InterGroup Corporation — Form 10-Q Summary
Reporting period: First quarter of fiscal 2012, three months ended September 30, 2011; comparative period ended September 30, 2010. The financial statements are unaudited. InterGroup is a diversified holding company with hotel, real estate, and investment activities, including an indirect interest in the Hilton San Francisco Financial District.
Financial performance
| Metric | Quarter ended Sep. 30, 2011 | Quarter ended Sep. 30, 2010 |
|---|---|---|
| Revenue | $14.727 million | $12.987 million |
| Operating income | $3.082 million | $1.623 million |
| Consolidated net income (loss) | $(2.655) million | $76,000 |
| Net income (loss) attributable to InterGroup | $(3.075) million | $9,000 |
| Operating cash flow | $2.145 million | $2.818 million |
- Revenue increased 13.4% year over year. Operating margin rose to approximately 20.9% from 12.5%.
- Hotel revenue was $11.109 million, up from $9.526 million. Hotel net income was $1.711 million versus $218,000. Hotel average daily rate rose to $189 from $168, occupancy to 92% from 89%, and RevPAR to $174 from $150. Hotel operating income before interest, depreciation and amortization was $2.964 million, or about 26.7% of revenue.
- Real estate revenue increased to $3.618 million from $3.461 million. Segment net income was $285,000 versus $302,000.
- Investment results deteriorated sharply: marketable securities generated a $4.655 million net loss, including $1.899 million realized and $2.756 million unrealized losses, versus a $353,000 gain a year earlier. Other investment and derivative losses were $318,000, with a further $417,000 impairment charge.
- Cash increased by $810,000 to $2.174 million. Investing activities used $389,000 and financing activities used $946,000. Cash and restricted cash together totaled $4.154 million at quarter-end.
Balance sheet, debt and liquidity
- Total assets were $140.282 million, down from $154.366 million at June 30, 2011; marketable securities declined to $5.482 million from $19.438 million. Total liabilities were $136.433 million, and shareholders’ equity was $3.849 million.
- Mortgage notes payable totaled $117.048 million: $44.969 million related to the hotel and $72.079 million related to real estate. Other notes payable were $2.532 million. The filing’s contractual-obligations table lists total obligations, including interest, of $145.758 million.
- Hotel debt includes two fixed-rate Prudential loans with principal balances of $27.035 million at 5.22% and $17.934 million at 6.42%, both maturing August 5, 2015. A $2.110 million East West Bank term loan carried a 5.75% rate; management reported compliance with its financial covenants at quarter-end.
- Management believes cash, securities, and operating cash flows will meet current and future obligations, and believes hotel assets could support additional borrowing if needed. The filing does not provide a current-assets/current-liabilities presentation sufficient to assess a conventional current ratio.
Changes, outlook and risks
- The consolidated loss primarily reflected investment losses, partly offset by stronger hotel operations. Lower hotel depreciation and amortization, higher room rates and occupancy, and higher revenues drove the hotel improvement; increased labor, staffing, franchise and management costs partly offset it.
- Marketable securities were classified as trading, so realized and unrealized price changes affected earnings. The portfolio had 55 equity positions, but the largest represented approximately 52.6% of total equity portfolio value, creating concentration and market-risk exposure. Management cautions that investment gains and losses may fluctuate and may not predict future results.
- Management said improved hotel and San Francisco market conditions could support limited partnership distributions in fiscal 2012; none were paid in fiscal 2011 or 2010. This was not a firm distribution commitment or earnings forecast. The company also described plans to upgrade hotel facilities and pursue more international, corporate and group travel.
- Risks cited include economic weakness and its effects on tourism and lodging, hotel competition and seasonality, labor disruption, energy costs, securities-market volatility, financing availability, natural disasters, pandemics, regulatory matters and litigation. The filing states quarterly results are not necessarily indicative of full-year results.
- No properties were held for sale at September 30, 2011, and the company reported no off-balance-sheet arrangements. Management concluded disclosure controls were effective and reported no material change in internal control over financial reporting.
Important facts for investors to verify
- Whether hotel demand, rates and occupancy remain strong enough to sustain improved hotel earnings and cash generation.
- The composition, concentration, liquidity and subsequent performance of the investment portfolio, and whether additional impairments or realized losses occur.
- Debt-service capacity, upcoming maturities and refinancing options, including compliance with loan covenants.
- Whether management’s liquidity assessment remains supportable given the low cash balance, large debt obligations and limited reported shareholders’ equity.
- The basis for the tax benefit and the difference between the consolidated net loss and the larger loss attributable to InterGroup.