MAYS J W INC quarterly report, Q2 FY2020

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 properties and also operates properties under long-term ground and other leases. This quarterly report covers the three and six months ended January 31, 2020, the company’s fiscal second quarter and first six months of fiscal 2020. The financial statements are unaudited.

Key financial metrics

Metric	Three months ended Jan. 31, 2020	Three months ended Jan. 31, 2019	Six months ended Jan. 31, 2020	Six months ended Jan. 31, 2019
Total revenues	$5.04 million	$5.32 million	$10.07 million	$10.48 million
Income from operations before investment income, interest and taxes	$(0.24) million	$0.43 million	$(0.05) million	$0.40 million
Net income (loss)	$(57,281)	$293,960	$71,263	$214,766
Earnings (loss) per share	$(0.02)	$0.15	$0.04	$0.11
Operating cash flow	Not separately reported	Not separately reported	$2.45 million	$1.07 million

Three-month revenue declined approximately 5.3%, while six-month revenue declined approximately 3.9%. The three-month operating margin was approximately negative 4.7%, compared with positive 8.0% in the prior year; the six-month operating margin was approximately negative 0.5%, compared with positive 3.8%. Net margins were approximately negative 1.1% and 0.7% for the current three- and six-month periods, compared with 5.5% and 2.0%, respectively, in the comparable periods.

Cash and cash equivalents were $3.15 million at January 31, 2020, compared with $4.12 million at July 31, 2019.
Total cash, cash equivalents and restricted cash were $4.05 million at January 31, 2020, compared with $5.26 million at July 31, 2019.
Cash used in investing activities was $3.50 million, including $3.42 million of property and equipment additions.
Total assets were $88.10 million, including $45.52 million of net property and equipment and $28.22 million of operating lease right-of-use assets.
Total liabilities were $33.42 million and shareholders’ equity was $54.68 million at January 31, 2020.
Fixed-rate debt was $5.32 million, consisting primarily of a mortgage secured by the Nine Bond Street building. The mortgage bears interest at 4.375% and is due in December 2024.
The company reported no dividends during either comparative period.

Material changes versus the prior comparable period

Rental income declined to $5.04 million for the quarter from $5.28 million and to $10.07 million for the six months from $10.44 million, primarily because of lost rental income from two tenants, partly offset by a new tenant.
Real estate operating expenses increased 12.8% for the quarter and 11.0% for the six months, primarily because of higher real estate taxes and rent expense associated with the newly recorded right-of-use asset. Lower maintenance costs and leasing commissions partly offset the increases.
Administrative and general expense was broadly unchanged for the quarter but declined for the six months, primarily because the prior-year period included a $635,000 litigation settlement. Current-period expense included higher legal and professional costs and tenant bad debt expense.
Investment income and changes in marketable-security fair value exceeded interest expense by $131,399 in the quarter and $149,667 for the six months, versus a net investment and interest expense of $22,945 and $74,434, respectively, in the prior-year periods.
The company adopted ASC 842 on August 1, 2019, recognizing approximately $27.1 million of operating lease right-of-use assets and approximately $17.9 million of operating lease liabilities at adoption, with no opening retained-earnings adjustment.
The November 2019 mortgage refinancing replaced a $6.0 million loan balance with a new $5.4 million fixed-rate loan and included $144,080 of additional borrowing.
Marketable securities increased to $3.77 million from $3.58 million at July 31, 2019. Fair-value changes are recognized in earnings.

Guidance, outlook, risks and unusual items

Management did not provide quantitative revenue, earnings or cash-flow guidance. Management stated that working capital and borrowing capabilities were adequate for planned operating and capital requirements, while noting that interim results are not necessarily indicative of the full fiscal year.

A 47,000-square-foot community-college tenant at the Fishkill property is expected to occupy the space and begin paying rent in June 2020. Renovations are expected to cost approximately $3.2 million, with brokerage commissions of approximately $448,939; the company was discussing financing with a bank.
A 20,000-square-foot Massapequa tenant was replaced after a prior lease termination; rent under the replacement lease is expected to begin in September 2020.
Tenant vacancies and space surrenders reduced expected annual rent by approximately $250,000, $814,000 and $965,000 for the disclosed Fishkill and Brooklyn properties.
Capital projects included Fishkill renovations, elevator upgrades, new elevators and a lobby renovation. Remaining project costs were estimated at approximately $1.7 million for the Fishkill renovation, $1.5 million for the elevators and $885,000 for the lobby, based on disclosed total estimates and spending through January 31, 2020.
Rental income is concentrated among several tenants: three tenants represented approximately 15.8%, 14.9% and 12.3% of six-month rental income.
Operating lease liabilities totaled $19.54 million, with undiscounted future payments of $24.79 million. Sublease income exceeded operating lease cost by $2.01 million for the six months.
Risks include tenant lease cancellations and credit deterioration, economic and competitive conditions, access to financing, loan-covenant compliance, regulatory changes, litigation, labor and pension obligations, and changes in accounting estimates.
The company participates in a multi-employer pension plan classified as critical and declining. A potential withdrawal liability cannot be determined, although management has not decided to withdraw.
Various lawsuits and claims remain pending, but management does not expect them to have a material adverse effect. A potential future obligation relating to a condominium unit at 25 Elm Place cannot currently be quantified.

Most important facts to verify

Whether the disclosed tenant vacancies and planned lease commencements stabilize or further reduce rental revenue.
Funding, completion timing and final costs for the Fishkill, elevator and lobby capital projects.
Liquidity after capital expenditures, including available borrowing capacity and financing for tenant improvements.
Tenant concentration, collectability of receivables and the impact of the $40,292 current-period bad debt expense.
Mortgage terms, required payments and compliance with any applicable loan covenants.
Potential exposure from the critical-and-declining multi-employer pension plan and other pending claims.
The effect of ASC 842 lease accounting and related non-cash expenses on comparability with prior periods.