Business context and reporting period
The InterGroup Corporation’s unaudited Form 10-Q covers the quarter and six months ended December 31, 2021 (the second quarter of fiscal 2022). Its businesses include a San Francisco Hilton hotel and parking garage, residential and commercial real estate, and investments in marketable securities. InterGroup owned approximately 75% of Portsmouth Square, Inc. at quarter-end. Justice Investors Limited Partnership was dissolved on December 23, 2021, and Portsmouth replaced it as the Hotel’s owner.
Financial performance and position
| Metric | Three months ended Dec. 31, 2021 | Prior-year quarter | Six months ended Dec. 31, 2021 | Prior-year six months |
|---|---|---|---|---|
| Revenue | $10.214 million | $6.663 million | $21.135 million | $13.572 million |
| Operating income (loss) | $(0.252) million | $(2.311) million | $0.304 million | $(4.880) million |
| Net income (loss) | $(2.243) million | $(1.063) million | $(5.149) million | $3.756 million |
| Net income (loss) attributable to InterGroup | $(2.003) million | $(0.065) million | $(4.164) million | $4.485 million |
| Basic earnings (loss) per share attributable to InterGroup | $(0.91) | $(0.03) | $(1.88) | $1.96 |
- Revenue and hotel performance: Quarterly revenue rose about 53% year over year; six-month revenue rose about 56%. Hotel revenue increased 104% in the quarter and 101% for the six-month period. Quarterly occupancy was 75% versus 48%, average daily rate was $138 versus $107, and RevPAR was $104 versus $52. For six months, occupancy was 77% versus 51%, ADR was $139 versus $107, and RevPAR was $107 versus $55.
- Margins and operating results: The Hotel’s operating result before interest, depreciation and amortization improved to a loss of $131,000 for the quarter from a loss of $2.024 million, and to income of $341,000 for six months from a loss of $3.632 million. Hotel expenses increased with revenue, including higher payroll, commissions, credit-card, management and franchise costs. Real estate revenue increased $312,000 for the quarter and $944,000 for six months.
- Investment results and unusual items: Marketable-securities losses were $2.351 million for the quarter and $4.519 million for six months, compared with gains of $3.457 million and $3.299 million, respectively, in the prior-year periods. The six-month 2021 result included $2.581 million of realized losses on Comstock securities; InterGroup reported no Comstock shares at December 31, 2021. The prior-year six-month result included a $12.043 million real-estate sale gain. A $2.0 million SBA loan was forgiven in November 2021; the statements report a $1.665 million consolidated gain on debt extinguishment.
- Cash flow and liquidity: Operating cash outflow was $4.592 million for six months, versus $17.032 million a year earlier. Investing cash outflow was $2.277 million; financing provided $12.291 million, including $16.099 million of net mortgage-refinancing proceeds. Cash and cash equivalents were $12.168 million at December 31, 2021, and restricted cash was $8.646 million. Marketable securities were $21.148 million; the company described securities net of margin due to brokers as $18.184 million.
- Debt and equity: Total liabilities were $211.972 million, including $109.329 million of Hotel mortgage notes and $85.410 million of real-estate mortgage notes; related-party and other notes payable were $3.804 million. Shareholders’ deficit was $78.329 million. InterGroup repurchased $1.587 million of treasury stock during the six months.
Changes, outlook, and risks
Management attributed the hotel recovery to improved travel and business activity compared with pandemic-affected prior periods. It continued cost controls, limited staffing and services, and deferred some hotel capital spending. Management stated that available cash, refinancing options, and an undrawn $5 million CIBC revolving credit line should fund requirements for at least 12 months, even if low occupancy persists, while cautioning there is no guarantee its plans will succeed. No quantified earnings or revenue guidance was provided.
COVID-19 remains a material risk to hotel demand and liquidity. Management noted the impact of event cancellations and postponements, including major San Francisco conferences, and anticipated further cancellations. The Hotel had not met certain debt covenants, including the debt-service coverage ratio; the filing says a lender lockbox was already in place and would remain through loan maturity. The material-obligations schedule reports a substantial $108.321 million amount in 2024; the Hotel’s existing mortgage and mezzanine loans mature in January 2024. The Company also identified securities-market volatility, travel and lodging conditions, financing availability, labor, and pandemic developments as risks.
Management reported effective disclosure controls and no material change in internal control over financial reporting. It reported no subsequent events and no legal matters expected to have a material effect, while noting ordinary-course claims may arise.
Important facts for investors to verify
- Confirm the timing, refinancing prospects, and repayment sources for the Hotel loans maturing in January 2024 and the large 2024 obligations shown in the schedule.
- Track Hotel occupancy, room rates, event demand, operating costs, cash generation, and compliance with loan covenants as pandemic-related conditions evolve.
- Review the marketable-securities portfolio, concentration in its largest position, realized and unrealized losses, and margin-related obligations.
- Assess the availability and terms of the stated $5 million credit line, additional property refinancing, and InterGroup’s advances to Portsmouth, which totaled $11.350 million at quarter-end.
- Reconcile the reported $2 million SBA forgiveness with the $1.665 million gain on debt extinguishment in the consolidated statements.