Business context and reporting period
The InterGroup Corporation filed this unaudited Form 10-Q for the quarter ended March 31, 2016, the third quarter of its fiscal 2016 year, with nine-month results also presented. The request metadata says “2015 Q3,” but the filing itself covers fiscal 2016 Q3. InterGroup’s principal businesses are the Hilton San Francisco Financial District hotel, residential and other real estate, and investment transactions.
Key financial results
| Metric | Three months ended March 31, 2016 | Nine months ended March 31, 2016 |
|---|---|---|
| Total revenue | $18.066 million | $54.045 million |
| Operating income (loss) | $(2.557) million | $2.894 million |
| Net income (loss) | $(4.338) million | $(8.755) million |
| Net income (loss) attributable to InterGroup | $(2.914) million | $(6.744) million |
| Attributable loss per share | $(1.22) basic and diluted | $(2.83) basic and diluted |
- Revenue and operations: Quarterly hotel revenue rose 3.6% to $14.481 million, while real estate revenue fell to $3.585 million. Nine-month revenue declined 2.2% to $54.045 million. Hotel restructuring costs of $5.236 million drove the reported operating loss in the quarter and contributed to the nine-month decline.
- Hotel performance: For the quarter, average daily rate was $265, occupancy 90%, and RevPAR $238, compared with $242, 91%, and $221, respectively, a year earlier. Nine-month figures were $258, 91%, and $235 versus $248, 92%, and $229. Management cited higher room rates and a Virgin Atlantic contract, partly offset by weaker food and beverage revenue.
- Investment results: Nine-month net loss on marketable securities was $7.035 million, including $6.001 million of unrealized losses; marketable-securities and other investment losses totaled $8.365 million. Approximately 75% of the marketable-securities portfolio was Comstock Mining common stock.
- Cash flow: Nine-month operating cash flow was $0.784 million; investing activities used $6.292 million and financing activities provided $4.257 million. Cash decreased $1.251 million to $7.278 million. Cash flow included $4.584 million from changes in other assets and a $4.103 million deferred-tax adjustment.
- Balance sheet and debt: At March 31, 2016, assets were $136.972 million and total liabilities $209.779 million, leaving a $72.807 million shareholders’ deficit. Cash was $7.278 million, restricted cash $2.367 million, and marketable securities $13.363 million. Debt comprised $117.000 million of hotel mortgages, $65.186 million of real-estate mortgages, and $9.962 million of other notes payable. The filing’s contractual-obligations table totals $253.612 million, including scheduled interest.
Changes versus prior comparable periods
- Quarterly net results shifted from $4.002 million of income in 2015 to a $4.338 million loss in 2016. The prior-year quarter included a $9.358 million real-estate sale gain; the current quarter included hotel restructuring costs. Hotel operations improved before restructuring costs, while real estate revenue decreased following the March 2015 sale of an Austin apartment property.
- For the nine months, net results shifted from $2.490 million of income to an $8.755 million loss. The prior period included an $11.100 million real-estate sale gain; the current period had no such gain and recorded higher investment losses and restructuring costs.
- From June 30, 2015 to March 31, 2016, marketable securities increased from $5.827 million to $13.363 million, principally because $13.231 million of Comstock preferred stock converted to common stock. Other investments declined from $15.082 million to $1.155 million. Total assets fell $6.447 million, and the shareholders’ deficit widened by $8.835 million.
Outlook, risks and unusual items
- On May 5, 2016, Justice Investors and Portsmouth agreed to pay Evon Corporation $5.575 million by January 10, 2017; the amount was recorded as a restructuring cost in the March quarter. Approximately $2.6 million had been paid by May 13, 2016. A separate legal settlement generated an approximately $0.389 million benefit recorded as a reduction of hotel restructuring costs.
- Management said hotel and garage cash flows should meet the Partnership’s obligations and that cash, securities, real estate, and operating cash flows should meet the Company’s obligations. It also cited potential borrowing capacity supported by property value. Management acknowledged that debt service and the legal settlement could create additional cash-flow risk.
- No formal earnings guidance was provided. Hotel plans include further meeting-room and guest-room renovations. Management expects in-house real-estate management to improve efficiency and reduce costs.
- Risks cited include lodging and travel demand, competition, seasonality, labor issues, financing availability and rates, securities-market volatility, litigation, and broader economic conditions. The filing warns that investment gains and losses can fluctuate significantly and may not predict future results.
- The Company reported no off-balance-sheet arrangements. Management concluded disclosure controls were effective and reported no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Confirm the reporting period: the filing covers the quarter ended March 31, 2016, despite the “2015 Q3” request metadata.
- Track settlement payments and the timing and funding of the remaining Evon obligation.
- Assess the hotel’s operating performance separately from restructuring charges, and monitor room rates, occupancy, RevPAR, and renovation spending.
- Evaluate the concentration and volatility of the investment portfolio, particularly the Comstock position and related unrealized losses.
- Review debt maturities, interest obligations, liquidity, and the Company’s ability to generate cash despite its shareholders’ deficit.
- Note that management says interim results are not necessarily indicative of full-year results.