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 December 31, 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: 1-10324
DELAWARE 13-3293645
------------------------------ ------------------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
10940 Wilshire Blvd., Suite 2150, Los Angeles, California 90024
--------------------------------------------------------- --------
(Address of principal executive offices) (Zip Code)
(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 February 9, 2011, was 2,424,164
INDEX
THE INTERGROUP CORPORATION
PART I. FINANCIAL INFORMATION PAGE
Item 1. Condensed Consolidated Financial Statements:
Condensed Consolidated Balance Sheets
As of December 31, 2010(Unaudited) and June 30, 2010 3
Condensed Consolidated Statements of Operations(Unaudited)
For the Three Months ended December 31, 2010 and 2009 4
Condensed Consolidated Statements of Operations(Unaudited)
For the Six Months ended December 31, 2010 and 2009 5
Condensed Consolidated Statements of Cash Flows(Unaudited)
For the Six months ended December 31, 2010 and 2009 6
Notes to Condensed Consolidated Financial Statements (Unaudited) 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 18
Item 4. Controls and Procedures 30
PART II. OTHER INFORMATION
Item 6. Exhibits 30
SIGNATURES 31
|
PART I
FINANCIAL INFORMATION
Item 1 - Condensed Consolidated Financial Statements
THE INTERGROUP CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
December 31, 2010 June 30, 2010
(Unaudited)
-------------- -------------
Assets:
Investment in hotel, net $ 40,450,000 $ 41,961,000
Investment in real estate, net 60,868,000 61,184,000
Properties held for sale 7,314,000 7,193,000
Investment in marketable securities 21,846,000 7,712,000
Other investments, net 17,871,000 6,651,000
Cash and cash equivalents 1,213,000 1,140,000
Restricted cash 2,055,000 1,641,000
Other assets, net 4,865,000 4,645,000
----------- -----------
Total assets $156,482,000 $132,127,000
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY(DEFICIT)
Liabilities:
Accounts payable and other liabilities $ 9,844,000 $ 10,473,000
Due to securities broker 10,491,000 2,235,000
Obligations for securities sold - 1,698,000
Other notes payable 3,593,000 3,688,000
Mortgage notes payable - hotel 45,590,000 45,990,000
Mortgage notes payable - real estate 63,078,000 59,842,000
Mortgage notes payable - property held for sale 10,335,000 10,450,000
Deferred income taxes 6,166,000 1,135,000
----------- -----------
Total liabilities 149,097,000 135,511,000
----------- -----------
Commitments and contingencies
Shareholders' equity(deficit):
Preferred stock, $.01 par value, 100,000 shares
authorized; none issued - -
Common stock, $.01 par value, 4,000,000 shares authorized;
3,313,152 and 3,290,872 issued; 2,424,164 and 2,401,884
outstanding, respectively 33,000 33,000
Additional paid-in capital 9,256,000 9,109,000
Retained earnings 12,801,000 4,190,000
Treasury stock, at cost, 888,988 shares (9,564,000) (9,564,000)
----------- -----------
Total Intergroup shareholders' equity 12,526,000 3,768,000
Noncontrolling interest(deficit) (5,141,000) (7,152,000)
----------- -----------
Total shareholders' equity(deficit) 7,385,000 (3,384,000)
----------- -----------
Total liabilities and shareholders' equity(deficit) $156,482,000 $132,127,000
=========== ===========
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
THE INTERGROUP CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
For the three months ended December 31, 2010 2009
----------- -----------
Revenues:
Hotel $ 9,142,000 $ 8,368,000
Real estate 3,012,000 3,077,000
----------- -----------
Total revenues 12,154,000 11,445,000
----------- -----------
Costs and operating expenses:
Hotel operations (6,816,000) (6,543,000)
Real estate operations (1,594,000) (1,499,000)
Depreciation and amortization (1,733,000) (1,727,000)
General and administrative (400,000) (451,000)
----------- -----------
Total costs and operating expenses (10,543,000) (10,220,000)
----------- -----------
Income from operations 1,611,000 1,225,000
----------- -----------
Other income(expense):
Mortgage interest expense (1,529,000) (1,533,000)
Net gain on marketable securities 3,703,000 182,000
Net unrealized income on other investments 11,822,000 226,000
Impairment loss on other investments (310,000) (917,000)
Dividend and interest income 472,000 55,000
Trading and margin interest expense (324,000) (352,000)
----------- -----------
Total other income(expense), net 13,834,000 (2,339,000)
----------- -----------
Income(loss) from continuing operations
before income taxes 15,445,000 (1,114,000)
Income tax (expense)benefit (4,965,000) 338,000
----------- -----------
Income(loss) from continuing operations 10,480,000 (776,000)
----------- -----------
Discontinued operations:
Income from discontinued operations 110,000 94,000
Provision for income tax expense (44,000) (39,000)
----------- -----------
Income from discontinued operations 66,000 55,000
----------- -----------
Net income(loss) 10,546,000 (721,000)
(Income)loss attributable to the
noncontrolling interest (1,944,000) 242,000
----------- -----------
Net income(loss) attributable to Intergroup $ 8,602,000 $ (479,000)
=========== ===========
Net income(loss) per share from continuing operations
Basic $ 4.32 $ (0.32)
Diluted $ 4.14 $ (0.32)
Net income per share from discontinued operations
Basic $ 0.03 $ 0.02
Diluted $ 0.03 $ 0.02
Net income(loss) per share attributable to InterGroup
Basic $ 3.55 $ (0.20)
Diluted $ 3.40 $ (0.20)
Weighted average shares outstanding:
Basic 2,424,136 2,394,109
Diluted 2,532,804 2,443,884
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
THE INTERGROUP CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
For the six months ended December 31, 2010 2009
----------- -----------
Revenues:
Hotel $ 18,668,000 $ 16,898,000
Real estate 6,102,000 6,122,000
----------- -----------
Total revenues 24,770,000 23,020,000
----------- -----------
Costs and operating expenses:
Hotel operations (14,133,000) (13,419,000)
Real estate operations (3,162,000) (3,158,000)
Depreciation and amortization (3,497,000) (3,396,000)
General and administrative (872,000) (716,000)
----------- -----------
Total costs and operating expenses (21,664,000) (20,689,000)
----------- -----------
Income from operations 3,106,000 2,331,000
----------- -----------
Other income(expense):
Mortgage interest expense (3,004,000) (3,076,000)
Net gain(loss) on marketable securities 4,056,000 (1,140,000)
Net unrealized income on other investments 11,863,000 226,000
Impairment loss on other investments (540,000) (917,000)
Dividend and interest income 611,000 132,000
Trading and margin interest expense (627,000) (728,000)
----------- -----------
Total other income(expense), net 12,359,000 (5,503,000)
----------- -----------
Income(loss) from continuing operations
before income taxes 15,465,000 (3,172,000)
Income tax (expense)benefit (4,955,000) 1,037,000
----------- -----------
Income(loss) from continuing operations 10,510,000 (2,135,000)
----------- -----------
Discontinued operations:
Income from discontinued operations 188,000 147,000
Provision for income tax expense (76,000) (60,000)
----------- -----------
Income from discontinued operations 112,000 87,000
----------- -----------
Net income(loss) 10,622,000 (2,048,000)
(Income)loss attributable to the
noncontrolling interest (2,011,000) 638,000
----------- -----------
Net income(loss) attributable to Intergroup $ 8,611,000 $(1,410,000)
=========== ===========
Net income(loss) per share from continuing operations
Basic $ 4.35 $ (0.90)
Diluted $ 4.19 $ (0.90)
Net income per share from discontinued operations
Basic $ 0.05 $ 0.04
Diluted $ 0.04 $ 0.04
Net income(loss) per share attributable to InterGroup
Basic $ 3.56 $ (0.60)
Diluted $ 3.43 $ (0.60)
Weighted average shares outstanding:
Basic 2,417,055 2,368,528
Diluted 2,507,999 2,368,528
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
THE INTERGROUP CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
For the six months ended December 31, 2010 2009
----------- -----------
Cash flows from operating activities:
Net income(loss) $10,622,000 $(2,048,000)
Adjustments to reconcile net income(loss) to
cash (used in)provided by operating activities:
Depreciation and amortization 3,497,000 3,396,000
Net unrealized (gain)loss on marketable securities (3,837,000) 5,288,000
Impairment loss on other investments 540,000 917,000
Net unrealized gain on other investments (11,863,000) (226,000)
Stock compensation expense 147,000 72,000
Changes in assets and liabilities:
Investment in marketable securities (10,297,000) 957,000
Other assets (247,000) (676,000)
Accounts payable and other liabilities (630,000) 570,000
Due to securities broker 8,256,000 (3,353,000)
Obligation for securities sold (1,698,000) (405,000)
Deferred tax liability 5,031,000 (976,000)
----------- -----------
Net cash (used in)provided by operating activities (479,000) 3,516,000
----------- -----------
Cash flows from investing activities:
Investment in hotel (1,008,000) (926,000)
Investment in real estate (755,000) (178,000)
Proceeds(payments)other investments 103,000 (775,000)
Restricted cash (414,000) (171,000)
----------- -----------
Net cash used in investing activities (2,074,000) (2,050,000)
----------- -----------
Cash flows from financing activities:
Borrowings from mortgage notes payable 3,838,000 -
Payments on mortgage notes payable (1,117,000) (1,058,000)
Payments on other notes payable (95,000) (201,000)
Draw on line of credit - 689,000
----------- -----------
Net cash provided by(used in) financing activities 2,626,000 (570,000)
----------- -----------
Net increase in cash and cash equivalents 73,000 896,000
Cash and cash equivalents at beginning of period 1,140,000 1,024,000
----------- -----------
Cash and cash equivalents at end of period $ 1,213,000 $ 1,920,000
=========== ===========
Supplemental information:
Interest paid $ 3,464,000 $ 3,374,000
=========== ===========
Assets acquired through capital lease $ - $ 700,000
=========== ===========
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
THE INTERGROUP CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
The consolidated financial statements included herein have been prepared by The InterGroup Corporation ("InterGroup" 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 of InterGroup and the notes therein included in the Company's Annual Report on Form 10-K for the year ended June 30, 2010. The June 30, 2010 Condensed Consolidated Balance Sheet was obtained from the Company's Form 10-K for the year ended June 30, 2010.
The results of operations for the three and six months ended December 31, 2010 are not necessarily indicative of results to be expected for the full fiscal year ending June 30, 2011.
As of December 31, 2010, the Company had the power to vote 80% of the voting
shares of Santa Fe Financial Corporation ("Santa Fe"), a public company (OTCBB:
SFEF). This percentage includes the power to vote an approximately 4% interest
in the common stock in Santa Fe owned by the Company's Chairman and President
pursuant to a voting trust agreement entered into on June 30, 1998.
Santa Fe's revenue is primarily generated through the management of its 68.8% owned subsidiary, Portsmouth Square, Inc. ("Portsmouth"), a public company (OTCBB: PRSI). InterGroup also directly owns approximately 11.7% of the common stock of Portsmouth. 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 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 management agreement with Ace Parking was extended for another 62 months, effective November 1, 2010. 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 of real estate. Properties include apartment complexes, commercial real estate, and two single-family houses as strategic investments. The properties are located throughout the United States, but are concentrated in Texas and Southern California. The Company also has investments in unimproved real property. The Company's residential rental properties located in California are managed by a professional third party property management company.
In January 2010, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (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 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.
The Company has evaluated subsequent events through the date the condensed consolidated financial statements were issued.
Properties Held for Sale - Discontinued Operations
Properties are classified as held for sale when management commits to a plan to sell the asset, the asset is available for immediate sale, an active program to locate a buyer has been initiated, the sale of the asset is probable, the sale of the asset is actively marketed and it is unlikely that significant changes to the sale plan will be made or withdrawn. As of December 31, 2010, the Company had two properties classified as held for sale in accordance with ASC Topic 205-20 "Presentation of Financial Statements - Discontinued Operations, which requires that depreciation on these properties be stopped.
During the three and six months ended December 31, 2009, three properties were classified as held for sale. However, since then, one of the properties was no longer considered held for sale. Accordingly, the operations of this property for the three and six months ended December 31, 2009 was reclassified from discontinued operations to continuing operations to conform to current quarter presentation.
Under the provisions of the provisions of ASC Topic 205-20, for properties disposed of during the year or for properties for which the Company actively markets for sale at a price that is reasonable in relation to its market value, the properties are required to be classified as held for sale on the balance sheet and accounted for under discontinued operations in the statement of operations. The revenues and expenses from the operation of these properties have been reclassified from continuing operations for the three and six months ended December 31, 2010 and 2009 and reported as income from discontinued operations in the consolidated statements of operations.
Earnings Per Share
Basic income(loss) per share is computed by dividing net income(loss) available to common stockholders by the weighted average number of common shares outstanding. The computation of diluted income(loss) per share is similar to the computation of basic earnings per share except that the weighted-average number of common shares is increased to include the number of additional common shares that would have been outstanding if potential dilutive common shares had been issued. The Company's only potentially dilutive common shares are stock options and restricted stock units. For the three and six months ended December 31, 2010, the Company had a total of 108,668 and 90,944, stock options and restricted stock units, respectively, that were considered potential dilutive common shares. For the three and six months ended December 31, 2009, there were no potentially dilutive common shares as the Company had a net loss from continuing operations.
NOTE 2 - INVESTMENT IN HOTEL, NET
Hotel property and equipment consisted of the following:
Accumulated Net Book
As of December 31, 2010 Cost Depreciation Value
------------ ------------ ------------
Land $ 2,738,000 $ - $ 2,738,000
Furniture and equipment 19,031,000 (16,569,000) 2,462,000
Building and improvements 55,101,000 (19,851,000) 35,250,000
------------ ------------ ------------
$ 76,870,000 $(36,420,000) $ 40,450,000
============ ============ ============
-9-
|
June 30, 2010 Accumulated Net Book
Cost Depreciation Value
------------ ------------ ------------
Land $ 2,738,000 $ - $ 2,738,000
Furniture and equipment 18,393,000 (14,710,000) 3,683,000
Building and improvements 54,782,000 (19,242,000) 35,540,000
------------ ------------ ------------
$ 75,913,000 $(33,952,000) $ 41,961,000
============ ============ ============
|
NOTE 3 - INVESTMENT IN REAL ESTATE, NET
Investment in real estate included the following:
December 31, 2010 June 30, 2010
----------------- -------------
Land $ 24,735,000 $ 24,735,000
Buildings, improvements and equipment 61,392,000 60,758,000
Accumulated depreciation (25,259,000) (24,309,000)
---------- ----------
$ 60,868,000 $ 61,184,000
========== ==========
|
In November 2010, the Company 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 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 received net proceeds of approximately $1,507,000 from the refinancing.
In November 2010, the Company also refinanced its $3,569,000 adjustable rate mortgage note payable on its 31-unit apartment building for a new 10-year fixed rate mortgage in the amount of $5,787,000. 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 received net proceeds of approximately $2,078,000 from the refinancing.
NOTE 4 - PROPERTY HELD FOR SALE AND DISCONTINUED OPERATIONS
As of December 31, 2010, the Company had two properties located in Texas classified as held for sale. The revenues and expenses from the operation for these two properties have been reclassified from continuing operations and reported as income from discontinued operations in the condensed consolidated statements of operations for the respective periods.
The revenues and expenses from the operation of these two properties during the three and six months ended December 31, 2010 and 2009, are summarized as follows:
For the three months ended December 31, 2010 2009
---------- ----------
Revenues $ 642,000 $ 606,000
Expenses (532,000) (512,000)
---------- ----------
Income $ 110,000 $ 94,000
========== ==========
-10-
|
For the six months ended December 31, 2010 2009
---------- ----------
Revenues $1,245,000 $ 1,209,000
Expenses (1,057,000) (1,062,000)
---------- ----------
Income $ 188,000 $ 147,000
========== ==========
|
In January 2011, the Company sold one of its held for sale properties, the 132- unit apartment complex located in San Antonio, Texas for $5,500,000 and received net proceeds of approximately $2,030,000 after the repayment of the related mortgage note payable of approximately $3,218,000. The Company will realize an estimated gain on the sale of real estate of approximately $3,200,000.
NOTE 5 - 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 income producing securities, which may include interests in real estate based companies and REITs, where financial benefit could inure to its shareholders through income and/or capital gain.
At December 31, 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 December 31, 2010
Gross Gross Net Market
Investment Cost Unrealized Gain Unrealized Loss Unrealized Gain Value
---------- ----------- --------------- --------------- --------------- ------------
Corporate
Equities $16,497,000 $ 6,449,000 ($1,100,000) $ 5,349,000 $21,846,000
As of June 30, 2010
Gross Gross Net Market
Investment Cost Unrealized Gain Unrealized Loss Unrealized Gain Value
---------- ----------- --------------- --------------- --------------- ------------
Corporate
Equities $ 6,311,000 $ 2,273,000 ($872,000) $ 1,401,000 $ 7,712,000
|
As of December 31, 2010 and June 30, 2010, the Company had unrealized losses of $852,000 and $679,000, respectively, related to securities held for over one year.
Net gain(loss) on marketable securities on the statement of operations is comprised of realized and unrealized gains(losses). Below is the composition of the net gain(loss) for the three and six months ended December 31, 2010 and 2009, respectively.
For the three months ended December 31, 2010 2009
----------- -----------
Realized gain on marketable securities $ 334,000 $ 4,000,000
Unrealized gain(loss) on marketable securities 3,369,000 (3,818,000)
----------- -----------
Net gain on marketable securities $ 3,703,000 $ 182,000
=========== ===========
-11-
|
For the six months ended December 31, 2010 2009
----------- -----------
Realized gain on marketable securities $ 219,000 $ 4,148,000
Unrealized gain(loss) on marketable securities 3,837,000 (5,288,000)
----------- -----------
Net gain(loss) on marketable securities $ 4,056,000 $(1,140,000)
=========== ===========
|
NOTE 6 - OTHER INVESTMENTS, NET
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 December 31, 2010 and June 30, 2010, the Company's other investments, net, is comprised of the following:
Type December 31, 2010 June 30, 2010
--------------------------- ----------------- ----------------
Preferred stock - Comstock $ 13,231,000 $ -
Private equity hedge fund 3,172,000 3,712,000
Corporate debt & equity instruments 569,000 2,358,000
Warrants - at fair value 899,000 581,000
----------------- ----------------
$ 17,871,000 $ 6,651,000
================= ================
|
On October 20, 2010, as part of a debt restructuring of one of its investments,
the Company exchanged approximately $13,231,000 in notes, convertible notes and
debt instruments that it held in Comstock Mining, Inc. ("Comstock" - OTCBB:
LODE)) for 13,231 shares ($1,000 stated value) of newly created 7 1/2% Series
A-1 Convertible Preferred Stock (the "A-1 Preferred") of Comstock. Prior to the
exchange, those notes and convertible debt instruments had a carrying value of
$1,809,000, net of impairment adjustments. The Company accounted for the
transaction as an exchange of its debt securities and recorded the new
instruments (A-1 Preferred) received based on their fair value. The Company
estimated the fair value of the A-1 Preferred at $1,000 per share, which was
the stated value of the instrument, for a total of $13,231,000. The fair value
of the A-1 Preferred had a similar value to the Series B preferred stock
financing (stated value of $1,000 per share) by which Comstock concurrently
raised $35.7 million in new capital from other investors in October 2010. The
Company recorded an unrealized gain of $11,422,000 related to the preferred
stock received as part of the debt restructuring. This unrealized gain is
included in the net unrealized gain on other investments in the Company's
condensed consolidated statements of operations.
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 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. 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.
As of December 31, 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 $400,000 and a fair market value of $899,000. During the three and six months ended December 31, 2010, the Company had an unrealized gain of $400,000 and $441,000, respectively, related to these warrants.
NOTE 7 - 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 December 31, 2010 are as follows:
Assets: Level 1 Level 2 Level 3 December 31, 2010
----------- --------- --------- --------- --------------
Cash $ 1,213,000 $ - $ - $ 1,213,000
--------- ----------
Restricted cash 2,055,000 - - 2,055,000
--------- ----------
Other investments - warrants - 899,000 - 899,000
-------- ----------
Investment in marketable securities
Basic material 5,005,000 5,005,000
REITs 3,240,000 3,240,000
Investment funds 3,012,000 3,012,000
Financial services 2,986,000 2,986,000
Services 2,194,000 2,194,000
Other 5,409,000 5,409,000
---------- ----------
21,846,000 21,846,000
---------- -------- -------- ----------
$25,114,000 $ 899,000 $ - $26,013,000
========== ======== ======== ==========
|
The assets measured at fair value on a recurring basis as of June 30, 2010 are as follows:
Assets: Level 1 Level 2 Level 3 June 30, 2010
----------- --------- --------- --------- --------------
Cash $ 1,140,000 $ - $ - $ 1,140,000
--------- ----------
Restricted cash 1,641,000 - - 1,641,000
--------- ----------
Other investments - warrants - 581,000 - 581,000
-------- ----------
Investment in marketable securities
Investment funds 3,271,000 3,271,000
REITs 1,946,000 1,946,000
Healthcare 668,000 668,000
Financial services 551,000 551,000
Other 1,276,000 1,276,000
---------- ----------
7,712,000 7,712,000
---------- -------- -------- ----------
$10,493,000 $ 581,000 $ - $11,074,000
========== ======== ======== ==========
|
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 are as follows:
Net gain for the
six months ended
Assets: Level 1 Level 2 Level 3 December 31, 2010 December 31, 2010
----------- ------- ------- --------- ------------------ ------------------
Other non-marketable investments $ - $ - $16,972,000 $16,972,000 $10,882,000
Loss for the
six months ended
Assets: Level 1 Level 2 Level 3 June 30, 2010 December 31, 2009
----------- ------- ------- --------- ------------------ ------------------
Other non-marketable investments $ - $ - $6,070,000 $6,070,000 $ (917,000)
|
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 8 - STOCK BASED COMPENSATION PLANS
The Company follows the Statement of Financial Accounting Standards 123 (Revised), "Share-Based Payments" ("SFAS No. 123R"), which was primarily codified into ASC Topic 718 "Compensation - Stock Compensation", which addresses accounting for equity-based compensation arrangements, including employee stock options and restricted stock units.
Please refer to NOTE 16 - STOCK-BASED COMPENSATION PLANS in the Company's Form 10-K for the year ended June 30, 2010 for more detail information on the Company's stock-based compensation plans.
During the six months ended December 31, 2010, the Company recorded stock option compensation cost of $75,000 related to issuance of stock options. As of December 31, 2010, there was a total of $191,000 of unamortized compensation related to stock options which is expected to be recognized over the weighted- average of 5 years.
The fair value of options is measured by applying the Black-Scholes model on grant date.
Expected volatility 51.6% Expected term 7 years Expected dividend yield 0% Risk-free interest rate 2.36% |
The following table summarizes the stock options outstanding as of December 31, 2010:
Aggregate
Number of Weighted-average Weighted Average Intrinsic
Shares Exercise Price Remaining Life Value
---------- --------------- ---------------- ---------
<C<
Outstanding at June 30, 2009 102,000 $12.47 3.15 years $ 52,000
Granted 105,000 10.30
Exercised (3,000) 12.00
Forfeited - -
Exchanged (12,000) 12.00
---------- ---------------
Outstanding at June 30, 2010 192,000 $11.32 6.44 years $ 790,000
Granted - -
Exercised - -
Forfeited - -
Exchanged - -
---------- ---------------
Outstanding at December 31, 2010 192,000 $11.32 5.94 years $1,976,000
========== =============== ================ =========
Exercisable at December 31, 2010 87,000 $12.55 2.02 years $ 789,000
========== =============== ================ =========
|
The table below summarizes the RSUs granted and outstanding.
Weighted Average
Grant Date
Number of RSUs Fair Value
-------------- ----------------
RSUs outstanding as of June 30, 2009 95,215 $12.46
Granted 2,564 $15.26
Converted to common stock (65,215) $ 8.42
-------------- ----------------
RSUs outstanding as of June 30, 2010 32,564 $12.89
Granted - -
Converted to common stock (17,564) $13.07
-------------- ----------------
RSUs outstanding as of December 31, 2010 15,000 $12.69
============== ================
|
On July 1 of every year, as part of the Stock Compensation Plan for Non- employee Directors, each non-employee director received an automatic grant of a number of shares of Company's Common Stock equal in value to $18,000 ($72,000 total recorded as stock compensation expense) based on 100% of the fair market value of the Company's stock on the day of grant. During the six months ended, December 31, 2010 and 2009, the four non-employee directors of the Company received a total grant of 4,716 and 6,004 shares of common stock.
NOTE 9 - SEGMENT INFORMATION
The Company operates in three reportable segments, the operation of the hotel ("Hotel Operations"), the operation of 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 information.
Information below represents reported segments for the three and six months ended December 31, 2010 and 2009. Operating income(loss) from hotel operations consist of the operation of the hotel and operation of the garage. Operating income for rental properties consist of rental income. Operating income for investment transactions consist of net investment gain(loss) and dividend and interest income.
As of and for the
Three months ended Hotel Real Estate Investment Discontinued
December 31, 2010 Operations Operations Transactions Other Subtotal Operations Total
----------- ----------- ------------ ----------- ------------ ------------ ------------
Revenues $ 9,142,000 $ 3,012,000 $ - $ - $ 12,154,000 $ 642,000 $ 12,796,000
Operating expenses (8,074,000) (2,069,000) - (400,000) (10,543,000) (387,000) (10,930,000)
----------- ----------- ----------- ----------- ------------ ------------ ------------
Income(loss)from operations 1,068,000 943,000 - (400,000) 1,611,000 255,000 1,866,000
Interest expense (713,000) (816,000) - - (1,529,000) (145,000) (1,674,000)
Income from investments - - 15,363,000 - 15,363,000 - 15,363,000
Income tax expense - - - (4,965,000) (4,965,000) (44,000) (5,009,000)
----------- ----------- ----------- ----------- ------------ ------------ ------------
Net income(loss) $ 355,000 $ 127,000 $15,363,000 $ (5,365,000) $ 10,480,000 $ 66,000 $ 10,546,000
=========== =========== =========== =========== ============ ============ ============
Total Assets $40,450,000 $60,868,000 $39,717,000 $ 8,133,000 $149,168,000 $ 7,314,000 $156,482,000
=========== =========== =========== =========== ============ ============ ============
As of and for the
Three months ended Hotel Real Estate Investment Discontinued
December 31, 2009 Operations Operations Transactions Other Subtotal Operations Total
----------- ----------- ------------ ----------- ------------ ------------ ------------
Operating income $ 8,368,000 $ 3,077,000 $ - $ - $ 11,445,000 $ 606,000 $ 12,051,000
Operating expenses (7,791,000) (1,978,000) - (451,000) (10,220,000) (363,000) (10,583,000)
----------- ----------- ----------- ----------- ------------ ------------ ------------
Income(loss)from operations 577,000 1,099,000 - (451,000) 1,225,000 243,000 1,468,000
Interest expense (729,000) (804,000) - - (1,533,000) (149,000) (1,682,000)
Loss from investments - - (806,000) - (806,000) - (806,000)
Income tax benefit(expense) - - - 338,000 338,000 (39,000) 299,000
----------- ----------- ----------- ----------- ------------ ------------ ------------
Net income(loss) $ (152,000) $ 295,000 $ (806,000) $ (113,000) $ (776,000) $ 55,000 $ (721,000)
=========== =========== =========== =========== ============ ============ ============
Total Assets $44,011,000 $62,614,000 $14,326,000 $ 8,103,000 $129,054,000 $ 7,278,000 $136,332,000
=========== =========== =========== =========== ============ ============ ============
|
As of and for the
Six months ended Hotel Real Estate Investment Discontinued
December 31, 2010 Operations Operations Transactions Other Subtotal Operations Total
----------- ----------- ------------ ----------- ------------ ------------ ------------
Revenues $18,668,000 $ 6,102,000 $ - $ - $ 24,770,000 $ 1,245,000 $ 26,015,000
Operating expenses (16,679,000) (4,113,000) - (872,000) (21,664,000) (765,000) (22,429,000)
----------- ----------- ----------- ----------- ------------ ------------ ------------
Income(loss)from operations 1,989,000 1,989,000 - (872,000) 3,106,000 480,000 3,586,000
Interest expense (1,416,000) (1,588,000) - - (3,004,000) (292,000) (3,296,000)
Income from investments - - 15,363,000 - 15,363,000 - 15,363,000
Income tax expense - - - (4,955,000) (4,955,000) (76,000) (5,031,000)
----------- ----------- ----------- ----------- ------------ ------------ ------------
Net income(loss) $ 573,000 $ 401,000 $15,363,000 $ (5,827,000) $ 10,510,000 $ 112,000 $ 10,622,000
=========== =========== =========== =========== ============ ============ ============
Total Assets $40,450,000 $60,868,000 $39,717,000 $ 8,133,000 $149,168,000 $ 7,314,000 $156,482,000
=========== =========== =========== =========== ============ ============ ============
As of and for the
Six months ended Hotel Real Estate Investment Discontinued
December 31, 2009 Operations Operations Transactions Other Subtotal Operations Total
----------- ----------- ------------ ----------- ------------ ------------ ------------
Operating income $16,898,000 $ 6,122,000 $ - $ - $ 23,020,000 $ 1,209,000 $ 24,229,000
Operating expenses (15,848,000) (4,125,000) - (716,000) (20,689,000) (764,000) (21,453,000)
----------- ----------- ----------- ----------- ------------ ------------ ------------
Income(loss)from operations 1,050,000 1,997,000 - (716,000) 2,331,000 445,000 2,776,000
Interest expense (1,442,000) (1,634,000) - - (3,076,000) (298,000) (3,374,000)
Loss from investments - - (2,427,000) - (2,427,000) - (2,427,000)
Income tax benefit(expense) - - - 1,037,000 1,037,000 (60,000) 977,000
----------- ----------- ----------- ----------- ------------ ------------ ------------
Net income(loss) $ (392,000) $ 363,000 $(2,427,000) $ 321,000 $ (2,135,000) $ 87,000 $ (2,048,000)
=========== =========== =========== =========== ============ ============ ============
Total Assets $44,011,000 $62,614,000 $14,326,000 $ 8,103,000 $129,054,000 $ 7,278,000 $136,332,000
=========== =========== =========== =========== ============ ============ ============
|
NOTE 10 - RELATED PARTY TRANSACTIONS
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.
During the three and six months ended December 31, 2010, the Company received management fees from Justice Investors totaling $93,000 and $172,000, respectively. These amounts were eliminated in consolidation.
John V. Winfield serves as Chief Executive Officer and Chairman of the Company, Portsmouth and Santa Fe. Depending on certain market conditions and various risk factors, the Chief Executive Officer, his family, Portsmouth and Santa Fe 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 Santa Fe, at risk in connection with investment decisions made on behalf of the Company.
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.
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. Properties include eighteen apartment complexes, two commercial real estate properties, and two single- family houses as strategic investments. The properties are located throughout the United States, but are concentrated in Texas and Southern California. The Company also has investments in unimproved real property. All of the Company's residential rental properties in California are managed by professional third party property management companies and the rental properties outside of California are managed by the Company. The commercial real estate in California is also managed by the Company.
The Company acquires its investments in real estate and other investments utilizing cash, securities or debt, subject to approval or guidelines of the Board of Directors. The Company also invests in income-producing instruments, equity and debt securities and will consider other investments if such investments offer growth or profit potential.
Recent Developments
On October 20, 2010, as part of a debt restructuring of one of its investments,
the Company exchanged approximately $13,231,000 in notes, convertible notes and
debt instruments that it held in Comstock Mining, Inc. ("Comstock" - OTCBB:
LODE)) for 13,231 shares ($1,000 stated value) of newly created 7 1/2% Series
A-1 Convertible Preferred Stock (the "A-1 Preferred") of Comstock. Prior to the
exchange, those notes and convertible debt instruments had a carrying value of
$1,809,000, net of impairment adjustments. The Company accounted for the
transaction as an exchange of its debt securities and recorded the new
instruments (A-1 Preferred) received based on their fair value. The Company
estimated the fair value of the A-1 Preferred at $1,000 per share, which was
the stated value of the instrument, for a total of $13,231,000. The fair value
of the A-1 Preferred had a similar value to the Series B preferred stock
financing (stated value of $1,000 per share) by which Comstock concurrently
raised $35.7 million in new capital from other investors in October 2010. The
Company recorded an unrealized gain of $11,422,000 related to the preferred
stock received as part of the debt restructuring.
On October 31, 2010, Justice Investors entered into an amendment to its Parking Facilities Management Agreement with Ace Parking to extend the term of the agreement for a period of sixty two (62) months, commencing on November 1, 2010 and terminating December 31, 2015, subject to either party's right to terminate the agreement without cause on ninety (90) days written notice. The amendment also modified how an "Excess Profit Fee" to be paid to Ace would be calculated. The amendment provides that, if net operating income ("NOI") from the garage operations exceeds $1,800,000 but is less than $2,000,000, then Ace will be entitled to an Excess Profit Fee of one percent (1%) of the total annual NOI. If the annual NOI is $2,000,000 or higher, Ace will be entitled to an Excess Profit Fee equal to two percent (2%) of the total annual NOI. The prior Excess Profit Fee entitled Ace to receive three percent of NOI in excess of $150,000.
Effective November 30, 2010, the general and limited partners of Justice Investors entered into an Amended and Restated Agreement of Limited Partnership, which was approved and ratified by more than 97% of the limited partnership interests of Justice. The Partnership Agreement was amended and restated in its entirety to comply with the new provisions of the California Corporations Code known as the "Uniform Limited Partnership Act of 2008". The amendment did not result in any material modifications of the rights or obligations of the general and limited partners.
In November 2010, the Company 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 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 received net proceeds of approximately $1,507,000 from the refinancing.
In November 2010, the Company also refinanced its $3,569,000 adjustable rate mortgage note payable on its 31-unit apartment building for a new 10-year fixed rate mortgage in the amount of $5,787,000. 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 received net proceeds of approximately $2,078,000 from the refinancing.
Three Months Ended December 31, 2010 Compared to the Three Months Ended December 31, 2009
The Company had net income of $10,546,000 for the three months ended December 31, 2010 compared to a net loss of $721,000 for the three months ended December 31, 2009. The change is primarily attributable to the significant income generated from investing activities and the increase in income from hotel operations.
The Company had income from hotel operations of $355,000 for the three months ended December 31, 2010, compared to a loss of $152,000 for the three months ended December 31, 2009. The following table sets forth a more detailed presentation of Hotel operations for the three months ended December 31, 2010 and 2009.
For the three months ended December 31, 2010 2009
--------------------------------------- ---------- ----------
Hotel revenues:
Hotel rooms $ 6,701,000 $ 6,474,000
Food and beverage 1,502,000 1,118,000
Garage 645,000 598,000
Other 294,000 178,000
---------- ----------
Total hotel revenues 9,142,000 8,368,000
Operating expenses, excluding interest, depreciation and
amortization (6,816,000) (6,543,000)
---------- ----------
Operating income before interest, depreciation and
amortization 2,326,000 1,825,000
Interest expense (713,000) (729,000)
Depreciation and amortization expense (1,258,000) (1,248,000)
---------- ----------
Income (loss) from hotel operations $ 355,000 $ (152,000)
========== ==========
|
For the three months ended December 31, 2010, the Hotel generated operating income of $2,326,000 before interest, depreciation and amortization, on operating revenues of $9,142,000 compared to operating income of $1,825,000 before interest, depreciation and amortization, on operating revenues of $8,368,000 for the three months ended December 31, 2009. The increase in income from Hotel operations is primarily attributable to increases in room, food and beverage, garage and other revenues in the current period, partially offset by an increase in operating expenses due to higher labor costs and increased staffing to improve guest satisfaction.
Room revenues increased by $227,000 for the three months ended December 31, 2010 compared to the three months ended December 31, 2009 and food and beverage revenues increased by $384,000 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 December 31, 2010 as the Hotel continued to see an increase in higher rated corporate and group business travel, which also resulted in higher in food and beverage revenues. The increase in garage revenues was primarily attributable to increased demand in the area around the Hotel and a modest increase in transient parking rates. The increase in other revenues was primarily attributable group business that either canceled or was less than guaranteed, as well as greater revenues from Internet services.
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 December 31, 2010 and 2009.
Three Months Ended Average Average
December 31, Daily Rate Occupancy% RevPar
----------------- ---------- --------- --------
2010 $186 82% $153
2009 $164 86% $141
|
The operations of the Hotel continued to experience an increase in the higher rated business and group travel segments as the hospitality industry began to see some recovery. As a result, the Hotel's average daily rate increased by $22 for the three months ended December 31, 2010 compared to the three months ended December 31, 2009. The modest decrease in occupancy of 4% was due to the Hotel being able to reduce the amount of discounted Internet business that it was forced to take in the prior period to maintain occupancy in a very competitive market. As a result, the Hotel was able to achieve a RevPar number that was $12 higher than the prior period.
During the past year we have seen our management team guide our Hotel through a difficult economic period by taking bold steps to reduce expenses and implement innovative strategies in order to improve operations and enhance our competitiveness in the market. As a result, we believe that the Hotel is now well positioned to take advantage of a recovery in the hotel industry. We will continue in our efforts to upgrade our guest rooms and facilities and explore new and innovative ways to differentiate the Hotel from its competition. Moving forward, we will also focus on cultivating more international business, especially from China, and capturing a higher percentage of corporate and group travel. During the last quarter, we saw continued improvement in business travel. If that trend in the hotel industry continues, it should translate into an increase in room revenues and profitability.
While operating in a challenging economy, real estate operations remained relatively consistent. The Company had real estate revenues of $3,012,000 for the three months ended December 31, 2010 compared with revenues of $3,077,000 for the three months ended December 31, 2009. Real estate operating expenses were $1,594,000 and $1,499,000 for the comparative periods. Management continues to review and analyze the Company's real estate operations to improve occupancy and rental rates and to reduce expenses and improve efficiencies.
As of December 31, 2010, the Company had listed for sale its 249-unit apartment building located in Austin, Texas and its 132-unit apartment located in San Antonio, Texas. These properties are classified as held for sale on the Company's condensed consolidated balance sheet with the operations of these properties classified under discontinued operations in the condensed consolidated statements of operations. In January 2011, the Company sold one of its held for sale properties, the 132-unit apartment complex located in San Antonio, Texas for $5,500,000 and received net proceeds of approximately $2,030,000 after the repayment of the related mortgage note payable of approximately $3,218,000. The Company will realize an estimated gain on the sale of real estate of approximately $3,200,000.
The Company had a net gain on marketable securities of $3,703,000 for the three months ended December 31, 2010 compared to a net gain of $182,000 for the three months ended December 31, 2009. For the three months ended December 31, 2010, the Company had a net realized gain of $334,000 and a net unrealized gain of $3,369,000. For the three months ended December 31, 2009, the Company had a net realized gain of $4,000,000 and net unrealized loss of $3,818,000. Gains and losses on marketable securities may fluctuate significantly from period to period in the future and could have a significant impact on the Company's results of operations. However, the amount of gain or loss on marketable securities for any given period may have no predictive value and variations in amount from period to period may have no analytical value. For a more detailed description of the composition of the Company's marketable securities please 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 December 31, 2010, the Company had net other investments of $17,871,000. On October 20, 2010, as part of a debt restructuring of one of its investments, the Company exchanged approximately $13,231,000 in notes, convertible notes and debt instruments that it held in Comstock Mining, Inc. ("Comstock" - OTCBB: LODE)) for 13,231 shares ($1,000 stated value) of newly created 7 1/2% Series A-1 Convertible Preferred Stock (the "A-1 Preferred") of Comstock. Prior to the exchange, those notes and convertible debt instruments had a carrying value of $1,809,000, net of impairment adjustments. The Company accounted for the transaction as an exchange of its debt securities and recorded the new instruments (A-1 Preferred) received based on their fair value. The Company estimated the fair value of the A-1 Preferred at $1,000 per share, which was the stated value of the instrument, for a total of $13,231,000. The fair value of the A-1 Preferred had a similar value to the Series B preferred stock financing (stated value of $1,000 per share) by which Comstock concurrently raised $35.7 million in new capital from other investors in October 2010. The Company recorded an unrealized gain of $11,422,000 related to the preferred stock received as part of the debt restructuring. During the three months ended December 31, 2010 and 2009, the Company performed an impairment analysis of its other investments and determined that one of its investments had other than temporary impairment and recorded impairment losses of $310,000 and $917,000, for each respective period.
Dividend and interest income increased to $472,000 for the quarter ended December 31, 2010 from $55,000 for the quarter ended December 31, 2009 primarily as the result of receiving a dividend of $348,000 from Comstock during the most recent quarter.
The provision for income tax (expense)benefit as a percentage of the income before taxes was lower for the three months ended December 31, 2010 as compared to the three months ended December 31, 2009 primarily due to higher income from Santa Fe during the current period. Consistent with the comparable period, Santa Fe did not record a tax provision related the income as the result of history of net losses.
Six Months Ended December 31, 2010 Compared to the Six Months Ended December 31, 2009
The Company had net income of $10,622,000 for the six months ended December 31, 2010 compared to a net loss of $2,048,000 for the six months ended December 31, 2009. The change is primarily attributable to the significant income generated from investing activities and the increase in income from hotel operations.
The Company had income from hotel operations of $573,000 for the six months ended December 31, 2010, compared to a loss of $392,000 for the six months ended December 31, 2009. The following table sets forth a more detailed presentation of Hotel operations for the six months ended December 31, 2010 and 2009.
For the six months ended December 31, 2010 2009
-------------------------------------- ---------- ----------
Hotel revenues:
Hotel rooms $ 14,216,000 $ 13,206,000
Food and beverage 2,683,000 2,069,000
Garage 1,281,000 1,266,000
Other 488,000 357,000
----------- -----------
Total hotel revenues 18,668,000 16,898,000
Operating expenses, excluding interest, depreciation and
amortization (14,133,000) (13,419,000)
----------- -----------
Operating income before interest, depreciation and
amortization 4,535,000 3,479,000
Interest expense (1,416,000) (1,442,000)
Depreciation and amortization expense (2,546,000) (2,429,000)
----------- -----------
Income (loss) from hotel operations $ 573,000 $ (392,000)
=========== ===========
|
For the six months ended December 31, 2010, the Hotel generated operating income of $4,535,000 before interest, depreciation and amortization, on operating revenues of $18,668,000 compared to operating income of $3,479,000 before interest, depreciation and amortization, on operating revenues of $16,898,000 for the six months ended December 31, 2009. The increase in income from Hotel operations is primarily attributable to increases in room, food and beverage, and other revenues in the current period, partially offset by an increase in operating expenses due to higher labor costs and increased staffing to improve guest satisfaction.
Room revenues increased by $1,010,000 for the six months ended December 31, 2010 compared to the six months ended December 31, 2009 and food and beverage revenues increased by $614,000 for the same period. The increase in room revenues was primarily attributable to a significant increase in average daily room rates during the six months ended December 31, 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 increase in other revenues was primarily attributable group business in the last three months that either canceled or was less than guaranteed, as well as greater revenues from Internet services.
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 six months ended December 31, 2010 and 2009.
Six Months Ended Average Average
December 31, Daily Rate Occupancy% RevPar
----------------- ---------- --------- --------
2010 $188 85% $161
2009 $160 88% $143
|
The operations of the Hotel continued to experience an increase in the higher rated business and group travel segments as the hospitality industry began to see some recovery. As a result, the Hotel's average daily rate increased
significantly by $28 for the six months ended December 31, 2010 compared to the six months ended December 31, 2009. The modest decrease in occupancy of 3% was due to the Hotel being able to reduce the amount of discounted Internet business that it was forced to take in the prior period to maintain occupancy in a very competitive market. As a result, the Hotel was able to achieve a RevPar number that was $18 higher than the prior six month period.
During the past year we have seen our management team guide our Hotel through a difficult economic period by taking bold steps to reduce expenses and implement innovative strategies in order to improve operations and enhance our competitiveness in the market. As a result, we believe that the Hotel is now well positioned to take advantage of a recovery in the hotel industry. We will continue in our efforts to upgrade our guest rooms and facilities and explore new and innovative ways to differentiate the Hotel from its competition. Moving forward, we will also focus on cultivating more international business, especially from China, and capturing a higher percentage of corporate and group travel. During the last six months, we have seen continued improvement in business travel. If that trend in the hotel industry continues, it should translate into an increase in room revenues and profitability.
While operating in a challenging economy, real estate operations remained relatively consistent. The Company had real estate revenues of $6,102,000 for the six months ended December 31, 2010 compared with revenues of $6,122,000 for the six months ended December 31, 2009. Real estate operating expenses were $3,162,000 and $3,158,000 for the comparative periods. Management continues to review and analyze the Company's real estate operations to improve occupancy and rental rates and to reduce expenses and improve efficiencies.
As of December 31, 2010, the Company had listed for sale its 249-unit apartment building located in Austin, Texas and its 132-unit apartment located in San Antonio, Texas. These properties are classified as held for sale on the Company's condensed consolidated balance sheet with the operations of these properties classified under discontinued operations in the condensed consolidated statements of operations. In January 2011, the Company sold one of its held for sale properties, the 132-unit apartment complex located in San Antonio, Texas for $5,500,000 and received net proceeds of approximately $2,030,000 after the repayment of the related mortgage note payable of approximately $3,218,000. The Company will realize an estimated gain on the sale of real estate of approximately $3,200,000.
The Company had a net gain on marketable securities of $4,056,000 for the six months ended December 31, 2010 compared to a net loss on marketable securities of $1,140,000 for the six months ended December 31, 2009. For the six months ended December 31, 2010, the Company had a net realized gain of $220,000 and a net unrealized gain of $3,836,000. For the six months ended December 31, 2009, the Company had a net realized gain of $4,148,000 and a net unrealized loss of $5,288,000. Gains and losses on marketable securities may fluctuate significantly from period to period in the future and could have a significant impact on the Company's results of operations. However, the amount of gain or loss on marketable securities for any given period may have no predictive value and variations in amount from period to period may have no analytical value. For a more detailed description of the composition of the Company's marketable securities see the 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 December 31, 2010, the Company had net
other investments of $17,871,000. On October 20, 2010, as part of a debt restructuring of one of its investments, the Company exchanged approximately $13,231,000 in notes, convertible notes and debt instruments that it held in Comstock Mining, Inc. ("Comstock" - OTCBB: LODE)) for 13,231 shares ($1,000 stated value) of newly created 7 1/2% Series A-1 Convertible Preferred Stock (the "A-1 Preferred") of Comstock. Prior to the exchange, those notes and convertible debt instruments had a carrying value of $1,809,000, net of impairment adjustments. The Company accounted for the transaction as an exchange of its debt securities and recorded the new instruments (A-1 Preferred) received based on their fair value. The Company estimated the fair value of the A-1 Preferred at $1,000 per share, which was the stated value of the instrument, for a total of $13,231,000. The fair value of the A-1 Preferred had a similar value to the Series B preferred stock financing (stated value of $1,000 per share) by which Comstock concurrently raised $35.7 million in new capital from other investors in October 2010. The Company recorded an unrealized gain of $11,422,000 related to the preferred stock received as part of the debt restructuring. During the six months ended December 31, 2010 and 2009, the Company performed an impairment analysis of its other investments and determined that one of its investments had other than temporary impairment and recorded impairment losses of $540,000 and $917,000, for each respective period.
Dividend and interest income increased to $611,000 for the six months ended December 31, 2010 from $132,000 for the six months ended December 31, 2009 primarily as the result of receiving a dividend of $348,000 from Comstock during the most recent period.
Margin interest and trading expenses decreased to $627,000 for the six months ended December 31, 2009 from $728,000 for the six months ended December 31, 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)benefit as a percentage of the income before taxes was lower for the six months ended December 31, 2010 as compared to the six months ended December 31, 2009 primarily due to significantly higher income from Santa Fe during the current period. Consistent with the comparable period, Santa Fe did not record a tax provision related the income as the result of history of net losses.
MARKETABLE SECURITIES AND OTHER INVESTMENTS
The Company's investment portfolio is diversified with 78 different equity positions. The portfolio contains three individual equity securities that are more than 5% of the equity value of the portfolio with the largest security being 19.5% 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.
As of December 31, 2010 and June 30, 2010, the Company had investments in marketable equity securities of $21,846,000 and $7,712,000, respectively. The following table shows the composition of the Company's marketable securities portfolio by selected industry groups as of December 31, 2010 and June 30, 2010.
As of December 31, 2010
% of Total
Investment
Industry Group Fair Value Securities
-------------- ------------ ----------
Basic materials $ 5,005,000 22.9%
REITs 3,240,000 14.8%
Investment funds 3,012,000 13.8%
Financial services 2,986,000 13.7%
Services 2,194,000 10.0%
Other 5,409,000 24.8%
------------ ----------
$ 21,846,000 100.0%
============ ==========
June 30, 2010 % of Total
Investment
Industry Group Fair Value Securities
-------------- ------------ ----------
Investment funds $ 3,271,000 42.4%
REITs 1,946,000 25.2%
Healthcare 668,000 8.7%
Financial services 551,000 7.1%
Other 1,276,000 16.6%
---------- ------
$ 7,712,000 100.0%
========== ======
|
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 indicated periods.
For the three months ended December 31, 2010 2009
-------------- --------------
Net gain on marketable securities $ 3,703,000 $ 182,000
Net unrealized gain on other investments 11,822,000 226,000
Impairment loss on other investments (310,000) (917,000)
Dividend & interest income 472,000 55,000
Margin interest expense (93,000) (129,000)
Trading and management expenses (231,000) (223,000)
------------- -------------
$ 15,363,000 $ (806,000)
============= =============
For the six months ended December 31, 2010 2009
-------------- --------------
Net gain(loss) on marketable securities $ 4,056,000 $ (1,140,000)
Net unrealized gain on other investments 11,863,000 226,000
Impairment loss on other investments (540,000) (917,000)
Dividend & interest income 611,000 132,000
Margin interest expense (168,000) (265,000)
Trading and management expenses (459,000) (463,000)
------------- -------------
$ 15,363,000 $ (2,427,000)
============= =============
|
FINANCIAL CONDITION AND LIQUIDITY
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 only a modest improvement in economic conditions is expected in the lodging industry in calendar 2011, no limited partnership distributions are anticipated in fiscal 2011. 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 six months ended December 31, 2010 and 2009, the Company received management fees from Justice Investors totaling $172,000 and $151,000, 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 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 $27,453,000 as of December 31, 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 $18,137,000 as of December 31, 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 December 31, 2010. As of December 31, 2010 the outstanding balance was $2,382,000.
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.
In November 2010, the Company 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 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 received net proceeds of approximately $1,507,000 from the refinancing.
In November 2010, the Company also refinanced its $3,569,000 adjustable rate mortgage note payable on its 31-unit apartment building for a new 10-year fixed rate mortgage in the amount of $5,787,000. 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 received net proceeds of approximately $2,078,000 from the refinancing.
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, and the cash flows generated from those assets and from its real estate operations, partnership distributions and management fees, will be adequate to meet the Company's current and future obligations.
OFF-BALANCE SHEET ARRANGEMENTS
The Company has no off balance sheet arrangements.
MATERIAL CONTRACTUAL OBLIGATIONS
The following table provides a summary of the Company's material financial obligations and related interest.
Total Year 1 Year 2 Year 3 Year 4 Year 5 Thereafter
------------ ---------- ---------- ---------- ----------- ---------- -----------
Mortgage notes payable $119,003,000 $1,204,000 $ 5,608,000 $34,173,000 $ 3,386,000 $1,817,000 $72,815,000
Other notes payable 3,593,000 784,000 651,000 569,000 1,557,000 32,000 -
Operating leases 557,000 45,000 93,000 87,000 107,000 111,000 114,000
Interest 34,923,000 3,369,000 6,475,000 5,962,000 4,358,000 3,969,000 10,790,000
----------- --------- ---------- ---------- ---------- --------- ----------
Total $158,076,000 $5,402,000 $12,827,000 $40,791,000 $ 9,408,000 $5,929,000 $83,719,000
=========== ========= ========== ========== ========== ========= ==========
|
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 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.
(a) Exhibits
10.1 Amended and Restated Agreement of Limited Partnership of Justice Investors, effective November 30, 2010.
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.
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.
THE INTERGROUP CORPORATION
(Registrant)
Date: February 11, 2011 by /s/ John V. Winfield
----------------------------
John V. Winfield, President,
Chairman of the Board and
Chief Executive Officer
Date: February 11, 2011 by /s/ David Nguyen
------------------------------
David Nguyen, Treasurer
and Controller
(Principal Financial Officer)
|
AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP
OF
JUSTICE INVESTORS
A CALIFORNIA LIMITED PARTNERSHIP
THIS AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP ("Agreement") is effective as of November 30, 2010 ("Effective Date"), by and among PORTSMOUTH SQUARE, INC., a California corporation (the "Managing General Partner"), EVON CORPORATION, a California corporation (the "Co-General Partner") (Managing General Partner and, together with Co-General Partner, each a "General Partner", together, the "General Partners") and those individuals and entities listed on Exhibit A hereto (collectively, the "Limited Partners" and individually a "Limited Partner").
RECITALS
A. On July 10, 1967, certain Partners formed Justice Investors, a California limited partnership (the "Partnership"), by filing a Certificate of Limited Partnership with the Office of the Recorder of the City and County of San Francisco. The General Partners and the Limited Partners (collectively, the "Partners," and individually, a "Partner") have heretofore entered into and are subject to that certain Limited Partnership Agreement dated July 10, 1967, as amended by that certain Amended Limited Partnership Agreement dated March 20, 1968, as amended and restated by that certain Amended Limited Partnership Agreement dated January 1, 1979, as amended by that certain Amendment of Partnership Agreement dated as of June 27, 2005, and as amended by that certain Amendment to the Limited Partnership Agreement dated as of December 1, 2008 (collectively, the "Partnership Agreement"). The Partners have agreed to amend and restate the Partnership Agreement in its entirety pursuant to this Agreement in order to comply with the provisions of the California Corporations Code known as the "Uniform Limited Partnership Act of 2008" (the "Act")..
AGREEMENT
NOW, THEREFORE, for and in consideration of the mutual covenants and
agreements herein contained, the parties hereto do hereby agree as follows:
1. CONTINUATION OF LIMITED PARTNERSHIP; ELECTION OF GOVERNING LAW. The
partners hereby elect to continue the existence of the partnership. The
partners hereby elect for the partnership to be governed by and subject to
the provisions of the act.
2. NAME AND PLACE OF BUSINESS. The business of the Partnership shall be
conducted under the name of JUSTICE INVESTORS, a California limited
partnership; provided, however, that the General Partners may, in their
absolute and sole discretion, change the name of the Partnership at any time
and from time to time, except that in no event shall the name of the
Partnership include the name or initials of any Limited Partner or any name
or initials which are substantially similar thereto. The principal office of
the Partnership shall continue to be 750 Kearny Street, Room 502, San
Francisco, California 94108 ("Partnership Office"), unless changed by both
the Managing General Partner and the Co-General Partner by giving written
notice to the Limited Partners of any change in location not less than ten
(10) days preceding any such change.
3. PURPOSE. The business and purpose of the Partnership is limited to the acquisition, development, management, operation, leasing and sale of the real property commonly known as the Hilton San Francisco Financial District in the City and County of San Francisco, California. A description of said property is attached hereto, marked Exhibit B, and made a part hereof. The Partnership shall not engage in any other business or activity which is not directly or indirectly related to such primary purpose.
4. TERM OF PARTNERSHIP; RECORDINGS; AGENT FOR SERVICE OF PROCESS.
4.1 Term. The Partnership commenced on July 10, 1967 by filing a Certificate of Limited Partnership with the Office of the Recorder of the City and County of San Francisco, State of California, and shall continue until indefinitely, unless sooner terminated as herein provided or by operation of law.
4.2 Certificate of Limited Partnership. The Certificate of Limited Partnership ("Certificate") of the Partnership has been executed and filed on September 30, 1985 with the Secretary of State of California in accordance with the Act.
4.3 Agent for Service of Process. The name and address of the agent for service of process of the Partnership to be designated on the Certificate is Geoffrey M. Palermo, 750 Kearny Street, Room 502, San Francisco, California 94108. The agent for service of process of the Partnership may be changed from time to time by the Managing General Partner in its sole and absolute discretion, subject to applicable law.
5. DEFINITIONS. When used in this Agreement, the following terms shall have the meanings set forth below:
5.1 Adjusted Capital Contribution. "Adjusted Capital Contribution" of a Partner shall mean the aggregate of such Partner's Capital Contributions, reduced, but not below zero, by distributions to such Partner pursuant to Paragraph 8.1 (Distribution of Distributable Cash) hereof.
5.2 Capital Account. "Capital Account" shall mean each Partner's Original Capital Contribution which shall be:
5.2.1 Increased by:
(a) The amount of any additional Capital Contributions by such Partner, including the amount of Partnership liabilities assumed by such Partner or secured by any Partnership property distributed by the Partnership to such Partner;
(b) The fair market value of any property contributed by such Partner to the Partnership (net of liabilities secured by such property which are considered to be assumed or taken "subject to" by the Partnership); and
(c) Items of book income and gain which are allocated to such Partner; and
5.2.2 Decreased by:
(a) The amount of cash distributed to such Partner by the Partnership, including the amount of liabilities of such Partner assumed by the Partnership or secured by any property contributed by such Partner to the Partnership;
(b) The fair market value of any property distributed by the Partnership to such Partner (net of liabilities secured by such property which are considered to be assumed or taken "subject to" by such Partner);
(c) Items of expense described in Section 705(a)(2)(B) of the Code allocated to such Partner;
(d) Items of book loss and deduction which are allocated to such Partner; and
(e) By any Section 754 adjustment, or any other specially allocated tax adjustment.
The foregoing provisions are intended to comply with Section 1.704-1(b) of the Regulations and shall be applied and interpreted accordingly. The Capital Accounts shall be adjusted in order to reflect allocations of depreciation, amortization, and gain and loss as computed for book purposes. Upon the transfer of any Partner's interest in the Partnership, the Capital Account of the transferor Partner shall carry over to the transferee Partner.
5.3 Capital Contribution. "Capital Contribution" shall mean any money which a Partner contributes to the Partnership as capital in that Partner's capacity as a Partner.
5.4 Cash Reserves. "Cash Reserves" shall mean such amounts as may be reasonably estimated by the General Partners for payment of costs, expenses and liabilities incident to the business of the Partnership and for which the cash to make such payments will not, in the sole opinion of the General Partners, be expected to be available to the Partnership at or about the time such payments are required to be made, and which therefore, in the opinion of the General Partners, require that cash be set aside periodically to make such payments.
5.5 Code. "Code" shall mean the Internal Revenue Code of 1986, as amended from time to time.
5.6 Co-General Partner. "Co-General Partner" shall mean Evon Corporation, a California corporation.
5.7 Distributable Cash. "Distributable Cash" shall mean for any period such portion of the cash in the Partnership's bank accounts that, in the reasonable exercise of discretion by the General Partners, is available for distribution to the Partners after a reasonable provision has been made for Cash Reserves.
5.8 Effective Date. "Effective Date" shall have the meaning set forth in the preamble to this Agreement.
5.9 Fiscal Year. "Fiscal Year" of the Partnership shall mean the calendar year finishing December 31.
5.10 General Partner. "General Partner" shall mean each of Portsmouth Square, Inc., a California corporation, and Evon Corporation, a California corporation, or any other person or entity who has been admitted to the Partnership as a General Partner in accordance with this Agreement, or a person or entity who has been admitted as a General Partner pursuant to applicable law.
5.11 Limited Partner. "Limited Partner" shall mean those individuals and entities listed on Exhibit A hereto or any other person or entity who has been admitted to the Partnership as either a Limited Partner in accordance with this Agreement, or an assignee of a Partnership interest in the Partnership who has become a Limited Partner pursuant to applicable law.
5.12 Majority In Interest. A "Majority In Interest" shall mean more than fifty percent (50%) of the aggregate Participation Percentages of the Partners.
5.13 Majority In Interest of Limited Partners. "Majority In Interest of Limited Partners" shall mean those Limited Partners owning more than fifty percent (50%) of the Participation Percentages of all Limited Partners.
5.14 Managing General Partner. "Managing General Partner" shall mean Portsmouth Square, Inc., a California corporation.
5.15 Net Profits and Net Losses. "Net Profits" and "Net Losses" shall mean the net profits or net losses, respectively, of the Partnership as determined on the basis of the accounting method selected by the General Partners at the close of the Partnership's Fiscal Year by the Partnership's accountants in accordance with federal income tax principles consistently applied, and as set forth on the information return filed by the Partnership for federal income tax purposes. Net Profits and Net Losses shall not include Nonrecourse Deductions or Partner Nonrecourse Deductions.
5.16 Nonrecourse Deductions. "Nonrecourse Deductions" shall mean the Partnership deductions that are characterized as "nonrecourse deductions" pursuant to the Regulations promulgated under Section 704(b) of the Code.
5.17 Original Capital Contribution. "Original Capital Contribution" shall mean each Partner's Capital Contribution as set forth on Exhibit A attached hereto and incorporated herein by reference.
5.18 Participation Percentage. "Participation Percentage" of a Partner shall mean that percentage, as determined by dividing those number of Units held by such Partner by the total number of Units issued and outstanding, as adjusted from time to time pursuant to the terms of this Agreement. The initial Participation Percentage of each Partner is set forth opposite such Partner's name on Exhibit A hereto.
5.19 Parties. "Party" shall mean a Partner or the Partnership. The term "Parties" shall refer collectively to the Partners and to the Partnership.
5.20 Partner. "Partner" shall mean a General Partner or a Limited Partner. The term "Partners" shall refer collectively to the General Partner and to the Limited Partners.
5.21 Partner Nonrecourse Deductions. "Partner Nonrecourse Deductions" shall mean the Partnership deductions that are characterized as "partner nonrecourse deductions" pursuant to the Regulations promulgated under Section 704(b) of the Code.
5.22 Partnership Minimum Gain. "Partnership Minimum Gain" shall have the meaning set forth in the Regulations promulgated under Section 704(b) of the Code.
5.23 Property. "Property" shall mean the real property described on Exhibit B hereto and all improvements located thereon.
5.24 Regulations. "Regulations" shall mean the Income Tax Regulations promulgated under the Code, including Temporary and Proposed Regulations, as such Regulations may be amended from time to time, including corresponding provisions of succeeding Regulations.
5.25 Super Majority In Interest. A "Super Majority In Interest" shall mean more than seventy-two percent (72%) of the aggregate Participation Percentages of the Partners.
5.26 Transfer. "Transfer" shall mean any encumbrance, gift, assignment, pledge, hypothecation, sale or other transfer of all or any portion of a Partnership interest.
5.27 Unit. "Unit" means a unit of interest in the Partnership held by a Partner and shall be a whole number. No fraction of a Unit may be issued or transferred under this Agreement.
6. PARTNERSHIP CAPITAL CONTRIBUTIONS AND LOANS.
6.1 Capital Contribution of the General Partner. Each General Partner has made or shall be credited with, as of the date of this Agreement, the Capital Account, Units, and Participation Percentage in the amount set forth in Exhibit A.
6.2 Capital Contribution of the Limited Partners. The Limited Partners have made, or shall be credited with, as of the date of this Agreement, the Capital Account, Units, and Participation Percentage in the amount set forth in Exhibit A.
6.3 Additional Capital Contributions. Upon the consent of both General Partners and a Super Majority In Interest, the Partnership may sell additional classes or series of Units of the Partnership. Each Partner shall have the preemptive right to purchase such classes or series of Units in accordance with such Partner's Participation Percentage; provided, however, that a Partner shall not be allowed to purchase additional Units if such purchase reasonably could result in a Material Reassessment of the Property (as defined in section 10.2 below).
6.4 Capital Accounts. The Partnership shall maintain an individual Capital Account for each Partner in accordance with Section 5.2 above.
6.5 Interest on Contributions. No interest shall be paid by the Partnership on any Capital Contribution made by any Partner to the Partnership.
6.6 Use of Capital Contributions. Except as otherwise provided herein, the cash portion of the Capital Contributions of each Partner shall be deposited in a checking, savings and/or money market or similar account, to be established and maintained in the name of the Partnership, or invested in government securities or certificates of deposit issued by any bank. Thereafter, such amounts shall be utilized for the conduct of the Partnership business pursuant to the terms of this Agreement.
6.7 Limited Liability of Limited Partners. Except as may otherwise be provided in this Agreement, or under applicable law, no Limited Partner shall be bound by, or personally liable for, the expenses, liabilities or obligations of the Partnership.
6.8 Role of Limited Partners. Except as may otherwise be provided in this Agreement, no Limited Partner shall, in the capacity of a Limited Partner, take part in or interfere in any manner with the conduct or control of the business of the Partnership, or have any right or authority to act for or on behalf of the Partnership.
6.9 Return of Capital. Except as otherwise provided in this Agreement, no Partner shall have the right to withdraw or reduce such Partner's Capital Contribution or to receive any distributions, except as a result of dissolution. No Partner shall have the right to demand or receive property other than cash in return for such Partner's Capital Contributions.
6.10 Loans by a Partner. Loans by a Partner to the Partnership shall not be considered Capital Contributions for purposes of this Agreement, increase such Partner's Capital Account or entitle such Partner to any greater share of the Net Profits, Net Losses or distributions of the Partnership than such Partner is otherwise entitled to under this Agreement. The interest rate and payment terms on loans by a Partner to the Partnership shall be at least as favorable to the Partnership as those generally charged by third party lenders to the Partnership at the time the loan is made and shall be approved by both General Partners.
6.11 Foreign Partners. In the event the Partnership is required to withhold taxes with respect to the Net Profits of a Partner who is a foreign person or entity, the General Partners may require an additional Capital Contribution (without adjustment to Exhibit A) of such Partner in the amount of the required withholding amount.
7. ALLOCATIONS.
7.1 Allocation of Net Profits. Net Profits for each Fiscal Year shall be allocated to the Partners in accordance with their respective Participation Percentages.
7.2 Allocation of Net Losses. Net Losses for each Fiscal Year shall be allocated to the Partners in accordance with their respective Participation Percentages.
7.3 Allocation of Nonrecourse Deductions. Nonrecourse Deductions for each Fiscal Year shall be allocated to the Partners in accordance with their respective Participation Percentages.
7.4 Allocation of Partner Nonrecourse Deductions. After application of Paragraphs 7.1 (Allocation of Net Profits), 7.2 (Allocation of Net Losses), and 7.3 (Allocation of Nonrecourse Deductions) hereof, Partner Nonrecourse Deductions for each Fiscal Year shall be allocated among the Partners as required by the Regulations promulgated under Section 704(b) of the Code.
7.5 Allocation of Tax Credits. Except as may otherwise be required by law, any tax credits to which the Partnership may be entitled shall be allocated to the Partners in accordance with their respective Participation Percentages.
7.6 Qualified Income Offset. Except as provided in Paragraph 7.7
(Minimum Gain Chargeback) hereof, in the event any Partner unexpectedly
receives an adjustment, allocation or distribution described in Regulations
Sections 1.704-1(b)(2)(ii)(d)(4), (5) or (6), items of income and gain shall
be specially allocated to each such Partner in an amount and manner
sufficient to eliminate, to the extent required by the Regulations, any
deficit in said Partner's Capital Account as quickly as possible. For
purposes of this Paragraph 7.6 (Qualified Income Offset), the Partner's
Capital Account, as of the end of the relevant Fiscal Year, shall take into
account the adjustments described in Regulations Sections 1.704-
1(b)(2)(ii)(d)(4), (5) and (6), any amount of any deficit Capital Account
balance which the Partner is obligated to restore, and any amount of any
deficit Capital Account balance which the Partner is deemed obligated to
restore pursuant to the Regulations promulgated under Section 704(b) of the
Code.
7.7 Minimum Gain Chargeback. Prior to any allocation hereunder, in the event that there is a net decrease in the Partnership Minimum Gain during a Partnership taxable year, each Partner shall be allocated items of income and gain in accordance with the Regulations promulgated under Section 704(b) of the Code and its requirements for a "minimum gain chargeback." In the event that there is a net decrease in minimum gain attributable to debt associated with Partner Nonrecourse Deductions, income and gain shall be allocated to the Partners in accordance with the Regulations.
7.8 Allocations of Book Items. All items of book income, gain, loss and deduction shall be allocated among the Partners in the same percentage that Net Profits, Net Losses, Nonrecourse Deductions and Partner Nonrecourse Deductions are allocated for the same Fiscal Year, or as otherwise provided by the Regulations promulgated under Section 704(b) of the Code.
8. DISTRIBUTIONS.
8.1 Distribution of Distributable Cash. Distributable Cash (other than in dissolution of the Partnership as hereafter provided in Paragraph 11.1 (Dissolution of Partnership) and subparagraph 11.1.1 hereof) shall be distributed to the Partners during each Fiscal Year in accordance with their respective Participation Percentages.
8.2 To Whom Distributions are Made. Unless named in this Agreement or unless admitted as a Substitute Limited Partner as provided herein, no person or entity shall be considered a Partner in the Partnership. All Transfers of interests by the Limited Partners shall be subject to Section 10 (Restrictions on Transfer) hereof, and, until admitted as a Substitute Limited Partner thereunder, no assignee shall have any right as a Limited Partner herein, including, but not limited to, the right to acquire any information on account of the transactions of the Partnership, or to inspect the Partnership books, whether or not such assignee is otherwise entitled to distributions as assignee. Any payment by the Partnership to the person shown on the Partnership records as a Limited Partner, or to such Limited Partner's legal representatives, or to a named assignee of the right to receive distributions, shall acquit the Partnership and the General Partners of all liability to any other person who may be interested in such payment by reason of an assignment by a Limited Partner or for any other reason.
9. POWERS AND DUTIES OF THE PARTNERS.
9.1 Powers and Duties of the Managing General Partner. The Managing General Partner shall devote such time to the Partnership as shall be necessary to conduct the Partnership business. Subject to the remaining provisions of this Agreement, the Managing General Partner shall be responsible for the management of the Partnership business and shall have all rights, powers and duties generally conferred by law or necessary, advisable or consistent in connection therewith, or in connection with the business of the Partnership. Without limiting the foregoing, and subject to any restrictions set forth in this Agreement (including, without limitation, any consulting and participation rights of Evon as set forth in Paragraph 9.3 (Powers and Duties of the Co-General Partner), the approval rights of Evon as set forth in Paragraph 9.4 (Decisions of Both General Partners), and the requirements of Paragraph 9.5 (Asset Manager) as to the asset manager, the Managing General Partner shall have the following rights and obligations:
9.1.1 Expenditures. To expend the capital and revenues of the Partnership in furtherance of the Partnership business, in accordance with the budget approved by both General Partners.
9.1.2 Agreements and Other Documents. To enter into and carry out agreements of any kind and to do any and all other acts and things necessary, proper or convenient to carry out the Partnership purpose; and to prepare, execute, acknowledge, record, file and/or deliver any and all reports, instruments or documents and to take all actions, required or deemed necessary, reasonable or desirable by the Managing General Partner to effectuate any of the foregoing, to comply with requirements of applicable law or to comply with the provisions of this Agreement.
9.1.3 Insurance. To acquire and enter into any contract of insurance of any type which the Managing General Partner deems necessary or desirable for the protection of the Partnership, for the conversion of its assets, for compliance with loan covenants made by the Partnership, or for any purpose convenient or beneficial to the Partnership.
9.1.4 Employment of Personnel. To employ or engage persons in the operation and management of the Partnership business or assets, including but not limited to supervisory managing agents, building contractors, engineers,
appraisers, insurance brokers, real estate brokers and loan brokers, on such terms and for such compensation as the Managing General Partner shall determine.
9.1.5 Investments. To invest Partnership cash or, pending other investment in furtherance of the Partnership's purpose, the proceeds derived from the sale of Partnership interests, in United States Treasury obligations, prime quality commercial paper, certificates of deposit, deposit or other obligations of insured commercial banks, savings banks or savings and loan associations, or in any other similar interim investments; provided that such investments are generally considered to be safe, cash-equivalent liquid investments. Partnership funds shall not be used to make any speculative investments or purchase any equity interests.
9.1.6 Partnership Expenses. To pay Partnership expenses (including expenses in connection with an audit or review of Partnership tax returns or a Partnership matter in a Partner's tax return) and to make all decisions relative to Partnership accounting, including without limitation, determining the source of Partnership disbursements, and whether disbursements are to be made from Partnership operating income or from some other source such as Partnership reserves, proceeds from the sale of Partnership interests, or proceeds from the sale or refinancing of Partnership property.
9.1.7 Reimbursable Expenses. To be reimbursed by, or to charge, the Partnership for reasonable expenses incurred by the Managing General Partner on behalf of the Partnership, provided such expenses were included in the approved budget or are otherwise approved by the Co-General Partner. The Managing General Partner will endeavor to have such Partnership expenses billed directly to the Partnership whenever feasible. The foregoing notwithstanding, the Managing General Partner shall not charge to the Partnership, and shall reimburse the Partnership for, any legal, accounting or other costs incurred by the Managing General Partner or the Partnership due to requirements of the Managing General Partner (including but not limited to costs related to the public reporting and/or Sarbanes-Oxley requirements applicable to the Managing General Partner), but only to the extent those costs exceed the costs that would be incurred by the Partnership if the Managing General Partner had no such requirements.
9.2 Duty to Cooperate with Co-General Partner. In addition to its other obligations, the Managing General Partner shall inform and coordinate with the Co-General Partner as follows:
9.2.1 Information. The Managing General Partner has the obligation to inform the Co-General Partner of all significant operational matters concerning the Partnership and the Property with enough time and sufficient detail to permit the Co-General Partner to carry out and perform the Co- General Partner's fiduciary duties as a General Partner. Specifically, and not by way of limitation, the Managing General Partner, directly or by direction to the Asset Manager (a) will prepare and deliver to the Co-General Partner notices of any of the matters set forth in Paragraph 9.4 (Decisions of Both General Partners) or joint decisions identified in Paragraph 9.5 (Asset Manager) within a reasonable time after learning of a matter requiring a joint decision; (b) will provide the Co-General Partner with timely and thorough copies of any reports received by the Managing General Partner about Hotel and Garage operations, including, without limitation, the results of audits, auditor's recommendation letters,
financial projections, hotel management reports, proposed budgets, significant proposals to change a budget that has been previously adopted, materials prepared for meetings with the Managing General Partner, notices by any governmental entity, and any legal notices, which reports shall include the same level of detail as the reports that have been made available to the Managing General Partner; (c) will provide the Co-General Partner with complete copies of any written materials that Managing General Partner prepares concerning the Hotel and Garage operations, including meeting agendas and materials; (d) upon request by the Co-General Partner, will prepare and deliver to the Co-General Partner reports concerning the Partnership, the Property and the operations of the Hotel and Garage within a reasonable time after such request; and (e) upon request by the Co-General Partner, will facilitate the Co-General Partner's access to senior staff of the Hotel and Garage within a reasonable time after such request.
9.2.2 Meetings. The Managing General Partner shall meet with the Co-General Partner on at least a quarterly basis. The Managing General Partner and the Co-General Partner shall set a schedule of regular meetings to facilitate the Co-General Partner's participation in management decisions which shall include, without limitation, decisions concerning budgets (including forecasts and other budget updates) and capital improvements. The Managing General Partner will provide the Co-General Partner with reasonable advance notice of any meeting with the Asset Manager or the managers or operators of the Hotel and Garage, to the extent that those meetings relate to a change in senior staff of the Hotel or Garage or a material change (a) in Hotel or Garage operations or (b) in the use or management of the Property.
9.3 Powers and Duties of the Co-General Partner. The Co-General Partner shall devote such time to the Partnership as shall be necessary to conduct the Partnership business. The Co-General Partner shall consult with the Managing General Partner and participate in decisions that require the consent of both General Partners, which are listed below in Paragraphs 9.4 (Decisions of Both General Partners) and, as applicable, 9.5 (Asset Manager). Without limiting the foregoing, and subject to the Managing General Partner's primary responsibility for the management of the Partnership's business, the Co-General Partner has the following obligations and express rights, as applicable, to participate in the following activities of the Partnership:
9.3.1 Documents. When required by this Agreement or applicable law, the Co-General Partner shall execute and deliver partnership documents on behalf of the Partnership in a timely fashion;
9.3.2 Service Providers. The Co-General Partner has the right to participate (through oversight and consultation) in supervising and evaluating the work of all persons necessary to provide services for the management and operation of the Hotel and Garage and, as set forth in subparagraph 9.4.1 (Senior Hotel and Garage Managers) below, to participate in making decisions concerning the employment of senior Hotel and Garage staff.
9.3.3 Reports. The Co-General Partner shall have the right to participate (through oversight and consultation) in preparing or causing to
be prepared all reports to be provided to the Partners or lenders on a monthly, quarterly, or annual basis consistent with the requirements of this Agreement.
9.3.4 Coordination. The Co-General Partner shall have the right to participate (through oversight and consultation) in coordinating all present and future development, construction, or rehabilitation of the Property.
9.3.5 Compliance. The Co-General Partner shall have the right to assist the Managing General Partner in monitoring compliance with all government regulations and files and to assist in supervising the filing of all required documents with government agencies in a timely fashion.
9.3.6 Communications with Managers. Except as prohibited or otherwise restricted by the Hotel Management Agreement, the Garage Management Agreement, other written agreements between the Partnership and a manager or lessee of a portion of the Property or of the business of the Partnership and any and all successor agreements, the Co-General Partner shall have the right to communicate directly with senior staff of the Hotel and Garage and to request and to receive the same information from such persons as is provided by them to the Managing General Partner.
9.3.7 Reimbursable Expenses. To be reimbursed by, or to charge, the Partnership for reasonable expenses incurred by the Co-General Partner on behalf of the Partnership, provided such expenses were included in the approved budget or are otherwise approved by the Managing General Partner. The Co-General Partner will endeavor to have such Partnership expenses billed directly to the Partnership whenever feasible. The foregoing notwithstanding, the Co-General Partner shall not charge to the Partnership, and shall reimburse the Partnership for, any legal, accounting or other costs incurred by the Co- General Partner or the Partnership due to requirements of the Co-General partner, but only to the extent those costs exceed the costs that would be incurred by the Partnership if the Co-General Partner had no such requirements.
9.4 Decisions of Both General Partners. Notwithstanding any other
provision of this Agreement to the contrary, the following matters, as well
as any joint decisions related to the Asset Manager identified in Paragraph
9.5 (Asset Manager), require the approval of both the Managing General
Partner and the Co-General Partner in a timely fashion:
9.4.1 Senior Hotel and Garage Managers. To determine the duties of, to engage, to retain, and/or to terminate the employment of the Hotel's General Manager and the Garage's senior manager;
9.4.2 Hotel and Garage Agreements. To enter into, amend or terminate the Hotel Management Agreement or Garage Management Agreement and any subsequent management agreements relating to the Hotel and Garage.
9.4.3 Leasing Decisions. To enter into, amend or terminate any lease of any portion of the Property.
9.4.4 Legal Matters. To initiate or undertake any legal action, to confess any judgment against the Partnership or to settle any legal matter for an amount in excess of ten thousand dollars ($10,000.00);
9.4.5 New Partners. To admit any person as a General Partner or a Limited Partner, except as permitted by Section 10 (Restrictions on Transfer) of this Agreement.
9.4.6 Bankruptcy, Etc. To file a bankruptcy case, to execute or deliver any assignment for the benefit of the creditors of the Partnership, or otherwise take any act or action to seek protection from the Partnership's creditors;
9.4.7 Transfer of General Partner Interest. To transfer a General Partner's interest as the General Partner in the Partnership, except as permitted in this Agreement;
9.4.7 Borrowing. To borrow money from any lender, including any Partner; to mortgage or subject to any other security device any portion of the Property or any other property of the Partnership; to obtain replacements of any mortgage or other security device; and to prepay in whole or in part, refinance, increase, modify, consolidate or extend any mortgage or other security device, all of the foregoing on such terms, in such amounts and by such means identified in such security devices or modifications thereto;
9.4.9 Appraisals. To approve the draft of any appraisal of the Partnership or the Property;
9.4.10 Budgets. To approve the annual budgets for the Hotel, the Garage and the Partnership, including, without limitation, capital improvements, reserves and partnership distributions, insurance coverage, material contracts and expenditures, and engagement of consultants, and any revisions or reforecasts thereto;
9.4.11 Reserves and Distributions. To establish cash reserves for contingencies and to make distributions of Partnership income, provided, however, that the General Partners may jointly elect not to make a distribution in any calendar year if they reasonably determine that by doing so the Partnership would not be able to maintain adequate reserves;
9.4.12 Development, Construction or Rehabilitation. To approve major decisions concerning the present or future development, construction or rehabilitation of the Property;
9.4.13 Non-Recurring Expenditures. To approve any non-recurring expenditure or contract in excess of twenty thousand dollars ($20,000);
9.4.14 Modifications. To approve any modification of a non- recurring expenditure or contract in excess of ten thousand dollars ($10,000); and
9.4.15 Tax Elections. To make elections (or revocations thereof) under federal or state tax law.
9.5 Asset Manager. The Partners agree as follows with respect to the asset manager engaged by the Partnership to oversee the Property and the day- to-day operations of the Partnership (including any service providers engaged in the future to perform any of the functions currently being performed by the Asset Manager) (the "Asset Manager"):
9.5.1 Partnership Employee. The Asset Manager will be employed by the Partnership, rather than by either of the General Partners, and may not be an employee or director of either of the General Partners unless the other General Partner gives its consent.
9.5.2 Employment of Asset Manager. The Managing General Partner will be responsible for interviewing candidates, negotiating and recommending compensation agreements and employment terms commensurate with the Asset Manager's job description and with industry standards, and for making recommendations as to hiring and compensation decisions. Decisions to determine or change the duties or compensation of, to engage, to retain, and/or to terminate the employment of the Asset Manager will be made by mutual consent of both General Partners. The General Partners have hired Geoffrey M. Palermo as the initial Asset Manager on such terms and for such compensation as the General Partners shall jointly determine.
9.5.3 Supervision and Evaluation. The Managing General Partner shall have the obligation to supervise and evaluate the work of the Partnership's Asset Manager, and the Co-General Partner shall have the right to assist the Managing General Partner in such supervision and evaluation.
9.5.4 Communication with Co-General Partner. The Co-General Partner shall have the right to communicate directly with the Asset Manager and to receive the same information from the Asset Manager as is provided by the Asset Manager to the Managing General Partner.
9.6 Management Decisions. With respect to the management, conduct and operation of the Partnership business, and subject to the exceptions set forth in Paragraph 9.4 (Decisions of Both General Partners) and, as applicable, Paragraph 9.5 (Asset Manager), the decisions of the Managing General Partner shall prevail.
9.7 Independent Activities of Partners. Except as provided elsewhere herein, any of the Partners may engage in or possess an interest in other business ventures of every nature and description, independently or with others, including, but not limited to, the ownership, financing, leasing, operation, management, syndication, brokerage and development of real property; and neither the Partnership nor the other Partners shall have, and each of them hereby expressly waives, relinquishes and renounces any right by virtue of this Agreement in and to such independent ventures or to the income or profits derived therefrom.
9.8 Tax Matters Partner. The Managing General Partner shall be the designated Tax Matters Partner of the Partnership, as that term is defined in the Code.
9.9 Execution of Documents. Except as otherwise specifically provided by this Agreement, or as otherwise authorized by the Managing General Partner, each check, contract, deed, lease, promissory note, deed of trust, escrow
instruction, bond, release or any other documents of any nature whatsoever, in any way pertaining to this Partnership or on behalf of the Partnership, shall be signed by the Managing General Partner. Such signature authority may be delegated by the Managing General Partner to the Asset Manager.
9.10 Liability Indemnification. The General Partners shall not be liable, responsible or accountable in damages or otherwise to the Partnership or to the Limited Partners for any acts performed within the scope of the authority conferred on such General Partners by this Agreement, except for such General Partners' gross negligence or willful misconduct in carrying out such General Partners' obligations hereunder. The General Partners shall be indemnified by the Partnership for all losses, judgments, settlements (including legal fees) incurred as a result of actions against any or all of the General Partners in its capacity as a general partner of the Partnership, except to the extent it is determined by a court of law that the actions of such General Partner constituted gross negligence or willful misconduct, or were in intentional violation of this Agreement.
9.11 Compensation of General Partners. The General Partners shall be entitled to receive reasonable compensation for services rendered to the Partnership consistent with past practices. The General Partners are hereby authorized to enter into a Compensation Agreement for the purpose of setting the compensation that the General Partners shall be entitled to receive. The Compensation Agreement may be amended, modified and restated by agreement of the General Partners. In the event that there is only one (1) General Partner, the Compensation Agreement may be amended only with approval of at least seventy-five percent (75.0 %) of the interests of the Limited Partners.
9.12 Voting Rights of Limited Partners.
9.12.1 New General Partner. Except where there is no remaining General Partner, a Majority In Interest of the Limited Partners shall have the right, by vote or by written consent, to admit a new General Partner provided, however, that every vote or written consent to admit a General Partner also requires the written consent of any remaining General Partner.
9.12.2 Dissolution and Termination of the Partnership. The General Partners shall not dissolve and terminate the Partnership without the consent of a Super Majority In Interest of the Limited Partners as provided in Paragraph 11.1 (Dissolution of Partnership) and subparagraph 11.1.1 hereof.
9.12.3 Sale of the Property. The Property shall not be sold without the written consent of the General Partners and a Super Majority In Interest of the Partners.
9.12.4 Amendment of Agreement. Amendments to this Agreement may be made only if approved by the General Partners and at least seventy-five percent (75%) interest of the Limited Partners in accordance with the provisions of Section 15 (Amendments) hereof.
9.12.5 Additional Limited Partners. Except as set forth in Section
10 (Restrictions on Transfers), the General Partners shall not admit
additional Limited Partners without the consent of a Majority In Interest of
the Limited Partners.
9.12.6 Election of New General Partner and Election to Continue Business. Where there is no remaining General Partner after removal of a General Partner as provided in subparagraph 9.12.7 (Removal of General Partner) hereof, a Majority In Interest of the Limited Partners shall have the right to elect a new General Partner and to make an election to continue the business of the Partnership. After a General Partner ceases to be a General Partner other than by removal, the Super Majority In Interest vote of the Limited Partners shall be required to elect a new General Partner and to make an election to continue the business of the Partnership.
9.12.7 Removal of General Partner. A General Partner may be removed only upon the consent of at least seventy-five percent (75%) of the interests of the Limited Partners. Upon removal, the removed General Partner automatically converts to Limited Partner unless otherwise provided.
9.12.8 No Additional Voting Rights. Except as otherwise provided herein, Limited Partners shall not have any rights to vote on any other matters including but not limited to the matters described in Section 15903.03 of the Act.
9.13 Withdrawal of General Partner. A General Partner may withdraw from the Partnership.
10. RESTRICTIONS ON TRANSFER. The interest of a Limited Partner is transferable (including transfers to a Permitted Transferee) only with the consent of both General Partners, which consent shall not be unreasonably withheld. For purposes of this Section 10 (Restrictions on Transfer), a "Permitted Transferee" is: (i) the spouse or member of the family of the Limited Partner; (ii) a custodian, trustee (including a trustee of a voting trust), executor, or other fiduciary for the account of the Limited Partner, the spouse of the Limited Partner or members of the family of the Limited Partner; or (iii) a trust for the benefit of the Limited Partner. No fraction of a Unit may be transferred under this Agreement.
10.1 Representations by Portsmouth and Proposed Transferee. When any
transfer of a Limited Partner interest is proposed (other than a transfer to
a Permitted Transferee), Portsmouth and the Proposed Transferee each shall
separately provide the Partnership and Evon with affirmative written
representations (a) that to the knowledge of the party making the
representation, the proposed transferee is not an Affiliate of Portsmouth
(b) that the party making the representation has not entered into and it does
not presently intend to enter into any agreement by which such interest will
be transferred to Portsmouth, or an Affiliate of Portsmouth, and (c) that the
party making the representation is not aware of any other reason that the
proposed transfer reasonably could result in a Material Reassessment of the
Property. For purposes of this Section 10 (Restrictions on Transfer), an
"Affiliate" of Portsmouth is any party that is 50% or more owned by
Portsmouth or any Affiliate of Portsmouth.
10.2 Withholding Consent. Within ten business (10) days after Portsmouth and the Proposed Transferee have delivered the written representation described in Paragraph 10.1 (Representations by Portsmouth and Proposed Transferee), either General Partner may withhold consent to a proposed transfer of a Limited Partner interest. The non-consenting General Partner shall provide, at the time such consent is withheld, a written explanation to the other General Partner specifying in reasonable detail (including specific citations to applicable
legal authority and factual evidence) the reasons why consent was withheld. The written explanation will also include any specific information that the non-consenting General Partner reasonably needs in order to provide its approval. The withholding of consent is not unreasonable if the objecting General Partner reasonably believes that the proposed transfer would materially harm the Partnership or the Property or if the proposed transfer reasonably could result in a Material Reassessment of the Property. "Material Reassessment of the Property" shall mean that as a result of the proposed transfer, the Property is subject to reassessment and that such reassessment would result in a material increase in property taxes assessed against the Property that are payable by the Partnership in any year or years.
10.3 Materially Harm Partnership; Material Reassessment Risk. If a
General Partner withholds consent to a proposed transfer on grounds that the
proposed transfer would materially harm the Partnership or a Material
Reassessment of the Property reasonably could result, the refusal of such
General Partner to consent to the proposed transfer shall be reasonable
unless the proposed transferee or the other General Partner has provided to
the objecting General Partner written materials (including specific citations
to applicable legal authority and factual evidence) reasonably satisfactory
to the objecting General Partner demonstrating that the proposed transfer
will not materially harm the Partnership or result in a Material Reassessment
of the Property. In the event that such written materials are delivered to
the objecting General Partner, the consent of the objecting General Partner
shall be presumed to have been given unless, within ten business (10) days
after receipt of such written materials, the objecting General Partner
notifies the other General Partner of its continuing objection. In such
event, either General Partner may pursue dispute resolution as provided in
Section 16 (Resolution of Disputes) of this Agreement.
10.4 New Partners to Be Bound by Partnership Agreement. Notwithstanding any other provision in this Agreement, a transferee shall be admitted as a Limited Partner only upon the transferee's agreement to being bound by the terms of this Partnership Agreement.
10.5 Assignment of Distribution Rights. Notwithstanding any other provision in this Agreement, each Limited Partner shall have the right to assign his, her or its right to distributions from the partnership.
10.6 Examination Rights. Each Partner shall have the right to examine the books and records of the Partnership upon reasonable notice to the General Partners.
10.7 Obligations of Transferees. The transfer of an interest of Partner not made in accordance with the terms of Section 10 (Restrictions of Transfer) shall be void.
10.8 Substitute Partners. A transferee of any Partner's interest may become a "Substitute Partner" (Limited or General, as the case may be) in place of his transferor if, in addition to satisfying all of the applicable requirements set forth herein, the transferor and any transferee shall have executed, acknowledged and delivered to the Managing General Partner such instruments of transfer, assignment and agreement to be bound by the terms of this Partnership as are satisfactory to the General Partners.
10.9 Rights of Assignee. An assignee who does not become a Substitute Partner has no right to require any information or account of the Partnership transactions, to inspect the Partnership books, or to vote on any of the matters as to which a Limited Partner would be entitled to vote pursuant to this Agreement. A mere assignee shall be entitled only to receive the allocations of Net Profits, Net Losses and other items and share of cash distributions to which his transferor would otherwise be entitled.
10.10 Division of Allocations and Distributions. If any Partnership interest, or part thereof, is transferred during any accounting period in compliance with the provisions of this Agreement, Net Profits, Net Losses, each item thereof and all other items attributable to such interest for such period shall be divided and allocated between the transferor and the transferee by taking into account their varying interests during the period in accordance with Code Section 706(d), using any convention permitted by law selected by the Managing General Partner. All distributions on or before the date of such Transfer shall be made to the transferor, and all distributions thereafter shall be made to the transferee. Solely for purposes of making such allocations and distributions, the Partnership shall recognize such Transfer not later than the end of the calendar month during which the provisions of Paragraph 10.8 (Substitute Partners) are satisfied, provided that if the Partnership does not receive (a) a notice stating the date such interest was transferred, and (b) such other information as the Managing General Partner may reasonably require, within thirty (30) days after the end of the accounting period during which the Transfer occurs, then all of such items shall be allocated and all distributions shall be made to the persons who according to the books and records of the Partnership on the last day of the accounting period during which the Transfer occurred was the owner of the Partnership interest. Neither the Partnership nor any General Partner shall incur any liability for making allocations and distributions in accordance with the provisions of this Paragraph 10.10 (Division of Allocations and Distributions), whether any General Partner or the Partnership has knowledge of any Transfer of ownership of any Partnership interest.
10.11 Agreement Applies to Transferred Interest. Each Partner agrees that notwithstanding the provisions for the Transfer of any interest contained herein, the interest, when and if transferred, shall remain subject to all of the terms and conditions of this Agreement.
10.12 Heirs, Devisees and Legatees. The heirs, devisees and legatees of a deceased Partner shall have the rights of a transferee of a living Partner, subject to administration of such deceased Partner's estate, and may become Substitute Partners in lieu of the deceased Partner upon compliance with all of the conditions of this Agreement required for such substitution.
10.13 No Dissolution. If a Partner Transfers all or any part of his interest without complying with the provisions of this Agreement, such action shall not cause or constitute a dissolution of the Partnership.
11. DISSOLUTION AND WINDING UP OF THE PARTNERSHIP.
11.1 Dissolution of Partnership. The Partnership shall be dissolved upon the happening of any of the following events:
11.1.1 The vote or written consent of a Super Majority In Interest of the Limited Partners together with the written consent of each General Partner;
11.1.2 The date of receipt in cash by the Partnership of the entire proceeds from a sale or other disposition by the Partnership of all, or substantially all, the Partnership's property, provided that if such a sale is made for consideration payable in whole or part over a period of time, such date shall be the date upon which all payments therefor shall have been received;
11.1.3 orThe entering of an order for relief in a bankruptcy case,
legal incapacity, disability, death, dissolution, or termination of the last
General Partner, unless, within sixty (60) days after the occurrence of any
such event, a successor General Partner is elected pursuant to subparagraph
9.12.1 (New General Partner) hereof, which successor elects to continue the
business of the Partnership. In the event of the election of a successor
General Partner who elects to continue the business of the Partnership, a new
or amended Certificate of Limited Partnership shall be filed, if required, in
the manner required by law.
11.2 Continuation of Partnership. If a successor General Partner is elected to continue the business of the Partnership, the business of the Partnership shall continue in a reconstituted form as a successor limited partnership upon the same terms and conditions as set forth in this Agreement; and each Limited Partner hereby agrees to such continuation and/or reconstitution if a successor General Partner is elected as provided for herein. In connection therewith, the successor General Partner shall assume the obligations of the predecessor General Partners and shall indemnify the predecessor General Partners and hold each harmless from and against any and all loss, damage, liability and expense, including costs and reasonable attorneys' fees, to which the predecessor General Partners may be put or which they may incur by reason of or in connection with any of the debts, obligations or liabilities of the Partnership theretofore or thereafter made, incurred or created by any loss, damage, liability or expense resulting from the willful or negligent act or omission of the successor General Partner.
11.3 Winding Up of the Partnership. Upon dissolution of the Partnership, the Managing General Partner shall wind up the affairs and liquidate the assets of the Partnership in accordance with the provisions of this Paragraph. Net Profits, Net Losses, Nonrecourse Deductions, Partner Nonrecourse Deductions and all other Partnership items shall be allocated until the liquidation is completed in the same ratio as such items were allocated prior thereto. The proceeds from liquidation of the Partnership when and as received by the Partnership shall be utilized, paid and distributed in the following order:
11.3.1 First, to pay expenses of liquidation and the debts of the Partnership to third parties other than the Partners;
11.3.2 Next, to pay the debts of the Partnership owing to creditors
who are Partners;
11.3.3 Next, to the establishment of any Cash Reserves;
11.3.4 Next, to the Partners, in accordance with the respective
|
Original Capital Contribution, on a pro-rata basis; and
11.3.5 Thereafter, to the Partners, in accordance with their Participation Percentages.
11.4 Right to Receive Property. The Limited Partners shall have no right to demand or receive property other than cash in return for their Capital Contributions to the Partnership, and each Limited Partner agrees to and shall look solely to the assets of the Partnership for the return of such Limited Partner's Capital Contributions. If the assets of the Partnership remaining after discharge of the debts and liabilities of the Partnership are insufficient to return the then unreimbursed Capital Contributions of a Limited Partner, such Limited Partner shall not have, and hereby waives, any recourse against the General Partners. All allocations and distributions of sums pursuant to the winding up of the Partnership shall be subject to the review and approval of the Co-General Partner, which approval shall not be unreasonably withheld or delayed. Subject to the foregoing, the winding-up of the affairs of the Partnership and the distribution of its assets shall be conducted exclusively by the Managing General Partner, who is hereby authorized to do any and all acts and things authorized by law for such purposes at the expense of the Partnership. If there is no General Partner, the winding-up of the affairs of the Partnership shall be conducted as otherwise provided by law.
12. BOOKS, RECORDS, AND OFFICE SPACE.
12.1 Books of Account. The Managing General Partner shall, at the Partnership's sole cost and expense, keep in accordance with California Corp. Code 15901.11 adequate books of account of the Partnership wherein shall be recorded and reflected, in accordance with a method of accounting determined by the Managing General Partner, all of the Capital Contributions and all of the income, expenses and transactions of the Partnership and a list of the names and addresses, and interests in the Partnership held by the Partners in alphabetical order.
12.2 Accounting and Reports. The Managing General Partner shall, at the Partnership's sole cost and expense, cause federal and state returns for the Partnership to be prepared and filed with the appropriate authorities, and shall furnish to the Limited Partners, within ninety (90) days after the close of each Fiscal Year of the Partnership, such financial information with respect to each Fiscal Year as shall be reportable for federal and state income tax purposes.
12.3 Banking. All funds of the Partnership shall be deposited in a separate bank account or accounts as shall be determined by the Managing General Partner. All withdrawals therefrom shall be made upon checks signed by the Managing General Partner.
12.4 Accountants. The General Partners shall select the accountants for the Partnership.
12.5 Partnership Office. Each General Partner shall have access to the Partnership office and the Property. The furniture, fixtures, and equipment currently located at the Partnership Office shall remain the property of the Partnership. At the sole cost of the Partnership, each General Partner shall be provided with a computer terminal, desk, file space, access to all Partnership office equipment, and incidental assistance from the Partnership clerical staff as may be necessary to assist such General Partner in the performance of such General Partner's duties.
13. ADJUSTMENT OF BASIS ELECTION. In the event of a Transfer of a Partner's interest in the Partnership, or upon the death of a Partner, or in the event of a distribution of the property of the Partnership to any Partner hereto, or in the event of any Transfer of an interest in any Partnership which is a Partner in this Partnership, the General Partners, in their sole discretion may, at the request of the transferee Partner, file an election, in accordance with Section 754 of the Code and applicable Treasury Regulations, to cause the basis of the Partnership's property to be adjusted for federal income tax purposes, as provided in Sections 734, 743 and 754 of the Code.
14. WAIVER OF ACTION FOR PARTITION. Each of the Partners hereby irrevocably waives, during the term of the Partnership, any right such Partner may have to maintain any action for partition with respect to any property of the Partnership, including without limitation, the Property.
15 AMENDMENTS. Amendments to this Agreement may be made only if approved by the General Partners and at least seventy-five percent (75%) of the interests of the Limited Partners.
16. RESOLUTION OF DISPUTES.
16.1 Mediation. If a dispute, controversy or claim: (i) occurs, in law or in equity; (ii) involves any of the Parties; and (iii) arises under, out of, in connection with, or in relation to the Partnership, the Property, this Agreement, any amendments to this Agreement or a breach of this Agreement, the disputing Parties agree first to try in good faith to settle the dispute by mediation under the mediation rules of JAMS or its successor organization before resorting to arbitration. The disputing Parties agree that mediation shall be completed within thirty (30) days of a notification of a dispute, unless otherwise agreed by such Parties in writing.
16.2 Arbitration of Disputes. If the mediation provided by Paragraph
16.1 (Mediation) under the time period provided under Paragraph 16.1
(Mediation) does not resolve the dispute, the disputing Parties agree that
neutral binding arbitration shall decide and settle such dispute. The
disputing Parties agree to hold the arbitration in San Francisco, California,
and to follow the rules then applicable of JAMS or its successor
organization. The disputing Parties agree that the arbitration shall be
completed within one hundred twenty (120) days of the completion of the
mediation under Paragraph 16.1 (Mediation).
16.2.1 Selection of Arbitrators. The disputing Parties shall select one (1) neutral arbitrator in accordance with the rules of JAMS. The arbitrator shall have significant experience in commercial real estate and management matters.
16.2.2 Decision of Arbitrator. The disputing Parties shall have a mandatory pre-hearing document exchange. The arbitrator shall issue a written decision which does not need to be a reasoned award. The decision in writing of the arbitrator shall be final and binding on each and all of the Parties. Judgment may be entered on such award in any court having jurisdiction thereof.
16.3 Injunctive Relief and Remedies to Enforce Arbitration and Mediation. The Parties recognize that each Party will have no adequate remedy at law for breach by any of the other Party of any of the agreements contained in this
Agreement and, in the event of any such breach, the Parties agree and consent that any of the other Parties shall be entitled to a judicial decree of specific performance, mandamus or other appropriate remedy to enforce this Agreement. The filing of a judicial action to enable the recording of a notice of pending action, order of attachment, receivership, injunction or other provisional remedy, shall not constitute a waiver of the right to mediate or arbitrate under this Agreement. In no event shall a Party have the right to demand mediation or arbitration after the date when institution of legal or equitable proceedings based on such claim, dispute or other matter in question would be barred by the applicable statute of limitations. This agreement to mediate or arbitrate shall be specifically enforceable under the prevailing mediation and arbitration laws.
16.4 Legal Fees and Costs. Notwithstanding any contrary language in any prior documents relating to the management and operations of the Partnership or the compensation of the Partnership's General Partners, any legal fees and costs arising out of any dispute, controversy or claim of the type described in Paragraph 16.1 (Mediation) above shall be borne by the party that incurred such fees and costs.
17. NOTICES. Any and all notices, demands or other communications required or desired to be given hereunder by any party shall be in writing and shall be validly given or made to another party only if served either personally or by facsimile transmission or if deposited in the United States first class mail, certified or registered, postage prepaid. If such notice, demand or other communication is served personally, service shall be conclusively deemed made at the time of such personal service. If such notice is sent by facsimile transmission, service shall be conclusively deemed made at the time of written confirmation of receipt which may be evidenced by return facsimile transmission or by the sending party mailing a copy of the facsimile transmission to the receiving party within twenty-four hours of the facsimile transmission in the manner provided herein. If such notice, demand or other communication is given by mail, such shall be conclusively deemed given seventy two (72) hours after the deposit thereof in the United States mail addressed to the party to whom such notice, demand or other communication is to be given at the address set forth on Exhibit A attached hereto. Any party hereto may change its address for the purpose of receiving notices, demands and other communications as herein provided by a written notice given in the manner aforesaid to the other party or parties hereto.
18. ATTORNEYS' FEES. Should any party hereto institute any action or proceeding at law or in equity to enforce any provision hereof, including an action for declaratory relief or for damages by reason of an alleged breach of any provision of this Agreement, or otherwise in connection with this Agreement, or any provision hereof, the prevailing party shall be entitled to recover from the losing party or parties reasonable attorneys' fees and costs for services rendered to the prevailing party in such action or proceeding.
19. SPECIAL POWER OF ATTORNEY.
19.1 Grant of Power. Each Limited Partner hereby constitutes and appoints the Managing General Partner as attorney-in-fact for such Limited Partner, with power and authority to act in such Limited Partner's name and on such Limited Partner's behalf in the execution, acknowledgment and filing of documents as follows:
19.1.1 The Certificate and any amendments thereto made in accordance with the terms of this Agreement, under the laws of the State of California or the laws of any other states in which such a certificate is required to be filed;
19.1.2 Any other instrument which may be required to be filed by the Partnership under the laws of any state or by any governmental agency, or which the General Partners deem advisable to file; and
19.1.3 Any documents which may be required to effect the continuation of the Partnership, the admission of an additional or Substitute Limited Partner or the dissolution and termination of the Partnership, provided such continuation, admission or dissolution and termination is in accordance with the terms of this Agreement and is authorized by the requisite vote of Limited Partners and General Partners as provided herein.
19.2 Scope of Power. The power of attorney granted by each Limited Partner to the Managing General Partner as hereinabove provided:
19.2.1 Is a special power of attorney coupled with an interest, is irrevocable, shall survive the death or disability of a Limited Partner, and is limited to the matters as set forth in Paragraph 19.1 (Grant of Power) hereof;
19.2.2 May be exercised by the Managing General Partner for each Limited Partner by a facsimile signature of the Managing General Partner or by listing each Limited Partner executing any instrument with a facsimile signature of the Managing General Partner acting as attorney-in-fact for all of the Limited Partners; and
19.2.3 Shall survive the delivery of an assignment by a Limited Partner of the whole or any portion of such Limited Partner's interest in the Partnership except that, where the assignee thereof has been approved for admission to the Partnership as a Substitute Limited Partner, the special power of attorney shall survive the delivery of such assignment for the sole purpose of enabling the Managing General Partner to execute, acknowledge and file any instrument necessary to effect such substitution.
20. PARTNERSHIP MEETINGS.
20.1 Call and Place of Meetings. Meetings of the Partners may be called at the principal executive office of the Partnership or at any place designated by the General Partners at the call and pursuant to the written request of any General Partner or of Limited Partners representing more than ten percent (10%) of the aggregate percentage interests of the Limited Partners for consideration of any of the matters as to which Limited Partners are entitled to vote pursuant to Paragraph 9.12 (Voting Rights of Limited Partners) of this Agreement.
20.2 Notice of Meeting. Immediately upon receipt of a written request to the General Partners requesting a meeting pursuant to Paragraph 20.1 (Call and Place of Meetings) on a specific date (which date shall not be less than fifteen (15) nor more than sixty (60) days after the receipt of the request by the General Partners), the General Partners shall immediately give notice to all Partners entitled to vote, as determined in accordance with Section 21 (Record Dates) of this Agreement. Valid notice shall be given less than ten (10) nor
more than sixty (60) days prior to the date of the meeting, and shall state the place, date and hour of the meeting and the general nature of the business to be transacted. No business other than the business stated in the notice of the meeting may be transacted at the meeting. Notice shall be given in accordance with the provisions of Section 17 (Notices) hereof.
20.3 Quorum. At any duly held or called meeting of Partners, a Majority In Interest of Limited Partners represented in person or by proxy shall constitute a quorum. The Partners present at a duly called or held meeting at which a quorum is present may continue to transact business until adjournment, notwithstanding the withdrawal of enough Limited Partners to leave less than a quorum, if any action taken, other than adjournment, is approved by the owners of the requisite percentage of the aggregate percentage interests of the Limited Partners. Notwithstanding the existence of a quorum, decisions by the Limited Partners shall require the requisite percentage vote of all partnership interests (not merely those present in person or proxy), as provided in Section 9.12 above.
20.4 Adjournment of Meetings. A Partnership meeting at which a quorum is present may be adjourned to another time or place and any business which might have been transacted at the original meeting may be transacted at the adjourned meeting. If a quorum is not present at an original meeting, that meeting may be adjourned by the vote of a Majority In Interest of the Limited Partners represented either in person or by proxy. Notice of the adjourned meeting need not be given to Partners entitled to notice if the time and place thereof are announced at the meeting at which the adjournment is taken, unless the adjournment is for more than forty-five (45) days or if, after the adjournment, a new record date is fixed for the adjourned meeting, in which case notice of the adjourned meeting shall be given to each Partner of record entitled to vote at the adjourned meeting.
20.5 Meetings Not Duly Called, Noticed or Held. The transactions of any meeting of Partners, however called and noticed, and wherever held, shall be as valid as though consummated at a meeting duly held after regular call and notice, if a quorum is present at that meeting, either in person or by proxy, and if, either before or after the meeting, each of the persons entitled to vote, not present in person or by proxy, signs either a written waiver of notice, a consent to the holding of the meeting or an approval of the minutes of the meeting.
20.6 Waiver of Notice. Attendance of a Partner at a meeting shall constitute waiver of notice, except when that Partner objects, at the beginning of the meeting, to the transaction of any business on the ground that the meeting was not lawfully called or convened. Attendance at a meeting is not a waiver of any right to object to the consideration of matters required to be described in the notice of the meeting and not so included, if the objection is expressly made at the meeting. Any Partner approval at a meeting as to those matters specified in Paragraph 20.2 (Notice of Meeting) hereof (other than unanimous approval by Limited Partners) shall be valid only if the general nature of the proposal so approved is stated in the notice of meeting or in any written waiver of notice.
20.7 Consent to Action Without Meeting. Any action that may be taken at any meeting of the Partners may be taken without a meeting if a consent in writing, setting forth the action so taken, is signed by Partners having not less than the minimum number of votes that would be necessary to authorize or take that
action at a meeting at which all Partners entitled to vote thereon were present and voted. In the event the Limited Partners are requested to consent to a matter without a meeting, each Partner shall be given notice of the matter to be voted upon in the manner described in Section 17 (Notices). In the event that any General Partner, or Limited Partners representing more than ten percent (10%) of the aggregate percentage interests of the Limited Partners, within ten (10) days of the giving of said notice, request a meeting for the purpose of discussing or voting on the matter so noticed, notice of a meeting shall be given pursuant to Section 17 (Notices) hereof and no action shall be taken until the meeting is held. Unless delayed by a request for and the conduct of a meeting, any action taken without a meeting shall be effective fifteen (15) days after the required minimum number of voters have signed consents to action without a meeting.
20.8 Proxies.
20.8.1 Every Partner entitled to vote may authorize another person or persons to act by proxy with respect to that Partner's interest in the Partnership.
20.8.2 Any proxy purporting to have been executed in accordance with this Paragraph 20.8 (Proxies) shall be presumptively valid.
20.8.3 No proxy shall be valid after the expiration of eleven (11) months from the date thereof unless otherwise provided in the proxy. Subject to the foregoing and to subparagraphs 20.8.6, 20.8.7, and 20.8.8 below, every proxy continues in full force and effect until revoked by the person executing it. The dates contained on the proxy forms presumptively determine the order of execution, regardless of the postmark dates on the envelopes in which they are mailed.
20.8.4 A proxy is not revoked by the death or incapacity of the person executing it, unless (except as provided in subparagraph 20.8.6 hereof), before the vote is counted, written notice of the death or incapacity of the maker is received by the Partnership.
20.8.5 Revocation of a proxy is effected by a writing delivered to the Partnership stating that the proxy is revoked or by a subsequent proxy executed by the Partner who executed the proxy or, as to any meeting, by the attendance and exercise of the right to vote at that meeting by the Partner who executed the proxy.
20.8.6 A proxy that states that it is irrevocable is irrevocable for the period specified therein when it is held by any creditor or creditors of the Partnership or the Partner who extended or continued credit to the Partnership or the Partner in consideration of the proxy if the proxy states that it was given in consideration thereof and the name of the person extending or continuing credit. In addition, a proxy may be made irrevocable (notwithstanding subparagraph 20.8.4 hereof) if it is given to secure the performance of a duty or to protect a title, either legal or equitable, until the happening of events which, by its terms, discharge the obligations secured by it.
20.8.7 Notwithstanding the period of irrevocability specified in the proxy as provided in subparagraph 20.8.6 hereof, the proxy becomes revocable when the debt of the Partnership or Partner is paid.
20.8.8 A proxy may be revoked, notwithstanding a provision making it irrevocable, by the assignment of the interest in the Partnership of the Partner who executed the proxy to an assignee without knowledge of the existence of the proxy and the admission of that assignee to the Partnership as a Partner.
20.8.9 The General Partners may, in advance of any Partnership meeting, prescribe additional regulations concerning the manner of execution and filing of proxies and their validation.
21. RECORD DATES.
21.1 Setting Record Date for Meetings. The record date for determining the Partners entitled to notice of meetings, the right to vote at any meeting, or the right to take any other lawful action with respect to a meeting or the conduct of a vote by the Partners shall be the date set by the General Partners; however, that date may not be more than sixty (60) nor less than ten (10) days prior to the date of the meeting nor more than sixty (60) days prior to any other action.
21.2 Setting Record Date for Distributions. The record date for determining the Partners entitled to any Distribution or the right to take any other lawful action shall be not less than ten (10) days prior thereto or more than sixty (60) days prior to any such action.
21.3 Automatic Record Date. In the absence of any action setting a record date, the record date shall be determined as follows:
21.3.1 The record date for determining the Partners entitled to notice of or to vote at a meeting shall be the close of business on the business day preceding the day on which notice is given or, if notice is waived, at the close of business on the business day preceding the day on which a meeting is held.
21.3.2 The record date for determining Partners entitled to give consent to Partnership action in writing without a meeting shall be the day on which the first written consent is given.
21.3.3 The record date for determining Partners for any other purpose, including their entitlement to any distributions, shall be the close of business on the day on which the General Partners adopt the record date, or the sixtieth (60th) day prior to the date of action relating to that other purpose, whichever is later.
21.3.4 The record date for adjourned meetings shall be the record date set in determining the Partners entitled to notice of or to vote at the original meeting; however, the Partners who called that meeting may fix a new record date for the adjourned meeting and shall fix a new record date if the meeting is adjourned for more than forty-five (45) days from the date set for the original meeting.
21.3.5 Conduct of Meeting. The General Partners shall have full power and authority concerning the manner of conducting any meeting of Partners, including, without limitation, the determination of Limited Partners entitled to vote at the meeting, the existence of a quorum, the conduct of voting, the
validity and effect of any proxies, and the determination of any controversies, votes or challenges arising in connection with or during the meeting. The General Partners shall designate a person to serve as chairman of the meeting and shall further designate a person to take the minutes of the meeting, in either case including, without limitation, a trustee, partner, director or officer of the General Partners. All minutes shall be kept with the records of the Partnership maintained by the General Partners.
22. MISCELLANEOUS
22.1 Applicable Law. This Agreement shall, in all respects, be governed by the laws of the State of California applicable to agreements executed and to be wholly performed within the State of California.
22.2 Severability. Nothing contained herein shall be construed so as to require the commission of any act contrary to law, and wherever there is any conflict between any provisions contained herein and any present or future statute, law, ordinance or regulation contrary to which the parties have no legal right to contract, the latter shall prevail; but the provision of this Agreement which is affected shall be curtailed and limited only to the extent necessary to bring it within the requirements of the law.
22.3 Further Assurances. Each of the parties hereto shall execute and deliver any and all additional papers, documents and other assurances, and shall do any and all acts and things reasonably necessary in connection with the performance of their obligations hereunder to carry out the intent of the parties hereto.
22.4 Successors and Assigns. All of the terms and provisions contained herein shall inure to the benefit of and shall be binding upon the parties hereto and their respective heirs, legal representatives, successors and assigns.
22.5 Number and Gender. In this Agreement, the masculine, feminine or neuter gender, and the singular or plural number, shall each be deemed to include the others whenever the context so requires.
22.6 Entire Agreement. This Agreement constitutes the entire understanding and agreement of the parties with respect to its subject matter and any and all prior agreements, understandings or representations with respect to its subject matter are hereby terminated and cancelled in their entirety and are of no further force or effect.
22.7 Non-Waiver; Consents. No waiver by any party hereto of any breach of this Agreement or any provision hereof shall be deemed to be a waiver of any preceding or succeeding breach of the same or any other provision hereof. Any consent of the Limited Partner which is required under this Agreement shall only be effective if given in writing by the Limited Partner.
22.8 Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.
22.9 Full Authority. Each of the parties and signatories to this Agreement has the full right, power, legal capacity and authority to enter into and perform the parties' respective obligations hereunder, and no approvals or consents of any other person are necessary in connection therewith.
22.10 Captions. The captions appearing at the commencement of the Paragraphs hereof are descriptive only and for convenience in reference. Should there be any conflict between any such caption and the Paragraph at the head of which it appears, the Paragraph and not such caption shall control and govern in the construction of this Agreement.
22.11 Expenses. Each of the Limited Partners shall pay all of such Limited Partner's own costs, legal fees, accounting fees, and any other expenses incurred or to be incurred by such Limited Partner in negotiating and preparing this Agreement and closing and carrying out the transactions contemplated by this Agreement.
22.12 Parties in Interest. Nothing in this Agreement, whether express or implied, is intended to confer any rights or remedies under or by reason of this Agreement on any persons other than the parties and their respective successors and assigns, nor is anything in this Agreement intended to relieve or discharge the obligation or liability of any third persons to any party to this Agreement, nor shall any provision give any third person any right of subrogation or action over or against any party to this Agreement.
22.13 Dissenter's Rights. In the event of a "reorganization," as defined in Section 15911.20 of the Act, provided that the conditions set forth therein with respect to the Partnership are met and the dissenting Limited Partner has complied with the dissent and notice requirements set forth therein with respect to the exercise of dissenter's rights, the value of the dissenting Limited Partner's interest shall be determined, and the purchase price therefor shall be paid, in accordance with Section 16 (Resolution of Disputes).
[SIGNATURE PAGES AND EXHIBITS OMITTED]
EXHIBIT 31.1
CERTIFICATION
I, John V. Winfield, certify that:
1. I have reviewed this quarterly report on Form 10-Q of The InterGroup Corporation;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer(s) and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal controls over
financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15(d)-
15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weakness in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
Date: February 11, 2011 /s/ John V. Winfield
---------------------------
John V. Winfield, President
and Chief Executive Officer
|
EXHIBIT 31.2
CERTIFICATION
I, David T. Nguyen, certify that:
1. I have reviewed this quarterly report on Form 10-Q of The InterGroup Corporation;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer(s) and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal controls over
financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15(d)-
15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weakness in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
Date: February 11, 2011 /s/ David T. Nguyen
---------------------------
David T. Nguyen, Treasurer
and Controller (serving as
Principal Financial Officer)
|
EXHIBIT 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of The InterGroup Corporation (the
"Company") on Form 10-Q for the quarterly period ended December 31, 2010, as
filed with the Securities and Exchange Commission on the date hereof (the
"Report"), I, John V. Winfield, President and Chief Executive Officer of the
Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002, to the best of my knowledge,
that:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Date: February 11, 2011 /s/ John V. Winfield
----------------------------
John V. Winfield, President
and Chief Executive Officer
|
[A signed original of this written statement required by Section 906 has been provided to The InterGroup Corporation and will be retained by The InterGroup Corporation and furnished to the Securities and Exchange Commission or its staff upon request.]
EXHIBIT 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of The InterGroup Corporation (the "Company") on Form 10-Q for the quarterly period ended December 31, 2010, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, David T. Nguyen, Treasurer and Controller of the Company, serving as its Principal Financial Officer, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, to the best of my knowledge, that:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Date: February 11, 2011 /s/ David T. Nguyen
----------------------------
David T. Nguyen, Treasurer
and Controller (serving as
Principal Financial Officer)
|
[A signed original of this written statement required by Section 906 has been provided to The InterGroup Corporation and will be retained by The InterGroup Corporation and furnished to the Securities and Exchange Commission or its staff upon request.]