InterGroup Corporation — FY2021 Form 10-K Summary
Reporting period: Fiscal year ended June 30, 2021, compared with fiscal 2020. Although the request identifies “2020 Q4,” this filing reports full-year FY2021 results, not a standalone quarterly period.
Business context
InterGroup is a diversified real estate and investment company. Its principal operating asset is the 544-room Hilton San Francisco Financial District, held through Justice Investors; it also owns apartment, single-family and commercial properties and invests in marketable securities. Following the February 2021 liquidation of subsidiary Santa Fe, InterGroup held approximately 74.9% of Portsmouth Square at year-end; Portsmouth’s principal business is its interest in Justice.
Financial results and liquidity
| Metric | FY2021 | FY2020 |
|---|---|---|
| Total revenue | $28.658 million | $58.017 million |
| Operating income (loss) | ($4.870 million) | $4.891 million |
| Net income (loss) | $10.545 million | ($5.089 million) |
| Net income (loss) attributable to InterGroup | $10.409 million | ($3.781 million) |
| Basic / diluted EPS attributable to InterGroup | $4.68 / $4.06 | ($1.64) / ($1.64) |
| Net cash used in operating activities | $20.259 million | $3.454 million |
- Revenue fell 50.6%. Hotel revenue declined 65% to $14.668 million; real estate revenue declined to $13.990 million.
- The Hotel recorded a $7.450 million operating loss, versus a $3.768 million loss in FY2020. Hotel occupancy averaged 55% versus 74%; average daily rate was $111 versus $248, and RevPAR was $61 versus $183. Hotel operating expenses fell to $17.911 million from $37.333 million, but did not offset the revenue decline.
- Real estate operations generated $6.121 million of segment operating income before mortgage interest and depreciation, compared with $7.127 million. Delinquent rent and vacancies contributed to lower revenue.
- FY2021 net income included a $12.043 million real estate sale gain, $11.638 million of net gains on marketable securities, and $5.172 million of debt-forgiveness gains. The prior year included a $1.913 million marketable-securities loss. These items make the year-over-year earnings swing a poor indicator of recurring operating performance.
- Cash and cash equivalents were $6.808 million; restricted cash was $8.584 million. Net funds available from marketable securities after broker balances and securities-sold obligations were reported at $21.456 million. An undrawn, unsecured $8 million CIBC credit line was available at year-end.
- Mortgage notes payable, net of issuance costs, totaled $180.393 million ($110.134 million Hotel and $70.259 million real estate). Total liabilities were $211.582 million; shareholders’ deficit was $71.236 million. Contractual obligations showed $108.418 million of mortgage principal due in FY2024, principally reflecting the Hotel financing maturity.
- Total cash, cash equivalents and restricted cash declined to $15.392 million from $28.286 million. Investing activities provided $8.193 million, mainly from real estate sale proceeds; financing activities used $0.828 million.
Material changes and unusual items
- COVID-19 restrictions sharply reduced San Francisco travel, conventions, Hotel occupancy and rates. The Company furloughed most Hotel managers and limited hourly staffing, closed or curtailed outlets and services, and deferred capital projects.
- Santa Fe sold a 27-unit Santa Monica apartment property for $15.650 million in August 2020, recognizing approximately $12.043 million in gain. In February 2021, Santa Fe was liquidated; InterGroup received $5.013 million cash and 422,998 Portsmouth shares.
- The Company refinanced six California properties during FY2021, generating approximately $6.762 million in net proceeds, generally at lower interest rates. It also bought back Portsmouth’s 50% interest in InterGroup Uluniu for $980,000 in a related-party transaction.
- The $4.719 million Justice SBA loan and $453,000 InterGroup SBA loan were forgiven in full. Justice obtained a further $2 million SBA loan; it applied for full forgiveness in September 2021, which was not yet confirmed in the filing.
- After year-end, Portsmouth completed the purchase of all Justice limited partnership interests on July 15, 2021 and began the process of dissolving the partnership. The filing also reports additional July 2021 property refinancings.
Outlook, risks and contingencies
- Management said available liquidity, borrowing capacity and other expected sources should fund operations and obligations for at least 12 months from the financial-statement issuance date, even if low Hotel occupancy persisted; it cautioned that success was not guaranteed. This is not quantified earnings guidance.
- Justice was below its required 1.10:1.00 debt-service coverage ratio for two consecutive quarters. The Hotel cash-management lockbox and cash sweep were already in effect and expected to remain through loan maturity. Justice had not missed debt-service payments and management did not anticipate missing obligations in the next 12 months.
- The Hotel’s $97 million senior mortgage and $20 million mezzanine loan mature in January 2024. InterGroup and related entities provide limited guarantees, with certain circumstances potentially creating full recourse exposure; InterGroup reported compliance with required net-worth and liquidity conditions.
- Management identified COVID-19, San Francisco market concentration, operating losses, fixed costs, substantial debt, refinancing and capital-improvement needs, securities-market volatility, leverage and short-sale exposure, rent delinquencies and eviction restrictions as significant risks. The securities portfolio rose to $35.792 million and included $7.917 million due to brokers and $6.419 million of securities-sold obligations.
- The auditor issued an unmodified opinion on the financial statements and identified liquidity and capital resources as a critical audit matter. The auditor did not attest to internal control over financial reporting; management concluded controls were effective.
Most important facts for investors to verify
- Whether Hotel occupancy, rates and cash generation recovered, and whether debt-service coverage improved after year-end.
- How the January 2024 Hotel loan maturity will be refinanced or repaid, including the cash-sweep and guarantee implications.
- Whether Justice’s second $2 million SBA loan was forgiven after its September 2021 application.
- Whether the reported 12-month liquidity assessment remains supportable given FY2021 operating cash outflow and restricted cash balances.
- The sustainability and risk of earnings, separating recurring property operations from securities gains, the property-sale gain and debt forgiveness.
- Related-party transactions, concentrated control—John Winfield beneficially owned approximately 67.2% of InterGroup—and the effects of Portsmouth’s post-year-end acquisition of Justice.