ---------- ----------- Costs and operating expenses: Hotel operating expenses (7,317,000) (6,876,000) Real estate operating expenses (65,000) (53,000) Depreciation and amortization expense (1,279,000) (1,173,000) General and administrative expense (205,000) (201,000) ---------- ----------- Total costs and operating expenses (8,866,000) (8,303,000) ---------- ----------- Income from operations 796,000 363,000 ---------- ----------- Other income(expense): Interest expense (720,000) (754,000) Net gain(loss) on marketable securities 43,000 (812,000) Net unrealized gain on other investments 22,000 - Impairment loss on other investments (143,000) - Dividend and interest income 90,000 45,000 Trading and margin interest expense (111,000) (156,000) ---------- ----------- Net other expense (819,000) (1,677,000) ---------- ----------- Loss before income tax (23,000) (1,314,000) Income tax benefit 41,000 409,000 ---------- --------- Net income(loss) 18,000 (905,000) Less: Net (income)loss attributable to noncontrolling interest (97,000) 311,000 ---------- ---------- Net loss attributable to Santa Fe (79,000) (594,000) ========== ========== Basic and diluted loss per share $ (0.06) $ (0.48) ========== ========== Weighted average number of shares outstanding 1,241,810 1,241,810 ========== ==========
The accompanying notes are an integral part of these condensed consolidated financial statements. -4- SANTA FE FINANCIAL CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) For the three months ended September 30, 2010 2009 ---------- ---------- Cash flows from operating activities: Net income(loss) $ 18,000 $ (905,000) Adjustments to reconcile net income(loss) to net cash provided by operating activities: Net unrealized (gain)loss on marketable securities (107,000) 921,000 Net unrealized gain on other investments (22,000) - Impairment loss on other investments 143,000 - Depreciation and amortization 1,279,000 1,173,000 Changes in assets and liabilities: Investment in marketable securities (431,000) (1,954,000) Accounts receivable 209,000 (530,000) Other assets (66,000) 213,000 Accounts payable and other liabilities 86,000 348,000 Due to securities broker 746,000 316,000 Obligations for securities sold (155,000) 1,958,000 Deferred tax asset (41,000) (409,000) ---------- ---------- Net cash provided by operating activities 1,659,000 1,131,000 ---------- ---------- Cash flows from investing activities: Capital expenditures for furniture, equipment and building improvements (439,000) (336,000) Other investments - (400,000) ---------- ---------- Net cash used in investing activities (439,000) (736,000) ---------- ---------- Cash flows from financing activities: Principal payments on mortgage notes payable (219,000) (199,000) Net payment on other notes payable (291,000) (175,000) ---------- ---------- Net cash used in financing activities (510,000) (374,000) ---------- ---------- Net increase in cash and cash equivalents 710,000 21,000 Cash and cash equivalents at beginning of period 632,000 291,000 ---------- ---------- Cash and cash equivalents at end of period $ 1,342,000 $ 312,000 ========== ========== Supplemental information: Interest paid $ 746,000 $ 826,000 ========== ==========
The accompanying notes are an integral part of these condensed consolidated financial statements. -5- SANTA FE FINANCIAL CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) NOTE 1 - BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES The consolidated financial statements included herein have been prepared by Santa Fe Financial Corporation ("Santa Fe" or the "Company"), without audit, according to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in the consolidated financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations, although the Company believes the disclosures that are made are adequate to make the information presented not misleading. Further, the consolidated financial statements reflect, in the opinion of management, all adjustments (which included only normal recurring adjustments) necessary for a fair statement of the financial position, cash flows and results of operations as of and for the periods indicated. It is suggested that these financial statements be read in conjunction with the audited financial statements and the notes therein included in the Company's Form 10-K for the year ended June 30, 2010. The June 30, 2010 Condensed Consolidated Balance Sheet was obtained from the Company's audited Form 10-K for the year ended June 30, 2010. The results of operations for the three months ended September 30, 2010 are not necessarily indicative of results to be expected for the full fiscal year ending June 30, 2011. Santa Fe Financial Corporation, a Nevada corporation, ("Santa Fe" or the "Company") owns approximately 68.8% of the outstanding common shares of Portsmouth Square, Inc. ("Portsmouth"), a public company. Santa Fe is a 76%- owned subsidiary of The InterGroup Corporation ("InterGroup"), a public company. InterGroup also directly owns approximately 11.7% of the common stock of Portsmouth. The Company's primary business is conducted through Portsmouth's general and limited partnership interest in Justice Investors, a California limited partnership ("Justice" or the "Partnership"). Portsmouth has a 50.0% limited partnership interest in Justice and serves as one of the two general partners. The other general partner, Evon Corporation ("Evon"), served as the managing general partner until December 1, 2008 at which time Portsmouth assumed the role of managing general partner. Justice owns a 544-room hotel property located at 750 Kearny Street, San Francisco California, known as the Hilton San Francisco Financial District (the Hotel) and related facilities including a five level underground parking garage. The Hotel is operated by the partnership as a full service Hilton brand hotel pursuant to a Franchise License Agreement with Hilton Hotels Corporation. Justice also has a Management Agreement with Prism Hospitality L.P. (Prism) to perform the day-to-day management functions of the Hotel. Justice leased the parking garage to Evon through September 30, 2008. Effective October 1, 2008, Justice and Evon entered into an Installment Sale Agreement whereby Justice purchased all of Evon's right, title, and interest in -6- the remaining term of its lease of the parking garage, which was to expire on November 30, 2010, and other related assets. Justice also agreed to assume Evon's contract with Ace Parking Management, Inc. ("Ace Parking") for the management of the garage and any other liabilities related to the operation of the garage commencing October 1, 2008. The Partnership also leases a day spa on the lobby level to Tru Spa. Portsmouth also receives management fees as a general partner of Justice for its services in overseeing and managing the Partnership's assets. Those fees are eliminated in consolidation. Due to the temporary closing of the Hotel to undergo major renovations from May 2005 until January 2006 to transition and reposition the Hotel from a Holiday Inn to a Hilton, and the substantial depreciation and amortization expenses resulting from the renovations and operating losses incurred as the Hotel ramped up operations after reopening, Justice has recorded net losses. These losses were anticipated and planned for as part of the Partnership's renovation and repositioning plan for Hotel and management considers those net losses to be temporary. The Hotel has been generating positive cash flows from operations since June 2006 and net income is expected to improve in the future, especially since depreciation and amortization expenses attributable to the renovation will decrease substantially. Despite the significant downturn in the economy, management believes that the revenues expected to be generated from the Hotel, garage and the Partnership's leases will be sufficient to meet all of the Partnership's current and future obligations and financial requirements. Management also believes that there is significant equity in the Hotel to support additional borrowings, if necessary. In addition to the operations of the Hotel, the Company also generates income from the ownership and management of real estate. On December 31, 1997, the Company acquired a controlling 55.4% interest in Intergroup Woodland Village, Inc. ("Woodland Village") from InterGroup. Woodland Village's major asset is a 27-unit apartment complex located in Los Angeles, California. The Company also owns a two-unit apartment building in Los Angeles, California. Basic loss per share is calculated based upon the weighted average number of common shares outstanding during each fiscal year. During the three months ended September 30, 2010 and 2009, the Company did not have any potentially dilutive securities outstanding. In January 2010, the FASB issued ASU 2010-06, "Improving Disclosures About Fair Value Measurements." Effective January 1, 2010, ASU 2010-06 requires the separate disclosure of significant transfers into and out of the Level 1 and Level 2 categories and the reasons for such transfers, and also requires fair value measurement disclosures for each class of assets and liabilities as well as disclosures about valuation techniques and inputs used for recurring and nonrecurring Level 2 and Level 3 fair value measurements. Effective in fiscal years beginning after December 31, 2010, ASU 2010-06 also requires Level 3 disclosure of purchases, sales, issuances and settlements activity on a gross rather than a net basis. These amendments resulted in additional disclosures in the Company's condensed consolidated financial statements. The Consolidation Topic of the FASB ASC 810 provides a new accounting provision regarding the consolidation of variable interest entities ("VIEs"). The new accounting provision modifies the existing quantitative guidance used in determining the primary beneficiary of a VIE by requiring entities to qualitatively assess whether an enterprise is a primary beneficiary, based on whether the entity has (i) power over the significant activities of the VIE, and (ii) an obligation to absorb losses or the right to receive benefits that could be potentially significant to the VIE. Additionally, the accounting -7- provision requires an ongoing reconsideration of the primary beneficiary and provides a framework for the events that triggers a reassessment of whether an entity is a VIE. The new accounting update became effective for the Company on July 1, 2010. The adoption of this guidance did not have a material effect on the Company's condensed consolidated financial statements. Effective February 2010, the Company adopted new accounting provisions which remove the requirement for the Company to disclose the date through which subsequent events have been evaluated in issued financial statements. The Company has evaluated subsequent events through the date the condensed consolidated financial statements were issued. NOTE 2 - INVESTMENT IN HOTEL, NET Property and equipment consisted of the following: As of September 30, 2010 Accumulated Net Book Cost Depreciation Value ------------ ------------ ------------ Land $ 1,896,000 $ - $ 1,896,000 Furniture and equipment 18,568,000 (15,641,000) 2,927,000 Building and improvements 50,511,000 (18,587,000) 31,924,000 ------------ ------------ ------------ $ 70,975,000 $(34,228,000) $ 36,747,000 ============ ============ ============ June 30, 2010 Accumulated Net Book Cost Depreciation Value ------------ ------------ ------------ Land $ 1,896,000 $ - $ 1,896,000 Furniture and equipment 18,392,000 (14,711,000) 3,681,000 Building and improvements 50,253,000 (18,269,000) 31,984,000 ------------ ------------ ------------ $ 70,541,000 $(32,980,000) $ 37,561,000 ============ ============ ============ NOTE 3 - INVESTMENT IN REAL ESTATE, NET The Company owns and operates a 27-unit and 2-unit multi-family apartment complex located in Los Angeles, California and owns land held for development located in Maui, Hawaii. Investment in real estate included the following: September 30, 2010 June 30, 2010 ------------------ ------------- Land $ 2,430,000 $ 2,430,000 Buildings, improvements and equipment 2,580,000 2,575,000 Accumulated depreciation (766,000) (750,000) --------- --------- 4,244,000 4,255,000 Land held for development 973,000 973,000 --------- --------- Investment in real estate, net $ 5,217,000 5,228,000 ========= ========= -8- NOTE 4 - INVESTMENT IN MARKETABLE SECURITIES The Company's investment in marketable securities consists primarily of corporate equities. The Company has also invested in corporate bonds and in income producing securities, which may include interests in real estate based companies and REITs, where financial benefit could insure to its shareholders through income and/or capital gain. At September 30, 2010 and June 30, 2010, all of the Company's marketable securities are classified as trading securities. The change in the unrealized gains and losses on these investments are included in earnings. Trading securities are summarized as follows: As of September 30, 2010 Gross Gross Net Market Investment Cost Unrealized Gain Unrealized Loss Unrealized Gain Value ---------- ----------- --------------- --------------- --------------- ------------ Corporate Equities $ 4,223,000 $ 1,400,000 ($753,000) $647,000 $4,870,000 As of June 30, 2010 Gross Gross Net Market Investment Cost Unrealized Gain Unrealized Loss Unrealized Gain Value ---------- ----------- --------------- --------------- --------------- ------------ Corporate Equities $ 3,791,000 $ 1,108,000 ($567,000) $541,000 $4,332,000
As of September 30, 2010 and June 30, 2010, the Company had unrealized losses of $524,000 and $436,000, respectively, related to securities held for over one year. Net gain(loss) on marketable securities on the statement of operations are comprised of realized and unrealized gains(losses). Below is the composition of the two components for the three months ended September 30, 2010 and 2009, respectively. For the three months ended September 30, 2010 2009 ----------- ----------- Realized (loss)gain on marketable securities $ (64,000) $ 109,000 Unrealized gain(loss) on marketable securities 107,000 (921,000) ----------- ----------- Net gain(loss) on marketable securities $ 43,000 $ (812,000) =========== ===========
NOTE 5 - OTHER INVESTMENTS The Company may also invest, with the approval of the Securities Investment Committee and other Company guidelines, in private investment equity funds and other unlisted securities, such as convertible notes through private placements. Those investments in non-marketable securities are carried at cost on the Company's balance sheet as part of other investments, net of other than temporary impairment losses. As of September 30, 2010 and June 30, 2010, the Company had net other investments of $4,003,000 and $4,124,000, respectively, which consist of the following: -9- Type September 30, 2010 June 30, 2010 --------------------------- ------------------ ---------------- Private equity hedge fund $ 2,163,000 $ 2,306,000 Corporate debt instruments 1,411,000 1,433,000 Warrants - at fair value 429,000 385,000 ----------------- ---------------- $ 4,003,000 $ 4,124,000 ================= ================ During the three months ended September 30, 2010 and 2009, the Company recorded impairment losses on other investments of $143,000 and $0, respectively. As of September 30, 2010, the Company had investments in corporate debt and equity instruments which had attached warrants that were considered derivative instruments. These warrants have an allocated cost basis of $257,000 and a fair market value of $429,000. During the three months ended September 30, 2010, the Company had an unrealized gain of $22,000 related to these warrants. NOTE 6 - FAIR VALUE MEASUREMENTS The carrying values of the Company's non-financial instruments approximate fair value due to their short maturities(i.e., accounts receivable, other assets, accounts payable and other liabilities, due to securities broker and obligations for securities sold) or the nature and terms of the obligation(i.e., other notes payable and mortgage note payable). The assets measured at fair value on a recurring basis as of September 30, 2010 and June 30, 2010 are as follows: Assets: Level 1 Level 2 Level 3 September 30, 2010 ----------- --------- --------- --------- ------------------ Cash $1,342,000 $ - $ - $1,342,000 --------- --------- Other investments - warrants - 429,000 - 429,000 ------- --------- Investment in marketable securities Investment funds 1,970,000 1,970,000 REITs 774,000 774,000 Financial services 710,000 710,000 Basic materials 305,000 305,000 Other 1,111,000 1,111,000 --------- --------- 4,870,000 4,870,000 --------- -------- -------- --------- $6,212,000 $ 429,000 $ - $6,641,000 ========= ======== ======== ========= Assets: Level 1 Level 2 Level 3 June 30, 2010 ----------- --------- --------- --------- -------------- Cash $ 632,000 $ - $ - $ 632,000 --------- --------- Other investments - warrants - 385,000 - 385,000 ------- --------- Investment in marketable securities Investment funds 1,876,000 1,876,000 REITs 880,000 880,000 Healthcare 668,000 668,000 Services 296,000 296,000 Financial services 214,000 214,000 Other 398,000 398,000 --------- --------- 4,332,000 4,332,000 --------- -------- -------- --------- $4,964,000 $ 385,000 $ - $5,349,000 ========= ======== ======== =========
-10- The fair values of investments in marketable securities are determined by the most recently traded price of each security at the balance sheet date. The fair value of the warrants was determined based upon a Black-Scholes option valuation model. Financial assets that are measured at fair value on a non-recurring basis and are not included in the tables above include "Other investments in non- marketable securities," that were initially measured at cost and have been written down to fair value as a result of impairment. The following table shows the fair value hierarchy for these assets measured at fair value on a non- recurring basis as follows: Loss for the three months ended Assets: Level 1 Level 2 Level 3 September 30, 2010 September 30, 2010 ----------- --------- --------- --------- ------------------ -------------------- Other non-marketable investments - - $3,574,000 $3,574,000 $(143,000)
Loss for the three months ended Assets: Level 1 Level 2 Level 3 June 30, 2010 September 30, 2009 ----------- --------- --------- --------- ------------------ ------------------ Other non-marketable investments - - $3,739,000 $3,739,000 $ -
Other investments in non-marketable securities are carried at cost net of any impairment loss. The Company has no significant influence or control over the entities that issue these investments. These investments are reviewed on a periodic basis for other-than-temporary impairment. The Company reviews several factors to determine whether a loss is other-than-temporary. These factors include but are not limited to: (i) the length of time an investment is in an unrealized loss position, (ii) the extent to which fair value is less than cost, (iii) the financial condition and near term prospects of the issuer and (iv) our ability to hold the investment for a period of time sufficient to allow for any anticipated recovery in fair value. NOTE 7 - SEGMENT INFORMATION The Company operates in three reportable segments, the operation of the hotel ("Hotel Operations"), its multi-family residential properties ("Real Estate Operations) and the investment of its cash in marketable securities and other investments ("Investment Transactions"). These three operating segments, as presented in the financial statements, reflect how management internally reviews each segment's performance. Management also makes operational and strategic decisions based on this same information. Information below represents reporting segments for the three months ended September 30, 2010 and 2009, respectively. Operating income (loss) for rental properties consist of rental income. Operating income from hotel operations consists of the operation of the hotel and operation of the garage. Operating income from investment transactions consist of net investment gain(loss) and dividend and interest income. -11- As of and for the Three months ended Hotel Real Estate Investment September 30, 2010 Operations Operations Transactions Other Total ----------- ----------- ------------ ----------- ------------ Revenues $ 9,526,000 $ 136,000 $ - $ - $ 9,662,000 Operating expenses (8,580,000) (81,000) - (205,000) (8,866,000) ----------- ----------- ----------- ----------- ------------ Income(loss) from operations 946,000 55,000 - (205,000) 796,000 Interest expense (703,000) (17,000) - - (720,000) Income from investments - - (99,000) - (99,000) Income tax benefit - - - 41,000 41,000 ----------- ----------- ----------- ----------- ------------ Net income (loss) $ 243,000 $ 38,000 $ (99,000) $ (164,000) $ 18,000 =========== =========== =========== =========== ============ Total Assets $36,747,000 $ 5,217,000 $ 8,873,000 $ 9,366,000 $ 60,203,000 =========== =========== =========== =========== ============ As of and for the Three months ended Hotel Real Estate Investment September 30, 2009 Operations Operations Transactions Other Total ----------- ----------- ------------ ----------- ------------ Revenues $ 8,530,000 $ 136,000 $ - $ - $ 8,666,000 Operating expenses (8,032,000) (70,000) - (201,000) ( 8,303,000) ----------- ----------- ----------- ----------- ------------ Income(loss) from operations 498,000 66,000 - (201,000) 363,000 Interest expense (713,000) (41,000) - - (754,000) Income(loss) from investments - - (923,000) - (923,000) Income tax benefit - - - 409,000 409,000 ----------- ----------- ----------- ----------- ------------ Net income (loss) $ (215,000) $ 25,000 $ (923,000) $ 208,000 $ (905,000) =========== =========== =========== =========== ============ Total Assets $39,472,000 $ 5,277,000 $14,216,000 $ 7,833,000 $ 66,798,000 =========== =========== =========== =========== ============
NOTE 8 - RELATED PARTY TRANSACTIONS Certain shared costs and expenses primarily administrative expenses including rent and insurance, are allocated among the Company and its subsidiary, Portsmouth, and the Company's parent, InterGroup, based on management's estimate of the pro rata utilization of resources. For the three months ended September 30, 2010 and 2009, the Company and Portsmouth made payments to InterGroup of $36,000 for each respective period. During the three months ended September 30, 2010 and 2009, the Company received management fees from Justice Investors totaling $79,000 and $78,000, respectively. These amounts were eliminated in consolidation. Four of the Portsmouth directors serve as directors of Intergroup. Three of those directors also serve as directors of Santa Fe. The three Santa Fe directors also serve as directors of Intergroup. John V. Winfield serves as Chief Executive Officer and Chairman of the Company, Portsmouth, and InterGroup. Depending on certain market conditions and various risk factors, the Chief Executive Officer, his family, Portsmouth and InterGroup may, at times, invest in the same companies in which the Company invests. The Company encourages such investments because it places personal resources of the Chief Executive Officer and his family members, and the resources of Portsmouth and InterGroup, at risk in connection with investment decisions made on behalf of the Company. -12- NOTE 9 - SUBSEQUENT EVENTS Other Investments On October 20, 2010, the Company exchanged approximately $6,659,000 in notes, convertible notes and debt instruments that it held in Comstock Mining, Inc. ("Comstock" - OTCBB: LODE)) for 6,659 shares of newly created 7 1/2% Series A-1 Convertible Preferred Stock (the "A-1 Preferred") of Comstock. As of September 30, 2010, those notes and convertible debt instruments had a carrying value of $1,125,000 (net of impairment adjustments) which was included in the other investments, net amount of $4,003,000 on the Company's consolidated balance sheet. As part of that transaction, the Company's parent company, The InterGroup Corporation, also exchanged approximately $6,572,000 in notes, convertible notes and debt instruments for 6,572 shares of A-1 Preferred. The Company's Chairman and President also exchanged approximately $7,681,000 in notes and convertible notes held personally by him for 7,681 shares of A-1 Preferred. Together, the Company, Santa Fe, InterGroup and Mr. Winfield will constitute all of the holders of the A-1 Preferred. Each share of A-1 Preferred has a stated value of $1,000 per share and a liquidation and change of control preference equal to the stated value plus accrued and unpaid dividends. Commencing January 1, 2011, the holders are entitled to semi-annual dividends at a rate of 7.5% per annum, payable in cash, common stock, preferred stock or any combination of the foregoing, at the election of Comstock. At the holder's election, each share of A-1 Preferred is convertible at a fixed conversion rate (subject to anti-dilution) into 1,536 shares of common stock of Comstock, therefore converting into common stock at a conversion price of $0.6510. Each share of A-1 Preferred will entitle the holder to vote with the holders of common stock as a single class on all matters submitted to the vote of the common stock (on an as converted basis) and, for purposes of voting only, each share of A-1 Preferred shall be entitled to five times the number of votes per common share to which it would otherwise be entitled. Each share of A-1 Preferred shall entitle its holder to one (1) vote in any matter submitted to vote of holders of Preferred Stock, voting as a separate class. The A-1 Preferred, in conjunction with the other series of newly created Preferred Stock of Comstock, also has certain rights requiring consent of the Preferred Stock holders for Comstock to take certain corporate and business actions. The holders will have registration rights with respect to the shares of common stock underlying the A-1 Preferred and also preemptive rights. In addition, so long as the holders of the A-1 Preferred hold 25% or more of the total Preferred Stock of Comstock, (i) Mr. Winfield will be a member of Comstock's board of directors and (ii) the A-1 Preferred holders will have the right, upon written request to Comstock, to nominate a member of Comstock's board of directors who meet the definition of an "independent" director" and other requirements. The foregoing description of the A-1 Preferred and the specific terms of the A-1 Preferred is qualified in its entirety by reference to the provisions of the Series A Securities Purchase Agreement, the Certificate of Designation of Preferences and Rights and Limitations of 7 1/2% Series A-1 Convertible Preferred Stock and the Registration Rights Agreement for the Series A Preferred Stock, which were filed as exhibits to the Company's Current Report on Form 8-K, dated October 20, 2010. Refinancing In November 2010, the Company's subsidiary, Woodland Village, refinanced its $1,641,000 adjustable rate mortgage note payable on its 27-unit apartment building for a new 10-year fixed rate mortgage in the amount of $3,260,000. The -13- new loan provided approximately $1,500,000 in cash back to Woodland Village. The interest rate on the new loan is fixed at 4.85% per annum, with monthly principal and interest payments based on a 30-year amortization schedule. The note matures in December 2020. Item 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FORWARD-LOOKING STATEMENTS AND PROJECTIONS The Company may from time to time make forward-looking statements and projections concerning future expectations. When used in this discussion, the words "anticipate," "estimate," "expect," "project," "intend," "plan," "believe," "may," "could," "might" and similar expressions, are intended to identify forward-looking statements. These statements are subject to certain risks and uncertainties, such as national and worldwide economic conditions, including the impact of recessionary conditions on tourism, travel and the lodging industry, the impact of terrorism and war on the national and international economies, including tourism and securities markets, energy and fuel costs, natural disasters, general economic conditions and competition in the hotel industry in the San Francisco area, seasonality, labor relations and labor disruptions, actual and threatened pandemics such as swine flu, partnership distributions, the ability to obtain financing at favorable interest rates and terms, securities markets, regulatory factors, litigation and other factors discussed below in this Report and in the Company's Annual Report on Form 10-K for the fiscal year ended June 30, 2010, that could cause actual results to differ materially from those projected. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as to the date hereof. The Company undertakes no obligation to publicly release the results of any revisions to those forward-looking statements, which may be made to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events. RESULTS OF OPERATIONS The Company's principal sources of revenue continue to be derived from the investment of its 68.8% owned subsidiary, Portsmouth, in the Justice Investors limited partnership ("Justice" or the "Partnership"), rental income from its investments in multi-family real estate properties and income received from investment of its cash and securities assets. Portsmouth has a 50.0% limited partnership interest in Justice and serves as the managing general partner of Justice. Evon Corporation ("Evon") serves as the other general partner. Justice owns the land, improvements and leaseholds at 750 Kearny Street, San Francisco, California, known as the Hilton San Francisco Financial District (the "Hotel"). The financial statements of Justice have been consolidated with those of the Company. The Hotel is operated by the Partnership as a full service Hilton brand hotel pursuant to a Franchise License Agreement with Hilton Hotels Corporation. The term of the Agreement is for a period of 15 years commencing on January 12, 2006, with an option to extend the license term for another five years, subject to certain conditions. Justice also has a Management Agreement with Prism Hospitality L.P. ("Prism") to perform the day-to-day management functions of the Hotel. -14- Until September 30, 2008, the Partnership also derived income from the lease of the parking garage to Evon. Effective October 1, 2008, Justice entered into an installment sale agreement with Evon to purchase the remaining term of the garage lease and related garage assets, and assumed the contract with Ace Parking for the operations of the garage. Justice also leases a portion of the lobby level of the Hotel to a day spa operator. Portsmouth also receives management fees as a general partner of Justice for its services in overseeing and managing the Partnership's assets. Those fees are eliminated in consolidation. In addition to the operations of the Hotel, the Company also generates income from the ownership and management of real estate. On December 31, 1997, the Company acquired a controlling 55.4% interest in Intergroup Woodland Village, Inc. ("Woodland Village") from InterGroup. Woodland Village's major asset is a 27-unit apartment complex located in Los Angeles, California. The Company also owns a two-unit apartment building in Los Angeles, California. Three Months Ended September 30, 2010 Compared to Three Months Ended September 30, 2009 The Company had net income of $18,000 for the three months ended September 30, 2010 compared to a net loss of $905,000 for the three months ended September 30, 2009. The change is primarily attributable to the significantly lower net loss from investment activities and the increase in income from hotel operations. The Company had income from hotel operations of $243,000 for the three months ended September 30, 2010, compared to a loss of $215,000 for the three months ended September 30, 2009. The following table sets forth a more detailed presentation of Hotel operations for the three months ended September 30, 2010 and 2009. For the three months ended September 30, 2010 2009 ---------------------------------------- ---------- ---------- Hotel revenues: Hotel rooms $ 7,515,000 $ 6,732,000 Food and beverage 1,181,000 951,000 Garage 636,000 668,000 Other 194,000 179,000 ---------- ---------- Total hotel revenues 9,526,000 8,530,000 Operating expenses, excluding interest, depreciation and amortization (7,317,000) (6,876,000) ---------- ---------- Operating income before interest, depreciation and amortization 2,209,000 1,654,000 Interest expense (703,000) (713,000) Depreciation and amortization expense (1,263,000) (1,156,000) ---------- ---------- Income (loss) from hotel operations $ 243,000 $ (215,000) ========== ==========
For the three months ended September 30, 2010, the Hotel generated operating income of $2,209,000 before interest, depreciation and amortization, on operating revenues of $9,526,000 compared to operating income of $1,654,000 before interest, depreciation and amortization, on operating revenues of $8,530,000 for the three months ended September 30, 2009. The increase in -15- income from Hotel operations is primarily attributable to an increase in room and food and beverage revenues in the current period, partially offset by a decrease in garage revenues and an increase in depreciation and amortization expense due to improvements to the Hotel made after the prior period, including upgrades to the guest rooms and installation of energy saving controls and devices. Room revenues increased by $783,000 for the three months ended September 30, 2010 compared to the three months ended September 30, 2009 and food and beverage revenues increased by $230,000 for the same period. The increase in room revenues was primarily attributable to a significant increase in average daily room rates during the three months ended September 30, 2010 as the Hotel began to see an increase in higher rated corporate and group business travel, which also resulted in higher in food and beverage revenues. The modest decrease in garage revenues was primarily attributable to slightly lower Hotel occupancy during the current period. 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 three months ended September 30, 2010 and 2009. Three Months Ended Average Average September 30, Daily Rate Occupancy% RevPar ----------------- ---------- --------- -------- 2010 $168 89% $150 2009 $147 92% $135 The operations of the Hotel began to experience an increase in the higher rated business and group travel segments as the hospitality industry began so see some recovery. As a result, the Hotel's average daily rate increased by $21 for the three months ended September 30, 2010 compared to the three months ended September 30, 2010. The modest decrease in occupancy of 3% was due to the Hotel being able to displace some of the discounted Internet business that the Hotel was forced to take in the prior period to maintain occupancy in a very competitive market with higher rated business. As a result, the Hotel was able to achieve a RevPar number that was $15 higher than the prior period. In this highly competitive market, management has also continued to focus on ways to enhance the guest experience as well as improve operating efficiencies. The Hotel has recently upgraded its guest room with newer flat panel television systems that provide guests with greater entertainment options. The Hotel has also installed many energy saving controls and devices as part of its efforts to become greener and reduce operating costs. Management will continue to explore new and innovative ways to improve operations and attract new guests, including international travelers, to the Hotel at higher room rates. The Company had a net gain on marketable securities of $43,000 for the three months ended September 30, 2010 compared to a net loss on marketable securities of $812,000 for the three months ended September 30, 2009. For the three months ended September 30, 2010, the Company had a net realized loss of $64,000 and a net unrealized gain of $107,000. For the three months ended September 30, 2009, the Company had a net realized gain of $109,000 and a net unrealized loss of $921,000. 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 -16- 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. The Company may also invest, with the approval of the Securities Investment Committee and other Company guidelines, in private investment equity funds and other unlisted securities, such as convertible notes through private placements. Those investments in non-marketable securities are carried at cost on the Company's balance sheet as part of other investments, net of other than temporary impairment losses. As of September 30, 2010, the Company had net other investments of $4,003,000. Included in other investments are investments in corporate debt and equity instruments which had attached warrants that were considered derivative instruments. The Company recorded an unrealized gain of $22,000 related to these warrants during the three months ended September 30, 2010. During the three months ended September 30, 2010 and 2009, the Company performed an impairment analysis of its other investments and determined that its investments had other than temporary impairments and recorded impairment losses of $143,000 for the three months ended September 30, 2010. Dividend and interest income increased to $90,000 for the three months ended September 30, 2010 from $45,000 for the three months ended September 30, 2009 as the result of the increased investment in income yielding investments. Trading and margin interest expense decreased to $111,000 for the three months ended September 30, 2010 from $156,000 for the three months ended September 30, 2009 primarily as the result of the decrease in margin interest expense related to the decrease in the use of margin. The provision for income tax expense as a percentage of the loss before taxes was higher for the three months ended September 30, 2010 as compared to the three months ended September 30, 2009 primarily due to income from Justice which resulted in a lower amount of noncontrolling interest that was reconciled against the net income of the Company for income tax calculation purposes. MARKETABLE SECURITIES AND OTHER INVESTMENTS As of September 30, 2010 and June 30, 2010, the Company had investments in marketable equity securities of $4,870,000 and $4,332,000, respectively. The following tables show the composition of the Company's marketable securities portfolio by selected industry groups as of September 30, 2010 and June 30, 2010. As of September 30, 2010: % of Total Investment Industry Group Fair Value Securities -------------- ------------ ---------- Investment funds 1,970,000 40.5% REITs 774,000 15.9% Financial services 710,000 14.6% Basic materials 305,000 6.3% Other 1,111,000 22.7% ------------ ---------- $ 4,870,000 100.0% ============ ========== -17- June 30, 2010 % of Total Investment Industry Group Market Value Securities -------------- ------------ ---------- Investment funds $ 1,876,000 43.3% REITs 880,000 20.3% Healthcare 668,000 15.4% Services 296,000 6.8% Financial services 214,000 4.9% Other 398,000 9.3% ---------- ------ $ 4,332,000 100.0% ========== ====== The Company's investment portfolio is diversified with 39 different equity positions. The portfolio contains three equity securities that are more than 5% of the equity value of the portfolio, with the largest being 21.9% of the value of the portfolio. The amount of the Company's investment in any particular issuer may increase or decrease, and additions or deletions to its securities portfolio may occur, at any time. While it is the internal policy of the Company to limit its initial investment in any single equity to less than 5% of its total portfolio value, that investment could eventually exceed 5% as a result of equity appreciation or reduction of other positions. Marketable securities are stated at market value as determined by the most recently traded price of each security at the balance sheet date. The Company may also invest, with the approval of the Securities Investment Committee and other Company guidelines, in private investment equity funds and other unlisted securities, such as convertible notes through private placements. Those investments in non-marketable securities are carried at cost on the Company's balance sheet as part of other investments, net of other than temporary impairment losses. As of September 30, 2010, the Company had net other investments of $4,003,000. Included in the net other investments are notes and convertible notes in Comstock Mining, Inc. ("Comstock"), a public company, that had a carrying value of $1,125,000 (net of impairment adjustments) as of September 30, 2010. \ The face value of these notes and convertible notes as of September 30, 2010 totaled approximately $6,659,000, which includes principal and accrued interest. On October 20, 2010, the Company exchanged the $6,659,000 in notes, convertible notes and debt instruments that it held in Comstock for 6,659 shares of newly created 7 1/2% Series A-1 Convertible Preferred Stock of Comstock. Please see NOTE 9 - SUBSEQUENT EVENTS of the notes to the condensed consolidated financial statements for further discussion on the Company's other investments. The following table shows the net gain or loss on the Company's marketable securities and the associated margin interest and trading expenses for the respective period. -18- For the three months ended September 30, 2010 2009 ---------- ----------- Net gain(loss) on marketable securities $ 43,000 $ (812,000) Net gain on other investments 22,000 - Impairment loss on other investments (143,000) - Dividend and interest income 90,000 45,000 Margin interest expense (26,000) (71,000) Trading and management expenses (85,000) (85,000) ---------- ---------- $ (99,000) $ (923,000) ========== ========== LIQUIDITY AND SOURCES OF CAPITAL The Company's cash flows are primarily generated from its Hotel operations and general partner fees from Justice. The Company also receives revenues generated from the investment of its cash and marketable securities and other investments. Since the operations of the Hotel were temporarily suspended on May 31, 2005, and significant amounts of money were expended to renovate and reposition the Hotel as a Hilton, Justice did not pay any partnership distributions until the end of March 2007. As a result, the Company had to depend more on the revenues generated from the investment of its cash and marketable securities during that transition period. The Hotel started to generate cash flows from its operations in June 2006. For the fiscal year ended June 30, 2009, Justice paid a total of $850,000 in limited partnership distributions, of which the Company received $425,000. The fiscal 2009 distributions were paid in September 2008, after which the San Francisco hotel market began to feel the full impact of the significant downturn in domestic and international economies that continued throughout fiscal 2009 and 2010. As a result, no Partnership distributions were paid in fiscal 2010. Since no significant improvement in economic conditions is expected in the lodging industry until sometime during 2011, no limited partnership distributions are anticipated in the foreseeable future. The general partners will continue to monitor and review the operations and financial results of the Hotel and to set the amount of any future distributions that may be appropriate based on operating results, cash flows and other factors, including establishment of reasonable reserves for debt payments and operating contingencies. The new Justice Compensation Agreement that became effective on December 1, 2008, when Portsmouth assumed the role of managing general partner of Justice, has provided additional cash flows to the Company. Under the new Compensation Agreement, Portsmouth is now entitled to 80% of the minimum base fee to be paid to the general partners of $285,000, while under the prior agreement, Portsmouth was entitled to receive only 20% of the minimum base fee. During the three months ended September 30, 2010 and 2009, the Company received management fees from Justice Investors totaling $79,000 and $78,000, respectively. To meet its substantial financial commitments for the renovation and transition of the Hotel to a Hilton, Justice had to rely on borrowings to meet its obligations. On July 27, 2005, Justice entered into a first mortgage loan with The Prudential Insurance Company of America in a principal amount of $30,000,000 (the "Prudential Loan"). The term of the Prudential Loan is for -19- 120 months at a fixed interest rate of 5.22% per annum. The Prudential Loan calls for monthly installments of principal and interest in the amount of approximately $165,000, calculated on a 30-year amortization schedule. The Loan is collateralized by a first deed of trust on the Partnership's Hotel property, including all improvements and personal property thereon and an assignment of all present and future leases and rents. The Prudential Loan is without recourse to the limited and general partners of Justice. The principal balance of the Prudential Loan was $27,589,000 as of September 30, 2010. On March 27, 2007, Justice entered into a second mortgage loan with Prudential (the "Second Prudential Loan") in a principal amount of $19,000,000. The term of the Second Prudential Loan is for 100 months and matures on August 5, 2015, the same date as the first Prudential Loan. The Second Prudential Loan is at a fixed interest rate of 6.42% per annum and calls for monthly installments of principal and interest in the amount of $119,000, calculated on a 30-year amortization schedule. The Second Prudential Loan is collateralized by a second deed of trust on the Partnership's Hotel property, including all improvements and personal property thereon and an assignment of all present and future leases and rents. The Second Prudential Loan is also without recourse to the limited and general partners of Justice. The principal balance of the Second Prudential Loan was $18,202,000 as of September 30, 2010. Effective April 29, 2010, the Partnership obtained a modification of its $2,500,000 unsecured revolving line of credit facility with East West Bank (formerly United Commercial Bank) that was to mature on April 30, 2010, and converted that line of credit facility to an unsecured term loan. The Partnership also obtained a waiver of any prior noncompliance with financial covenants and paid a loan modification fee of $10,000. The modification provides that Justice will pay the $2,500,000 balance on its line of credit facility over a period of four years, to mature on April 30, 2014. This term loan calls for monthly principal and interest payments of $41,000, calculated on a six-year amortization schedule, with interest only from May 1, 2010 to August 31, 2010. Pursuant to the modification, the annual floating interest rate was reduced by 0.5% to the WSJ Prime Rate plus 2.5% (with a minimum floor rate of 5.0% per annum). The modification includes financial covenants written to reflect financial conditions that all hotels are facing. The covenants include specific financial ratios and a return to minimum profitability by June 2011. Management believes that the Partnership has the ability to meet the specific covenants and the Partnership was in compliance with the covenants as of September 30, 2010. As of September 30, 2010 the outstanding balance was $2,470,000. Despite the downturns in the economy, the Hotel has continued to generate positive cash flows. While the debt service requirements related to the two Prudential loans, as well as the new term loan to pay off the line of credit, may create some additional risk for the Company and its ability to generate cash flows in the future since the Partnership's assets had been virtually debt free for a number of years, management believes that cash flows from the operations of the Hotel and the garage will continue to be sufficient to meet all of the Partnership's current and future obligations and financial requirements. Management also believes that there is sufficient equity in the Hotel assets to support future borrowings, if necessary, to fund any new capital improvements and other requirements. -20- In November 2010, the Company's subsidiary, Woodland Village, refinanced its $1,641,000 adjustable rate mortgage note payable on its 27-unit apartment building for a new 10-year fixed rate mortgage in the amount of $3,260,000. The new loan provided approximately $1,500,000 in cash back to Woodland Village. The interest rate on the new loan is fixed at 4.85% per annum, with monthly principal and interest payments based on a 30-year amortization schedule. The note matures in December 2020. The Company has invested in short-term, income-producing instruments and in equity and debt securities when deemed appropriate. The Company's marketable securities are classified as trading with unrealized gains and losses recorded through the consolidated statements of operations. Management believes that its cash, marketable securities, other investments, real estate operations and the cash flows generated from those assets and from partnership distributions and management fees, will be adequate to meet the Company's current and future obligations. MATERIAL CONTRACTUAL OBLIGATIONS The following table provides a summary of the Company's material financial obligations which also includes interest. Total Year 1 Year 2 Year 3 Year 4 Year 5 Thereafter ----------- ---------- ---------- ---------- ---------- ---------- ----------- Mortgage notes payable $62,025,000 $2,710,000 $3,613,000 $3,613,000 $3,613,000 $3,613,000 $44,863,000 Other notes payable 3,966,000 926,000 708,000 694,000 1,629,000 9,000 - ---------- --------- --------- --------- --------- --------- ---------- Total $65,991,000 $3,636,000 $4,321,000 $4,307,000 $5,242,000 $3,622,000 $44,863,000 ---------- --------- --------- --------- --------- --------- ----------
OFF BALANCE SHEET ARRANGEMENTS The Company has no 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 Prism 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 presentation of our financial position and results of operations and require judgments by management in order to make estimates about the effect of matters -21- that are inherently uncertain. The preparation of these condensed 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. Item 4. Controls and Procedures. EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES The Company's management, with the participation of the Company's Chief Executive Officer and Principal Financial Officer, has evaluated the effectiveness of the Company's disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the quarterly period covered by this Quarterly Report on Form 10-Q. Based upon such evaluation, the Chief Executive Officer and Principal Financial Officer have concluded that, as of the end of such period, the Company's disclosure controls and procedures are effective in ensuring that information required to be disclosed in this filing is accumulated and communicated to management and is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission rules and forms. CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING There have been no changes in the Company's internal control over financial reporting during the last quarterly period covered by this Quarterly Report on Form 10-Q that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting. PART II. OTHER INFORMATION Item 6. Exhibits. 31.1 Certification of Chief Executive Officer of Periodic Report Pursuant to Rule 13a-14(a) and Rule 15d-14(a). 31.2 Certification of Principal Financial Officer of Periodic Report Pursuant to Rule 13a-14(a) and Rule 15d-14(a). 32.1 Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350. 32.2 Certification of Principal Financial Officer Pursuant to 18 U.S.C. Section 1350. -22- SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. SANTA FE FINANCIAL CORPORATION (Registrant) Date: November 12, 2010 by /s/ John V. Winfield --------------------------- John V. Winfield, President, Chairman of the Board and Chief Executive Officer Date: November 12, 2010 by /s/ Michael G. Zybala --------------------------- Michael G. Zybala, Vice President, and Secretary Date: November 12, 2010 by /s/ David Nguyen -------------------------- David Nguyen, Treasurer and Controller (Principal Financial Officer) -23-