InterGroup Corporation — Form 10-Q Summary
Reporting period: Three months ended September 30, 2020 (the first quarter of fiscal 2021; unaudited). InterGroup’s main businesses are hotel operations, rental real estate, and investment transactions. The filing reports consolidated results, including subsidiaries and the Hilton San Francisco Financial District hotel.
Financial results and position
| Metric | Quarter ended Sep. 30, 2020 | Comparable 2019 quarter |
|---|---|---|
| Total revenue | $6.909 million | $19.146 million |
| Operating loss/income | $(2.569) million | $3.875 million |
| Net income | $4.819 million | $0.644 million |
| Net income attributable to InterGroup | $4.550 million | $0.336 million |
| Cash flow from operations | $(8.009) million | $2.751 million |
- Hotel revenue was $3.425 million, down 78%; real estate revenue was $3.484 million, down 6%.
- The hotel reported a $3.887 million net loss, versus $1.696 million net income a year earlier. Hotel operating loss before interest, depreciation and amortization was $1.608 million, compared with $4.081 million of income.
- Hotel occupancy was 54% versus 98%; average daily rate was $108 versus $271; RevPAR was $58 versus $266.
- Reported net income included a $12.043 million gain on the August sale of a 27-unit Santa Monica apartment property. The gain outweighed operating weakness; the company also recorded $1.975 million of income tax expense.
- Interest expense on mortgages was $2.315 million. The filing does not provide a consolidated operating margin measure; the hotel’s operating loss before interest and depreciation was approximately 47% of hotel revenue.
- At September 30, total assets were $129.374 million and total liabilities were $198.937 million; shareholders’ deficit was $69.563 million. Cash and cash equivalents were $19.444 million and restricted cash was $11.693 million.
- Mortgage notes payable, net, totaled $176.343 million; other SBA notes payable were $5.172 million, related-party and other notes payable were $4.525 million, and finance leases were $1.015 million. The $8 million CIBC revolving credit facility was undrawn at quarter-end.
Material changes versus the prior comparable period
- Total revenue fell about 64%, principally because of COVID-19-related disruption to hotel travel and services. Room revenue declined $10.424 million; food and beverage revenue declined $1.185 million.
- Hotel operating expenses declined $6.315 million, reflecting lower staffing, commissions, fees, and other costs, but not enough to offset the revenue collapse.
- Operating cash flow swung from $2.751 million provided to $8.009 million used. Investing cash flow was $14.897 million provided, mainly from real estate sale proceeds; financing cash flow used $4.037 million, including debt payments and treasury-stock purchases.
- Cash, cash equivalents, and restricted cash together increased to $31.137 million from $28.286 million at June 30, 2020. Unrestricted cash alone was $19.444 million.
Outlook, liquidity, risks, and unusual items
- Management said COVID-19 had materially harmed hotel demand and liquidity, and expected the pandemic’s duration and severity to materially affect business, financial condition, liquidity, and results. Hotel services and outlets were curtailed, managers furloughed, and hourly staffing kept to a minimum.
- Management believes available cash and potential funding sources can cover anticipated needs for at least 12 months, even if low hotel occupancy and RevPAR persist, but cautioned that its plan is not guaranteed. No specific earnings or revenue guidance was provided.
- The company reported $8 million of available, uncollateralized CIBC revolving credit. It also described potential property refinancing, partnership capital calls, and funding support from InterGroup or Santa Fe as liquidity sources.
- Two CARES Act SBA loans totaling $5.172 million carried 1% interest, with principal and interest payments deferred until July 2021; qualifying use may permit forgiveness, but any unforgiven balance is due at maturity in 2022.
- Contractual obligations, including stated interest, totaled $220.864 million. The disclosed schedule included $108.113 million of mortgage and subordinated-note payments in 2024, making refinancing and debt service important risks.
- Hotel debt covenants could be affected by weak cash flow. The filing says a lender lockbox was already in place and would remain through maturity regardless of the debt-service coverage ratio.
- Management was assessing possible impairment of long-lived assets and realization of deferred tax assets. Marketable securities are exposed to price volatility; the portfolio had $5.127 million of net unrealized losses at quarter-end, including substantial long-held losses related to Comstock Mining.
- After quarter-end, on October 30, 2020, the company refinanced an Ocean Avenue property with an $8.4 million, fixed-rate 2.52% mortgage and received approximately $3.5 million net proceeds.
Important facts for investors to verify
- Whether hotel demand, occupancy, room rates, and cash flow recover, and whether the cost reductions can be sustained.
- Availability and conditions of the $8 million credit line and other proposed liquidity sources; track operating cash burn and restricted-cash requirements.
- Debt maturities, especially the large 2024 obligations, refinancing progress, covenant status, and the status of SBA loan forgiveness.
- The tax and cash consequences of the Santa Monica sale and whether the recorded gain is nonrecurring; also assess the post-quarter Ocean Avenue refinancing terms.
- Potential asset impairments, deferred-tax-asset realizability, and volatility or concentration in the marketable-securities portfolio.
- Related-party governance and exposure: John V. Winfield holds senior roles across InterGroup, Santa Fe, Portsmouth, and Justice, and the filing describes shared directors and possible intercompany funding.