BUSINESS OVERVIEW AND HISTORY
The InterGroup Corporation (INTG) is a diversified holding company with a storied history spanning over five decades. Founded in 1965, the company has evolved from its initial real estate investments to become a multifaceted enterprise with a diverse portfolio of assets, including a substantial hotel property, extensive residential and commercial real estate holdings, and a strategic investment portfolio.
The InterGroup Corporation was established in Delaware in the 1970s, with its principal assets and sources of revenue being hotel properties and real estate investments. The cornerstone of InterGroup's operations is the Hilton San Francisco Financial District, a 544-room hotel property located in the heart of San Francisco. This property was purchased and improved by InterGroup's subsidiary Portsmouth Square, Inc. in the early 2000s and has since become the company's primary asset and revenue generator.
Over the years, InterGroup has invested heavily in upgrading and modernizing the hotel, ensuring it remains a premier destination for both business and leisure travelers. The company has undertaken major renovations to upgrade the hotel's guest rooms, public spaces, and other facilities in an effort to position the property for a strong recovery, particularly in the wake of challenges posed by the COVID-19 pandemic.
In addition to its hotel operations, InterGroup has built an extensive real estate portfolio, with 16 apartment complexes, one commercial property, and three single-family homes strategically located across the United States, primarily in Texas and Southern California. The company's real estate assets provide a stable stream of rental income and offer opportunities for appreciation. This diverse portfolio of multi-family residential and commercial real estate properties has helped supplement the hotel's performance, especially during periods of volatility in the hospitality industry.
Complementing its operational businesses, InterGroup maintains a portfolio of marketable securities, including corporate equities, REITs, and other income-producing instruments. This investment arm allows the company to diversify its revenue sources and capitalize on market opportunities.
FINANCIALS AND PERFORMANCE
InterGroup's financial performance has been marked by both successes and challenges in recent years. For the fiscal year ended December 31, 2024, the company reported annual revenue of $58.14 million and a net loss of $9.80 million. The company's annual operating cash flow stood at $6.81 million, with a free cash flow of $425,000.
In the most recent quarter (Q2 2025), InterGroup reported revenue of $14.44 million and a net loss of $2.73 million. The year-over-year growth in revenue was flat, primarily due to the continued challenges faced by the hospitality industry in San Francisco, where the company's main hotel property is located. The decrease in net income was largely attributable to an increase in mortgage interest expense resulting from a 4% default additional interest rate.
Breaking down the company's performance by segment for the six months ended December 31, 2024:
Hotel Operations generated $21.79 million in total revenue, with room revenue accounting for $18.51 million, food and beverage $1.39 million, garage $1.66 million, and other departments $232,000. This segment reported a net loss of $3.56 million, primarily due to increased mortgage interest expense. Key performance metrics for the hotel include an average daily rate of $200, average occupancy of 92%, and revenue per available room (RevPAR) of $184.
Real Estate Operations contributed $9.56 million in revenue, up from $8.51 million in the prior-year period, mainly due to decreased vacancy at the company's Missouri property. Real estate operating expenses decreased to $4.67 million from $5.16 million year-over-year, resulting in segment income of $4.90 million.
Investment Transactions reported a net loss of $1.01 million, compared to a net gain of $542,000 in the prior-year period. The loss was primarily due to a $255,000 net realized loss and a $214,000 net unrealized loss on the company's marketable securities portfolio.
LIQUIDITY
The company's liquidity position remains a concern, as it faces the maturity of a $100.29 million senior mortgage loan and mezzanine loan on its hotel property, which was due on January 1, 2024. To address this issue, InterGroup entered into forbearance agreements with its lenders in April 2024, extending the maturity date to January 1, 2025. However, the company was unable to fully repay the debt by the forbearance expiration date, leading to a Notice of Termination from the senior loan special servicer in January 2025.
Despite these challenges, InterGroup has made significant progress in its efforts to refinance the existing debt. In January 2025, the company executed a non-binding term sheet with Prime Finance to refinance the senior mortgage loan and received new terms from its current mezzanine lender, CRED Reit Holdco LLC. The company is in advanced discussions with both lenders and believes that, based on the progress of negotiations, the refinancing will be successfully completed by March 2025.
As of December 31, 2024, InterGroup's liquidity metrics were as follows: - Debt/Equity ratio: -2.35 - Cash and cash equivalents: $10.42 million - Available credit line: $30 million, of which $27.62 million was outstanding - Current ratio: 1.08 - Quick ratio: 1.08
These figures highlight the company's tight liquidity position and the importance of successfully refinancing its hotel debt.
GEOGRAPHICAL AND REVENUE BREAKDOWN
InterGroup's revenue is derived primarily from its hotel operations and real estate investments. The company's hotel property, the Hilton San Francisco Financial District, is located in the heart of San Francisco and has been a significant contributor to the company's top line, accounting for $21.79 million in revenue for the six months ended December 31, 2024.
The company's real estate segment, which includes 16 apartment complexes, one commercial property, and three single-family homes, generated $9.56 million in revenue during the same period. These properties are concentrated in Texas and Southern California, providing the company with geographical diversification and exposure to different regional markets.
While the hotel's performance has been impacted by the challenges facing the hospitality industry, particularly in the San Francisco market, the company's real estate investments have provided a more stable source of revenue, helping to offset the volatility experienced in the hotel operations.
IMPACT OF EXTERNAL FACTORS
InterGroup's performance has been significantly influenced by external factors, including the ongoing effects of the COVID-19 pandemic and the challenging political and economic climate in the city of San Francisco.
The COVID-19 pandemic had a severe impact on the hospitality industry, with hotel occupancy and revenue declining significantly. InterGroup's Hilton San Francisco Financial District property was not immune to these challenges, as business and leisure travel were curtailed. The company has taken various measures to mitigate the impact, including implementing strict cost management initiatives and temporarily closing certain hotel services and outlets.
Additionally, the political and economic climate in San Francisco has posed ongoing challenges for the company. The city's policies regarding homelessness, crime, and public safety have contributed to a slower-than-average recovery for the hotel industry, as the city's reputation has become less attractive to both business and leisure travelers.
RECENT DEVELOPMENTS AND OUTLOOK
In the face of these challenges, InterGroup has demonstrated resilience and a commitment to navigating the complexities of its operating environment. The company's efforts to refinance its hotel debt, as well as its investments in modernizing and upgrading the Hilton San Francisco Financial District property, underscore its dedication to positioning the business for long-term success.
Management remains focused on improving operational efficiency, occupancy, and rental rates across all business segments to drive profitability and long-term shareholder value. The company continues to pursue refinancing solutions for its maturing mortgage and mezzanine loans, which have raised substantial doubt about the company's ability to continue as a going concern within the next year.
InterGroup's investment portfolio, valued at $5.66 million as of December 31, 2024, is diversified across various industry sectors, with the largest holdings in REITs and real estate companies (51% of the portfolio), healthcare (17%), and financial services (7%). This diversification strategy helps to mitigate risks and provide additional income streams for the company.
While the company's liquidity concerns and the uncertainty surrounding the hotel refinancing process continue to be areas of focus, InterGroup's diversified business model and its ongoing initiatives to improve operational efficiency and explore new growth opportunities provide a foundation for a more stable and sustainable future.
As the company continues to navigate the evolving landscape, investors will closely monitor InterGroup's ability to execute its refinancing strategy, maintain the strength of its real estate investments, and capitalize on any potential improvements in the San Francisco market. The company's proven track record of adaptability and its commitment to creating long-term value for shareholders will be key factors in determining its future success.