NOTE 17 – COMMITMENTS AND CONTINGENCIES

Cash Management Agreement

In connection with the March 28, 2025 refinancing of the Hotel’s senior mortgage, Justice Operating Company, LLC (“Operating”) entered into a Cash Management Agreement with the senior mortgage lender and Wells Fargo Bank, N.A., as cash management bank. Under the agreement, Hotel receipts are deposited into lender-controlled accounts and applied in accordance with the priority and reserve requirements specified in the senior loan documents. The cash management arrangement remained in effect as of June 30, 2026. See Note 10 – Mortgage and Mezzanine Loans for additional information regarding the senior mortgage loan and the cash management release conditions.

Franchise Agreements

Operating is party to a franchise agreement with HLT Franchise Holding, LLC (“Hilton”) under which the Hotel operates as the Hilton San Francisco Financial District. The franchise agreement extends through January 31, 2030 and requires the Hotel to pay royalties, program fees and certain other charges based primarily on Hotel revenues and to comply with applicable Hilton brand standards.

Franchise-related fees were approximately $3,989,000 and $3,529,000 for the years ended June 30, 2026 and 2025, respectively, and are included in Hotel operating expenses. See Note 9 – Other Financing Transactions for information regarding the Hilton development incentive note.

Hotel Employees and Collective Bargaining Agreements

As of June 30, 2026, the Hotel had 187 employees, approximately 90% of whom were represented by one of three labor unions and were covered by collective bargaining agreements (“CBAs”). Aimbridge, as agent for Justice Operating Company, LLC (“Operating”), administers the applicable CBAs, and Operating funds the related payroll, employee benefits and other labor costs.

The CBA covering employees represented by Local 2 (Hotel and Restaurant Employees) expires on August 13, 2028. The CBA covering employees represented by Local 856 (International Brotherhood of Teamsters) expires on December 31, 2028. The CBA covering employees represented by Local 39 (Stationary Engineers) expires in July 2030.

Legal Matters

Portsmouth Square, Inc. (“Portsmouth”), through its subsidiary Justice Operating Company, LLC (“Operating”), owns the real property at 750 Kearny Street in San Francisco, on which the Hotel is located (the “Property”). In connection with City approvals in the early 1970s, pedestrian bridge was constructed spanning Kearny Street to the City’s Portsmouth Square Park and underground garage (the “Bridge”), pursuant in part to a Major Encroachment Permit (the “Permit”).

On May 24, 2022, the City purported to revoke the Permit and, on June 13, 2022, directed Portsmouth to submit a general bridge removal and site restoration plan (the “Plan”) at Portsmouth’s expense. Portsmouth disputes the legality of the purported revocation and the existence of any obligation to fund removal.

Without waiving any rights, Portsmouth engaged a project manager, structural engineer, and architect to advise on the Plan for Bridge removal and reconstruction of the Property’s Kearny Street frontage. Portsmouth and the City continued discussions regarding the removal process, restoration responsibilities and financial responsibility. As of June 30, 2026, no final settlement agreement had been executed.