MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with our financial statements and related notes thereto contained in this report. In this discussion, the words “Company”, “we”, “our” and “us” refer to J.W. Mays, Inc. and subsidiaries.
Forward Looking Statements:
The following can be interpreted as including forward looking statements under the Private Securities Litigation Reform Act of 1995. The words “outlook”, “intend”, “plans”, “efforts”, “anticipates”, “believes”, “expects” or words of similar import typically identify such statements. Various important factors that could cause actual results to differ materially from those expressed in the forward-looking statements are identified under the heading “Cautionary Statement Regarding Forward-Looking Statements” below. Our actual results may vary significantly from the results contemplated by these forward-looking statements based on a number of factors including, but not limited to, availability of labor, marketing success, competitive conditions and the change in economic conditions of the various markets we serve.
Critical Accounting Policies and Estimates:
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues, expenses and related disclosure of contingent assets and liabilities. We believe the critical accounting policies in Note 1 to the Condensed Consolidated Financial Statements disclose our more significant judgments and estimates used in the preparation of our financial statements. Actual results may differ from these estimates under different assumptions and conditions. (See Note 1 on pages 7 through 10 to the Condensed Consolidated Financial Statements herein and Note 1 on pages 9 through 13 to the Consolidated Financial Statements in the Annual Report to Shareholders for the fiscal year ended July 31, 2019).
Results of Operations:
Three months ended October 31, 2019 compared to the three months ended October 31, 2018:
In the three months ended October 31, 2019, the Company reported net income of $128,544, or $.06 per share. In the comparable three months ended October 31, 2018, the Company reported net loss of $(79,194), or $(.04) per share. The loss in the 2018 three months was primarily due to settlement of litigation costs in the amount of $635,000 (see Note 12). In addition, revenues in the current three months decreased and real estate operating expenses increased as explained below.
Revenues in the current three months decreased to $5,035,915 from $5,161,172 in the comparable 2018 three months primarily due to loss of rental income from two tenants, partially offset by rental from one new tenant.
Real estate operating expenses in the current three months increased to $3,248,594 from $2,976,644 in the comparable 2018 three months primarily due to increases in real estate taxes and rent expense, partially offset by decreases in maintenance costs and leasing commissions.
Administrative and general expenses in the current three months decreased to $1,215,635 from $1,742,936 in the comparable 2018 three months primarily due to the settlement of litigation costs in the amount of $635,000 in the 2018 three months (see Note 13), partially offset by increases in legal and professional costs and a bad debt expense from a tenant.
Depreciation expense in the current three months decreased to $387,410 from $466,297 in the comparable 2018 three months primarily due to a decrease in depreciation on the Jamaica building due to the recording of the building to right-of-use asset (see Notes 1, 5 and 7), partially offset by additional depreciation from prior year improvements in the Brooklyn buildings.
Investment income exceeded interest expense in the current three months by $18,268 and interest expense exceeded investment income by $51,489 in the comparable 2018 three months. The increase in investment income was primarily due to the gain on sale of marketable securities.
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Liquidity and Capital Resources:
Management considers current working capital and borrowing capabilities adequate to cover the Company’s planned operating and capital requirements. The Company’s cash and cash equivalents amounted to $4,993,422 at October 31, 2019.
In March 2017, the Company leased 7,700 square feet to a medical facility at its Nine Bond Street Brooklyn, New York building, for a term of ten years with two five-year option periods. To accommodate this tenant, an existing tenant surrendered 400 square feet of retail space. The cost of renovations for this tenant was $329,154 and brokerage commissions were $216,052. The tenant took occupancy and commenced payment of rent in October 2019.
The tenant who leased 20,000 square feet of space at the Company’s Massapequa, New York property to open a restaurant had their lease terminated in April 2019 for non-payment of rent. The tenant’s lease commenced in September 2018 and rent was supposed to begin in January 2019. The Company re-leased these premises in August 2019 to a fast food restaurant expiring in April 2030. Rent is expected to commence in September 2020.
In July 2019, the Company leased 47,000 square feet to a community college at its Fishkill, New York building for a term of fifteen years with two five-year option periods. The cost of renovations for this tenant will be approximately $3,200,000 and brokerage commissions will be $448,939. The tenant is expected to take occupancy and commence payment of rent in June 2020. The Company is in the process of discussing with a bank the financing of these costs.
In July 2019, the retail tenant at the Company’s Fishkill, New York building who occupies 90,000 square feet gave notice to terminate their lease effective October 30, 2019. The loss in annual rent will be approximately $250,000. The Company and the tenant then agreed to extend the lease until December 2019.
In August 2019, a tenant who occupies 23,603 square feet of office space at the Company’s Jowein building in Brooklyn, New York vacated the premises. The loss in annual rent will be approximately $814,000.
In September 2019, a retail tenant who occupies 128,196 square feet surrendered approximately 22,000 square feet at the Company’s Nine Bond Street building in Brooklyn, New York. The loss in annual rent will be approximately $965,000.
In November 2019, the Company refinanced a loan with a bank for the balance due at October 31, 2019 in the amount of $5,255,920 plus an additional $144,080 for a total of $5,400,000. The interest rate will be 4.375% per annum. The loan will be self-liquidating over a five-year period.
In November 2019, the Company extended a lease with one of the Company’s landlords, which expires in April 2026 for an additional eight years and eight months to expire in December 2034 at its Nine Bond Street building in Brooklyn, New York.
Cash Flows From Operating Activities:
Payroll and Other Accrued Liabilities: The Company had a balance due at October 31, 2019 for brokerage commissions of $583,428.
Cash Flows From Investing Activities:
The Company had expenditures of $194,547 for the three months ended October 31, 2019 for elevator upgrade work at the Company’s Nine Bond Street building in Brooklyn, New York.
The Company had expenditures for elevator upgrade work in the amount of $106,734 for the three months ended October 31, 2019, at the Company’s Jamaica, New York building. The Company had expenditures of $208,368 for renovation work for an existing tenant.
The Company had expenditures for renovations for a new tenant
in the amount of $33,230 for the three months ended October 31, 2019, at its Fishkill, New York building. The total cost is
estimated to be $3,200,000 and is anticipated to be completed in May 2020. The Company also had expenditures of $272,678 for
four new elevators for the three months ended October 31, 2019. The total cost will be approximately $1,800,000 and is
anticipated to be completed in early 2020. The Company also had expenditures of $443,267 for a new lobby for the three months
ended October 31, 2019. The total cost will be approximately $1,500,000 and is anticipated to be completed in December
2019.
The Company had expenditures in the amount of $155,250 for elevator upgrade work at its Jowein building in Brooklyn, New York.
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Cautionary Statement Regarding Forward-Looking Statements:
This section, Management’s Discussion and Analysis of Financial Condition and Results of Operations, other sections of this Report on Form 10-Q and other reports and verbal statements made by our representatives from time to time may contain forward-looking statements that are based on our assumptions, expectations and projections about us and the real estate industry. These include statements regarding our expectations about revenues, our liquidity, our expenses and our continued growth, among others. Such forward-looking statements by their nature involve a degree of risk and uncertainty. We caution that a variety of factors, including but not limited to the factors listed below, could cause business conditions and our results to differ materially from what is contained in forward-looking statements:
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changes in the rate of economic growth in the United States;
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the ability to obtain credit from financial institutions and the related costs;
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changes in the financial condition of our customers;
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changes in regulatory environment;
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lease cancellations;
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changes in our estimates of costs;
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war and/or terrorist attacks on facilities where services are or may be provided;
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outcomes of pending and future litigation;
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increasing competition by other companies;
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compliance with our loan covenants;
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recoverability of claims against our customers and others by us and claims by third parties against us; and
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changes in estimates used in our critical accounting policies.
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Other factors and assumptions not identified above were also involved in the formation of these forward-looking statements and the failure of such other assumptions to be realized, as well as other factors, may also cause actual results to differ materially from those projected. Most of these factors are difficult to predict accurately and are generally beyond our control. You should consider the areas of risk described above in connection with any forward-looking statements that may be made by us.
We undertake no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise. You are advised, however, to review any additional disclosures we make in proxy statements, quarterly reports on Form 10-Q, annual reports on Form 10-K and any Form 8-K reports filed with the United States Securities and Exchange Commission.