J.W. Mays, Inc. — Form 10-Q Summary
Business context and reporting period
J.W. Mays, Inc. is primarily a real estate company deriving revenue from rental properties. This unaudited report covers the three and six months ended January 31, 2015, the second quarter of fiscal 2015, compared with the corresponding 2014 periods. The company had 2,015,780 common shares outstanding at March 4, 2015.
Key financial metrics
| Metric | Three months ended Jan. 31, 2015 | Three months ended Jan. 31, 2014 | Six months ended Jan. 31, 2015 | Six months ended Jan. 31, 2014 |
|---|---|---|---|---|
| Total revenues | $4.704 million | $4.140 million | $9.347 million | $8.358 million |
| Income from operations | $650 thousand | $25 thousand | $1.544 million | $751 thousand |
| Net income (loss) | $329 thousand | $(57) thousand | $768 thousand | $379 thousand |
| Earnings (loss) per share | $0.16 | $(0.03) | $0.38 | $0.19 |
| Cash provided by operating activities | Not separately provided | Not separately provided | $1.202 million | $1.796 million |
Operating margins were approximately 13.8% for the quarter and 16.5% for the six-month period; net margins were approximately 7.0% and 8.2%, respectively. Cash and cash equivalents were $2.829 million at January 31, 2015, compared with $1.893 million at July 31, 2014. Current assets were $7.573 million and current liabilities were $3.787 million, producing working capital of approximately $3.786 million.
Total assets were $62.398 million, including $47.446 million of net property and equipment and $1.438 million of marketable securities. Total liabilities were $17.491 million. Debt included $5.861 million of mortgage debt, $139 thousand of current debt, and a $1.000 million unsecured related-party note payable. The company reported $7.000 million of fixed-rate debt for market-risk purposes.
Capital expenditures were $872 thousand during the six months. Investing activities used $864 thousand, while financing activities provided $599 thousand, principally from an additional mortgage borrowing of $652 thousand. Cash increased by $937 thousand during the period.
Material changes versus the prior comparable period
- Quarterly revenue increased 13.6%, and six-month revenue increased 11.8%, primarily from lease-related compensation and additional or higher-rent tenants.
- Quarterly net income improved from a $57 thousand loss to $329 thousand of income. Six-month net income increased 102.5% to $768 thousand.
- Quarterly operating income increased substantially to $650 thousand from $25 thousand. Six-month operating income more than doubled.
- Interest expense exceeded investment income by $66 thousand in the quarter and $168 thousand for six months. The prior-year six-month period benefited from a $183 thousand gain on sale of marketable securities, which was largely absent in 2015.
- Operating cash flow declined to $1.202 million from $1.796 million, despite higher net income, partly reflecting changes in deferred revenue, deferred charges, taxes, and working-capital items.
- The company refinanced its Bond Street mortgage in January 2015 with a five-year, $6.000 million loan at a fixed 3.54% rate, including $652 thousand of additional borrowing.
Guidance, outlook, risks, contingencies, and unusual items
- Management stated that current working capital and borrowing capabilities are adequate for planned operating and capital requirements. No formal earnings or revenue guidance was provided.
- A lease-modification agreement provides total consideration of $3.500 million for temporarily vacating premises. The company recognized $292 thousand in the quarter and $583 thousand for six months as revenue. A $1.250 million receivable is due June 16, 2015, and the remaining deferred revenue is expected to be recognized over the 36-month vacate period.
- Management expects rent to commence in 2015 for newly leased office space and anticipates approximately $475 thousand of brokerage commissions and construction or renovation costs related to several leasing transactions described in the filing.
- One tenant represented 18.37% and another 14.88% of rental income for the six months, creating tenant-concentration risk.
- The company participates in a multi-employer pension plan reported in critical status. Any withdrawal liability cannot currently be determined; management has not decided to withdraw.
- Various lawsuits and claims are pending, but management does not expect their aggregate resolution to materially affect the financial statements. The company is pursuing recovery of a $376 thousand contractor deposit and damages, but the outcome cannot be predicted.
- Other risks include lease cancellations, tenant financial condition, access to credit, loan-covenant compliance, economic and regulatory conditions, competition, litigation outcomes, and changes in accounting estimates.
- Management stated that disclosure controls were effective and that no material changes occurred in internal control over financial reporting.
Most important facts for investors to verify
- Confirm collection of the $1.250 million lease-related receivable due June 16, 2015 and the continued recognition schedule for deferred lease revenue.
- Assess tenant concentration, lease commencements, occupancy, and rent commencement assumptions underlying future rental income.
- Review the terms, covenants, amortization, and maturity of the refinanced $6.000 million mortgage and the $1.000 million related-party note due December 15, 2016.
- Monitor operating cash flow, capital expenditures, brokerage and renovation commitments, and liquidity after debt service.
- Evaluate the financial condition of the critical-status multi-employer pension plan and potential withdrawal liability.
- Follow the contractor litigation, other pending claims, and any obligations associated with potential redevelopment or disposal of 25 Elm Place.