MAYS J W INC annual report, FY2015

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J.W. Mays, Inc. — Fiscal 2015 Form 10-K Summary

Business context and reporting period

J.W. Mays, Inc. is a smaller reporting company operating commercial real estate properties. The filing covers the fiscal year ended July 31, 2015. The portfolio includes owned and leasehold properties in Brooklyn, Jamaica, Fishkill, Levittown, Massapequa, Circleville and related Brooklyn facilities. The Company had 29 employees, with approximately 24% covered by a union agreement expiring November 30, 2016.

Financial metrics and operating indicators

  • Debt: Fixed-rate debt was $6.94 million at July 31, 2015. The filing states that the Company does not use derivative financial instruments and therefore has no material interest-rate exposure from variable-rate debt.
  • Real estate: Gross investment in real estate was $84.47 million, including $36.41 million of accumulated depreciation. Real estate improvements during fiscal 2015 totaled $2.43 million.
  • Mortgage: The Fulton Street at Bond Street property was subject to a mortgage of approximately $5.94 million, as shown in the real estate schedule.
  • Occupancy: Reported occupancy was 77.08% at the Fulton Street property, 68.83% at the Jowein building, 80.50% in Jamaica, 47.39% in Fishkill, 100% in Levittown, 85.01% in Massapequa and 91.54% in Circleville.
  • Rental commitments: The Fulton Street, Jowein and Jamaica properties reported aggregate annual rent of approximately $15.78 million under listed leases. Additional properties had disclosed rents, but the filing text does not provide a complete consolidated rental-income total.
  • Cash flow, revenue, profit and margins: The filing incorporates the consolidated income statement, balance sheets and cash-flow statement from the 2015 Annual Report to Shareholders, but those statements are not included in the provided text. Accordingly, consolidated revenue, net income, operating cash flow, free cash flow, margins, cash balances and liquidity ratios cannot be stated reliably from this filing text.
  • Dividends and equity activity: No dividends were declared and no shares were repurchased during fiscal 2015 or fiscal 2014. There were approximately 2.02 million common shares outstanding as of September 4, 2015.

Material changes versus the prior comparable period

  • Investment in real estate increased from $82.09 million at July 31, 2014 to $84.47 million at July 31, 2015, primarily reflecting $2.43 million of improvements, partially offset by retirements.
  • Accumulated depreciation increased from $34.77 million to $36.41 million, with fiscal 2015 depreciation expense of $1.66 million.
  • Massapequa occupancy declined to 85.01% after a fast-food tenant vacated in June 2014, reducing annual rental income by approximately $200,000. The Company was seeking a replacement tenant.
  • Circleville occupancy increased to 91.54% following lease expansions and new leases executed in 2015 for warehouse and distribution space.
  • At the Jowein building, the Company signed a 20-year lease for 17,425 square feet, with expected annual rent of approximately $550,000 beginning in summer 2016. Expected brokerage commissions and construction costs were approximately $500,000 and $2.0 million, respectively.
  • The Company entered or extended several leases, including a five-year extension for 13,451 square feet at Fulton Street and a seven-year extension for 17,364 square feet at the Jowein building.
  • A 2014 agreement relating to the temporary vacation and future reconfiguration of Brooklyn truck-bay premises provided $3.5 million of consideration. The amount was recorded as deferred revenue and is being amortized over the expected 36-month vacate period. The remaining $1.25 million payment was received in June 2015.

Guidance, outlook, risks and unusual items

  • The filing does not provide quantitative earnings, revenue or cash-flow guidance.
  • Management expects to continue negotiating lease renewals and pursuing occupancy of vacant space, including approximately 23,000 square feet in Jamaica and approximately 100,000 square feet in Fishkill.
  • The Company expects construction for the new Jowein tenant to be completed in spring 2016, with rent expected to commence in summer 2016.
  • Key risks include economic downturns, tenant financial weakness, lease expirations, rising property fit-out costs, limited financing availability, insurance availability and cost, environmental liabilities, governmental regulation, climate change, cyber security and interest-rate volatility affecting investments.
  • A controlling shareholder group has voting influence and business relationships with the Company. The Company identifies potential conflicts of interest, including shared executive management, although a majority of the Board is independent.
  • Various lawsuits and claims are pending, but management believes they will not materially adversely affect the consolidated financial statements. The Company is pursuing recovery of a $376,467 deposit related to defective roof-replacement work at the Fishkill property; the outcome is not predictable from the filing.
  • The Company may incur an undetermined cost to create a condominium unit for a loading dock if the 25 Elm Place property is sold, transferred, disposed of or demolished.
  • Management concluded that disclosure controls and internal control over financial reporting were effective as of July 31, 2015, with no reported material weaknesses. The independent auditor was not required to provide an internal-control attestation because the Company is a smaller reporting company.

Important facts for investors to verify

  1. Obtain the incorporated 2015 Annual Report financial statements to verify consolidated revenue, net income, cash flow, cash, current liabilities, total debt and liquidity.
  2. Assess tenant concentration, lease expirations and renewal risk, particularly for major tenants and properties with substantial vacant space.
  3. Verify the accounting and remaining amortization period for the $3.5 million Brooklyn premises-vacation payment.
  4. Evaluate the funding requirements and expected return for the approximately $2.5 million of brokerage and construction costs associated with the new Jowein lease.
  5. Review the $376,467 Fishkill contractor claim and the potential condominium-unit obligation at 25 Elm Place.
  6. Examine related-party transactions and governance protections involving the controlling shareholder group and shared management.