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 subleases leased properties. This unaudited Form 10-Q covers the three and nine months ended April 30, 2022, the Company’s fiscal third quarter and first nine months of fiscal 2022. The Company was a smaller reporting company with 2,015,780 common shares outstanding as of June 9, 2022.
Key Financial Metrics
| Metric | Three months ended April 30, 2022 | Three months ended April 30, 2021 | Nine months ended April 30, 2022 | Nine months ended April 30, 2021 |
|---|---|---|---|---|
| Rental revenue | $5.484 million | $5.162 million | $15.892 million | $15.044 million |
| Income (loss) from operations | $17,272 | $(242,236) | $(600,225) | $(931,173) |
| Net income (loss) | $(57,037) | $(41,921) | $(643,617) | $(511,452) |
| Basic and diluted loss per share | $(0.03) | $(0.02) | $(0.32) | $(0.25) |
| Cash provided by operating activities | Not separately provided | Not separately provided | $2.563 million | $1.498 million |
Operating margin was approximately 0.3% for the quarter and (3.8%) for the nine-month period, compared with approximately (4.7%) and (6.2%), respectively, in the comparable periods. Net margin was approximately (1.0%) for the quarter and (4.0%) for the nine months.
- At April 30, 2022, total assets were $94.159 million, including $48.144 million of net property and equipment, $1.910 million of cash and cash equivalents, $1.067 million of restricted cash, and $3.375 million of marketable securities.
- Total liabilities were $40.702 million and shareholders’ equity was $53.456 million.
- Mortgages payable, net of deferred financing costs, were $6.653 million. The mortgages bear fixed interest rates of 3.98% and 4.375% and mature in 2024 and 2025. The market-risk disclosure separately reports fixed-rate debt of $6.756 million.
- Operating lease liabilities were $26.844 million, supported by $32.656 million of operating lease right-of-use assets.
- Cash, cash equivalents and restricted cash increased to $2.977 million at April 30, 2022 from $2.435 million at July 31, 2021.
- The Company had no dividends during either comparable period.
Material Changes Versus the Prior Comparable Period
- Quarterly rental revenue increased 6.2%, and nine-month rental revenue increased 5.6%, primarily from five new tenants and rent increases from existing tenants.
- Quarterly operating results improved from a $242,236 operating loss to $17,272 of operating income. The nine-month operating loss narrowed from $931,173 to $600,225.
- Despite improved operating results, quarterly net loss increased to $57,037 from $41,921, and nine-month net loss increased to $643,617 from $511,452. The principal factor was the change in fair value of marketable securities: a $61,161 loss in the quarter and a $297,899 loss for nine months, compared with gains of $252,736 and $276,751, respectively, in the prior-year periods.
- Real estate operating expenses increased to $3.764 million for the quarter and $11.064 million for nine months, while administrative and general expenses increased to $1.281 million and $4.103 million, respectively. Increases were attributed to brokerage-fee amortization, insurance, payroll and bad debt expense, partly offset by lower real estate taxes.
- The allowance for uncollectible receivables increased to $399,000 at April 30, 2022 from $318,000 at July 31, 2021. Bad debt expense was $214,350 for the nine months.
- Operating cash flow increased by $1.065 million year over year, while capital expenditures declined to $1.403 million from $1.781 million. Mortgage and other debt payments were $893,903.
- Marketable securities declined from $3.901 million at July 31, 2021 to $3.375 million at April 30, 2022, primarily reflecting market-value changes and investment activity.
Outlook, Risks, Contingencies and Unusual Items
- The filing provides no specific earnings, revenue or occupancy guidance. Management states that interim results are not necessarily indicative of the full fiscal year.
- COVID-19 continued to contribute to late rent payments, rent deferrals, tenant credit deterioration and uncertainty in rental revenue, occupancy and operating cash flow. Rent deferrals included in receivables were $280,000 at April 30, 2022.
- Five tenants represented approximately 70% of receivables, and two tenants represented approximately 31% of nine-month rental revenue, creating tenant-concentration risk.
- A tenant occupying 5,350 square feet at the Nine Bond Street property terminated its lease effective May 31, 2022, which management estimated would reduce annual rental income by approximately $320,000.
- The Company leased 14,100 square feet at Nine Bond Street for a ten-year term in April 2022; rent commenced in June 2022. A month-to-month tenant surrendered 10,788 square feet but retained 46,421 square feet.
- Capital projects included work at the Jowein, Nine Bond Street and Fishkill properties. Fishkill projects included elevator modernization with a total anticipated cost of $892,000 and expected completion in May 2023.
- The Company has future minimum rental income of $90.541 million from leases with terms of at least one year, including $69.737 million from owned property and $20.805 million from leased property.
- Various lawsuits and claims are pending, but management believes their resolution will not materially affect the financial statements. A potential obligation to create a condominium unit at 25 Elm Place could arise if the property is sold, transferred, disposed of or demolished; the cost has not been determined.
- The Company participates in a multi-employer pension plan classified as critical and declining. A potential withdrawal liability cannot be determined, although the Company has not decided to withdraw. The relevant union contract expires November 30, 2022.
- The Company disclosed related-party operating leases with Weinstein Enterprises, principally owned by the Chairman of both companies. Nine-month 2022 rent payments were $740,442 and rent expense was $1.401 million, unchanged from the prior-year period.
- Management concluded that disclosure controls and procedures were effective and reported no material changes in internal control over financial reporting.
Investor Verification Checklist
- Verify tenant occupancy, rent collections, the $399,000 allowance for uncollectible receivables and the ongoing effects of COVID-19 on tenant credit quality.
- Assess the impact of the Nine Bond Street lease termination and the timing and economics of newly commenced or expected leases.
- Reconcile the $6.653 million net mortgage balance with the separately disclosed $6.756 million fixed-rate debt amount and review 2024–2025 maturities.
- Review capital spending commitments, including the Fishkill elevator project and outstanding brokerage commissions of $709,299 at April 30, 2022.
- Monitor volatility in the $3.375 million marketable securities portfolio and its effect on reported net income and equity.
- Evaluate exposure to tenant and revenue concentration, related-party leases, the multi-employer pension plan, pending litigation and the potential 25 Elm Place condominium obligation.