J.W. Mays, Inc. Form 10-Q Summary
Reporting period: Three and nine months ended April 30, 2021; fiscal year ended July 31. The company is a real estate operator deriving revenue principally from commercial property rentals. The financial statements are unaudited and should be read with the fiscal 2020 Form 10-K.
Financial Results and Position
| Metric | Three Months Ended April 30 | Nine Months Ended April 30 |
|---|---|---|
| Rental revenue | $5.162 million | $15.044 million |
| Operating loss | $0.242 million | $0.931 million |
| Net loss | $0.042 million | $0.511 million |
| Loss per share | $0.02 | $0.25 |
| Cash provided by operating activities | Not separately provided | $1.498 million |
- Three-month revenue increased 0.6% year over year, while nine-month revenue decreased 1.1%.
- Three-month operating expenses declined overall, primarily because administrative and general expenses fell $527,000, partially offset by higher real estate operating expenses and depreciation.
- Nine-month real estate operating expenses increased to $10.883 million from $10.247 million, while administrative and general expenses declined to $3.757 million from $4.298 million.
- Investment income and fair-value gains on marketable securities produced a net benefit of $174,000 for the quarter and $197,000 for the nine-month period, compared with net investment and interest costs of $327,000 and $177,000, respectively, in the prior-year periods.
- At April 30, 2021, total assets were $98.071 million, including $48.044 million of net property and equipment, $2.316 million of cash and cash equivalents, and $4.191 million of marketable securities.
- Total liabilities were $44.880 million and shareholders’ equity was $53.191 million. Mortgages payable, net, were $7.801 million, and the PPP note payable was $723,000 before subsequent forgiveness.
- Cash, cash equivalents, and restricted cash totaled $3.178 million at April 30, 2021, down from $7.270 million at April 30, 2020 and $4.404 million at July 31, 2020.
- Nine-month investing cash outflows were $1.868 million, primarily for property and equipment. Financing cash outflows were $856,000, primarily mortgage and other debt repayments.
- Operating lease liabilities were $28.167 million, supported by $35.198 million of operating lease right-of-use assets. Undiscounted operating lease cash flows totaled $36.645 million.
Material Changes Versus the Prior Comparable Period
- Quarterly net loss improved from $585,000 to $42,000; the nine-month net loss was substantially unchanged at $511,000 versus $514,000.
- New tenants contributed to quarterly revenue growth, but nine-month revenue was reduced by lost rental income from four tenants and the partial surrender of space by another tenant.
- Bad debt expense declined to $209,000 for the nine-month period from $596,000, although the allowance for uncollectible receivables increased to $291,000 from $82,000 at July 31, 2020.
- Capital expenditures declined to $1.781 million from $5.439 million in the prior-year nine-month period.
- The company made $856,000 of debt repayments during the nine-month period; it received $4.867 million of mortgage borrowing in the prior-year period.
- Marketable securities increased in fair value, contributing $277,000 of fair-value gains versus a $205,000 loss in the prior-year period.
- Construction and renovation activity continued at the Jamaica, Fishkill, Jowein, and other properties. The company also reported new and extended leases, including a 15-year community-college lease at Fishkill.
Outlook, Risks, Contingencies, and Unusual Items
- Management states that COVID-19 continued to cause late rent payments, tenant credit deterioration, and volatility in equity investment valuations through April 30, 2021. The full impact remains unknown and could reduce rental revenue, occupancy, operating cash flow, and investment values.
- Rent abatements and deferrals related to COVID-19 during the quarter were $3,200 and $155,000, respectively; nine-month amounts were $12,628 and $190,000.
- On May 26, 2021, the SBA authorized full forgiveness of the $722,726 PPP loan plus accrued interest. The company expects to record debt extinguishment income in the quarter and fiscal year ending July 31, 2021.
- Pending lawsuits and ordinary-course claims are not expected by management to have a material adverse effect, but the filing does not quantify potential exposure.
- 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 requirement and cost have not been determined.
- The company has significant tenant and lease concentration: four tenants represented approximately 55% of receivables, and two tenants represented 30% of nine-month rental revenue.
- The company leases certain properties from Weinstein Enterprises, an affiliated company principally owned by the chairman of both companies. Related-party rent payments were $740,000 for the nine-month period.
- The company participates in a multi-employer pension plan classified as critical and declining. A potential withdrawal liability cannot be determined; the company has not decided to withdraw.
- Management identifies risks relating to economic conditions, tenant financial condition, lease cancellations, financing and loan covenants, litigation, regulatory changes, competition, cost estimates, and the continuing pandemic.
- Management reported that disclosure controls and procedures were effective and that there were no material changes in internal control over financial reporting.
Important Facts for Investors to Verify
- Confirm the accounting and timing of the $722,726 PPP forgiveness and related debt-extinguishment income in the July 31, 2021 financial statements.
- Monitor rent collections, tenant concentration, the $291,000 receivables allowance, and further COVID-19-related abatements or deferrals.
- Assess recurring property operating costs, required renovation and brokerage expenditures, and whether new leases generate expected occupancy and cash rent.
- Reconcile reported fixed-rate debt of $7.941 million in the market-risk disclosure with the balance-sheet mortgage and note-payable amounts.
- Evaluate liquidity after capital expenditures, mortgage amortization, operating lease obligations, and potential changes in rental income.
- Review related-party leases and the potential transfer of improvements to the affiliated landlord upon termination of the Jamaica Avenue lease.
- Consider the unresolved 25 Elm Place condominium obligation and the unquantified potential multi-employer pension withdrawal liability.