InterGroup Corporation — Form 10-Q Summary
Reporting period: The filing covers the quarter ended March 31, 2023, and the nine months then ended. This is fiscal 2023 Q3, notwithstanding the request metadata’s “2022 Q3.” The statements are unaudited.
Business context
InterGroup’s principal activities are operating the 544-room Hilton San Francisco Financial District hotel through majority-owned Portsmouth Square, Inc.; owning rental properties; and investing in marketable securities. InterGroup held approximately 75.6% of Portsmouth at March 31, 2023.
Financial performance and position
| Metric | Three months ended March 31 | Nine months ended March 31 |
|---|---|---|
| Total revenue | 2023: $14.362 million; 2022: $10.458 million | 2023: $44.623 million; 2022: $31.593 million |
| Operating income | 2023: $0.963 million; 2022: loss of $0.121 million | 2023: $4.023 million; 2022: $0.183 million |
| Consolidated net income (loss) | 2023: loss of $0.614 million; 2022: loss of $0.873 million | 2023: income of $0.752 million; 2022: loss of $6.022 million |
| Net income (loss) attributable to InterGroup | 2023: loss of $0.356 million; 2022: loss of $0.466 million | 2023: income of $1.335 million; 2022: loss of $4.630 million |
| Operating cash flow | Nine months: cash used of $2.427 million, versus $8.871 million used in 2022 |
Third-quarter hotel revenue rose 57% to $10.430 million. Hotel operating income before mortgage interest, depreciation and amortization was $2.017 million, versus $0.088 million a year earlier. For the nine months, hotel revenue increased 65% to $32.632 million; this measure of hotel operating income was $6.187 million, versus $0.429 million. Nine-month hotel operations nevertheless recorded a $0.639 million net loss after interest and depreciation.
Hotel operating statistics improved: Q3 average daily rate was $234 versus $149, occupancy 78% versus 74%, and RevPAR $183 versus $110. For the nine months, average daily rate was $221 versus $143, occupancy 85% versus 76%, and RevPAR $188 versus $109.
Rental income was $3.932 million for Q3 and $11.991 million for the nine months, up from $3.826 million and $11.808 million, respectively. Marketable-securities gains were $0.866 million in Q3 and $1.440 million for the nine months. The nine-month comparison also reflects a $2.692 million insurance recovery in 2023; 2022 included a $1.665 million debt-extinguishment gain and a $3.613 million net securities loss.
At March 31, total assets were $124.889 million and total liabilities $208.748 million, leaving shareholders’ deficit of $83.859 million. Cash and cash equivalents were $6.670 million, restricted cash $6.429 million, and marketable securities $16.967 million; management reported marketable securities net of broker-related amounts of $16.134 million. Mortgage notes payable were $192.137 million net on the balance sheet; the contractual-obligations schedule reports $193.087 million of mortgage principal. Related-party and other notes payable were $3.096 million.
Cash, cash equivalents and restricted cash fell $10.250 million during the nine months to $13.099 million. Investing activities used $3.921 million, including $4.131 million of hotel improvements and $1.940 million of real-estate improvements, partly offset by $2.325 million of insurance proceeds. Financing activities used $3.902 million, including $2.312 million of mortgage and other debt payments and $1.432 million of treasury-stock purchases.
Material changes and management commentary
- Hotel recovery drove the revenue and operating improvement. Management attributed stronger demand to group meetings and social events, transient retail business, and the return of San Francisco’s JP Morgan convention. Higher hotel payroll, commissions, card fees, management fees and franchise fees partly offset revenue growth.
- Management said it expects continued recovery through the remainder of fiscal 2023 based on current demand trends, while cautioning that recession, inflation, interest rates, geopolitical events or renewed virus-related restrictions could impede demand. No quantified earnings or revenue guidance was provided.
- Management stated that available cash and other liquidity sources should cover anticipated needs for at least 12 months from issuance, but acknowledged there is no assurance its plans will succeed. The company reported $2.0 million available under its renewed CIBC revolving credit line.
- The hotel’s first mortgage and mezzanine debt mature January 1, 2024. The company is seeking refinancing and management anticipates success; the filing does not establish that refinancing has been completed. The contractual-obligations schedule shows $114.624 million of principal and interest due in 2024.
- The hotel has not met certain loan covenants, including the debt-service-coverage requirement; a lender lockbox is in place and is expected to remain through maturity. InterGroup is a guarantor and reported compliance with its own net-worth and liquidity requirements.
- The hotel’s liquidity measures include strict cost controls and temporarily closed services and outlets. The company continued its guest-room upgrade program and real-estate capital improvements.
- Portsmouth disputes the City of San Francisco’s revocation of a permit for a pedestrian bridge connected to the hotel and disputes responsibility for removal costs. Early estimates for the removal plan exceed $2 million; discussions with the City were ongoing. Subsequent to quarter-end, the company listed its St. Louis property for sale.
- Other notable risk factors include marketable-securities volatility, hotel and real-estate operating costs, refinancing availability and terms, and uncertainty around deferred-tax-asset realization. The filing reports no material off-balance-sheet arrangements and no impairment losses for the periods presented.
Most important facts for investors to verify
- Progress, terms and timing of refinancing the hotel mortgage and mezzanine debt before the January 1, 2024 maturity, including any covenant or lockbox implications.
- Whether hotel demand and operating performance continue to improve, and whether cost increases absorb further revenue gains.
- The expected allocation of bridge-removal costs and the potential financial exposure, given the City dispute and estimates exceeding $2 million.
- The quality and liquidity of the investment portfolio, including concentration in American Realty Investors and U.S. Treasury notes, and the effect of unrealized gains or losses on reported earnings.
- Liquidity trends, restricted-cash availability, remaining credit-line capacity, and the filing’s differing presentations of certain debt and liability amounts.