MAYS J W INC quarterly report, Q3 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, office, retail and other properties. This unaudited Form 10-Q covers the fiscal third quarter and nine months ended April 30, 2020, compared with the corresponding periods ended April 30, 2019. The company reported 2,015,780 common shares outstanding as of June 4, 2020.

Key financial metrics

Metric	Three months ended April 30, 2020	Three months ended April 30, 2019	Nine months ended April 30, 2020	Nine months ended April 30, 2019
Total revenue	$5.129 million	$5.276 million	$15.204 million	$15.758 million
Income from operations before investment income, interest and taxes	$(0.483) million	$0.645 million	$(0.535) million	$1.046 million
Net income (loss)	$(0.585) million	$0.656 million	$(0.514) million	$0.871 million
Net income (loss) per share	$(0.29)	$0.32	$(0.25)	$0.43
Cash provided by operating activities	Not separately provided	Not separately provided	$3.292 million	$3.398 million

Calculated operating margins were approximately negative 9.4% for the quarter and negative 3.5% for the nine-month period, compared with approximately 12.2% and 6.6%, respectively, in the prior-year periods. The filing does not present a separately defined gross margin.

Rental income was $5.129 million for the quarter and $15.204 million for the nine months; recovery of real estate taxes was zero in both 2020 periods.
At April 30, 2020, cash and cash equivalents were $6.127 million, restricted cash was $1.143 million, and marketable securities were $3.487 million.
Total assets were $101.213 million and shareholders’ equity was $54.094 million.
Total debt, including mortgages and the PPP note, was approximately $9.8 million, consisting of $8.898 million of mortgage principal and $0.723 million of PPP borrowings before applicable presentation of current and long-term portions. All debt was fixed-rate.
Current liabilities were $4.926 million versus current assets of $8.133 million. Operating lease liabilities totaled $29.326 million, including $1.159 million classified as current.
Capital expenditures for the first nine months were $5.439 million. Financing activities provided $4.237 million, including new mortgage borrowings and the PPP loan.

Material changes versus the prior comparable period

Quarterly revenue declined 2.8%, while nine-month revenue declined 3.5%, primarily because four tenants were lost and an existing tenant reduced rent, partly offset by a new tenant.
Real estate operating expenses increased to $3.443 million from $3.020 million for the quarter and to $10.206 million from $9.114 million for the nine months.
Administrative and general expense increased to $1.771 million from $1.136 million for the quarter. The increase primarily reflected approximately $556,000 of additional bad debt expense related to COVID-19 and higher legal and professional costs.
The company recorded a $420,000 allowance for expected uncollectible receivables and reduced unbilled receivables by approximately $136,000. Total bad debt expense was $596,292 for the nine months, compared with $3,328 in the prior-year period.
Investment results deteriorated. The change in fair value of marketable securities was a loss of $268,649 for the quarter and $205,399 for the nine months, compared with gains of $285,426 and $143,209, respectively, in the prior-year periods.
The company adopted ASC 842 lease accounting on August 1, 2019. At April 30, 2020, it reported $37.699 million of operating lease right-of-use assets and $29.326 million of operating lease liabilities.
Mortgage debt increased after a $5.4 million refinancing in November 2019 and a new $4.0 million Fishkill property loan in March 2020. The company also obtained a $722,726 PPP loan in April 2020 at 0.98% interest.
Retained earnings declined from $50.371 million at July 31, 2019 to $49.858 million at April 30, 2020, reflecting the nine-month net loss. No dividends were declared.

Guidance, outlook, risks and unusual items

Management did not provide quantitative earnings or revenue guidance. It stated that the impact of COVID-19 was unknown and highly unpredictable. Late rent payments increased during March and April 2020, and tenants may seek rent deferrals, become unable to pay, or require case-by-case temporary rent relief. Management warned that continued disruption could reduce rental income, occupancy, operating cash flow and investment values while many expenses remain relatively fixed.

Tenant concentration is material: three tenants generated approximately 43.2% of nine-month rental income, and two tenants represented approximately 41.9% of receivables at April 30, 2020.
Future minimum rental income under non-cancelable leases totaled $88.698 million as of April 30, 2020, but collection remains subject to tenant credit quality and lease performance.
Several tenants vacated or surrendered space during the period, including properties in Brooklyn and Fishkill. Management identified annual rent losses of approximately $814,000, $965,000 and $165,000 for certain vacancies, plus approximately $250,000 from a Fishkill tenant termination.
A community college tenant was expected to begin paying rent in June 2020 after approximately $3.2 million of renovations and $448,939 of brokerage commissions. A re-leased Massapequa property was expected to begin generating rent in September 2020.
The company incurred $5.439 million of capital expenditures during the nine months and expected additional spending on elevators and lobby renovations.
The PPP loan may be forgiven if proceeds are used for eligible documented costs and less than 25% is used for non-payroll costs; the filing does not state whether forgiveness was ultimately obtained.
Various lawsuits and claims were pending, but management believed they would not 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 was not determinable.
The company participates in a multi-employer pension plan classified as critical and declining. Any withdrawal liability could not be determined, although the company had not decided to withdraw.
Management stated that disclosure controls and procedures were effective and that no material changes to internal control over financial reporting occurred during the period.

Important facts for investors to verify

Subsequent rent collections, tenant concessions, delinquencies, allowances and occupancy levels after April 30, 2020.
Whether the PPP loan was forgiven and the resulting accounting treatment.
Completion, cost and lease commencement of the Fishkill community college project and other planned capital improvements.
Debt maturities, loan covenants, refinancing terms and liquidity after additional COVID-19-related cash flow pressure.
Concentration and credit risk associated with the company’s largest tenants and receivables.
Actual outcomes of pending legal matters, the potential 25 Elm Place condominium obligation and any multi-employer pension withdrawal liability.
Changes in the fair value of marketable securities and their effect on earnings and equity.