InterGroup Corporation — Form 10-Q Summary
Reporting period: Three months ended September 30, 2012, the first quarter of fiscal 2013. The filing is unaudited. InterGroup’s principal activities are hotel operations through its consolidated subsidiaries, rental real estate, and investment transactions.
Financial results and position
| Metric | Q1 FY2013 | Q1 FY2012 |
|---|---|---|
| Total revenue | $15.811 million | $14.727 million |
| Operating income | $2.790 million | $3.082 million |
| Net income (loss) | $1.687 million | ($2.655 million) |
| Net income (loss) attributable to InterGroup | $589,000 | ($3.075 million) |
| Basic/diluted EPS attributable to InterGroup | $0.25 / $0.24 | ($1.28) / ($1.28) |
| Cash from operating activities | $548,000 | $2.145 million |
- Revenue increased 7.4%, led by hotel revenue of $12.136 million, up from $11.109 million. Real estate revenue was $3.675 million versus $3.618 million.
- Operating income declined 9.5% as operating costs rose faster than revenue. Operating margin was approximately 17.6%, compared with 20.9% a year earlier.
- The return to consolidated net income chiefly reflected a $1.525 million gain on marketable securities, versus a $4.655 million loss in the prior-year quarter. Investment gains and losses are volatile and may not predict future results.
- Hotel operations generated $1.700 million of net income, nearly unchanged from $1.711 million. Real estate operations recorded a $46,000 loss, compared with $285,000 of income; investment transactions contributed $970,000 of income, compared with a $5.724 million loss.
- At September 30, total assets were $148.144 million, liabilities $142.696 million, and shareholders’ equity $5.448 million. Cash and cash equivalents were $2.651 million; restricted cash was $1.471 million. Marketable securities were $15.725 million, up from $8.981 million at June 30.
- Mortgage notes totaled $116.326 million and other notes payable were $1.830 million. The filing’s contractual-obligations table reports $145.428 million in total obligations including interest. Operating cash flow fell to $548,000; investing activities used $1.106 million and financing activities provided $1.109 million.
Material changes and management commentary
- Hotel room revenue rose $1.075 million. Average daily rate increased to $208 from $189, occupancy to 94% from 92%, and RevPAR to $196 from $174. Management cited improved San Francisco travel demand and a greater share of the market.
- Hotel operating income before interest, depreciation, and amortization was $2.972 million, versus $2.964 million. Higher union wages and benefits, food-and-beverage labor and staffing costs, and fees tied to revenue offset stronger room revenue.
- Real estate operating expenses, excluding depreciation, increased to $2.162 million from $1.909 million. General and administrative expense rose to $563,000 from $488,000, primarily due to higher stock-based compensation.
- The Company refinanced a New Jersey apartment-property mortgage in July, receiving approximately $1.513 million in net proceeds. It also refinanced six Los Angeles property mortgages in August. The New Jersey loan carries a fixed 3.51% rate for ten years; the Los Angeles loans have initial fixed-rate periods followed by variable rates.
- Management said it expected cash, marketable securities, and operating cash flows to meet current and future obligations. It believed hotel cash flows would cover partnership obligations and stated the hotel partnership was in compliance with its loan covenants at September 30, 2012.
Outlook, risks, and unusual items
- Management planned to pursue higher-rated business, leisure, and group travel, particularly international travel from China, continue hotel upgrades, and improve food-and-beverage profitability. It said continued recovery in San Francisco could support higher room revenue and profitability, but provided no numerical guidance.
- Management expected Hurricane Sandy to cause room and banquet cancellations and lost business in fiscal Q2 2013 and possibly beyond.
- Disclosed risks include economic and travel-industry conditions, competition, seasonality, labor relations and disruptions, energy costs, natural disasters, securities-market volatility, financing terms, and regulatory or litigation matters.
- The marketable-securities portfolio was concentrated: Comstock Mining common stock represented 39.8% of portfolio value, and basic-materials securities were 52.3%. The filing reported $1.353 million of unrealized losses on securities held over one year.
- Hotel mortgage debt includes two fixed-rate Prudential loans with balances of $26.451 million and $17.648 million, maturing in August 2015, and a $1.563 million term loan due April 2014. The filing reports no off-balance-sheet arrangements. It identifies commitments and contingencies but the supplied filing text does not provide a clear quantified contingency amount.
Important facts for investors to verify
- Whether investment gains, portfolio concentration, and the marked-to-market value of trading securities materially affect subsequent results.
- Hotel operating trends and cost pressures, including the effect of Hurricane Sandy on the following quarter.
- Cash generation and liquidity relative to debt service, scheduled obligations, and the Company’s low reported shareholders’ equity.
- Terms, covenant compliance, and refinancing exposure for hotel and real-estate borrowings, including variable-rate loans.
- The extent to which consolidated results and earnings attributable to InterGroup are affected by noncontrolling interests and subsidiary ownership structures.