J.W. Mays, Inc. Form 10-Q Summary
Reporting period: Three and six months ended January 31, 2023; filed March 9, 2023. J.W. Mays is a real estate operating company generating rental income from owned and leased commercial properties. The interim financial statements are unaudited.
Financial Performance and Position
| Metric | Three Months Ended January 31, 2023 | Prior Year | Six Months Ended January 31, 2023 | Prior Year |
|---|---|---|---|---|
| Rental revenue | $5.84 million | $5.33 million | $11.61 million | $10.41 million |
| Income (loss) from operations | $50,005 | $(211,540) | $365,591 | $(617,497) |
| Net income (loss) | $44,738 | $(195,830) | $104,255 | $(586,580) |
| Basic and diluted EPS | $0.02 | $(0.10) | $0.05 | $(0.29) |
| Cash provided by operating activities | Not separately disclosed | Not separately disclosed | $1.77 million | $797,650 |
- Revenue increased approximately 9.6% for the quarter and 11.5% for the six-month period, primarily from several new tenants and higher rents from existing tenants.
- Estimated operating margin improved to approximately 0.9% for the quarter and 3.2% for the six months, compared with negative margins of approximately 4.0% and 5.9%, respectively, in the prior-year periods.
- Estimated net margin improved to approximately 0.8% for the quarter and 0.9% for the six months, compared with negative margins of approximately 3.7% and 5.6%, respectively, in the prior-year periods.
- Real estate operating expenses rose to $3.96 million for the quarter and $7.74 million for the six months, primarily due to higher real estate taxes and building maintenance costs.
- Administrative and general expenses declined year over year, while depreciation also decreased.
- Cash, cash equivalents and restricted cash totaled $2.34 million at January 31, 2023, including $1.35 million of unrestricted cash and cash equivalents. Cash and restricted cash increased by $268,621 during the six months.
- Marketable securities totaled $2.65 million, down from $2.76 million at July 31, 2022.
- Property and equipment, net, totaled $48.04 million. Total assets were $92.18 million, compared with $94.01 million at July 31, 2022.
- Mortgages payable, net of deferred financing costs, totaled $5.76 million. The company reported fixed-rate debt of $5.83 million for market-risk purposes; mortgage maturities are December 2024 and April 2025.
- Operating lease liabilities totaled $25.93 million, with total undiscounted operating lease payments of $33.21 million. The weighted-average remaining lease term was 16.36 years and the weighted-average discount rate was 2.95%.
- Shareholders’ equity was $53.49 million at January 31, 2023. No dividends were declared or paid.
Material Changes Versus the Prior Comparable Period
- The company moved from a net loss to net income in both the quarter and first six months, supported by higher rental revenue, lower bad-debt expense, and improved marketable-securities fair values.
- The quarter included a $5,762 gain from changes in marketable-securities fair value, compared with a $183,611 loss in the prior-year quarter. For the six-month period, the company recorded a $181,441 unrealized loss, an improvement from the prior-year $236,738 loss.
- Operating cash flow increased to $1.77 million from $797,650, while capital expenditures declined modestly to $821,329 from $871,988.
- Mortgage principal payments were $618,825 during the six months, compared with $592,124 in the prior-year period.
- The allowance for uncollectible receivables decreased to $159,000 from $393,000, and rent deferrals included in receivables decreased to $110,000 from $250,000.
- Capital projects included Fishkill canopy work and elevator modernization, as well as facade restoration at the Nine Bond Street property.
Guidance, Outlook, Risks, Contingencies and Unusual Items
- The filing does not provide quantitative earnings or revenue guidance. Management states that interim results are not necessarily indicative of the full fiscal year.
- As of February 24, 2023, a tenant occupying 46,421 square feet at Nine Bond Street expressed its intent to terminate effective March 31, 2023. Management estimates an annual rental-income loss of approximately $1.0 million.
- Other lease terminations are expected to reduce annual rental income by approximately $70,000, $120,000 and $204,000, respectively. Offsetting items include lease extensions and renewals, including a five-year renewal at the Levittown property.
- The company leases two properties from Weinstein Enterprises, an affiliated company principally owned by the chairman of both entities. Six-month rent expense under these related-party leases was $949,316, and the 504-506 Fulton Street lease was modified to increase monthly payments beginning in May 2026.
- Five tenants represented approximately 57% of receivables at January 31, 2023, and two tenants represented approximately 30% of six-month rental revenue, creating tenant-concentration risk.
- The company participates in a multi-employer pension plan classified as critical and declining. Its contribution rate was 20.16% of covered employee pay through November 30, 2025. Any potential withdrawal liability cannot be determined from the filing.
- Various lawsuits and claims are pending, but management believes they will not materially adversely affect the company. A potential obligation related to creating a condominium unit at 25 Elm Place has not been quantified.
- Key disclosed risks include lease cancellations, tenant financial condition, economic conditions, access to credit, loan-covenant compliance, litigation, competition, cost estimates, regulatory changes, pandemics and COVID-19 effects.
- Management concluded that disclosure controls were effective and reported no material changes in internal control over financial reporting.
Important Facts for Investors to Verify
- Confirm whether the Nine Bond Street tenant’s stated termination occurred and quantify the resulting vacancy, lost rent and potential re-leasing costs.
- Review mortgage maturities, refinancing capacity and compliance with applicable loan covenants, particularly through April 2025.
- Assess tenant concentration, receivable collectibility, COVID-related rent deferrals and the adequacy of the allowance for uncollectible accounts.
- Evaluate the effect of related-party leases and the 504-506 Fulton Street modification on future operating costs and governance risk.
- Monitor the critical-and-declining multi-employer pension plan and any potential withdrawal liability.
- Reconcile reported fixed-rate debt of $5.83 million with mortgage liabilities of $5.76 million net of deferred financing costs, and distinguish these amounts from operating lease liabilities.
- Assess the company’s ability to fund planned capital expenditures and debt payments using approximately $1.35 million of unrestricted cash and $1.77 million of six-month operating cash flow.