The InterGroup(US:INTG)2025-02-14 19:16markdown PART I – FINANCIAL INFORMATION [Item 1. Condensed Consolidated Financial Statements](index=4&type=section&id=Item%201.%20Condensed%20Consolidated%20Financial%20Statements.) The company reported increased net losses for the three and six months ended December 31, 2024, facing a significant 'Going Concern' issue due to over **$100 million** in matured loans, which are actively being refinanced [Condensed Consolidated Balance Sheets](index=4&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) Total assets slightly increased to **$110.6 million** as of December 31, 2024, while total liabilities grew to **$221.9 million**, leading to an expanded shareholders' deficit of **$111.3 million** Condensed Consolidated Balance Sheet Highlights (Unaudited) | Balance Sheet Item | Dec 31, 2024 ($ thousands) | Jun 30, 2024 ($ thousands) | | :--- | :--- | :--- | | **Assets** | | | | Cash and cash equivalents | 10,420 | 4,333 | | Investment in Hotel, net | 39,684 | 40,901 | | Investment in real estate, net | 46,957 | 47,542 | | Investment in marketable securities | 5,657 | 7,454 | | **Total assets** | **110,594** | **107,811** | | **Liabilities** | | | | Mortgage notes payable - Hotel, net | 100,289 | 100,783 | | Mortgage notes payable - real estate, net | 94,426 | 88,173 | | **Total liabilities** | **221,929** | **214,278** | | **Total shareholders' deficit** | **(111,335)** | **(106,467)** | [Condensed Consolidated Statements of Operations](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) For the three months ended December 31, 2024, the company reported a **$3.7 million** net loss, widening to **$4.5 million** for the six-month period, primarily due to higher mortgage interest expense Three-Month Operating Results (Unaudited) | Metric | Q2 2025 (ended Dec 31, 2024) | Q2 2024 (ended Dec 31, 2023) | | :--- | :--- | :--- | | Total Revenues | $14,441,000 | $14,321,000 | | Income (loss) from operations | $853,000 | $(1,346,000) | | Interest expense - mortgages | $(3,530,000) | $(2,210,000) | | Net loss | $(3,697,000) | $(2,151,000) | | Net loss per share (Basic & Diluted) | $(1.26) | $(0.69) | Six-Month Operating Results (Unaudited) | Metric | Six Months ended Dec 31, 2024 | Six Months ended Dec 31, 2023 | | :--- | :--- | :--- | | Total Revenues | $31,347,000 | $29,831,000 | | Income from operations | $3,982,000 | $250,000 | | Interest expense - mortgages | $(7,044,000) | $(4,461,000) | | Net loss | $(4,549,000) | $(3,773,000) | | Net loss per share (Basic & Diluted) | $(1.44) | $(1.26) | [Condensed Consolidated Statements of Cash Flows](index=9&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Net cash provided by operating activities significantly improved to **$2.6 million** for the six months ended December 31, 2024, with a **$5.7 million** net increase in cash driven by financing activities Six-Month Cash Flow Summary (Unaudited) | Cash Flow Activity | Six Months ended Dec 31, 2024 | Six Months ended Dec 31, 2023 | | :--- | :--- | :--- | | Net cash provided by (used in) operating activities | $2,579,000 | $(80,000) | | Net cash used in investing activities | $(1,515,000) | $(3,440,000) | | Net cash provided by financing activities | $4,628,000 | $2,953,000 | | Net increase (decrease) in cash | $5,692,000 | $(567,000) | | Cash, cash equivalents and restricted cash at end of period | $14,386,000 | $12,307,000 | [Notes to the Condensed Consolidated Financial Statements](index=10&type=section&id=Notes%20to%20the%20Condensed%20Consolidated%20Financial%20Statements) Notes highlight a substantial 'Going Concern' risk due to **$100.3 million** in defaulted Hotel loans, for which the company is actively pursuing refinancing, with a non-binding term sheet executed post-quarter end - The company's primary business segments are **Hotel Operations**, **Real Estate Operations**, and **Investment Transactions**[76](index=76&type=chunk) - Substantial doubt exists about the company's ability to continue as a going concern due to the maturity and default of senior mortgage and mezzanine loans totaling **$100.3 million** on its Hotel property as of December 31, 2024[35](index=35&type=chunk)[36](index=36&type=chunk) - Following the expiration of forbearance agreements, the company received a **Notice of Termination** from its senior lender and a **Notice of Default** from its mezzanine lender in January 2025[37](index=37&type=chunk) - Subsequent to the quarter end, on January 21, 2025, the company executed a **non-binding term sheet** to refinance the defaulted senior and mezzanine loans, with an expected closing by **March 2025**[38](index=38&type=chunk)[88](index=88&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=23&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations.) Management attributes increased net losses to higher mortgage interest, with flat Hotel RevPAR and improved real estate operations, while reiterating confidence in refinancing the defaulted Hotel debt despite 'Going Concern' uncertainty [Results of Operations](index=24&type=section&id=Results%20of%20Operations) Increased net losses for both periods were primarily due to higher mortgage interest, with Hotel RevPAR flat for the quarter and real estate operations showing improved revenue - The increased net loss for both the three and six-month periods is primarily attributed to a significant rise in mortgage interest expense, which includes a **4% default additional interest rate**[98](index=98&type=chunk)[104](index=104&type=chunk)[105](index=105&type=chunk) Hotel Performance Metrics (Three Months ended Dec 31) | Metric | 2024 | 2023 | Change | | :--- | :--- | :--- | :--- | | Average Daily Rate (ADR) | $190 | $207 | -8.2% | | Average Occupancy % | 88% | 81% | +7 p.p. | | RevPAR | $168 | $168 | 0.0% | Hotel Performance Metrics (Six Months ended Dec 31) | Metric | 2024 | 2023 | Change | | :--- | :--- | :--- | :--- | | Average Daily Rate (ADR) | $200 | $212 | -5.7% | | Average Occupancy % | 92% | 84% | +8 p.p. | | RevPAR | $184 | $180 | +2.2% | - Real estate operations revenue increased for both the three and six-month periods due to **decreased vacancy** at its Missouri property, which is undergoing renovation and rebranding[102](index=102&type=chunk)[111](index=111&type=chunk) [Marketable Securities](index=27&type=section&id=Marketable%20Securities) The marketable securities portfolio decreased to **$5.7 million**, with a significant shift in composition towards REITs and real estate companies and a net loss from investment transactions Marketable Securities Portfolio Composition | Industry Group | Fair Value (Dec 31, 2024) | % of Total | Fair Value (Jun 30, 2024) | % of Total | | :--- | :--- | :--- | :--- | :--- | | REITs and real estate companies | $2,903,000 | 51% | $3,358,000 | 45% | | Communication services | $97,000 | 2% | $1,994,000 | 27% | | Healthcare | $956,000 | 17% | $179,000 | 2% | | T-Notes | - | 0% | $933,000 | 13% | | **Total** | **$5,657,000** | **100%** | **$7,454,000** | **100%** | - As of December 31, 2024, the largest single security position was American Realty Investors, Inc. (ARL), representing **33% of the portfolio**[114](index=114&type=chunk) [Financial Condition and Liquidity](index=28&type=section&id=Financial%20Condition%20and%20Liquidity) Liquidity improved with cash increasing to **$10.4 million** due to a **$9.8 million** mortgage refinancing, yet significant 'Going Concern' challenges persist from defaulted Hotel loans, which management is actively refinancing - In December 2024, the company refinanced a mortgage on its 157-unit apartment in Florence, Kentucky, for **$9.8 million** with a new 10-year interest-only loan at **5.40%**[45](index=45&type=chunk)[119](index=119&type=chunk) - The company's subsidiary, Portsmouth, has matured senior mortgage and mezzanine loans totaling over **$100 million**. After a forbearance period ended, lenders issued **default notices** in January 2025, creating **substantial doubt** about its ability to continue as a going concern[123](index=123&type=chunk)[124](index=124&type=chunk)[125](index=125&type=chunk) - Management is in advanced discussions to refinance the defaulted debt and executed a **non-binding term sheet** on January 21, 2025, with the expectation of closing the new financing by **March 2025**[126](index=126&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=31&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk.) As a smaller reporting company, the registrant is not required to provide quantitative and qualitative disclosures about market risk - As a **smaller reporting company**, the registrant is not required to provide quantitative and qualitative disclosures about market risk[141](index=141&type=chunk) [Item 4. Controls and Procedures](index=31&type=section&id=Item%204.%20Controls%20and%20Procedures.) Disclosure controls and procedures were deemed ineffective due to a material weakness in accounting for stock-based compensation, though management believes financial statements are fairly presented - The company's disclosure controls and procedures were deemed **ineffective** as of the end of the quarter[142](index=142&type=chunk) - A **material weakness** was identified in internal control over financial reporting, specifically concerning the accounting for stock-based compensation[142](index=142&type=chunk) - No **material changes** were made to the company's internal control over financial reporting during the quarter[143](index=143&type=chunk) PART II – OTHER INFORMATION [Item 1. Legal Proceedings](index=33&type=section&id=Item%201.%20Legal%20Proceedings.) The company is in a dispute with the City of San Francisco regarding the financial responsibility for removing a pedestrian bridge connected to its Hilton Hotel, disputing the City's directive for self-funded removal - The company is in a dispute with the City of San Francisco over the financial responsibility for removing a pedestrian bridge connected to its Hilton Hotel[146](index=146&type=chunk) - The City has **revoked the bridge's permit** and directed the company to develop and pay for a removal and restoration plan[146](index=146&type=chunk) - The company is cooperating on developing a plan but **disputes its legal and financial obligation** for the removal, with discussions expected to continue through **Q1 2025**[146](index=146&type=chunk) [Item 1A. Risk Factors](index=33&type=page&id=Item%201A.Risk%20Factors.) The company is not required to provide risk factor information as it qualifies as a smaller reporting company - The company is not required to provide risk factor information as it qualifies as a **smaller reporting company**[148](index=148&type=chunk) [Item 3. Defaults Upon Senior Securities](index=34&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities.) The company states there have been no events required to be reported under 'Defaults Upon Senior Securities' - The company states there have been **no events** required to be reported under 'Defaults Upon Senior Securities'[151](index=151&type=chunk) [Item 6. Exhibits](index=34&type=section&id=Item%206.%20Exhibits.) This section lists the exhibits filed with the Form 10-Q, including officer certifications and Inline XBRL data files - The filing includes **certifications** from the Principal Executive Officer and Principal Financial Officer, as well as **Inline XBRL documents**[157](index=157&type=chunk)