The InterGroup(US:INTG)2024-02-17 02:37PART I – FINANCIAL INFORMATION Item 1. Condensed Consolidated Financial Statements The unaudited condensed consolidated financial statements for December 31, 2023, reflect a net loss and a going concern issue Condensed Consolidated Balance Sheets As of December 31, 2023, total assets increased to $124.2 million, while liabilities and shareholders' deficit also grew Condensed Consolidated Balance Sheets (in millions) | Account | Dec 31, 2023 (unaudited) | June 30, 2023 | | :--- | :--- | :--- | | Total Assets | $124.2 | $122.4 | | Investment in Hotel, net | $40.5 | $40.3 | | Investment in real estate, net | $48.2 | $48.1 | | Investment in marketable securities | $19.4 | $18.3 | | Cash and cash equivalents | $9.4 | $6.0 | | Total Liabilities | $221.6 | $217.0 | | Mortgage notes payable - Hotel, net | $106.5 | $107.1 | | Mortgage notes payable - real estate, net | $88.7 | $84.8 | | Total Shareholders' Deficit | ($97.4) | ($94.6) | Condensed Consolidated Statements of Operations For the three and six months ended December 31, 2023, the company reported net losses, reversing prior year's net income Three Months Ended December 31 (in millions) | Metric | 2023 | 2022 | | :--- | :--- | :--- | | Total Revenues | $14.32 | $13.87 | | (Loss) Income from Operations | ($1.35) | $0.20 | | Net (Loss) Income | ($2.15) | $1.57 | | Net (Loss) Income Attributable to InterGroup | ($1.53) | $1.89 | | Diluted EPS | ($0.69) | $0.77 | Six Months Ended December 31 (in millions) | Metric | 2023 | 2022 | | :--- | :--- | :--- | | Total Revenues | $29.83 | $30.26 | | Income from Operations | $0.25 | $3.06 | | Net (Loss) Income | ($3.77) | $1.37 | | Net (Loss) Income Attributable to InterGroup | ($2.77) | $1.69 | | Diluted EPS | ($1.26) | $0.68 | Condensed Consolidated Statements of Shareholders' Deficit Total shareholders' deficit increased from $94.6 million to $97.4 million by December 31, 2023, primarily due to a net loss - Total shareholders' deficit grew from $(94.6 million) at the beginning of the period to $(97.4 million) at December 31, 202321 - Key changes during the six months included a net loss of $3.77 million (comprised of a $1.24 million loss in Q1 and $1.53 million loss in Q2 attributable to InterGroup, plus noncontrolling interest loss), stock options expense of $1.18 million, and treasury stock purchases totaling $0.18 million21 Condensed Consolidated Statements of Cash Flows For the six months ended December 31, 2023, net cash used in operating and investing activities resulted in a $0.57 million decrease in total cash Cash Flow Summary for Six Months Ended Dec 31 (in millions) | Cash Flow Activity | 2023 | 2022 | | :--- | :--- | :--- | | Net Cash Used in Operating Activities | ($0.08) | ($2.51) | | Net Cash Used in Investing Activities | ($3.44) | ($1.98) | | Net Cash Provided by (Used in) Financing Activities | $2.95 | ($2.96) | | Net Decrease in Cash | ($0.57) | ($7.44) | | Cash, cash equivalents and restricted cash at end of period | $12.31 | $15.91 | Notes to the Condensed Consolidated Financial Statements The notes detail accounting policies and business structure, highlighting a 'Going Concern' warning due to the Hotel's matured $106.5 million mortgage loans - The company's subsidiary, Portsmouth, owns the Hilton San Francisco Financial District. As of December 31, 2023, InterGroup owns approximately 75.7% of Portsmouth28 - A 'Going Concern' issue is raised due to the Hotel's senior mortgage and mezzanine loans ($106.5 million total) maturing on January 1, 2024. The uncertainty of refinancing raises substantial doubt about the Hotel's ability to continue as a going concern3637 - Subsequent to the quarter end, on January 4, 2024, the Hotel's senior loan special servicer issued a notice of default3886 Hotel Revenue Breakdown - Six Months Ended Dec 31 (in millions) | Revenue Stream | 2023 | 2022 | | :--- | :--- | :--- | | Hotel rooms | $17.96 | $19.05 | | Food and beverage | $1.60 | $1.16 | | Garage | $1.53 | $1.54 | | Other operating departments | $0.22 | $0.45 | | Total hotel revenue | $21.32 | $22.20 | Segment Performance - Six Months Ended Dec 31, 2023 (in millions) | Segment | Revenues | Net (Loss) Income | | :--- | :--- | :--- | | Hotel Operations | $21.32 | ($2.28) | | Real Estate Operations | $8.51 | $0.72 | | Investment Transactions | - | $0.54 | | Corporate & Other | - | ($2.75) | | Total | $29.83 | ($3.77) | Management's Discussion and Analysis of Financial Condition and Results of Operations Management attributes the net loss to decreased hotel revenues and increased operating expenses, with a 'Going Concern' issue due to matured hotel mortgage debt Results of Operations For the six months ended Dec 31, 2023, the company's net loss of $3.77 million was primarily due to a decline in Hotel operations - The shift from net income in 2022 to a net loss in 2023 is primarily attributed to a decrease in Hotel revenue, an increase in hotel operating expenses, and a one-time gain on insurance recovery of $2.69 million in the 2022 period that did not recur95100 Hotel Performance Metrics (Three Months Ended Dec 31) | Metric | 2023 | 2022 | | :--- | :--- | :--- | | Average Daily Rate | $207 | $199 | | Average Occupancy % | 81% | 82% | | RevPAR | $168 | $164 | Hotel Performance Metrics (Six Months Ended Dec 31) | Metric | 2023 | 2022 | | :--- | :--- | :--- | | Average Daily Rate | $212 | $215 | | Average Occupancy % | 84% | 88% | | RevPAR | $180 | $190 | Marketable Securities As of December 31, 2023, the marketable securities portfolio was valued at $19.4 million, diversified across 99 equity positions - As of December 31, 2023, the investment portfolio held 99 different equity positions. The largest position was American Realty Investors, Inc. (ARL), representing 14% of the portfolio's fair value109 Marketable Securities Portfolio by Industry (Dec 31, 2023) (in millions) | Industry Group | Fair Value | % of Total | | :--- | :--- | :--- | | REITs and real estate companies | $5.28 | 27% | | Communication services | $2.59 | 13% | | Financial services | $2.09 | 11% | | Technology | $1.68 | 9% | | Other | $7.13 | 40% | | Total | $19.36 | 100% | Financial Condition and Liquidity The company's liquidity is supported by cash and marketable securities, but challenged by matured hotel mortgage debt, leading to a 'Going Concern' qualification - In July 2023, an unsecured loan from InterGroup to its subsidiary Portsmouth was extended to July 2025, and the available borrowing amount was increased from $16 million to $20 million to fund hotel operations113 - In December 2023, the Company obtained a new $4.57 million second mortgage on its 358-unit apartment in Texas, with a 7.60% interest rate, maturing in November 2031114 - A substantial doubt about the Hotel's ability to continue as a going concern exists due to the January 1, 2024 maturity of its senior mortgage and mezzanine loans and recurring losses. A notice of default was issued on January 4, 2024117118119 - The company is continuing a guestroom renovation at the Hotel, with completion anticipated by May 2024, to remain competitive and increase average daily rates120 Quantitative and Qualitative Disclosures About Market Risk The company is a smaller reporting company and is therefore not required to provide the information for this item - As a smaller reporting company, the registrant is not required to provide information for this item132 Controls and Procedures Management concluded that disclosure controls and procedures were not effective due to a material weakness in internal control over financial reporting - Management concluded that disclosure controls and procedures were not effective due to a material weakness in internal control over financial reporting133 - The material weakness relates to the control around the interpretation and accounting for the deferred tax asset valuation allowance and stock-based compensation133 - To remediate a previously identified material weakness related to the deferred tax asset valuation allowance, the company has hired a new tax provision firm to perform detailed analysis134 PART II – OTHER INFORMATION Legal Proceedings The company's subsidiary is in a dispute with the City of San Francisco over the required removal of a pedestrian bridge connected to its Hilton Hotel - The company is in a dispute with the City of San Francisco over the required removal of an ornamental pedestrian bridge connected to its Hilton Hotel136 - The City has purported to revoke the bridge's permit and directed the company's subsidiary, Justice, to submit and pay for a removal plan. Justice disputes the legality of this action and its financial obligation for the removal136 Risk Factors As a smaller reporting company, the company is not required to provide the information for this item - As a smaller reporting company, the registrant is not required to provide information for this item138 Unregistered Sales of Equity Securities and Use of Proceeds There were no events required to be reported under this item - There have been no events that are required to be reported under this Item139 Defaults Upon Senior Securities There were no events required to be reported under this item - There have been no events that are required to be reported under this Item140 Mine Safety Disclosures There were no events required to be reported under this item - There have been no events that are required to be reported under this Item141 Other Information There were no events required to be reported under this item - There have been no events that are required to be reported under this Item143 Exhibits This section lists the exhibits filed with the Form 10-Q, including certifications by the Principal Executive Officer and Principal Financial Officer, and Inline XBRL data files - Exhibits include CEO and CFO certifications (31.1, 31.2, 32.1, 32.2) and Inline XBRL documents (101 series)145