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 office and retail properties and also leases properties from third parties for subleasing. This Form 10-Q covers the three months ended October 31, 2022, the company’s fiscal 2023 first quarter. The financial statements are unaudited. The company had 2,015,780 shares outstanding as of December 8, 2022 and is classified as a smaller reporting company.
Financial performance and condition
| Metric | Q1 FY2023 | Q1 FY2022 | Change |
|---|---|---|---|
| Rental income and total revenue | $5.770 million | $5.080 million | Up 13.6% |
| Real estate operating expenses | $3.785 million | $3.630 million | Up 4.3% |
| Administrative and general expenses | $1.250 million | $1.404 million | Down 11.0% |
| Income (loss) from operations | $316 thousand | $(406) thousand | Improved by $722 thousand |
| Operating margin | 5.5% | (8.0%) | Improved |
| Net income (loss) | $60 thousand | $(391) thousand | Improved by $450 thousand |
| Basic and diluted earnings per share | $0.03 | $(0.19) | Improved |
| Cash provided by operating activities | $2.543 million | $1.309 million | Up 94.3% |
Revenue growth was attributed primarily to six new tenants and rent increases from existing tenants. Real estate operating expenses increased because of higher real estate taxes, brokerage-fee amortization, insurance and payroll costs. Administrative expenses declined primarily because bad debt expense decreased, although payroll costs and state capital-based franchise taxes increased.
Net income benefited from higher rental income and a $60,000 recovery or reduction in the allowance for uncollectible receivables. These benefits were partly offset by a $187,000 decline in the fair value of marketable securities, compared with a $53,000 decline in the prior-year quarter. Investment income was $9,000, and interest expense was $63,000.
At October 31, 2022, total assets were $93.4 million, including $48.3 million of net property and equipment, $2.6 million of cash and cash equivalents, $1.0 million of restricted cash and $2.6 million of marketable securities. Total liabilities were $39.9 million and shareholders’ equity was $53.4 million.
Net mortgage debt was $6.060 million at October 31, 2022, consisting principally of fixed-rate mortgages secured by the Bond Street and Fishkill properties. The loans bear interest at 4.375% and 3.98% and mature in December 2024 and April 2025, respectively. The company also reported $26.3 million of operating lease liabilities.
Cash, cash equivalents and restricted cash increased by $1.588 million during the quarter to $3.658 million. Operating cash flow of $2.543 million exceeded $648,000 of capital expenditures and $308,000 of mortgage and other debt payments.
Material changes versus the prior comparable period
- Revenue increased $690,000, primarily from new and expanded tenant activity.
- The company moved from a $406,000 operating loss to $316,000 of operating income.
- The company moved from a $391,000 net loss to $60,000 of net income.
- Operating cash flow nearly doubled, driven by improved earnings, collections and changes in prepaid and other assets.
- Capital expenditures increased to $648,000 from $463,000, including Fishkill canopy work and elevator modernization and facade restoration at Nine Bond Street.
- Marketable securities declined in fair value by $187,000 during the quarter, reducing earnings.
- The allowance for uncollectible receivables decreased to $333,000 from $393,000. Management attributed the reserve primarily to lingering COVID-19 effects.
Guidance, outlook, risks and unusual items
The filing does not provide quantitative earnings or revenue guidance. Management states that quarterly results are not necessarily indicative of the full fiscal year. Forward-looking results may be affected by economic conditions, tenant financial condition, lease cancellations, access to credit, loan covenant compliance, competition, labor availability, litigation, regulatory changes, cost estimates and pandemics.
Future minimum non-cancelable rental income totaled $92.3 million as of October 31, 2022, including $13.4 million for the remainder of fiscal 2023. Two tenants terminated leases affecting approximately $190,000 of annual rental income: one effective October 31, 2022 and another effective November 1, 2022. Other tenants renewed or extended leases, including a five-year renewal covering 10,000 square feet in Levittown.
The company prepaid $576,000 for a six-month, 58,832-square-foot storage lease at its Fishkill property. Fishkill capital projects included a completed $1.5 million canopy project and an elevator modernization project with a total expected cost of $892,000, scheduled for completion in May 2023.
The company has related-party operating leases with Weinstein Enterprises, principally owned by the chairman of both entities. Quarterly rent expense under these arrangements was $475,000, compared with $467,000 in the prior-year quarter. A July 2022 modification increased future monthly rent for the Fulton Street property beginning in May 2026.
Five tenants represented approximately 69% of receivables, and two tenants represented approximately 30% of quarterly rental revenue, creating tenant concentration risk. The company participates in a multi-employer pension plan classified as critical and declining; any withdrawal liability cannot currently be determined. Various lawsuits and claims are pending, but management does not expect them to have a material adverse effect. 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 is not currently determinable.
Management concluded that disclosure controls and procedures were effective and that no material changes occurred in internal control over financial reporting. The company uses fixed-rate debt and reported no material interest-rate exposure from its financing arrangements.
Important facts for investors to verify
- Whether rental growth from new tenants and rent increases offsets the announced tenant terminations and any future vacancy or collection issues.
- The timing and remaining cost of the Fishkill elevator modernization and other capital projects.
- Debt maturities in 2024 and 2025, refinancing availability and compliance with applicable loan covenants.
- The concentration of receivables and rental revenue among a limited number of tenants and the adequacy of the $333,000 allowance for uncollectible receivables.
- The volatility of marketable securities, which produced a $187,000 unrealized loss in the quarter.
- The financial implications of the critical and declining multi-employer pension plan and any potential withdrawal liability.
- The terms and governance implications of the related-party leases with Weinstein Enterprises.
- The outcome of pending litigation and the possible condominium-related obligation at 25 Elm Place.