The InterGroup Corporation — Form 10-Q Summary
Reporting period: Fiscal second quarter and six months ended December 31, 2012; filed February 13, 2013. The company consolidates hotel, real estate and investment activities, including its controlled subsidiaries. Financial statements are unaudited.
Financial performance
All amounts are in U.S. dollars.
| Metric | Three months ended Dec. 31, 2012 | Prior-year quarter | Six months ended Dec. 31, 2012 | Prior-year six months |
|---|---|---|---|---|
| Revenue | $15.048 million | $14.022 million | $30.859 million | $28.661 million |
| Income (loss) from operations | $1.836 million | $2.666 million | $4.626 million | $5.721 million |
| Consolidated net income (loss) | $(1.287) million | $0.727 million | $0.400 million | $(1.928) million |
| Net income (loss) attributable to InterGroup | $(1.180) million | $0.001 million | $(0.591) million | $(3.074) million |
| Operating cash flow | Not stated for quarter | Not stated for quarter | $0.518 million | $4.160 million |
Quarterly revenue rose 7.3%, but operating income fell as costs increased. Six-month revenue rose 7.7%; improved investment results helped consolidated results recover to net income, although InterGroup-attributable results remained a loss. Quarterly loss on marketable securities was $2.108 million versus $0.186 million; for six months it was $0.583 million versus $4.841 million. Six-month net investment-related loss, including other items, was $1.077 million versus $6.097 million.
Hotel revenue increased to $10.970 million for the quarter and $23.106 million for six months. Hotel net income declined to $0.295 million and $1.995 million, respectively, from $1.342 million and $3.053 million. Before interest, depreciation and amortization, hotel operating income was $1.572 million for the quarter and $4.544 million for six months. The filing reports no consolidated gross-margin measure.
Financial position, liquidity and debt
- At December 31, 2012, total assets were $144.229 million, total liabilities $140.642 million and shareholders’ equity $3.587 million. Cash and cash equivalents were $1.962 million; restricted cash was $1.629 million.
- Mortgage notes payable totaled approximately $117.746 million; other hotel notes payable were $2.097 million. The contractual-obligations table reports $151.647 million in total obligations including interest. Hotel mortgage balances included $26.299 million and $17.574 million on two Prudential loans; the hotel’s $1.376 million East West Bank term loan was reported covenant-compliant.
- Six-month cash flow: $0.518 million provided by operations, $2.814 million used in investing and $2.158 million provided by financing. Cash declined $0.138 million. Mortgage borrowing and repayments were both substantial during the period.
- The company refinanced several property loans. The Las Colinas apartment loan was replaced with a $19.5 million, 10-year fixed-rate loan at 3.73%; the company received approximately $1.085 million net proceeds. A New Jersey property refinancing generated approximately $1.513 million net proceeds. Los Angeles mortgages were also refinanced, with rates fixed for five years before becoming variable.
Changes, outlook and risks
- Hotel room demand indicators improved: quarterly average daily rate was $195 versus $190, occupancy 87% versus 85%, and RevPAR $169 versus $162. For six months, the figures were $202 versus $190, 91% versus 88%, and $183 versus $168.
- Hotel costs rose substantially, including union wages and benefits, wage reserves, higher franchise and management fees, and food-and-beverage staffing. Management reported food-and-beverage operating losses of approximately $386,000 for the quarter and $664,000 for six months. Expected business from the adjacent City College campus did not materialize at anticipated enrollment; Hurricane Sandy cancellations also shifted business toward lower-rated guests.
- Real estate revenue increased, partly due to a one-time $305,000 storm-damage insurance claim; six-month property operating expenses also rose, primarily from repairs and maintenance.
- Management said it would pursue higher-rated and international hotel business, particularly from China, improve guest rooms and facilities, and work to restore food-and-beverage profitability. It cited improving travel trends but gave no quantified earnings or revenue guidance. Future results remain exposed to economic conditions, travel demand, seasonality, labor costs, natural disasters, financing conditions and securities-market volatility.
- The marketable-securities portfolio was $12.034 million; Comstock Mining common stock represented approximately 40% of the portfolio. The company disclosed $1.802 million of unrealized losses on securities held over one year. Investment gains and losses may materially fluctuate.
- Management stated that cash, securities and operating cash flows should meet current and future obligations. The filing also notes substantial debt-service commitments. No off-balance-sheet arrangements were reported. Management concluded disclosure controls were effective and reported no material change in internal control over financial reporting.
Key facts for investors to verify
- How much of the hotel’s increased revenue can be converted into profit as wage, staffing and other operating costs remain elevated.
- The company’s exposure to Comstock and other securities, and the effect of subsequent market movements on earnings and liquidity.
- Debt maturities, refinancing terms and covenant compliance, particularly for hotel borrowings and variable-rate property loans.
- The sustainability of hotel distributions, rental revenue and the one-time insurance proceeds; management cautions that interim results may not indicate full-year results.
- The difference between consolidated net income and losses attributable to InterGroup, including the effect of noncontrolling interests.