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 and retail properties and also leases properties for sublease operations. This unaudited Form 10-Q covers the three and nine months ended April 30, 2023, compared with the corresponding periods in 2022. The company is a smaller reporting company listed on Nasdaq under MAYS.
Financial performance and position
| Metric | Three months ended April 30, 2023 | Three months ended April 30, 2022 | Nine months ended April 30, 2023 | Nine months ended April 30, 2022 |
|---|---|---|---|---|
| Rental revenue | $5.56 million | $5.48 million | $17.17 million | $15.89 million |
| Income from operations | $(24,000) | $17,000 | $342,000 | $(600,000) |
| Net income (loss) | $(39,000) | $(57,000) | $65,000 | $(644,000) |
| Net income (loss) per share | $(0.02) | $(0.03) | $0.03 | $(0.32) |
| Cash provided by operating activities | Not separately provided | Not separately provided | $3.26 million | $2.56 million |
- Revenue increased approximately 1.4% in the quarter and 8.0% for the nine-month period.
- Operating margin was approximately negative 0.4% in the quarter and 2.0% for the nine-month period. Net margin was approximately negative 0.7% in the quarter and 0.4% for the nine-month period.
- At April 30, 2023, total assets were $92.46 million and shareholders’ equity was $53.45 million.
- Cash and cash equivalents were $2.36 million, with restricted cash of $0.99 million. Combined cash, cash equivalents and restricted cash totaled $3.35 million.
- Marketable securities totaled $2.65 million.
- Mortgages payable, net of deferred financing costs, were $5.45 million. The debt bears fixed interest rates of 3.98% and 4.375%, with final payment dates in 2024 and 2025. The MD&A separately reports fixed-rate debt of $5.52 million.
- Operating lease liabilities were $26.80 million, supported by undiscounted future lease payments of $35.80 million. The weighted-average remaining lease term was 16.77 years and the weighted-average discount rate was 3.73%.
- Future minimum non-cancelable rental income totaled $89.05 million, including $66.62 million from company-owned properties and $22.43 million from leased properties.
Material changes versus the prior comparable period
- The company moved from a nine-month net loss of $644,000 in 2022 to net income of $65,000 in 2023, principally due to higher rental income, lower bad-debt expense and favorable changes in marketable-security fair values.
- Quarterly net loss narrowed to $39,000 from $57,000.
- Real estate operating expenses increased to $11.60 million from $11.06 million for the nine-month period, primarily due to higher real estate taxes, insurance and building maintenance costs.
- Administrative and general expenses declined to $3.97 million from $4.10 million for the nine-month period, primarily because of lower bad-debt expense and legal and professional fees, partially offset by higher payroll costs and state capital-based franchise taxes.
- Operating cash flow increased by $701,000 year over year. Capital expenditures were $987,000, mortgage repayments were $934,000 and cash increased by $1.28 million after investing and financing activities.
- A tenant occupying 46,421 square feet at the Nine Bond Street property terminated its lease effective March 31, 2023, representing an estimated annual rental-income reduction of approximately $1.0 million. Other tenants terminated leases with estimated annual rental-income reductions of approximately $394,000 in aggregate.
- Several leases were renewed or extended, including leases at the Levittown, Jowein, Circleville and Jamaica properties.
Guidance, outlook, risks and unusual items
- The filing does not provide formal quantitative earnings or revenue guidance. Management states that interim results are not necessarily indicative of the full fiscal year.
- Management identifies economic conditions, tenant financial condition, lease cancellations, access to credit, loan-covenant compliance, competition, regulatory changes, litigation, cost estimates and the continuing effects of COVID-19 as material risks.
- Five tenants represented approximately 61% of receivables at April 30, 2023, and two tenants represented approximately 30% of nine-month rental revenue, creating tenant-concentration risk.
- The allowance for uncollectible receivables declined to $135,000 from $393,000 at July 31, 2022. Management noted lingering effects of COVID-19 in its collectibility assessment.
- The company extended its related-party Jamaica Avenue lease to May 31, 2035 and recorded a $1.20 million increase in the related right-of-use asset and lease liability. The landlord is principally owned by the company’s chairman.
- The company participates in a multi-employer pension plan classified as critical and declining. Its contribution rate increased to 20.16% of covered employee pay effective December 1, 2022. Any potential withdrawal liability cannot currently be determined.
- Various lawsuits and claims are pending, but management believes their resolution will not materially affect the financial statements. 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; the cost has not been determined.
- Management reported effective disclosure controls and no material changes in internal control over financial reporting.
Important facts for investors to verify
- Assess the effect of the Nine Bond Street tenant departure and other lease terminations on occupancy, rental revenue and future cash flow.
- Review the timing and refinancing or repayment requirements for the mortgages maturing in 2024 and 2025.
- Evaluate tenant concentration, receivable collectibility and the adequacy of the $135,000 allowance.
- Examine the financial exposure associated with the critical-and-declining multi-employer pension plan.
- Review related-party lease terms, renewal options and payments to Weinstein Enterprises, Inc.
- Monitor the ongoing Fishkill elevator modernization, other capital projects and the company’s ability to fund them from operating cash flow.
- Reconcile the reported net mortgages payable of $5.45 million with the separately disclosed fixed-rate debt of $5.52 million.