# Intergroup Corp: Form 10-Q for the period ended Sep 30, 2022

- Company: [Intergroup Corp](/companies/intg.md) (CIK 69422)
- Form: 10-Q
- Filed: 2022-11-14
- Accepted by EDGAR: Nov 14, 2022, 06:45 ET
- Period: 2022-09-30
- Accession: 0001493152-22-031560
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/69422/000149315222031560/form10-q.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/69422/000149315222031560/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2022-09-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2022-07-01 to 2022-09-30 | $16.4m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Operating income | 3 months, 2022-07-01 to 2022-09-30 | $2.9m | us-gaap:OperatingIncomeLoss |
| Income tax | 3 months, 2022-07-01 to 2022-09-30 | −$58.0k | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2022-07-01 to 2022-09-30 | −$199.0k | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2022-07-01 to 2022-09-30 | −$0.09 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2022-07-01 to 2022-09-30 | −$0.09 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2022-07-01 to 2022-09-30 | 2,482,423 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 3 months, 2022-07-01 to 2022-09-30 | $1.7m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 3 months, 2022-07-01 to 2022-09-30 | $1.6m | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Share repurchases | 3 months, 2022-07-01 to 2022-09-30 | $872.0k | us-gaap:PaymentsForRepurchaseOfCommonStock |
| Cash and equivalents | at 2022-09-30 | $12.2m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Total assets | at 2022-09-30 | $125.1m | us-gaap:Assets |
| Total liabilities | at 2022-09-30 | $209.2m | us-gaap:Liabilities |
| Long-term debt | at 2022-09-30 | $231.3m | us-gaap:LongTermDebt |
| Shareholders' equity | at 2022-09-30 | −$63.2m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 22,024 characters.

FORWARD-LOOKING STATEMENTS AND PROJECTIONS

This quarterly report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (“Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (“Exchange Act”). Forward-looking statements include, but are not limited to, statements related to our expectations regarding the performance of our business, our financial results, our liquidity and capital resources, the impact to our business and financial condition, and measures being taken in response to the novel strain of coronavirus and the disease it causes (“COVID-19”), the effects of competition and the effects of future legislation or regulations and other non-historical statements. Forward-looking statements include all statements that are not historical facts, and in some cases, can be identified by the use of forward-looking terminology such as the words “outlook,” “believes,” “expects,” “potential,” “continues,” “may,” “will,” “should,” “could,” “seeks,” “projects,” “predicts,” “intends,” “plans,” “estimates,” “anticipates” or the negative version of these words or other comparable words. You should not rely on forward-looking statements since they involve known and unknown risks, uncertainties and other factors which are, in some cases, beyond our control and which could materially affect our results of operations, financial condition, cash flows, performance or future achievements or events.

Such statements are subject to certain risks and uncertainties. These risks and uncertainties include, but are not limited to, the following: national and worldwide economic conditions, including the impact of recessionary conditions on tourism, travel and the lodging industry; the impact of terrorism and war on the national and international economies, including tourism, securities markets, energy and fuel costs; natural disasters; general economic conditions and competition in the hotel industry in the San Francisco area; seasonality, labor relations and labor disruptions; actual and threatened pandemics such as swine flu or the outbreak of COVID-19 or similar outbreaks; the ability to obtain financing at favorable interest rates and terms; securities markets, regulatory factors, litigation and other factors discussed below in this Report and in the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2022. These risks and uncertainties could cause actual results to differ materially from those projected. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as to the date hereof. The Company undertakes no obligation to publicly release the results of any revisions to those forward-looking statements, which may be made to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events.

### COVID19 UPDATE

The novel strain of coronavirus and the disease it causes (“COVID-19”) have continued to affect the hospitality industry and our business. Beginning in March 2020, travel restrictions and mandated closings of non-essential businesses were imposed, which resulted in temporary suspensions of operations in many hotels in San Francisco, however, the Company did not suspend operations and did not close the hotel. As vaccination rates across the country increased and COVID-19 related restrictions were eased or removed, we saw an increase in travel and hospitality spending beginning in the second calendar quarter of 2021. During the second quarter of calendar year 2022, we continued to witness robust leisure demand and an acceleration in group and business transient demand. However, the potential for an economic slowdown or a recession during the second half of 2022 may disrupt the positive momentum at the Company’s hotel and our industry.

We believe the distribution of the COVID-19 vaccine during 2021 drove the improvement in traveler sentiment we experienced and resulted in an improvement in occupancy, Average Daily Rate (“ADR”) and Revenue per Available Room (“RevPAR”) during 2021. If additional virus variants emerge causing re-imposed widespread travel restrictions, the hospitality industry will be negatively affected. While there can be no assurances that the Company will not experience further fluctuations in hotel revenues or earnings due to the uncertainty of COVID-19 and other macroeconomic factors, such as inflation, increases in interest rates, potential economic slowdown or a recession and geopolitical conflicts, we expect to continue to recover through the remainder of fiscal year 2023 based on current demand trends.

### RESULTS OF OPERATIONS

As of September 30, 2022, the Company owned approximately 75.0% of the common shares of Portsmouth Square, Inc. The Company’s principal sources of revenue are revenues from the hotel owned by Portsmouth, rental income from its investments in multi-family and commercial real estate properties, and income received from investment of its cash and securities assets.

Portsmouth’s primary asset is a 544-room hotel property located at 750 Kearny Street, San Francisco, California 94108, known as the “Hilton San Francisco Financial District” (the “Hotel” or the “Property”) and related facilities, including a five-level underground parking garage. The financial statements of Portsmouth have been consolidated with those of the Company.

In addition to the operations of the Hotel, the Company also generates income from the ownership and management of its real estate. Properties include sixteen apartment complexes, one commercial real estate property, and three single-family houses as strategic investments. The properties are located throughout the United States, but are concentrated in Texas and Southern California. The Company also has an investment in unimproved real property in Hawaii.

The Company acquires its investments in real estate and other investments utilizing cash, securities or debt, subject to approval or guidelines of the Board of Directors. The Company also invests in income-producing instruments, equity and debt securities and will consider other investments if such investments offer growth or profit potential.

### Three Months Ended September 30, 2022 Compared to Three Months Ended September 30, 2021

The Company had a net loss of $201,000 and $2,906,000 for the three months ended September 30, 2022 September 30, 2021, respectively. The decrease was primarily attributable to increased revenues at the Hotel and offset by higher operating costs.

### Hotel Operations

The Company had net income from Hotel operations of $721,000 for the three months ended September 30, 2022 compared to net loss of $1,743,000 for the three months ended September 30, 2021. The change is primarily attributable to increase in Hotel revenue and occupancy.

The following table sets forth a more detailed presentation of Hotel operations for the three months ended September 30, 2022 and 2021:

| For the three months ended September 30, Hotel revenues: | 2022 | 2021 |
| --- | ---: | ---: |
| Hotel rooms | $10,803,000 | $5,562,000 |
| Food and beverage | 535,000 | 266,000 |
| Garage | 822,000 | 907,000 |
| Other operating departments | 150,000 | 70,000 |
| Total hotel revenues | 12,310,000 | 6,805,000 |
| Operating expenses excluding depreciation and amortization | (9,306,000) | (6,333,000) |
| Operating income before interest, depreciation and amortization | 3,004,000 | 472,000 |
| Interest expense - mortgage | (1,632,000) | (1,661,000) |
| Depreciation and amortization expense | (651,000) | (554,000) |
| Net income (loss) from Hotel operations | $721,000 | $(1,743,000) |

For the three months ended September 30, 2022, the Hotel had operating income of $3,004,000 before interest expense, depreciation, and amortization on total operating revenues of $12,310,000 compared to operating income of $472,000 before interest expense, depreciation, and amortization on total operating revenues of $6,805,000 for the three months ended September 30, 2021.

For the three months ended September 30, 2022, room revenues increased by $5,241,000, food and beverage revenue increased by $269,000 and garage decreased by $85,000 due to less people driving into the City and taking public transportation as the COVID-19 pandemic subsided and restrictions were lifted, compared to the three months ended September 30, 2021. The year over year increase in all the revenue sources except in garage revenues, are as a result of the recovery from the business interruption attributable to a variety of responses by federal, state, and local civil authority to the COVID-19 outbreak since March 2020. Total operating expenses increased by $2,973,000 due to increase in salaries and wages, commission, credit card fees, management fees, and franchise fees.

The following table sets forth the average daily room rate, average occupancy percentage and RevPAR of the Hotel for the three months ended September 30, 2022 and 2021.

| Three Months Ended September 30, | Average Daily Rate | Average Occupancy % | RevPAR |
| --- | ---: | ---: | ---: |
| **2022** | $230 | 94% | $216 |
| **2021** | $141 | 79% | $111 |

The Hotel’s revenues increased by 81% this quarter as compared to the previous comparable quarter. Average daily rate increased by $89, average occupancy increased by 15%, and RevPAR increased by $105 for the three months ended September 30, 2022 compared to the three months ended September 30, 2021.

### Real Estate Operations

Revenue from real estate operations decreased to $4,078,000 for the three months ended September 30, 2022 from $4,116,000 for the three months ended September 30, 2021 primarily due to increased vacancy at its Missouri property which is undergoing renovation and a rebranding campaign. Real estate operating expenses increased to $2,191,000 from $2,074,000 year over year primarily due to increased insurance expense, and painting – contract labor and maintenance and repair expenses. Management continues to review and analyze the Company’s real estate operations to improve occupancy and rental rates and to reduce expenses and improve efficiencies.

### Investment Transactions

The Company had a net loss on marketable securities of $810,000 for the three months ended September 30, 2022 compared to a net loss on marketable securities of $2,168,000 for the three months ended September 30, 2021. For the three months ended September 30, 2022, the Company had a net realized loss of $800,000 and a net unrealized loss of $10,000. For the three months ended September 30, 2021, the Company had a net realized gain of $2,253,000 and a net unrealized loss of $4,421,000.

Gains and losses on marketable securities may fluctuate significantly from period to period in the future and could have a significant impact on the Company’s results of operations. However, the amount of gain or loss on marketable securities for any given period may have no predictive value and variations in amount from period to period may have no analytical value. For a more detailed description of the composition of the Company’s marketable securities see the Marketable Securities section below.

The Company and its subsidiary Portsmouth, compute and file income tax returns and prepare discrete income tax provisions for financial reporting. The income tax benefit during the three months ended September 30, 2022 and 2021 represents primarily the combined income tax effect of Portsmouth’s pretax loss which includes the net loss from the Hotel and the pre-tax loss from InterGroup (standalone). InterGroup and Portsmouth file their respective income tax returns on a calendar year basis.

### MARKETABLE SECURITIES

The following table shows the composition of the Company’s marketable securities portfolio as of September 30, 2022 and June 30, 2022 by selected industry groups.

| As of September 30, 2022 Industry Group | Fair Value | % of Total Investment Securities |
| --- | ---: | ---: |
| REITs and real estate companies | $4,315,000 | 40% |
| Basic material | 1,301,000 | 12% |
| Technology | 1,081,000 | 10% |
| Financial services | 1,045,000 | 10% |
| Communication services | 948,000 | 9% |
| Consumer cyclical | 592,000 | 6% |
| Energy | 483,000 | 5% |
| Industrials | 22,000 | 0% |
| Other | 900,000 | 8% |
| Total | $10,687,000 | 100% |

| As of June 30, 2022 Industry Group | Fair Value | % of Total Investment Securities |
| --- | ---: | ---: |
| REITs and real estate companies | $3,289,000 | 30% |
| Communication services | 2,787,000 | 25% |
| Financial services | 1,755,000 | 16% |
| Technology | 815,000 | 7% |
| Basic material | 769,000 | 7% |
| Consumer cyclical | 693,000 | 6% |
| Industrials | 385,000 | 4% |
| Energy | 279,000 | 3% |
| Other | 277,000 | 2% |
|  | $11,049,000 | 100% |

As of September 30, 2022, the Company’s investment portfolio is diversified with 35 different equity positions. The Company held two equity securities that are more than 10% of the equity value of the portfolio each. The largest security position represents 25% of the portfolio and consists of the common stock of American Realty Investors, Inc. (NYSE: ARL) which is included in the REITs and real estate companies services industry group. The second largest position represents 13% of the portfolio and consists of the common stock of Essex Property Trust, Inc. (NYSE: ESS) which is included in REITs and real estate companies.

As of June 30, 2022, the Company’s investment portfolio is diversified with 38 different equity positions. The Company holds three equity securities that comprised more than 10% of the equity value of the portfolio. The three largest security positions represent 23%, 20%, and 13% of the portfolio and consists of the common stock of Paramount Global - Preferred Stock (NASDAQ: PARAP), American Realty Investors, Inc. (NYSE: ARL), and BlackRock Muni holdings California Quality Fund Inc. (NYSE: MUC), which are included the Communications, REITs and real estate companies, and Financial Services industry groups, respectively.

The following table shows the net loss on the Company’s marketable securities and the associated margin interest and trading expenses for the respective periods:

| For the three months ended September 30, | 2022 | 2021 |
| --- | ---: | ---: |
| Net loss on marketable securities | $(810,000) | $(1,818,000) |
| Net loss on marketable securities-Comstock | - | (350,000) |
| Dividend and interest income | 175,000 | 187,000 |
| Margin interest expense | (153,000) | (222,000) |
| Trading and management expenses | (112,000) | (132,000) |
| Net loss from investment transactions | $(900,000) | $(2,335,000) |

### FINANCIAL CONDITION, LIQUIDITY AND CAPITAL SOURCES

The Company had cash and cash equivalents of $12,219,000 and $14,367,000 as of September 30, 2022 and June 30, 2022, respectively. The Company had restricted cash of $8,662,000 and $8,982,000 as of September 30, 2022 and June 30, 2022, respectively. The Company had marketable securities, net of margin due to securities brokers, of $10,687,000 and $10,110,000 as of September 30, 2022 and June 30, 2022, respectively. These marketable securities are short-term investments and liquid in nature.

On December 16, 2020, Justice and InterGroup entered into a loan modification agreement which increased Justice’s borrowing from InterGroup as needed up to $10,000,000 and extended the maturity date of the loan to July 31, 2021. The maturity date was extended to July 31, 2023. Upon the dissolution of Justice in December 2021, Portsmouth assumed Justice’s note payable to InterGroup in the amount of $11,350,000. On December 31, 2021, Portsmouth and InterGroup entered into a loan modification agreement which increased Portsmouth’s borrowing from InterGroup as needed up to $16,000,000. During the fiscal year ending June 30, 2022, InterGroup advanced $7,550,000 to the Hotel, bringing the total amount due to InterGroup to $14,200,000 as of June 30, 2022 and September 30, 2022. During the three months ended September 30, 2022, Portsmouth did not need any additional funding and does not anticipate any need for funding from InterGroup in the near future. As of September 30, 2022, Portsmouth has not made any paid-downs to its note payable to InterGroup. Portsmouth could amend its by-laws and increase the number of authorized shares to issue additional shares to raise capital in the public markets if needed.

During the fiscal year ending June 30, 2022, the Company refinanced six of its properties’ existing mortgages and obtained a mortgage note payable on one of our California properties, generating net proceeds totaling $16,683,000. The Company is currently evaluating other refinancing opportunities and we could refinance additional multifamily properties should the need arise, or should management consider the interest rate environment favorable.

The Company had an uncollateralized $5,000,000 revolving line of credit (“LOC”) from CIBC Bank USA (“CIBC”) and the entire $5,000,000 was available to be drawn down as of June 30, 2022. In July 2022, the Company renewed it’s LOC for a reduced amount of $2,000,000 and is available in its entirety as of September 30, 2022.

Our known short-term liquidity requirements primarily consist of funds necessary to pay for operating and other expenditures, including management and franchise fees, corporate expenses, payroll and related costs, taxes, interest and principal payments on our outstanding indebtedness, and repairs and maintenance of the Hotel.

Our long-term liquidity requirements primarily consist of funds necessary to pay for scheduled debt maturities and capital improvements of the Hotel and our real estate properties. We will continue to finance our business activities primarily with existing cash, including from the activities described above, and cash generated from our operations. After considering our approach to liquidity and accessing our available sources of cash, we believe that our cash position, after giving effect to the transactions discussed above, will be adequate to meet anticipated requirements for operating and other expenditures, including corporate expenses, payroll and related benefits, taxes and compliance costs and other commitments, for at least twelve months from the date of issuance of these financial statements, even if current levels of low occupancy were to persist. The objectives of our cash management policy are to maintain existing leverage levels and the availability of liquidity, while minimizing operational costs. We believe that our cash on hand, along with other potential sources of liquidity that management may be able to obtain, will be sufficient to fund our working capital needs, as well as our capital lease and debt obligations for at least the next twelve months and beyond. However, there can be no guarantee that management will be successful with its plan.

### OFF-BALANCE SHEET ARRANGEMENTS

The Company has no off-balance sheet arrangements.

### MATERIAL CONTRACTUAL OBLIGATIONS

The following table provides a summary as of September 30, 2022, the Company’s material financial obligations which also includes interest payments.

|  | Total | 9 Months 2023 | Year 2024 | Year 2025 | Year 2026 | Year 2027 | Thereafter |
| --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: |
| Mortgage and subordinated notes payable | $194,578,000 | $7,087,000 | $108,421,000 | $3,970,000 | $1,174,000 | $3,304,000 | $70,622,000 |
| Related party notes payable | 3,379,000 | 425,000 | 567,000 | 567,000 | 567,000 | 463,000 | 790,000 |
| Interest | 33,388,000 | 6,643,000 | 5,630,000 | 2,491,000 | 2,371,000 | 2,264,000 | 13,989,000 |
| Total | $231,345,000 | $14,155,000 | $114,618,000 | $7,028,000 | $4,112,000 | $6,031,000 | $85,401,000 |

### IMPACT OF INFLATION

Hotel room rates are typically impacted by supply and demand factors, not inflation, since rental of a hotel room is usually for a limited number of nights. Room rates can be, and usually are, adjusted to account for inflationary cost increases. Since Aimbridge has the power and ability under the terms of its management agreement to adjust hotel room rates on an ongoing basis, there should be minimal impact on Hotel’s revenues due to inflation. The Company’s revenues are also subject to interest rate risks, which may be influenced by inflation. For the two most recent fiscal years, the impact of inflation on the Company’s income is not viewed by management as material.

The Company’s residential rental properties provide income from short-term operating leases and no lease extends beyond one year. Rental increases are expected to offset anticipated increased property operating expenses. The Company refinanced most of its mortgages with favorable long-term fixed interest rate mortgages during the past three fiscal years.

### CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Critical accounting policies are those that are most significant to the portrayal of our financial position and results of operations and require judgments by management in order to make estimates about the effect of matters that are inherently uncertain. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts in our consolidated financial statements. We evaluate our estimates on an on-going basis, including those related to the consolidation of our subsidiaries, to our revenues, allowances for bad debts, accruals, asset impairments, other investments, income taxes and commitments and contingencies. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities. The actual results may differ from these estimates, or our estimates may be affected by different assumptions or conditions.

## Market risk

As filed, 128 characters.

We are a smaller reporting company and therefore, we are not required to provide information required by this Item of Form 10-Q.

## Controls and procedures

As filed, 1,264 characters.

### EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES

The Company’s management, with the participation of the Company’s Chief Executive Officer and Principal Financial Officer, has evaluated the effectiveness of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the quarterly period covered by this Quarterly Report on Form 10-Q. Based upon such evaluation, the Chief Executive Officer and Principal Financial Officer have concluded that, as of the end of such period, the Company’s disclosure controls and procedures are effective in ensuring that information required to be disclosed in this filing is accumulated and communicated to management and is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission rules and forms.

### CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING

There have been no changes in the Company’s internal control over financial reporting during the last quarterly period covered by this Quarterly Report on Form 10-Q that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

### PART II.

### OTHER INFORMATION

Filed Nov 14, 2022.
Source: SEC EDGAR, the filing index for accession 0001493152-22-031560. Last ingested by Listed: Oct 24, 2026, 14:53 ET. No prices; not investment advice.