Mays J W Inc: Form 10-Q for the period ended Jan 31, 2024

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:

Critical accounting policies are defined as those most important to the portrayal of a company’s financial condition and results and require the most difficult, subjective, or complex judgments. 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 and liabilities at the date of the financial statements, the reported amount of revenues, and expenses during the reporting period and related disclosure of contingent assets and liabilities. Estimates are based on historical experience, where applicable or other assumptions that management believes are reasonable under the circumstances. Actual results may differ from these estimates under different assumptions and conditions.

Results of Operations:

Three months ended January 31, 2024 compared to the three months ended January 31, 2023:

In the three months ended January 31, 2024, the Company reported net loss of $(98,059), or $(.04) per share. In the comparable three months ended January 31, 2023, the Company reported net income of $44,738, or $.02 per share. The change in the 2024 three months was primarily due to a decrease in rental income; partially offset by decreases in real estate operating costs, a decrease in interest expense, net of capitalized interest, and increases in the fair value of marketable securities.

Revenues in the current three months decreased to $5,414,843 from $5,837,819 in the comparable 2023 three months primarily due to the loss of a tenant who agreed to terminate their lease effective March 31, 2023; combined with a decrease in rent revenue from a seasonal tenant occupying less space.

Real estate operating expenses in the current three months decreased to $3,826,998 from $3,958,144 in the comparable 2023 three months primarily due to a decrease in rent expense for the Jamaica, New York lease, and building maintenance costs; partially offset by increases in real estate taxes.

Administrative and general expenses in the current three months increased to $1,486,632 from $1,406,855 in the comparable 2023 three months primarily due to increases in payroll.

Depreciation expense in the current three months of $429,258 approximated $422,815 in the comparable 2023 three months.

Investment income exceeded interest expense, net of capitalized interest, in the current three months by $233,986 compared to $9,733 in the comparable 2023 three months. The improvement in the 2024 three months was primarily due to increases in the fair value of marketable securities resulting in realized gains in the current period compared to 2023.

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Six months ended January 31, 2024 compared to the six months ended January 31, 2023:

In the six months ended January 31, 2024, the Company reported net loss of $(290,603), or $(.14) per share. In the comparable six months ended January 31, 2023, the Company reported net income of $104,255, or $.05 per share. The change in the 2024 six months was primarily due to a decrease in rental income; partially offset by decreases in real estate operating costs, a decrease in interest expense, net of capitalized interest, and increases in the fair value of marketable securities.

Revenues in the current six months decreased to $10,738,644 from $11,607,553 in the comparable 2023 six months primarily due to the loss of a tenant who agreed to terminate their lease effective March 31, 2023; combined with a decrease in rent revenue from a seasonal tenant occupying less space.

Real estate operating expenses in the current six months decreased to $7,519,614 from $7,743,565 in the comparable 2023 six months primarily due to a decrease in rent expense for the Jamaica, New York lease, and building maintenance costs; partially offset by increases in real estate taxes.

Administrative and general expenses in the current six months increased to $2,741,205 from $2,657,086 in the comparable 2023 six months primarily due to increases in payroll.

Depreciation expense in the current six months of $857,522 approximated $841,311 in the comparable 2023 six months.

Investment income exceeded interest expense, net of capitalized interest, in the current six months by $38,094 primarily due to increases in the fair value of marketable securities. In the comparable 2023 six months, interest expense, net of capitalized interest, combined with investment losses aggregated $(231,336) primarily from higher interest expense and also due to decreases in the fair value of marketable securities resulting in a greater unrealized loss on marketable securities.

Liquidity and Capital Resources:

Commercial Leasing Activities

In August 2023, a tenant who occupies 22,045 square feet at the Company’s Jamaica, New York premises renewed its lease for another five-year term through June 30, 2028. Brokerage commissions were $128,021.

In September 2023, the Company leased approximately 25,000 square feet at the Company’s Fishkill, New York building for use as storage space for four months expiring December 31, 2023. Total rent of $162,363 was prepaid at lease commencement and was being amortized as revenue over the entire term of the lease.

In September 2023, a tenant extended its leases for one year through September 30, 2024 as follows:

(1) 25,423 square feet at the Company’s 9 Bond Street Building in Brooklyn, New York.

(2) 38,109 square feet at the Company’s Jamaica, New York property.

In November 2023, a tenant who occupies 785 square feet at the Company’s 9 Bond Street Building in Brooklyn, New York premises renewed its lease for another two-year term through January 31, 2026.

In December 2023, the Company leased approximately 4,000 square feet at the Company’s Fishkill, New York building for use as a cross-fit gym. Rent commencement is expected in the summer of 2024 for a term of ten years from rent commencement. The costs of renovations for this tenant are anticipated to be completed by summer 2024 for approximately $100,000. Brokerage commissions were $48,532.

In December 2023, the Company leased approximately 5,632 square feet at the Company’s 9 Bond Street Building in Brooklyn, New York to an office tenant with rent commencement expected May 1, 2024, for a term of ten years from rent commencement, with two options for an additional five years. The costs of renovations for this tenant are expected to be approximately $100,000. Brokerage commissions were $50,714.

In November 2023, the Company leased approximately 1,600 square feet to a coffee store retailer at the Company’s 9 Bond Street Building in Brooklyn, New York for ten years from rent commencement anticipated November 1, 2024, with two options for an additional five years. The costs of renovations for this tenant are expected to be approximately $1,000,000. Brokerage commissions were $95,760.

The Company extended a lease with an office tenant for ten years expiring November 30, 2033, including a space reduction from 46,421 to 23,210 square feet. The annual base rent of $653,968 (reduced from $1,098,500) commences after renovations are complete. Renovations are expected to be completed in the summer of 2024 at an approximate cost of $1,300,000. Once renovations are complete, additional rent of $156,000 will be paid annually over ten years. Brokerage commissions were $365,755.

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Cash Flows From Operating Activities

Accounts Payable and Accrued Expenses: The Company had a balance due on January 31, 2024 for brokerage commissions of $714,992.

Cash Flows From Investing Activities

During the six months ended January 31, 2024, the Company had expenditures at its:

Fishkill, New York building of:

• $99,130 for a store front which was completed in August 2023.
• $80,946 for elevators.

9 Bond Street building in Brooklyn, New York of:

• $233,920 for façade restoration.
• $93,877 for new tenant improvements is complete and expected to be placed in service on May, 1 2024.
• $118,265 for new tenant improvements expected to be completed by November 2024 at a total cost of $1,000,000.

During the six months ended January 31, 2024, the Company had expenditures of $64,573 for roof work at its 25 Bond Street building in Brooklyn, New York, and $4,546 of steel work at the Company’s Jowein building in Brooklyn, New York.

Costs incurred for tenant improvements at the Company’s Jamaica, New York premises were $193,729 as of January 31, 2024, including:

• Improvements of $20,729 anticipated to be completed in the summer 2024 at a total cost of approximately $1,300,000.
• Improvements of $173,000 complete as of January 31, 2024.

Source of Funds

Including the estimated costs to complete improvements mentioned above, the Company anticipates incurring an additional $3.2 million in capital expenditures over the next twelve months ending January 31, 2025. The Company’s primary source of liquidity is 1) cash provided by operations, 2) marketable securities, and 3) borrowings. Total liquidity as of January 31, 2024 was $2,856,602, which consists of cash and cash equivalents of $691,515 and the fair value of marketable securities of $2,165,087. Total liquidity includes proceeds from fixed rate borrowings as of January 31, 2024. In addition, the Company is in the process of securing an additional line of credit, if needed, with an affiliated entity, Weinstein Enterprises, Inc. (“Weinstein”), principally owned by the Chairman of the Board of Directors of both the Company and Weinstein.

We believe our sources of liquidity described above will be sufficient to meet our obligations as of January 31, 2024, and over the next 12 months.

Future Liquidity

The Company’s ability to increase cash flows from operations, and to obtain additional sources of borrowings is dependent on many factors such as the continuously evolving local and macroeconomic commercial real estate markets, the effects of the overall economy, fluctuating interest rates, inflation, trends of office versus remote work practices, City & State regulations, and increasing real estate tax assessments. There is no assurance the Company will be successful in securing additional sources of financing when needed.

Related Party Transactions:

The Company has two operating leases with Weinstein Enterprises, Inc. (“Landlord”), an affiliated company, principally owned by the Chairman of the Board of Directors of both the Company and Landlord. One lease is for building, improvements, and land located at Jamaica Avenue at 169th Street, Jamaica, New York. Another lease is for Premises located at 504-506 Fulton Street, Brooklyn, New York.

In July 2022, the Company entered into lease agreements with Landlord as follows:

(1) Jamaica Avenue at 169th Street, Jamaica, New York - Giving the Company four five-year option periods to extend its lease beyond May 31, 2030 for a total of twenty years through May 31, 2050. In April 2023, the Company exercised the first five-year option period, extending the lease expiration date to May 31, 2035. As of January 31, 2024, it is not reasonably certain the remaining three options to extend the lease will be exercised by the Company.

(2) 504-506 Fulton Street, Brooklyn, New York – Modification of the lease agreement to increase monthly lease payments from $30,188 per month to $34,716 per month commencing on May 1, 2026 through April 30, 2031.

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Rent payments and expense relating to these two operating leases with Landlord follow:

The following summarizes assets and liabilities related to these two leases:

Upon termination of the Jamaica, New York lease, currently in 2035, all premises included in operating lease right-of-use assets plus leasehold improvements will be turned over to the Landlord.

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:

• changes in the rate of economic growth, or inflation, in the United States;
• the ability to obtain credit from financial institutions and the related costs;
• changes in the financial condition of our customers;
• changes in regulatory environment;
• lease cancellations;
• changes in our estimates of costs;
• war, terrorist attacks, or civil unrest effecting facilities where services are or may be provided;
• outcomes of pending and future litigation;
• increasing competition by other companies;
• compliance with our loan covenants;
• recoverability of claims against our customers and others by us and claims by third parties against us;
• changes in estimates used in our critical accounting policies; and
• pandemics and the ongoing effects of COVID-19, and the related trends of office versus remote work practices.

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.

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The Company uses fixed-rate debt to finance its capital requirements. These transactions do not expose the Company to market risk related to changes in interest rates. The Company does not use derivative financial instruments. On January 31, 2024, the Company had fixed-rate debt of $4,552,114.

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) of the Securities Exchange Act of 1934 (the “Exchange Act”)) as of the end of the period covered by this report. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded, as of the end of the period covered by this quarterly report, our disclosure controls and procedures were effective and provide reasonable assurance that the information required to be disclosed in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported accurately and within the time periods specified in the SEC’s rules and forms, and is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosures.

Changes in Internal Control Over Financial Reporting

There have been no changes in our internal control over financial reporting during the period covered by this report that have materially affected, or are likely to materially affect, our internal control over financial reporting.

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There have been no changes to our risk factors from those disclosed in our Annual Report on Form 10-K for our fiscal year ended July 31, 2023.