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 office and retail properties and also leases certain properties from third parties. This unaudited quarterly report covers the three months ended October 31, 2020, the first quarter of fiscal 2021, with comparisons to October 31, 2019. The company had 2,015,780 shares outstanding as of December 10, 2020.
Financial Performance and Position
| Metric | Q1 FY2021 | Q1 FY2020 | Change |
|---|---|---|---|
| Rental revenue | $4.835 million | $5.036 million | Down 4.0% |
| Operating income (loss) | ($361,000) | $184,000 | Declined $545,000 |
| Net income (loss) | ($415,000) | $129,000 | Declined $544,000 |
| Basic and diluted EPS | ($0.21) | $0.06 | Declined $0.27 |
| Cash flow from operations | $1.178 million | $2.129 million | Down 44.6% |
| Capital expenditures | $529,000 | $1.446 million | Down 63.4% |
Approximate operating margin declined to negative 7.5% from 3.7%, and net margin declined to negative 8.6% from 2.6%. The operating loss reflected lower rental revenue, higher real estate operating expenses, and higher depreciation. Investment results included a $215,000 unfavorable change in the fair value of marketable securities, compared with a $19,000 unfavorable change in the prior-year quarter. Interest expense increased to $86,000 from $27,000, primarily because of the Fishkill mortgage and the refinancing of the Brooklyn property mortgage.
| Balance sheet item | October 31, 2020 | July 31, 2020 |
|---|---|---|
| Total assets | $99.002 million | $100.420 million |
| Cash and cash equivalents | $3.821 million | $3.260 million |
| Restricted cash | $956,000 | $1.144 million |
| Marketable securities | $3.607 million | $3.745 million |
| Mortgages payable, net | $8.356 million | $8.628 million |
| PPP note payable | $723,000 | $723,000 |
| Total shareholders’ equity | $53.287 million | $53.702 million |
Cash, cash equivalents, and restricted cash totaled $4.777 million at October 31, 2020, compared with $5.904 million a year earlier. The company generated $1.178 million of operating cash flow, used $523,000 in investing activities, and used $282,000 for debt payments, resulting in a $374,000 increase in cash, cash equivalents, and restricted cash during the quarter. The filing reports $9.238 million of fixed-rate debt subject to limited interest-rate risk.
Material Changes Versus the Prior Comparable Period
- Rental revenue decreased $201,000, primarily because of lost rental income from four tenants, partially offset by two new tenants.
- Real estate operating expenses increased $334,000 to $3.583 million, mainly because of higher real estate taxes, maintenance costs, and rent expense.
- Administrative and general expenses decreased $46,000, primarily because of lower bad debt expense.
- Depreciation increased $57,000 to $444,000 because of improvements at the Jamaica and Fishkill properties.
- Operating cash flow decreased $951,000, partly reflecting lower earnings and changes in working capital.
- The allowance for uncollectible receivables declined from $82,000 at July 31, 2020 to $64,000 at October 31, 2020; the company recorded an $18,000 recovery and no bad debt expense during the quarter.
Guidance, Outlook, Risks, Contingencies, and Unusual Items
The filing provides no formal financial guidance. Management states that the continuing COVID-19 pandemic could cause lower rental income and occupancy, higher bad debt expense, tenant credit deterioration, weaker operating cash flow, and declines in the value of equity investments. Many expenses are relatively fixed and may not decline proportionately with revenue.
Subsequent to quarter-end, the company reported several leasing developments: a 5,300-square-foot retail lease at Nine Bond Street, a 23,000-square-foot office lease at the Jowein building, and a 5,500-square-foot retail lease. Occupancy and rental payments for these leases were expected to begin between early 2021 and late spring 2021. The 23,000-square-foot lease is expected to require approximately $625,000 of renovations and $979,000 of brokerage commissions.
The $723,000 PPP loan bears interest at 0.98%. The company expected to apply for forgiveness; any forgiven amount was expected to be recorded as debt extinguishment income, but the filing does not confirm the ultimate forgiveness outcome.
Two tenants represented approximately 30% of quarterly rental revenue, and six tenants represented approximately 60% of receivables at October 31, 2020. The company has related-party operating leases with Weinstein Enterprises, principally owned by the chairman of both companies; rent expense for these leases was $467,000 during the quarter.
Various lawsuits and claims are pending in the ordinary course of business, but management does not expect them to have a material adverse effect. A potential obligation to create a condominium unit for a loading dock at 25 Elm Place could arise if the property is sold, transferred, disposed of, or demolished; the necessity and cost remain undetermined. The company also participates in a union multi-employer pension plan classified as critical and declining, and any potential withdrawal liability cannot be determined.
Important Facts for Investors to Verify
- Whether COVID-19 causes renewed rent collection problems, additional abatements or deferrals, higher credit-loss provisions, or lower occupancy.
- The status and ultimate forgiveness of the $723,000 PPP loan.
- The timing and economics of the post-quarter-end leases, including required tenant improvements and brokerage costs.
- Exposure to tenant concentration, particularly the two tenants generating 30% of quarterly rental revenue.
- Future volatility in the $3.607 million equity-securities portfolio and its effect on reported earnings.
- The company’s ability to fund fixed operating lease obligations, debt maturities, related-party lease payments, and planned property improvements.
- The potential cost of the 25 Elm Place condominium-unit contingency and any liability associated with the critical and declining multi-employer pension plan.