J.W. Mays, Inc. Form 10-Q Summary
Business Context and Reporting Period
J.W. Mays, Inc. is a commercial real estate company that owns and leases office and retail properties and also operates leased properties through subleases. This unaudited Form 10-Q covers the three and six months ended January 31, 2024, the second quarter of fiscal 2024. The comparable periods ended January 31, 2023. The company had 2,015,780 common shares outstanding at March 14, 2024.
Financial Performance and Position
| Metric | Three Months Ended Jan. 31, 2024 | Three Months Ended Jan. 31, 2023 | Six Months Ended Jan. 31, 2024 | Six Months Ended Jan. 31, 2023 |
|---|---|---|---|---|
| Rental revenue | $5.415 million | $5.838 million | $10.739 million | $11.608 million |
| Operating income (loss) | $(0.328) million | $0.050 million | $(0.380) million | $0.366 million |
| Net income (loss) | $(0.098) million | $0.045 million | $(0.291) million | $0.104 million |
| Basic and diluted EPS | $(0.04) | $0.02 | $(0.14) | $0.05 |
| Cash provided by operating activities | Not separately provided | Not separately provided | $0.888 million | $1.775 million |
Six-month revenue declined approximately 7.5% year over year. The six-month operating margin was approximately negative 3.5%, compared with positive 3.2% in the prior year; the six-month net margin was approximately negative 2.7%, compared with positive 0.9%. No dividends were declared in either period.
- At January 31, 2024, total assets were $90.583 million and shareholders’ equity was $53.014 million.
- Cash and cash equivalents were $0.692 million, restricted cash was $1.056 million, and marketable securities were $2.165 million.
- Total liquidity, defined by management as cash and marketable securities, was $2.857 million.
- Net mortgages payable were $4.517 million, with fixed rates of 3.98% and 4.375% and final payment dates in December 2024 and April 2025. The filing separately reports fixed-rate debt of $4.552 million for market-risk purposes.
- Operating lease liabilities were $25.921 million, supported by $29.897 million of operating lease right-of-use assets. Undiscounted operating lease payments totaled $34.193 million.
- Future minimum non-cancelable rental income totaled $95.783 million, including $65.963 million from company-owned property and $29.820 million from leased property.
Material Changes Versus the Prior Comparable Period
- Three-month rental revenue decreased $0.423 million, or approximately 7.2%, and six-month rental revenue decreased $0.869 million, or approximately 7.5%. Management attributed the decline primarily to a tenant terminating its lease effective March 31, 2023 and lower rent from a seasonal tenant occupying less space.
- Real estate operating expenses decreased approximately 1.7% for the quarter and 2.9% for the six months, primarily from lower Jamaica, New York lease expense and building maintenance costs, partly offset by higher real estate taxes.
- Administrative and general expenses increased approximately 5.7% for the quarter and 3.2% for the six months, primarily due to higher payroll.
- Net interest expense decreased to $0.070 million for the six months from $0.134 million in the prior year, partly because of increased capitalized interest.
- Investment results improved materially. Six-month investment income was $0.108 million, including a $0.149 million realized gain, compared with a $0.098 million investment loss in the prior-year period. Despite this improvement, the company reported a six-month net loss because of weaker rental operations.
- Operating cash flow declined $0.887 million, or approximately 50.0%, to $0.888 million. Capital expenditures were $0.889 million, mortgage repayments were $0.647 million, and cash, cash equivalents and restricted cash decreased by $0.470 million to $1.747 million.
Guidance, Outlook, Risks and Unusual Items
The filing does not provide formal earnings or revenue guidance. Management stated that available liquidity, operating cash flow, marketable securities and borrowings are expected to be sufficient for obligations over the next 12 months. The company is also seeking an additional line of credit, if needed, from affiliated entity Weinstein Enterprises, Inc.; there is no assurance that financing will be secured when needed.
- Management anticipates approximately $3.2 million of additional capital expenditures during the twelve months ending January 31, 2025, including tenant improvements and renovations.
- Several leases were renewed or extended, and new leases were signed for Fishkill and Brooklyn properties. Certain new leases are expected to commence during 2024 and require approximately $2.5 million of identified renovation costs, in addition to other capital projects.
- Four tenants represented approximately 62% of receivables at January 31, 2024, and two tenants represented approximately 27% of six-month rental revenue, creating tenant-concentration risk.
- The company leases two properties from Weinstein Enterprises, principally owned by the Chairman of the Board, who also principally owns the company. Six-month rent expense under these related-party leases was $0.766 million.
- The company participates in a multi-employer pension plan classified as critical and declining. The company’s potential withdrawal liability cannot be determined, although management has not decided to withdraw. The collective bargaining agreement expires November 30, 2025.
- Various lawsuits and claims are pending, but management believes they will not materially affect the consolidated financial statements. A potential obligation to create a condominium unit for a loading dock at 25 Elm Place may arise if the property is sold, transferred, disposed of or demolished; the cost has not been determined.
- Principal risks include lease cancellations, tenant credit and concentration, commercial real estate conditions, office-versus-remote-work trends, interest rates, inflation, real estate tax assessments, access to financing, loan covenant compliance, litigation and changes in accounting estimates.
- Management reported effective disclosure controls and no material changes in internal control over financial reporting.
Important Facts for Investors to Verify
- Whether the company can replace the revenue lost from the terminated tenant and achieve expected rent commencements for 2024 leases.
- Funding sources and timing for the anticipated $3.2 million of capital expenditures, given $2.857 million of reported liquidity and declining operating cash flow.
- Refinancing or repayment plans for mortgages maturing in December 2024 and April 2025.
- Terms, availability and governance of any prospective affiliated-company line of credit.
- Tenant concentration, receivable collectibility and the financial condition of major tenants.
- Potential obligations associated with the critical-and-declining multi-employer pension plan and the 25 Elm Place contingency.
- Economic substance and oversight of the related-party leases with Weinstein Enterprises.