InterGroup Corporation — Form 10-Q Summary
Reporting period: Second quarter and six months of fiscal 2023, ended December 31, 2022. Comparisons are with the periods ended December 31, 2021. InterGroup consolidates its approximately 75.6%-owned Portsmouth Square subsidiary, whose principal asset is the 544-room Hilton San Francisco Financial District, and operates a real estate portfolio and securities investments.
Financial performance
| Metric | Three months ended Dec. 31, 2022 | Six months ended Dec. 31, 2022 | Comparable 2021 period |
|---|---|---|---|
| Total revenue | $13.872 million | $30.260 million | $10.214 million quarterly; $21.135 million six-month |
| Operating income | $197,000 | $3.060 million | Operating loss of $252,000 quarterly; income of $304,000 six-month |
| Consolidated net income (loss) | $1.567 million | $1.366 million | Loss of $2.243 million quarterly; loss of $5.149 million six-month |
| Net income attributable to InterGroup | $1.890 million; $0.85 basic EPS | $1.691 million; $0.76 basic EPS | Loss of $2.003 million quarterly; loss of $4.164 million six-month |
| Operating cash flow | Not provided for the quarter | Cash used: $2.509 million | Cash used: $4.592 million six-month |
Hotel: Quarterly hotel revenue increased 56% to $9.892 million; six-month revenue increased 69% to $22.202 million. For the quarter, average daily rate was $199, occupancy 82%, and RevPAR $164, versus $138, 75%, and $104, respectively. For the six months, those measures were $215, 88%, and $190, versus $139, 77%, and $107. Hotel operating income before interest, depreciation and amortization was $1.166 million for the quarter and $4.170 million for six months. After those expenses, the hotel segment reported losses of $1.149 million and $428,000, respectively.
Real estate: Revenue rose to $3.980 million for the quarter and $8.058 million for six months. Operating expenses also increased, primarily due to insurance, maintenance and repairs. A $2.692 million insurance recovery related to February 2021 storm damage at properties in Irving, Texas, and St. Louis, Missouri, boosted reported results.
Margins and unusual items: Consolidated operating margin was approximately 1.4% for the quarter and 10.1% for six months. Results included the $2.692 million insurance recovery and securities gains; these are not necessarily recurring. Marketable securities produced a $1.384 million quarterly gain and $574,000 six-month gain, compared with losses in the prior-year periods. Prior-year comparisons also included a $1.665 million debt-extinguishment gain, including $2.0 million associated with the hotel segment.
Balance sheet, debt and liquidity
- At December 31, 2022, total assets were $132.299 million, total liabilities $215.345 million, and total shareholders’ deficit $83.046 million. At June 30, 2022, the respective figures were $126.046 million, $209.050 million, and $83.004 million.
- Cash and cash equivalents were $8.153 million, down from $14.367 million at June 30; restricted cash was $7.753 million, down from $8.982 million. Marketable securities were $22.089 million gross; the company reported $15.526 million net of margin owed to brokers.
- Mortgage notes payable, net, totaled $192.828 million: $107.890 million for the hotel and $84.938 million for real estate. Related-party notes payable were $3.238 million. Total liabilities also include operating and securities-related obligations.
- The contractual-obligations schedule reports $228.363 million of principal and interest, including $114.624 million due in 2024. The hotel’s $88.135 million mortgage and $20 million mezzanine loan mature in January 2024.
- Six-month investing cash use was $1.976 million, including $2.682 million of hotel investment and $1.820 million of real estate investment. Financing cash use was $2.958 million, including $1.242 million spent on treasury stock. Cash, cash equivalents and restricted cash declined by $7.443 million over the period.
- The company renewed its unsecured CIBC credit line in July 2022 at $2 million, all available at period-end, down from the previous $5 million facility. Management said liquidity should cover anticipated needs for at least 12 months, but cautioned that its plan is not assured.
Outlook, risks and contingencies
- Management reported robust leisure demand and improving group and business-travel demand in 2022, and expected continued recovery through the remainder of fiscal 2023 based on then-current trends. It warned that a 2023 slowdown or recession, renewed pandemic restrictions, inflation, higher interest rates, geopolitical events, labor issues and competition could weaken results.
- The company continued hotel cost controls and had temporarily closed certain services and outlets. It anticipated continuing the hotel guest-room upgrade program during the rest of fiscal 2023.
- The hotel was not meeting certain loan covenants, including the debt-service coverage ratio. The filing says a lender lockbox was already in place and would remain through loan maturity.
- San Francisco revoked the permit for a pedestrian bridge connecting the hotel to the adjacent park and directed its removal at the company’s expense. The company disputes the revocation and responsibility for the cost. Early estimates for the plan exceeded $2 million; discussions with the City were ongoing, and the plan was not expected to be completed until early 2023.
- Management reported no material subsequent events through filing and no off-balance-sheet arrangements. It stated disclosure controls were effective and there were no material changes to internal control over financial reporting.
Most important facts for investors to verify
- Whether the hotel can sustain its occupancy, room rates and operating improvement while managing higher operating costs and the outstanding covenant issues.
- Refinancing or repayment arrangements for the hotel mortgage and mezzanine debt due in January 2024, and the company’s ability to meet the large 2024 contractual obligations.
- Actual liquidity available after broker margin obligations, hotel and property capital spending, and operating cash use; management’s 12-month liquidity assessment is not a guarantee.
- The final cost, allocation of responsibility and outcome of the San Francisco bridge dispute, including whether costs exceed the preliminary estimate.
- How much reported earnings depend on volatile securities valuations and the nonrecurring insurance recovery.