J.W. Mays, Inc. Form 10-Q Summary
Business Context and Reporting Period
J.W. Mays, Inc. is a real estate company that owns and leases commercial properties and also operates leased properties through subleasing arrangements. This fiscal 2024 first-quarter report covers the three months ended October 31, 2023, with comparison to October 31, 2022. The interim financial statements are unaudited.
Financial Performance and Position
| Metric | Q1 FY2024 | Q1 FY2023 |
|---|---|---|
| Rental revenue | $5.324 million | $5.770 million |
| Operating income (loss) | $(52 thousand) | $316 thousand |
| Income (loss) before taxes | $(248 thousand) | $75 thousand |
| Net income (loss) | $(193 thousand) | $60 thousand |
| Basic and diluted earnings (loss) per share | $(0.10) | $0.03 |
| Cash flow from operations | $1.757 million | $2.543 million |
- Revenue declined approximately 7.7% year over year. Operating margin was approximately negative 1.0%, compared with positive 5.5% in the prior-year quarter.
- Real estate operating expenses decreased to $3.693 million from $3.785 million, while administrative and general expenses were essentially unchanged at $1.255 million. Depreciation increased modestly to $428 thousand.
- Investment income was $9 thousand. The change in fair value of marketable securities produced a $164 thousand loss, compared with a $187 thousand loss in the prior-year quarter. Interest expense declined to $42 thousand from $63 thousand.
- At October 31, 2023, total assets were $90.980 million, including $47.300 million of net property and equipment, $2.339 million of cash and cash equivalents, $1.002 million of restricted cash, and $2.137 million of marketable securities.
- Total liabilities were $37.868 million and shareholders’ equity was $53.112 million. Net mortgage debt was $4.832 million; operating lease liabilities were $26.219 million.
- Cash, cash equivalents and restricted cash increased to $3.341 million from $2.218 million at July 31, 2023. Operating cash flow exceeded $313 thousand of capital expenditures and $322 thousand of mortgage and other debt payments.
- Future minimum non-cancelable rental income disclosed at October 31, 2023 totaled $89.248 million, including $64.750 million from company-owned properties and $24.498 million from leased properties.
Material Changes Versus the Prior Comparable Period
- The company moved from net income of $60 thousand to a net loss of $193 thousand, primarily because of lower rental revenue.
- Management attributed the revenue decrease primarily to the loss of a tenant whose lease terminated effective March 31, 2023 and reduced rent from a seasonal tenant occupying less space.
- Lower real estate operating costs, lower interest expense and a smaller marketable-securities loss partially offset the revenue decline.
- Operating cash flow decreased by approximately $786 thousand, primarily reflecting lower earnings and changes in working capital, although cash generation remained positive.
- Mortgage debt declined from $5.144 million at July 31, 2023 to $4.832 million at October 31, 2023. The two disclosed mortgages mature on December 1, 2024 and April 1, 2025.
Guidance, Outlook, Risks, Contingencies and Unusual Items
- The filing provides no quantitative earnings, revenue or occupancy guidance. Management states that interim results are not necessarily indicative of the full fiscal year.
- During the quarter, a Jamaica, New York tenant renewed 22,045 square feet for five years through June 30, 2028. The company also entered into a four-month, approximately 25,000-square-foot Fishkill storage lease, producing $162 thousand of prepaid rent, and extended other leases through September 30, 2024.
- The company has related-party operating leases with Weinstein Enterprises, principally owned by the chairman of both entities. Rent payments under those leases were $247 thousand during the quarter, and related operating lease liabilities totaled $7.632 million at October 31, 2023.
- Three tenants represented approximately 50% of receivables at October 31, 2023, and two tenants represented approximately 27% of quarterly rental revenue, creating tenant-concentration risk.
- The company participates in a multi-employer pension plan classified as critical and declining. The company’s contribution rate is 20.16% of covered employee pay through November 30, 2025, and any withdrawal liability cannot be determined.
- Various lawsuits and claims are pending, but management believes they will not materially affect the consolidated financial statements. If the company sells, transfers, disposes of or demolishes 25 Elm Place, it may be required to create a condominium unit for a loading dock; the related cost has not been determined.
- Key risks identified include lease cancellations, tenant financial condition, access to credit, loan-covenant compliance, litigation, economic and inflationary conditions, competition, regulatory changes and recoverability of receivables.
- The company uses fixed-rate debt and reported $4.877 million of fixed-rate debt for market-risk purposes. It does not use derivative instruments.
- Management reported that disclosure controls were effective and that there were no material changes in internal control over financial reporting.
Investor Verification Checklist
- Verify the status and replacement prospects for the tenant that terminated its lease on March 31, 2023, and assess related occupancy and revenue exposure.
- Review lease maturities, renewals and concentration among major tenants, including the 2024 and 2025 mortgage maturities.
- Assess liquidity after required debt payments, capital expenditures, brokerage commissions and operating lease obligations.
- Evaluate the related-party lease arrangements and the financial effect of the Jamaica Avenue lease expiration and extension options.
- Monitor the critical-and-declining multi-employer pension plan and potential withdrawal liability.
- Review marketable-securities volatility, tenant receivable concentrations and the unresolved 25 Elm Place contingency.