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, retail, warehouse and other properties. This unaudited Form 10-Q covers the three and six months ended January 31, 2021, within the fiscal year ending July 31, 2021. The company had 2,015,780 common shares outstanding as of March 4, 2021.
Financial Performance and Position
| Metric | Three Months Ended Jan. 31, 2021 | Six Months Ended Jan. 31, 2021 |
|---|---|---|
| Rental revenue | $5.047 million | $9.882 million |
| Loss from operations | $(0.328) million | $(0.689) million |
| Operating margin | (6.5%) | (7.0%) |
| Net income (loss) | $(0.054) million | $(0.470) million |
| Net margin | (1.1%) | (4.8%) |
| Basic and diluted EPS | $(0.02) | $(0.23) |
| Cash provided by operating activities | Not separately provided | $0.135 million |
At January 31, 2021, total assets were $99.2 million, shareholders’ equity was $53.2 million and total liabilities were $46.0 million. Cash and cash equivalents were $1.493 million, restricted cash was $0.913 million and marketable securities were $3.924 million.
Net mortgage debt was $8.080 million, and the company also had a $0.723 million PPP note payable. The company reported fixed-rate debt of $8.953 million for market-risk purposes. Operating lease liabilities were $28.470 million. Cash, cash equivalents and restricted cash decreased to $2.406 million from $4.404 million at the beginning of the six-month period.
Six-month cash uses included $1.494 million for property and equipment, $0.566 million for mortgage and other debt payments, and $0.072 million net purchases of marketable securities. The company had approximately $103.0 million of future minimum rental income under non-cancelable leases as of January 31, 2021.
Material Changes Versus the Prior Comparable Period
- Three-month revenue increased 0.2% to $5.047 million from $5.039 million, while the net loss improved modestly from $(57,281) to $(54,107).
- Six-month revenue decreased 1.9% to $9.882 million from $10.075 million, and results shifted from net income of $71,263 to a net loss of $469,531.
- Six-month real estate operating expenses increased to $7.168 million from $6.817 million, and depreciation increased to $889,443 from $782,387.
- Six-month investment income less interest expense declined to $22,406 from $149,667, primarily because of higher interest expense related to the Fishkill mortgage and the refinanced Brooklyn mortgage.
- Operating cash flow declined to $134,984 from $2.388 million, reflecting the net loss, increased receivables and other working-capital changes.
- The allowance for uncollectible receivables increased to $156,000 from $82,000 at July 31, 2020; bad debt expense for the six months was $74,000.
Guidance, Outlook, Risks and Unusual Items
- No quantitative earnings or revenue guidance was provided. Management states that interim results may not be indicative of the full fiscal year.
- COVID-19 caused late tenant payments, rent abatements and deferrals, increased credit-loss risk and volatility in equity investments. January 2021 rent abatements were $9,487 and COVID-related deferrals were $125,000.
- Management cannot predict the full effect of COVID-19 and warns that prolonged economic disruption could reduce rental income, occupancy, collections and operating cash flow while many expenses remain relatively fixed.
- The company applied for 100% forgiveness of its $722,726 PPP loan. If forgiveness is received, the company expects to record debt extinguishment income during the fiscal year ending July 31, 2021; forgiveness had not yet been recorded at January 31, 2021.
- New leasing activity included tenants at the Nine Bond Street and Jowein buildings. A 23,000-square-foot Jowein tenant was expected to begin occupancy and rental payments in late spring 2021, with estimated renovations of approximately $625,000 and brokerage commissions of $979,000.
- Two related-party operating leases with Weinstein Enterprises, principally owned by the chairman of both entities, generated $933,938 of rent expense during the six months.
- The company participates in a multi-employer pension plan classified as critical and declining. Any potential withdrawal liability cannot be determined, although management has no current decision to withdraw.
- Various lawsuits are pending, but management believes their aggregate resolution will not materially affect the financial statements. A potential obligation relating to a condominium unit at 25 Elm Place may arise if the property is sold, transferred, disposed of or demolished; the cost is not yet determinable.
- Management concluded that disclosure controls and procedures were effective, with no material changes to internal control over financial reporting.
Investor Verification Checklist
- Verify tenant collections, occupancy, rent concessions and the adequacy of the $156,000 allowance for uncollectible receivables as COVID-19 effects continue.
- Confirm the status and accounting treatment of the requested $722,726 PPP loan forgiveness.
- Review upcoming capital expenditures, renovation commitments and the $1.878 million brokerage-commission balance payable at January 31, 2021.
- Assess debt maturities, fixed-rate mortgage obligations and compliance with applicable loan covenants.
- Evaluate concentration risk: two tenants generated 30% of six-month rental revenue, and seven tenants represented approximately 61% of receivables.
- Review related-party lease terms and the long-term operating lease obligations, including the requirement to transfer the Jamaica property improvements to the affiliated landlord upon lease termination.