InterGroup Corporation — Form 10-Q Summary
Reporting period: Three months ended September 30, 2019, the first quarter of fiscal 2020 (despite the request metadata’s “2019 Q1” label). The filing is unaudited. InterGroup’s principal activities are operating the Hilton San Francisco Financial District and garage, owning and managing rental properties, and investing in securities.
Financial results and liquidity
| Metric | Three months ended Sept. 30, 2019 | Prior-year period |
|---|---|---|
| Total revenue | $19.146 million | $19.489 million |
| Operating income | $3.875 million | $4.781 million |
| Net income | $644,000 | $1.128 million |
| Net income attributable to InterGroup | $336,000 | $630,000 |
| Net income attributable to InterGroup per diluted share | $0.13 | $0.24 |
| Operating cash flow | $2.751 million | $3.996 million |
- Revenue declined 1.8%; operating income fell 18.9%, and net income fell 42.9%. InterGroup-attributable net income declined 46.7%.
- Hotel revenue was $15.429 million, down 2.4%. Hotel operating income before interest, depreciation and amortization was $4.081 million, versus $5.000 million. Real estate revenue was $3.717 million, up from $3.679 million.
- Hotel occupancy was 98% versus 97%; average daily rate was $271 versus $277, and RevPAR was $266 versus $270.
- Cash and cash equivalents were $12.194 million; restricted cash was $13.230 million. Cash, cash equivalents and restricted cash increased $292,000 during the quarter. Restricted cash is not freely available for general use.
- Total assets were $129.861 million and total liabilities were $197.867 million at September 30, 2019. Shareholders’ deficit was $68.006 million. Marketable securities were $8.537 million, down from $9.696 million at June 30.
- Mortgage notes payable, net, totaled $170.538 million; related-party and other notes payable were $5.106 million, line of credit payable was $2.985 million, and finance leases were $1.385 million. The filing lists $217.150 million of contractual obligations including stated interest.
Changes, outlook and risks
- Management attributed weaker hotel results mainly to Dreamforce shifting from September 2018 to November 2019, reducing group demand and requiring lower rates and more transient business. Food and beverage revenue also fell as banquet and catering activity declined. Hotel operating expenses increased $538,000, primarily due to annual union wage increases.
- Real estate segment net income increased $227,000 year over year, supported by higher revenue and lower mortgage interest expense.
- Investment transactions recorded a $612,000 segment loss, compared with a $378,000 loss in the prior-year quarter. The marketable-securities loss was $449,000; management cautioned that securities gains and losses can fluctuate significantly and may not predict future results.
- On July 31, 2019, the Hotel’s $20 million mezzanine loan was refinanced at 7.25%, replacing the prior 9.75% loan; it matures January 1, 2024, with monthly interest-only payments. The $97 million Hotel mortgage bears 5.275% and also matures in January 2024.
- The company’s revolving credit facility was modified in July 2019, increased by $3 million, and extended to July 23, 2020. It carries a variable rate of 30-day LIBOR plus 3%.
- InterGroup is an additional guarantor and indemnitor for the Hotel mortgage and mezzanine loans and reported compliance with required net-worth and liquidity covenants. Management believes available cash, securities, and real-estate cash flows will meet obligations and says Hotel cash flows should be sufficient; it also cites appreciated Hotel value as potential borrowing support. These are management assessments, not guarantees.
- Key risks include substantial debt service and the 2024 Hotel loan maturities, dependence on Hotel and real-estate operations, San Francisco lodging demand and seasonality, labor costs or disruptions, interest-rate and securities-market volatility, and the company’s guarantor obligations. The filing provides no numerical earnings or revenue guidance.
- The company adopted lease accounting guidance effective July 1, 2019; it reported no material operating-lease right-of-use assets or liabilities at adoption. Management said disclosure controls were effective and reported no material change in internal control. No pending or threatened legal actions were reported.
Important facts for investors to verify
- Hotel operating trends, particularly group bookings, event timing, room rates, labor costs, and whether revenue and operating income recover.
- Debt maturity, amortization and refinancing terms, including the July 2020 credit-facility maturity and January 2024 Hotel loan maturities.
- Liquidity available for corporate obligations, distinguishing unrestricted cash from lender- or capital-improvement-restricted cash.
- Marketable-securities exposure and valuation changes, including the portfolio’s concentration in real estate-related securities and the reported unrealized losses.
- The scope and continuing compliance requirements of InterGroup’s guarantees and indemnities for the Hotel debt.