InterGroup Corporation — Form 10-Q Summary
Reporting period: Quarter ended March 31, 2012, the company’s fiscal third quarter, with nine-month results for the period ended March 31, 2012. The request metadata’s “2011 Q3” does not match the filing period.
Business context and financial performance
InterGroup’s principal activities are hotel operations through its consolidated subsidiaries, residential and commercial real estate, and investing in securities and other investments. Its hotel business is the Hilton San Francisco Financial District. The unaudited statements cover the three and nine months ended March 31, 2012 and comparable 2011 periods.
- Quarter: Revenue was $13.803 million, up from $11.735 million. Operating income was $1.601 million. Consolidated net income was $1.764 million; net income attributable to InterGroup was $1.519 million, or $0.63 per basic share.
- Nine months: Revenue was $42.464 million, up from $37.086 million. Operating income was $7.322 million. The company reported a consolidated net loss of $164,000 and a net loss attributable to InterGroup of $1.555 million, or $0.65 per basic share, versus attributable net income of $10.228 million in the prior year.
- Operating segments: Nine-month hotel revenue was $31.675 million and hotel net income was $3.364 million, versus $26.855 million and $395,000, respectively. Real estate revenue was $10.789 million and segment net income was $666,000.
- Hotel indicators: For the quarter, average daily room rate was $188, occupancy 84%, and RevPAR $157, compared with $157, 82%, and $129. For nine months, the corresponding figures were $189, 87%, and $164, versus $161, 85%, and $138.
- Cash flow: Nine-month operating cash flow was $2.605 million. The cash-flow statement reports investing cash flow of $1.900 million and financing cash outflow of $4.370 million; cash and cash equivalents increased $135,000 to $1.499 million. Interest paid was $5.154 million.
- Assets, debt and liquidity: Total assets were $148.062 million and total liabilities $144.057 million at March 31, 2012. Mortgage notes totaled $115.553 million, with another $2.437 million in other notes payable. Cash was $1.499 million, restricted cash $1.632 million, and marketable securities $17.773 million. Total shareholders’ equity was $4.005 million. Contractual obligations, including stated interest, totaled $145.125 million.
Material changes versus comparable periods
- Quarterly revenue rose, driven chiefly by higher hotel room and food-and-beverage revenue. Hotel operating income improved to $311,000 from a $178,000 loss.
- For the nine months, hotel results improved substantially, supported by higher room rates and lower depreciation and amortization. Management attributed the hotel performance to stronger San Francisco travel demand, a higher-rated customer mix, and operational improvements.
- Investment results weakened sharply: nine-month marketable-securities results shifted from a $4.106 million gain to a $3.387 million loss; other investment and derivative results shifted from an $11.716 million gain to a $457,000 loss. The prior-year results included an $11.422 million unrealized gain related to Comstock.
- In January 2012, the company sold a 24-unit Los Angeles apartment complex for $4.370 million, recording a $1.710 million gain and receiving $4.111 million net proceeds; it repaid the property’s $1.504 million mortgage. The sale is reported in discontinued operations.
- In December 2011, the company refinanced a Los Angeles apartment-building mortgage, increasing principal from $926,000 to $2.095 million and receiving approximately $1.122 million net proceeds. The new loan matures in January 2022; its rate is fixed at 4.25% for five years and variable thereafter.
- InterGroup repurchased 69,000 shares during the quarter for an average $18.93 per share. Treasury stock increased to $11.757 million from $10.299 million at June 30, 2011.
Outlook, risks and unusual items
- Management said hotel demand and profitability had improved and planned continued upgrades and efforts to attract higher-rated business, leisure, group, and international travel, particularly from China. It cautioned that results remain exposed to uncertain domestic and global economic conditions. No specific numerical earnings or revenue guidance was provided.
- Management stated that cash, marketable securities, and operating cash flows should be adequate for current and future obligations. It also said hotel and garage cash flows were expected to meet Partnership obligations and that hotel equity could support additional borrowing if needed.
- The hotel has two Prudential mortgage loans with principal balances of $26.746 million and $17.794 million, both maturing August 2015, and a $1.881 million East West Bank term loan maturing April 2014. The Partnership reported compliance with its loan covenants at March 31, 2012.
- Key risks cited include economic weakness affecting travel and lodging, competition, seasonality, labor costs or disruptions, energy costs, natural disasters, pandemics, securities-market volatility, financing terms, regulatory matters, and litigation. Marketable-security gains and losses can materially fluctuate and management cautioned they may not predict future results.
- The company recorded $684,000 of impairment losses on other investments for the nine months. Its marketable securities were trading assets measured at fair value; unrealized gains and losses flow through earnings. Management reported no off-balance-sheet arrangements.
- The filing identifies commitments and contingencies but does not provide a clear description of specific material pending contingencies in the supplied text. Management reported disclosure controls as effective and no material change in internal control over financial reporting.
Important facts for investors to verify
- Confirm the fiscal-period comparison: this filing covers the quarter ended March 31, 2012, not 2011 Q3.
- Assess the sustainability of improved hotel occupancy, room rates, and profitability, including the effect of higher labor and franchise costs.
- Review investment portfolio concentration and valuation risk, including Comstock exposure and the substantial swing in investment results.
- Verify upcoming debt maturities, covenant compliance, refinancing needs, and the company’s limited reported shareholders’ equity relative to liabilities.
- Reconcile the cash-flow statement’s positive $1.900 million investing figure with its “net cash used” line label; the supplied filing text is internally inconsistent on that description.
- Review the apartment sale, refinancing, and share repurchases, as well as the related discontinued-operations presentation and remaining repurchase authorization.