J.W. Mays, Inc. 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, primarily in New York. This unaudited Form 10-Q covers the three months ended October 31, 2021, the first quarter of fiscal 2022, with comparison to the three months ended October 31, 2020.
Financial Performance and Position
| Metric | Q1 FY2022 | Q1 FY2021 | Change |
|---|---|---|---|
| Rental revenue | $5.080 million | $4.835 million | +5.1% |
| Loss from operations | $(406) thousand | $(361) thousand | Loss increased |
| Net loss | $(391) thousand | $(415) thousand | Loss improved $25 thousand |
| Basic and diluted loss per share | $(0.19) | $(0.21) | Improved |
| Cash provided by operating activities | $1.309 million | $1.178 million | +$131 thousand |
| Capital expenditures | $463 thousand | $529 thousand | Decreased $66 thousand |
| Ending cash, cash equivalents and restricted cash | $2.986 million | $4.777 million | Decreased $1.791 million |
Operating expenses were $5.486 million, up from $5.196 million. Real estate operating expenses rose to $3.630 million, administrative and general expenses increased to $1.404 million, and depreciation increased to $451 thousand. The operating margin was approximately negative 8.0%, compared with negative 7.5% in the prior-year quarter. The net margin improved to approximately negative 7.7% from negative 8.6%.
At October 31, 2021, total assets were $96.039 million, including $48.078 million of net property and equipment, $2.096 million of cash and cash equivalents, and $3.849 million of marketable securities. Total liabilities were $42.330 million and shareholders’ equity was $53.709 million.
Mortgage liabilities were $7.234 million net of deferred financing costs. The mortgages bear fixed interest rates of 4.375% and 3.98%, with final payment dates in 2024 and 2025. Management reported fixed-rate debt of $7.355 million for market-risk purposes. The company paid $294 thousand of mortgage and other debt principal during the quarter and reported no derivatives or variable-rate debt exposure.
Material Changes Versus the Prior Comparable Period
- Rental revenue increased $245 thousand, primarily from two new tenants and rent increases from existing tenants.
- Administrative and general expense increased $235 thousand, principally due to higher insurance and bad debt expense.
- Bad debt expense was $208 thousand, compared with an $18 thousand recovery in the prior-year quarter. Management separately stated that $63 thousand of bad debt expense was incurred from August through October 2021; the filing text does not clearly reconcile this amount to the expense shown in the cash flow disclosure.
- Investment income declined to $7 thousand from $89 thousand. The company recorded a $53 thousand loss from changes in the fair value of marketable securities, compared with a $215 thousand loss in the prior-year quarter.
- Cash from operations increased, but ending cash, cash equivalents and restricted cash declined because of the much lower beginning cash balance and ongoing investing and financing expenditures.
- The allowance for uncollectible receivables increased to $381 thousand at October 31, 2021 from $318 thousand at July 31, 2021. COVID-19-related rent deferrals included in receivables were $337 thousand.
- The company invested in Fishkill property improvements, including parking-lot resurfacing, canopy work and elevator modernization. The elevator project had a total expected cost of $892 thousand and was anticipated to be completed in May 2022.
Outlook, Risks, Contingencies and Unusual Items
Management did not provide formal quantitative earnings or revenue guidance. New leases and lease commencements were expected to support future revenue, including a 23,000-square-foot office lease at the Jowein building and additional leases at Nine Bond Street. However, a Nine Bond Street retail tenant exercised an option to terminate its 5,350-square-foot lease effective May 31, 2022, which management estimates will reduce annual rental income by approximately $320 thousand.
COVID-19 continued to cause late rent payments, rent deferrals, credit deterioration risk and volatility in equity investment values. Management cautioned that lower occupancy, reduced rental income, higher bad debt expense, depressed economic activity and less operating cash flow could result if pandemic effects continue. Many expenses are relatively fixed and may not decline proportionately with revenue.
The company had future minimum rental income of $95.312 million under leases with initial or remaining terms of at least one year. It also reported operating lease liabilities of $27.512 million, with undiscounted future payments of $35.591 million. Related-party leases with Weinstein Enterprises, principally owned by the chairman of both companies, generated $467 thousand of rent expense during the quarter.
The company participates in a multi-employer pension plan classified as critical and declining. A potential withdrawal liability cannot be determined, although management stated it has not decided to withdraw. The union contract expires November 30, 2022.
Various lawsuits and claims are pending in the ordinary course of business; management does not expect them to have a material adverse effect. 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, but the requirement and cost have not been determined.
Management concluded that disclosure controls and procedures were effective and reported no material changes in internal control over financial reporting. No changes were reported to the risk factors from the fiscal 2021 Form 10-K.
Important Facts for Investors to Verify
- Whether COVID-19-related receivable delinquencies, rent deferrals and the $381 thousand allowance continue to increase.
- Actual occupancy, rent commencement and collections for the new leases, including the 23,000-square-foot Jowein tenant.
- The effect of the Nine Bond Street lease termination and the estimated $320 thousand annual rental-income reduction.
- Remaining costs and completion timing for the Fishkill elevator modernization and other capital projects.
- Liquidity relative to mortgage principal payments, operating lease obligations and the brokerage commission balance of $1.205 million.
- Exposure to market-value changes in the $3.849 million portfolio of equity securities and mutual funds.
- Potential obligations associated with the critical-and-declining multi-employer pension plan and related union contract renewal.
- The filing’s differing bad-debt references: $208 thousand of bad debt expense in the statement of cash flows versus management’s separate reference to $63 thousand for August through October 2021.