InterGroup Corporation — Form 10-Q Summary
Period clarification: The supplied filing is for the quarter ended March 31, 2019 (the third quarter of fiscal 2019), not 2018 Q3 as indicated in the request metadata. The filing was signed May 3, 2019. InterGroup consolidates hotel, real estate, and investment activities, including its interests in Santa Fe Financial and Portsmouth Square.
Financial performance
| Metric | Three months ended March 31, 2019 | Three months ended March 31, 2018 | Nine months ended March 31, 2019 | Nine months ended March 31, 2018 |
|---|---|---|---|---|
| Revenue | $19.213 million | $17.972 million | $56.451 million | $52.898 million |
| Operating income | $3.899 million | $3.468 million | $11.599 million | $8.963 million |
| Consolidated net income (loss) | $1.335 million | $0.779 million | $1.341 million | $(2.023) million |
| Net income (loss) attributable to InterGroup | $1.051 million | $0.528 million | $0.654 million | $(1.089) million |
| Net cash provided by operating activities | Not presented for quarter | Not presented for quarter | $8.030 million | $4.832 million |
- Quarterly revenue rose 6.9% year over year; nine-month revenue rose 6.7%. Hotel revenue was $15.469 million for the quarter and $45.276 million for nine months. Real estate revenue was $3.744 million and $11.175 million, respectively.
- Operating margin was approximately 20.3% for the quarter and 20.5% for nine months, compared with approximately 19.3% and 17.0% in the prior-year periods.
- For the quarter, hotel operations generated $1.270 million of net income, down from $1.369 million, primarily due to a $398,000 asset-disposal loss. For nine months, hotel net income increased to $4.135 million from $2.577 million.
- Nine-month investment transactions produced a $1.709 million net loss, improved from a $3.213 million loss in the prior-year period. Marketable securities alone recorded a $1.181 million net loss for the nine months.
Financial position, cash flow, and debt
- At March 31, 2019, total assets were $127.271 million, total liabilities were $196.382 million, and total shareholders’ deficit was $69.111 million.
- Cash and cash equivalents were $11.484 million; restricted cash was $9.870 million. Combined cash and restricted cash totaled $21.354 million, up from $17.511 million at June 30, 2018. Restricted cash includes lender reserves and hotel capital-improvement funds.
- For the nine months, operating cash flow was $8.030 million; investing activities used $1.460 million and financing activities used $2.727 million. The company repaid $5.174 million net on mortgage and other notes, drew $2.985 million on its revolving credit line, and spent $538,000 on treasury shares.
- Hotel mortgage principal was $94.090 million and the mezzanine loan was approximately $20 million; the latter bears 9.75% interest and both mature in January 2024. Hotel mortgage interest is 5.275%. Real-estate mortgage debt was also outstanding. The balance sheet reports $113.538 million of hotel mortgage notes and $58.938 million of real-estate mortgage notes, net.
- A $5 million revolving credit facility carries a variable rate of 30-day LIBOR plus 3%; $2.985 million was outstanding at March 31, 2019 and the facility, with accrued interest, was due in July 2019. A separate $3 million related-party loan was extended to June 30, 2019.
- The filing’s contractual-obligations table reports $226.652 million of total mortgage, subordinated and other notes plus interest payments. Management states that it believes cash, securities, and property cash flows can meet obligations and that hotel property value could support additional borrowing.
Material changes, outlook, and risks
- Hotel room revenue and performance improved: quarterly average daily rate increased to $290 from $250, occupancy remained 95%, and RevPAR rose to $276 from $239. For nine months, occupancy rose to 96% from 92%, ADR to $269 from $248, and RevPAR to $259 from $229.
- Management attributed room-revenue gains to higher-rated transient business and selected group business. Food and beverage revenue declined as midweek group business was limited; operating costs rose from labor, commissions, credit-card fees, franchise fees, and management fees.
- The company received a $1.860 million federal tax refund in March 2019 related to a prior-year securities-sale loss. The nine-month tax expense was $771,000.
- Management gave no numerical earnings or revenue guidance. It cautioned that nine-month results are not necessarily indicative of full-year results. Results may be affected by hotel demand and competition, seasonality, labor, economic conditions, securities-market volatility, interest rates, financing access, disasters, and other factors.
- InterGroup reports that it complied with the net-worth and liquidity requirements associated with its guarantees of Justice’s hotel mortgage and mezzanine loans. It also says hotel debt service creates risk, while expressing confidence in future hotel and garage cash flows.
- Disclosure controls and procedures were deemed ineffective due to an unremediated material weakness concerning deferred-tax and income-tax provision controls. Management reported remediation efforts and improved controls, but the weakness had not been fully remediated.
- No pending or threatened legal proceedings were reported. The company states it has no off-balance-sheet arrangements. It adopted ASC 606 with no cumulative adjustment; adoption of the lease standard was planned for July 1, 2019.
Most important facts for investors to verify
- Confirm refinancing or repayment of the revolving credit facility due July 2019 and the $3 million related-party loan due June 30, 2019.
- Review debt maturities, interest-rate exposure, and the company’s guarantees of hotel debt, including the large obligations disclosed in the contractual-obligations schedule.
- Track hotel rates, occupancy, RevPAR, and expense growth to assess whether improved hotel results can be sustained.
- Assess volatility and concentration in marketable securities, including the disclosed long-held unrealized losses and Comstock exposure.
- Monitor remediation of the material weakness in tax-related financial reporting controls and any further disclosures about control effectiveness.