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 9 to the Condensed Consolidated Financial Statements herein and Note 1 on pages 9 through 12 to the Consolidated Financial Statements in the Annual Report to Shareholders for the fiscal year ended July 31, 2017).
Results of Operations:
Three months ended April 30, 2018 compared to the three months ended April 30, 2017:
In the three months ended April 30, 2018, the Company reported net income of $318,172, or $.16 per share. In the comparable three months ended April 30, 2017, the Company reported net income of $606,234, or $.30 per share.
Revenues in the current three months decreased to $4,854,910 from $4,952,454 in the comparable 2017 three months primarily due to the decrease in revenue to temporarily vacate a lease in the 2017 three months, partially offset by increased rental income from existing tenants and one new office tenant at the Company’s Jowein building in Brooklyn, New York.
Real estate operating expenses in the current three months increased to $2,918,858 from $2,512,506 in the comparable 2017 three months primarily due to increases in real estate taxes and maintenance costs.
Administrative and general expenses in the current three months decreased to $1,062,316 from $1,092,032 in the comparable 2017 three months primarily due to decreases in legal and professional costs and pension costs.
Depreciation expense in the current three months increased to $443,697 from $423,791 in the comparable 2017 three months primarily due to improvements in the Jowein building in Brooklyn, New York.
Interest expense exceeded investment income in the current three months by $28,867 and by $8,891 in the comparable 2017 three months. The increase was primarily due to a decrease in investment income partially offset by scheduled repayment of debt.
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Nine months ended April 30, 2018 compared to the nine months ended April 30, 2017:
In the nine months ended April 30, 2018, the Company reported net income of $3,167,496, or $1.57 per share. In the comparable nine months ended April 30, 2017, the Company reported net income of $1,391,821, or $.69 per share. The increase was primarily due to the enactment of the U.S Tax Act on December 22, 2017. These changes required an adjustment to our deferred tax assets and liabilities to the lower federal rates resulting in an estimated net tax benefit of approximately $2.4 million.
Revenues in the current nine months decreased to $14,431,671 from $14,560,242 in the comparable 2017 nine months primarily due to the decrease in revenue to temporarily vacate a lease in the 2017 nine months, partially offset by increased rental income from existing tenants and one new office tenant at the Company’s Jowein building in Brooklyn, New York.
The recovery of real estate taxes in the 2017 nine months in the amount of $10,952, net of legal expenses, represents recovery of prior years’ real estate taxes from one of the Company’s properties. The comparable 2018 nine months did not have a recovery of real estate taxes.
Real estate operating expenses in the current nine months increased to $8,491,805 from $7,735,755 in the comparable 2017 nine months primarily due to increases in real estate taxes and maintenance costs, partially offset by a decrease in utility costs and license and permit costs.
Administrative and general expenses in the current nine months increased to $3,433,154 from $3,381,034 in the comparable 2017 nine months primarily due to increases in insurance costs, directors fees and pension costs.
Depreciation expense in the current nine months increased to $1,311,386 from $1,253,091 in the comparable 2017 nine months primarily due to improvements in the Jowein building in Brooklyn, New York.
Interest expense exceeded investment income in the current nine months by $101,830 and by $92,541 in the comparable 2017 nine months. The increase was primarily due to interest on litigation (see Note 13) partially offset by increased investment income and scheduled repayment of debt.
As explained above, the enactment of the U.S Tax Act required an adjustment to our deferred tax assets and liabilities to the lower federal rates resulting in an estimated net federal tax benefit of approximately $2.4 million. Income taxes provided (benefit) for the current nine months changed to a benefit of approximately $2.1 million from an expense of approximately $.7 million in the comparable 2017 nine months.
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 $6,478,050 at April 30, 2018.
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 will be approximately $400,000 and brokerage commissions were $216,052. The tenant is anticipated to take occupancy and commence payment of rent in late 2018.
In August, 2017, the Company leased 1,423 square feet of retail space to an existing tenant for a period of 18.5 years at the Company’s Nine Bond Street, Brooklyn, New York building. Rent and occupancy is anticipated to occur in late 2018.
In September, 2017, an office tenant who occupies 2,000 square feet at the Company’s Jamaica, New York building vacated the space. The loss in annual rent will be $58,000.
In September, 2017, the Company leased 5,167 square feet of retail space to a tenant at the Company’s Nine Bond Street, Brooklyn, New York building for a period of ten years, effective January, 2018.
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In November, 2017, the Company extended a lease with the existing dental office tenant at its Nine Bond Street, Brooklyn, New York building for an additional ten years, expiring January 15, 2028.
In November, 2017, the Company leased an additional 3,005 square feet to an existing tenant for warehouse space at its Jowein building in Brooklyn, New York.
In March 2018, the Company leased the 20,000 square feet of area available at its Massapequa, New York property to a restaurant until May 2030. Rent is anticipated to commence in late 2018.
In April 2018, the Company extended a lease with an existing tenant who occupies 84,000 square feet for warehouse space at the Company’s Circleville, Ohio building for an additional three years expiring on October 31, 2021.
In May 2018, the Company extended a lease with an existing tenant who occupies 3,300 square feet of office space at the Company’s Jowein building in Brooklyn, New York for an additional five years expiring on June 30, 2023.
In May 2018, an office tenant who occupies 3,080 square feet at the Company’s Nine Bond Street Brooklyn, New York building informed the Company that it intends to vacate the premises in October 2018. The annual loss in rent will be $112,000.
Cash Flows From Operating Activities:
Payroll and Other Accrued Liabilities: The Company had a balance due at April 30, 2018 for brokerage commissions of $134,346. Brokerage commissions in the amount of $188,191 were paid in the nine months ended April 30, 2018.
Provision (Benefit) for Deferred Income Taxes: Enactment of the U.S Tax Act on December 22, 2017, as explained above, resulted in an estimated net federal tax benefit of approximately $2.4 million. Although the adjustment increased the Company’s net income, it did not increase cash. To reconcile net income to net cash provided by operating activities, provision (benefit) for deferred income taxes changed to a benefit of approximately $2.1 million for the current nine months compared to an expense of approximately $.7 million for the comparable 2017 nine months.
Cash Flows From Investing Activities:
The Company had expenditures for elevator upgrade work in the amount of $227,672 for the nine months ended April 30, 2018, at the Company’s Nine Bond Street, Brooklyn, New York building. The total cost of the project was $627,333, and it was completed in October, 2017. The Company had expenditures of $45,006 for a new tenant. The cost of the project will be approximately $400,000 of which $290,154 has been paid, and is expected to be completed in late 2018. The Company also had expenditures of $282,975 for various other construction projects.
The Company had expenditures for electrical work in the amount of $107,661 for the nine months ended April 30, 2018, at its Jowein, Brooklyn, New York building. The work was completed in January, 2018.
The Company had expenditures for elevator upgrade work in the amount of $551,901 for the nine months ended April 30, 2018, at the Company’s Jamaica, New York building. The total cost of the project will be approximately $800,000, and is anticipated to be completed in August, 2018. The Company had expenditures of $278,184 for renovation work for two existing tenants. Work was completed in March, 2018. The Company also had expenditures of $50,470 for various other construction projects.
The Company had expenditures for parking lot lights in the amount of $59,559 for the nine months ended April 30, 2018, at its Fishkill, New York building. The total cost was $168,675 and was completed in May 2018. The Company also had expenditures of $52,810 for paving of the parking lot. The total cost was $175,000 and was completed in May 2018. The Company also had expenditures of $174,828 for various other construction projects.
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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.