InterGroup Corporation — Form 10-Q Summary
Reporting period: Fiscal second quarter and six months ended December 31, 2015. Unaudited results. The company’s main activities are operating a 543-room Hilton hotel in San Francisco, owning rental real estate, and investing in securities.
Financial performance
| Metric | Quarter ended Dec. 31, 2015 | Six months ended Dec. 31, 2015 |
|---|---|---|
| Total revenue | $17.259 million, down 4.5% year over year | $35.979 million, down 3.0% |
| Income from operations | $1.705 million, versus $1.657 million | $5.451 million, versus $4.699 million |
| Consolidated net loss | $5.130 million, versus $0.608 million | $4.417 million, versus $1.512 million |
| Net loss attributable to InterGroup | $4.295 million, versus $0.289 million | $3.826 million, versus $1.052 million |
| Net loss per share attributable to InterGroup | $1.80, versus $0.12 | $1.60, versus $0.44 |
- Hotel: Six-month revenue was essentially flat at $28.851 million; hotel operating income before mortgage interest, depreciation and amortization was $5.689 million, up from $5.003 million. After those expenses, hotel operations generated $0.511 million income versus a $0.118 million loss. For the quarter, hotel revenue fell 2.4%; occupancy was 89%, average daily rate $243 and RevPAR $216.
- Real estate: Six-month revenue declined to $7.128 million from $8.227 million, primarily following the March 2015 sale of a 249-unit Austin apartment property. Real estate operating income was $3.677 million versus $3.895 million.
- Investments: Marketable-securities losses were $6.356 million for the quarter and $5.976 million for the six months. Approximately $5.562 million and $5.146 million, respectively, related to Comstock Mining common stock. The company also recorded a $0.287 million impairment of other investments in the six-month period.
- Cash flow: Operating activities provided $3.175 million in the six months, compared with $2.333 million used in the prior-year period. Investing used $5.447 million and financing used $1.178 million. Cash declined $3.450 million to $5.079 million.
Financial position and liquidity
- At December 31, 2015, total assets were $136.179 million and total liabilities $204.513 million; shareholders’ deficit was $68.334 million.
- Cash was $5.079 million; marketable securities were $16.005 million, making those two balances together $21.084 million. Restricted mortgage-impound cash was an additional $2.937 million.
- Mortgage debt was $117.000 million on the hotel and $65.541 million on real estate; other notes payable were $4.643 million. The contractual-obligations schedule reports $250.410 million of total obligations including interest, with $7.793 million shown for the remaining six months of fiscal 2016.
- Hotel and mezzanine loans mature in January 2024. The hotel mortgage initially bears 5.28% interest and the mezzanine loan 9.75%; the company provided limited guarantees for both. The filing reports no off-balance-sheet arrangements.
Material changes, outlook and risks
- The increase in net losses primarily reflected larger securities losses, especially the decline in Comstock shares, and the absence of the prior-year real-estate sale gain. Comstock represented about 66% of the marketable-securities portfolio at period end.
- In August 2015, the company converted $13.231 million of Comstock preferred stock into common stock; this noncash conversion shifted the holding from other investments to marketable securities. Marketable securities were carried at trading fair value, so market-price movements affect reported earnings.
- A June 2015 Hilton franchise amendment extended the agreement through 2030, changed the monthly royalty rate and provided incentives earned through 2030. Management cited lower franchise fees under the amended agreement.
- Management said hotel and garage cash flows should meet the partnership’s obligations and that hotel equity could support additional borrowing if needed. It also considered company cash, securities, real estate and related cash flows adequate for current and future obligations. These are management expectations, not guarantees; no numerical earnings guidance was provided.
- Management planned further hotel renovations, including meeting rooms and guest-room bathrooms. It also said all properties were being managed in-house after ending a third-party California property-management agreement, expecting lower costs and improved efficiency.
- Risks identified include hotel and travel demand, San Francisco competition, seasonality, labor issues, economic conditions, securities-market volatility, financing availability and an ongoing legal dispute with former Justice partners. Management reported legal expenses declining as the dispute came closer to settlement; the filing does not specify a settlement amount or final resolution. It also disclosed $0.400 million of related-party fees outstanding at December 31, 2015.
- Management stated disclosure controls were effective and that there were no material changes in internal control over financial reporting during the quarter. The filing cautions that interim results are not necessarily indicative of full-year results.
Important facts for investors to verify
- Comstock’s concentration in the securities portfolio, subsequent share-price performance and potential effect of further valuation changes on earnings.
- Debt-service capacity, loan terms and guarantees, scheduled obligations, and the availability and terms of any additional borrowing.
- Developments in the Justice former-partner litigation and the status of the outstanding related-party fees.
- Hotel operating trends, planned renovation costs and funding, and whether in-house property management delivers the expected savings.