The InterGroup(INTG) - 2023 Q4 - Annual Report

Part I Item 1. Business The InterGroup Corporation operates primarily through three segments: hotel operations, real estate, and investment activities - The Company's business is structured around three main areas: real estate operations, hotel operations through its subsidiary, and investments in securities[21][27][29] - InterGroup owns approximately 75.7% of Portsmouth Square, Inc., which in turn owns the Hilton San Francisco Financial District hotel[22] - The Hilton hotel is operated under a franchise license agreement with Hilton through January 2030 and managed by Aimbridge Hospitality under a ten-year agreement effective from February 2017[30][31] Hotel Performance vs. Competitors (Fiscal Year End June 30, 2023) | Metric | The Hotel (Hilton SF Financial District) | Competitive Set (CompSet) | | :--- | :--- | :--- | | Occupancy (%) | 83% | 64% | | Average Daily Rate (ADR) ($) | $195 | $236 | | Revenue Per Available Room (RevPAR) ($) | $161 | $152 | | RevPAR Index (%) | 106% | N/A | Item 1A. Risk Factors The Company faces significant risks, primarily related to its concentration in the San Francisco hotel market, substantial debt, and capital-intensive operations - The company's business is heavily concentrated in a single property, the Hilton hotel in San Francisco, making it vulnerable to local economic conditions and market changes[65] - The company has substantial debt obligations, with specific debt agreements due in January 2024, posing a refinancing risk on potentially unfavorable terms[73][74] - The hotel industry is capital-intensive, and financing necessary renovations could reduce cash flow and adversely affect financial performance[69] - The President and CEO, John V. Winfield, holds a 68.6% beneficial ownership, giving him significant control over the company's board and shareholder decisions, which may pose a risk to other shareholders[94] Item 1B. Unresolved Staff Comments The company reports no unresolved staff comments - There are no unresolved staff comments[95] Item 2. Properties The Company's property portfolio includes a San Francisco Hilton hotel with significant debt and a collection of rental properties primarily in Texas and California San Francisco Hotel Financing (as of Dec 2013 / July 2019) | Loan Type | Lender | Principal Amount ($) | Interest Rate (%) | Maturity Date | | :--- | :--- | :--- | :--- | :--- | | Mortgage Loan | Bank of America | $97 million | 5.275% | January 2024 | | Mezzanine Loan | Cred Reit Holdco LLC | $20 million | 7.25% | January 1, 2024 | - The hotel's operating company is not meeting certain loan covenants, such as the Debt Service Coverage Ratio (DSCR), which was below the required 1.10 to 1.00 threshold for the last two quarters of fiscal 2023; however, the company has not missed any debt service payments[102] - The real estate portfolio includes 16 apartment complexes, 3 single-family houses, 1 commercial property, and unimproved land in Hawaii, primarily located in Texas and Los Angeles County[107] Occupancy Rates for Rental Properties (FY 2023) | Property Location | Economic Occupancy (%) | Physical Occupancy (%) | | :--- | :--- | :--- | | Las Colinas, TX | 100% | 99% | | Morris County, NJ | 92% | 97% | | St. Louis, MO | 68% | 66% | | Florence, KY | 80% | 92% | | Los Angeles, CA (Average of 15 properties) | ~92% | ~92% | Item 3. Legal Proceedings The Company does not expect current legal proceedings to materially affect its financial condition or operations - Management does not expect current legal proceedings to have a material impact on the company's financial condition[135] Item 4. Mine Safety Disclosures This item is not applicable to the Company - Not applicable[136] Part II Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities The Company's common stock trades on NASDAQ, has not declared dividends, and repurchased 1,017 shares in Q4 FY2023 - The Company's common stock is traded on the NASDAQ Capital Market under the symbol INTG[138] - No cash dividends have been declared, and none are foreseen in the near future[139] Issuer Purchases of Equity Securities (Q4 FY2023) | Period | Total Shares Purchased | Average Price Paid Per Share ($) | | :--- | :--- | :--- | | April 2023 | 190 | $41.94 | | May 2023 | 530 | $36.60 | | June 2023 | 297 | $36.20 | | Total | 1,017 | $37.94 | Item 6. Selected Financial Data This section is not required for smaller reporting companies - Not required for smaller reporting companies[145] Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) The Company reported a net loss in FY2023, facing a 'Going Concern' issue due to significant debt maturing in January 2024, while hotel revenues increased Results of Operations For fiscal year 2023, the company's net loss was $9.9 million, an improvement from $10.6 million in 2022, driven by increased hotel revenue Consolidated Financial Performance (in millions) | Metric | FY 2023 | FY 2022 | | :--- | :--- | :--- | | Total Revenues | $57.61 | $47.22 | | Income from Operations | $4.34 | $3.67 | | Net Loss | $(9.93) | $(10.62) | | Net Loss Attributable to InterGroup | $(6.72) | $(8.72) | Hotel Performance Metrics (YoY) | Metric | FY 2023 | FY 2022 | Change | | :--- | :--- | :--- | :--- | | Average Daily Rate (ADR) ($) | $217 | $168 | +$49 | | Average Occupancy % | 83% | 80% | +3% | | RevPAR ($) | $180 | $134 | +$46 | - Hotel revenues increased by 33% year-over-year, from $31.5 million to $42.0 million, due to recovery from COVID-19 related business interruptions[159][163] - The company recorded a net gain on marketable securities of $1.1 million in FY2023, compared to a net loss of $7.6 million in FY2022[166] Financial Condition, Liquidity and Capital Resources The company faces significant liquidity pressure and a 'Going Concern' warning due to $107.1 million in hotel debt maturing in January 2024 - The financial statements were prepared on a going concern basis, but there is substantial doubt about the company's ability to continue as a going concern due to major debt maturing in January 2024 and recurring losses[182][183][258] Key Liquidity and Capital Resources (as of June 30, in millions) | Item | 2023 | 2022 | | :--- | :--- | :--- | | Cash and cash equivalents | $5.96 | $14.37 | | Restricted cash | $6.91 | $8.98 | | Marketable securities, net | $15.33 | $10.11 | Material Contractual Obligations (Next 12 Months - FY2024, in millions) | Obligation Type | Amount Due in FY2024 | | :--- | :--- | | Mortgage and subordinated notes payable | $108.42 | | Other notes payable | $0.57 | | Interest | $3.85 | | Total | $112.84 | Critical Accounting Policies and Estimates Management's critical accounting policies involve significant judgment, particularly for income taxes and asset impairment assessments - The company's critical accounting policies involve significant judgment, especially regarding income taxes, asset impairment, and the valuation of deferred tax assets[192] - A valuation allowance is recognized for deferred tax assets when it is more likely than not that they will not be realized, relying heavily on recent financial results[194] - The company evaluates its property, equipment, and intangible assets for impairment quarterly or when triggering events occur, using projected undiscounted cash flows[195] Item 7A. Quantitative and Qualitative Disclosures About Market Risk This section is not required for smaller reporting companies - Not required for smaller reporting companies[196] Item 8. Financial Statements and Supplementary Data The consolidated financial statements for FY2023 and FY2022 include a 'Going Concern' uncertainty and a critical audit matter regarding deferred tax assets - The independent auditor's report expresses substantial doubt about the Company's ability to continue as a going concern[199] - The auditor identified the deferred tax asset valuation allowance as a critical audit matter due to significant management judgment and estimation[204][205] Key Consolidated Balance Sheet Data (as of June 30, in millions) | Item | 2023 | 2022 | | :--- | :--- | :--- | | Total Assets | $122.36 | $126.05 | | Total Liabilities | $216.96 | $209.05 | | Total Shareholders' Deficit | $(94.60) | $(83.00) | Key Consolidated Operations Data (for year ended June 30, in millions) | Item | 2023 | 2022 | | :--- | :--- | :--- | | Total Revenues | $57.61 | $47.22 | | Net Loss | $(9.93) | $(10.62) | | Net Loss per Share (Basic) ($) | $(4.77) | $(4.77) | Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure The company reported no disagreements with its accountants on any accounting or auditing matters - There were no disagreements with accountants on accounting or auditing matters[360] Item 9A. Controls and Procedures Management concluded that disclosure controls were not effective due to a material weakness in deferred tax asset valuation accounting - The CEO and CFO concluded that disclosure controls and procedures were not effective as of June 30, 2023[362] - A material weakness was identified in internal control over financial reporting, specifically concerning the control around the interpretation and accounting for the deferred tax asset valuation allowance[362] Item 9B. Other Information There is no other information to report - None[366] Part III Item 10. Directors, Executive Officers and Corporate Governance This section details the Company's directors and executive officers, including CEO John V. Winfield, board structure, and ethics code - John V. Winfield holds the positions of Chairman of the Board, President, and Chief Executive Officer[368][369] - The company has established Audit, Nominating, and Compensation committees, with independent directors comprising the majority of the board[383][384][385] - The Company has adopted a Code of Ethics applicable to its principal officers and Board of Directors[381] Item 11. Executive Compensation Executive compensation for FY2023 included significant bonuses for CEO John V. Winfield and COO David C. Gonzalez, with details on outstanding stock options Summary Compensation Table (FY 2023, in millions) | Name and Position | Salary ($) | Bonus ($) | Total Compensation ($) | | :--- | :--- | :--- | :--- | | John V. Winfield (Chairman, President & CEO) | $0.84 | $0.60 | $1.50 | | David C. Gonzalez (Chief Operating Officer) | $0.44 | $0.60 | $1.04 | Outstanding Option Awards (as of June 30, 2023) | Name | Unexercised Options () | Exercise Price ($) | Expiration Date | | :--- | :--- | :--- | :--- | | John V. Winfield | 100,000 | 10.30 | 3/16/2026 | | John V. Winfield | 133,195 | 18.65 | 12/26/2023 | | David C. Gonzalez | 18,000 | 27.30 | 3/2/2027 | Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters The Company's ownership is highly concentrated, with CEO John V. Winfield beneficially owning 68.6% of common stock - John V. Winfield, the Chairman, President, and CEO, is the beneficial owner of 1,686,374 shares, representing 68.6% of the company's common stock[416][418] - All directors and executive officers as a group beneficially own 1,789,932 shares, or 72.9% of the company's common stock[420] Securities Authorized for Issuance Under Equity Compensation Plans (as of June 30, 2023) | Plan Category | Securities to be issued upon exercise of outstanding options, warrants and rights | Weighted-average exercise price ($) | | :--- | :--- | :--- | | Equity compensation plans approved by security holders | 251,195 | $15.95 | Item 13. Certain Relationships and Related Transactions, and Director Independence This section details related-party transactions, including CEO John V. Winfield's investment activities, and confirms director independence - CEO John V. Winfield directs investment activities for both the Company and its subsidiary Portsmouth, and may invest in the same companies, aligning his personal interests with the company's[429] - All members of the Board of Directors, except for CEO John V. Winfield, are considered independent under SEC and NASDAQ rules[430] Item 14. Principal Accounting Fees and Services The company paid $0.35 million in audit and tax fees to its current independent registered public accounting firm, WithumSmith+Brown, PC, for fiscal year 2023 Accounting Fees (Fiscal Years 2023 & 2022, in millions) | Fee Type | 2023 ($) | 2022 ($) | | :--- | :--- | :--- | | Audit fees – Withum | $0.22 | $0.05 | | Tax fees – Withum | $0.13 | $0.03 | | Audit fees – Moss Adams | - | $0.21 | | Tax fees – Moss Adams | - | $0.10 | | TOTAL | $0.35 | $0.39 | - All audit and non-audit services provided by the independent accountants were pre-approved by the Audit Committee[433] Part IV Item 15. Exhibits, Financial Statement Schedules This section lists all financial statements, schedules, and exhibits included in the annual report filing - This section provides an index of all financial statements, schedules, and exhibits included with the Form 10-K filing[437][438] - Key exhibits filed include the Code of Ethics, consent of the independent accounting firm, and certifications by the CEO and CFO pursuant to the Sarbanes-Oxley Act[441] Signatures The report was signed and authorized by the principal executive and financial officers on October 13, 2023 - The report was signed on October 13, 2023, by John V. Winfield (President, CEO, Chairman) and Ann Marie Blair (Principal Financial Officer)[443]