The InterGroup Corporation — Form 10-Q Summary
Reporting period: Fiscal first quarter ended September 30, 2022; comparable period is the three months ended September 30, 2021. InterGroup owns approximately 75% of Portsmouth Square, whose principal asset is the 544-room Hilton San Francisco Financial District. The company also operates rental real estate and invests in marketable securities.
Financial performance
| Metric | Q1 FY2023 | Q1 FY2022 |
|---|---|---|
| Total revenue | $16.388 million | $10.921 million |
| Operating income | $2.863 million | $0.556 million |
| Net loss | $0.201 million | $2.906 million |
| Net loss attributable to InterGroup | $0.199 million | $2.161 million |
| Basic and diluted loss per share attributable to InterGroup | $0.09 | $0.97 |
| Cash provided by operating activities | $1.715 million | $2.497 million |
Hotel revenue rose 81% to $12.310 million, led by room revenue. Average daily rate increased to $230 from $141, occupancy to 94% from 79%, and RevPAR to $216 from $111. Hotel operations generated $0.721 million of net income, versus a $1.743 million loss. Hotel operating income before mortgage interest, depreciation and amortization was $3.004 million, compared with $0.472 million.
Real estate revenue declined to $4.078 million from $4.116 million; operating expenses increased to $2.191 million from $2.074 million. Investment transactions recorded a $0.900 million net loss, improved from a $2.335 million loss, including prior-period Comstock-related losses. Consolidated results remained a loss despite the improvement in hotel performance.
Financial position and liquidity
- At September 30, 2022, total assets were $125.072 million and total liabilities were $209.154 million. Total shareholders’ deficit was $84.082 million.
- Cash and cash equivalents were $12.219 million; restricted cash was $8.662 million. Marketable securities were $10.687 million. The company reported $20.881 million in cash, cash equivalents and restricted cash combined.
- Mortgage notes payable were $193.451 million in total, net of stated discounts and costs; related-party notes payable were $3.379 million. The contractual-obligations schedule reports $231.345 million in total obligations including interest. It shows $114.618 million due in fiscal 2024, including $108.421 million of mortgage and subordinated notes.
- Operating cash flow was positive, but cash, cash equivalents and restricted cash together decreased $2.468 million during the quarter. Investing outflows were $2.437 million, including $1.632 million for hotel improvements and $0.800 million for real estate improvements. Financing outflows were $1.746 million, including $0.874 million of net mortgage payments and $0.872 million of treasury-stock purchases.
- The renewed CIBC revolving line of credit is $2.0 million, fully undrawn and available at quarter-end, down from $5.0 million previously. Management believes liquidity will cover anticipated needs for at least 12 months, but cautions that its plans are not guaranteed.
Changes, outlook and key risks
- Revenue increased approximately 50% year over year, primarily from the hotel recovery as travel restrictions eased and demand improved. Management attributed hotel revenue gains mainly to higher room revenue and occupancy; higher wages, commissions, card fees, management fees and franchise fees partly offset the improvement.
- Management expected recovery to continue through the remainder of fiscal 2023 based on then-current demand trends. It also warned that recession risk, renewed pandemic restrictions, inflation, higher interest rates and geopolitical events could weaken travel demand and results. No numeric earnings or revenue guidance was provided.
- Hotel debt covenants, including the debt-service-coverage ratio, were not being met amid the hotel’s recovery. A lender lockbox is in place and, according to the filing, would remain through loan maturity regardless of the ratio.
- The hotel’s $88.554 million mortgage and $20 million mezzanine loan mature in January 2024. InterGroup has guaranteed certain hotel debt and reported compliance with related net-worth and liquidity requirements.
- Portsmouth disputes San Francisco’s revocation of the permit for a pedestrian bridge connected to the hotel and the City’s direction that Portsmouth remove it at its expense. Portsmouth disputes responsibility for the costs and is considering litigation. Preliminary estimates for a removal plan exceed $2 million; the plan was expected to be completed in early 2023.
- InterGroup repurchased $0.872 million of treasury stock during the quarter. A director’s death in October 2022 and the appointment of Steve Grunwald as his replacement were disclosed as subsequent events.
Investor verification priorities
- Confirm the hotel’s continuing recovery, operating-cost trajectory and performance against debt-service covenants.
- Review the January 2024 hotel mortgage and mezzanine maturities, refinancing options and related guarantees.
- Track the bridge-permit dispute, potential litigation, removal obligations and final cost responsibility.
- Assess whether cash generation, restricted cash, securities and the reduced credit line are sufficient for operating needs and planned capital improvements.
- Monitor marketable-securities concentration and volatility; two holdings represented 25% and 13% of the portfolio at quarter-end.