InterGroup Corporation — Form 10-Q Summary
Reporting period: Three and six months ended December 31, 2019 (fiscal second quarter and first half of fiscal 2020); filed January 24, 2020. Figures are unaudited. InterGroup’s principal activities are hotel operations, real estate, and investment transactions. Its consolidated hotel business includes the 544-room Hilton San Francisco Financial District; the company also owns or invests in rental properties and marketable securities.
Financial results
| Metric | Three months 2019 | Three months 2018 | Six months 2019 | Six months 2018 |
|---|---|---|---|---|
| Total revenue | $18.740 million | $17.749 million | $37.886 million | $37.238 million |
| Income from operations | $3.108 million | $2.919 million | $6.983 million | $7.700 million |
| Consolidated net income (loss) | $0.380 million | ($1.122 million) | $1.024 million | $0.006 million |
| Net income (loss) attributable to InterGroup | $0.248 million | ($1.027 million) | $0.584 million | ($0.397 million) |
| Net cash from operating activities | — | — | $2.429 million | $4.825 million |
Quarterly revenue increased about 5.6% year over year; first-half revenue rose about 1.7%. First-half operating income declined about 9.3%, despite higher revenue. The improvement in first-half net income was primarily associated with smaller marketable-securities losses than in the prior year. InterGroup’s attributable earnings differ from consolidated earnings because of noncontrolling interests.
Hotel revenue was $14.901 million for the quarter and $30.330 million for the half year. Quarterly hotel operating income before interest, depreciation and amortization was $3.171 million (about 21.3% of hotel revenue), versus $2.761 million (19.7%) a year earlier. For the half year, it was $7.252 million (23.9%), down from $7.761 million (26.0%). Quarterly hotel room revenue benefited partly from the timing of San Francisco’s Dreamforce convention; wage increases under union agreements contributed to higher hotel expenses. For the quarter, average daily rate was $255, occupancy 98%, and RevPAR $250, compared with $239, 97%, and $232, respectively, in 2018.
Financial position, debt and liquidity
At December 31, 2019, total assets were $126.217 million, total liabilities $194.048 million, and shareholders’ deficit $67.831 million. Cash and cash equivalents were $8.456 million; restricted cash was $14.884 million. Marketable securities were $8.148 million. Cash, cash equivalents and restricted cash together totaled $23.340 million, down $1.792 million from June 30, 2019. First-half operating cash flow of $2.429 million was below the prior-year $4.825 million; investing activities used $1.489 million and financing activities used $2.732 million.
Reported balance-sheet debt included hotel mortgages, net, of $111.947 million; real-estate mortgages, net, of $57.812 million; a $2.985 million line of credit; $4.950 million of related-party and other notes; and $1.282 million of finance leases. The hotel mortgage and mezzanine loans mature in January 2024. The mezzanine loan was refinanced in July 2019 at 7.25%, down from 9.75%, with interest-only monthly payments. The CIBC line of credit was modified and extended to July 23, 2020; the reported balance was $2.985 million. The filing’s contractual-obligations schedule totals $213.720 million, including stated interest, and shows $111.623 million due in 2024.
Changes, outlook and risks
- Quarterly consolidated results turned profitable from a loss a year earlier, chiefly reflecting lower securities losses. First-half consolidated income rose from near break-even, while hotel operating income declined.
- Marketable-securities losses were $0.119 million for the quarter and $0.568 million for the half year, versus $1.971 million and $2.142 million in the comparable 2018 periods. The portfolio’s fair value fell from $9.696 million at June 30 to $8.148 million; unrealized gains and losses run through earnings. The largest position, American Realty Investors, represented 27% of the portfolio at December 31.
- Management said hotel cash flows should be sufficient for the partnership’s obligations and believes available cash, securities and real-estate cash flows will meet company obligations; it also cited appreciated hotel value as potential borrowing support. No quantitative earnings or revenue guidance was provided. Management cautioned that six-month results are not necessarily indicative of the full fiscal year.
- Key risks include hotel and tourism conditions, seasonality, competition, labor costs or disruptions, interest rates and financing access, marketable-securities volatility, and substantial debt service. InterGroup is an additional guarantor and environmental indemnitor for the hotel mortgage and mezzanine loans and reported compliance with related net-worth and liquidity requirements. The hotel mortgage matures in 2024, while the CIBC credit line matures in July 2020.
- The company adopted the new lease standard effective July 1, 2019; it reported no material operating-lease assets or liabilities on adoption. Management reported effective disclosure controls and no material changes in internal control. No pending or threatened legal actions were reported for the period.
Important facts for investors to verify
- Liquidity available for the July 2020 line-of-credit maturity and the substantial 2024 hotel-debt maturities, including refinancing plans and covenant headroom.
- Hotel operating trends and the sustainability of strong occupancy and room rates, considering convention timing, union wage increases and lower food-and-beverage revenue.
- Marketable-securities concentration, valuation exposure and potential earnings volatility, particularly the 27% portfolio position in American Realty Investors.
- InterGroup’s guarantees and indemnities, related-party financing and governance across InterGroup, Santa Fe and Portsmouth, and the effects of noncontrolling interests on parent-attributable earnings.
- The filing identifies no numerical full-year guidance; assess subsequent filings for updated outlook, debt developments and liquidity information.