Business context and reporting period
The InterGroup Corporation’s Form 10-Q covers the quarter ended March 31, 2022 and the first nine months of its fiscal year ending June 30, 2022. Although the request metadata says “2021 Q3,” the filing is for fiscal 2022 Q3. InterGroup operates a San Francisco Hilton hotel and garage, rental real estate, and an investment portfolio; it owned approximately 75% of Portsmouth Square Inc. at quarter-end.
Financial performance and position
- Quarter revenue: $10.458 million, up 64% from $6.367 million a year earlier. Hotel revenue was $6.632 million and real estate revenue was $3.826 million.
- Quarter earnings: Net loss was $873,000 versus net income of $1.399 million. The company’s share was a $466,000 loss, or $0.21 per basic share.
- Nine-month results: Revenue was $31.593 million, up from $19.939 million. Net loss was $6.022 million versus net income of $5.155 million; the loss attributable to InterGroup was $4.630 million, or $2.09 per basic share.
- Operating performance: For the quarter, hotel operations generated $88,000 before mortgage interest, depreciation and amortization, compared with a $1.088 million loss a year earlier. Real estate operations earned $383,000, nearly unchanged from $385,000. For nine months, hotel operations earned $429,000 on the same pre-interest, depreciation and amortization basis, compared with a $4.720 million loss.
- Cash flow: Operating activities used $8.871 million over nine months, compared with $24.314 million used in the prior-year period. Investing activities used $3.771 million; financing activities provided $11.526 million. Cash, cash equivalents and restricted cash decreased by $1.116 million to $14.276 million.
- Liquidity and debt: Cash and cash equivalents were $6.548 million; marketable securities were $25.541 million, with $21.564 million reported net of broker margin. The company had an undrawn $5 million revolving credit facility. Balance-sheet mortgage debt was $194.238 million, and total liabilities were $212.293 million. Shareholders’ deficit was $79.240 million.
Material changes versus comparable periods
- Hotel recovery drove the revenue increase: quarterly occupancy rose to 74% from 47%, average daily rate to $149 from $103, and RevPAR to $110 from $48. For nine months, occupancy was 76% versus 49%, and RevPAR was $108 versus $52.
- The quarterly loss reflected lower investment gains: marketable securities generated a $906,000 gain, compared with $5.638 million in the prior-year quarter. For nine months, securities produced a $3.613 million loss versus an $8.937 million gain.
- The prior-year nine-month comparison included a $12.043 million gain on a real-estate sale. The current nine-month period included a $2 million gain from forgiveness of an SBA loan.
- Marketable securities declined from $35.792 million at June 30, 2021 to $25.541 million at March 31, 2022. Mortgage debt on real estate increased from $70.259 million to $85.146 million, while hotel mortgage debt declined from $110.134 million to $109.092 million.
Outlook, risks and unusual items
- Management said San Francisco hotel demand was improving month over month, with conferences and midweek demand returning, but described the recovery as cautious. COVID-19-related disruption and low hotel occupancy continued to adversely affect liquidity and results.
- Management believed available cash and other potential liquidity sources would cover anticipated needs for at least 12 months, even if low occupancy persisted, but cautioned that execution was not assured. The company cited cost controls, deferred capital spending, property refinancing and the available credit line as liquidity measures.
- The hotel had not met certain loan covenants, including the debt-service-coverage-ratio covenant. A lender lockbox for hotel cash was already in place and was to remain through loan maturity. The hotel mortgage matures in January 2024; the contractual-obligations schedule lists $114.264 million of principal and interest for 2024.
- InterGroup advanced $7.550 million to the hotel during the nine months, bringing the amount due to InterGroup to $14.200 million; this related-party balance is eliminated in the consolidated statements. The filing also reports related-party governance and investment relationships.
- Marketable-security gains and losses may fluctuate materially. The portfolio was concentrated at quarter-end: Berkshire Hathaway represented 29% and Paramount Global preferred stock 20% of portfolio value.
- Management reported no material subsequent events, no off-balance-sheet arrangements, and no material changes in internal control over financial reporting. It said ordinary-course legal matters were not expected to have a material effect.
Important facts for investors to verify
- Confirm that comparisons use the quarter ended March 31, 2022 and the nine-month fiscal 2022 period, rather than the “2021 Q3” metadata label.
- Track hotel occupancy, room rates, RevPAR, and operating costs to assess whether the recovery is producing sustained cash generation.
- Review the hotel’s covenant status, lender lockbox terms, and refinancing or repayment plans for the January 2024 hotel mortgage maturity.
- Assess whether management’s stated 12-month liquidity outlook remains supported by operating cash flow, refinancing access and the undrawn credit facility.
- Monitor investment portfolio concentration and mark-to-market volatility, which materially affected reported earnings.