J.W. Mays, Inc. Form 10-Q Summary
Reporting period: Three months ended October 31, 2014, the first quarter of fiscal 2015. The company is primarily a real estate owner and landlord with rental income from 47 tenants. The interim financial statements are unaudited.
Financial performance and position
| Metric | Q1 FY2015 | Q1 FY2014 | Change |
|---|---|---|---|
| Total revenues | $4.643 million | $4.219 million | Up 10.0% |
| Income from operations | $894,173 | $726,145 | Up 23.1% |
| Operating margin | 19.3% | 17.2% | Up approximately 2.1 points |
| Net income | $438,672 | $436,024 | Up 0.6% |
| Net margin | 9.5% | 10.3% | Down approximately 0.9 points |
| Earnings per share | $0.22 | $0.22 | Flat |
| Cash flow from operations | $1.246 million | $1.464 million | Down 14.9% |
| Capital expenditures | $404,643 | $1.439 million | Down 71.9% |
- Rental income increased to $4.340 million from $4.219 million. Total revenue also included $291,667 recognized under the temporary lease-vacation agreement and $10,625 of real estate tax recoveries.
- Real estate operating expenses increased 8.0% to $2.324 million, primarily because of higher maintenance costs. Administrative and general expenses increased 7.1% to $983,293, primarily because of higher payroll, legal, and professional costs.
- Investment income fell sharply to $6,191 from $189,424 because the prior-year period included a $182,841 gain on the sale of marketable securities. Interest expense increased to $108,692 from $98,545.
- Cash and cash equivalents were $2.687 million at October 31, 2014, compared with $1.893 million at July 31, 2014. Total current assets were $6.732 million and current liabilities were $3.611 million.
- Total assets were $61.248 million and shareholders’ equity was $44.590 million at October 31, 2014.
- Mortgage debt was $5.138 million, with an additional $240,000 current portion. The company also had a $1.0 million unsecured related-party note payable, due December 15, 2016. Total fixed-rate debt was reported as $6.378 million.
Material changes versus the prior comparable period
- Revenue growth was driven by the temporary lease-vacation agreement, two new higher-rent retail tenants at the Jamaica, New York property, and a new tenant at the Fishkill, New York property.
- Operating income improved despite higher property, administrative, and depreciation expenses.
- Net income was essentially unchanged because the improvement in operating income was offset by the prior-year gain on marketable securities and higher interest expense.
- Operating cash flow declined, although capital spending was substantially lower than in the prior-year quarter.
- Available-for-sale marketable securities increased to $1.432 million from $1.354 million, including a $42,162 after-tax unrealized gain recorded in comprehensive income.
Guidance, outlook, risks, and unusual items
- Management stated that working capital and borrowing capabilities were adequate for planned operating and capital requirements. No quantitative revenue or earnings guidance was provided.
- The company entered into a lease amendment requiring it to vacate premises for redevelopment. It received $2.250 million and recorded a total $3.5 million obligation from the landlord as deferred revenue, to be recognized over an expected 36-month vacate period. The remaining $1.250 million was recorded as a receivable due June 16, 2015.
- The related lease litigation was settled and discontinued with prejudice, with general releases and no costs or attorneys’ fees payable by either party.
- A mortgage balance of approximately $5.318 million was scheduled to mature on February 18, 2015. Management stated that it was pursuing a five-year refinancing with the current lender; the filing does not confirm that refinancing was completed.
- In November 2014, the company signed a lease for an additional 5,640 square feet at its Jowein building, with rent expected to commence in spring 2015.
- Pending lawsuits and ordinary-course claims were not expected by management to have a material adverse effect. The company is pursuing a contractor dispute involving a $376,467 roof-replacement deposit; the outcome cannot currently be predicted.
- The company participates in a multi-employer pension plan identified as being in critical status. Any potential withdrawal liability cannot be determined, and the company had not decided to withdraw.
- Key risks include refinancing and credit availability, tenant financial condition and lease cancellations, economic and regulatory changes, litigation outcomes, loan covenant compliance, competition, labor availability, and the recoverability of claims and receivables.
- Management reported effective disclosure controls and no material changes in internal control over financial reporting.
Important facts for investors to verify
- Confirm whether the approximately $5.318 million mortgage due February 18, 2015 was successfully refinanced and on what terms.
- Assess collection of the $1.250 million receivable due from the landlord under the temporary lease-vacation agreement.
- Evaluate the sustainability of revenue growth after excluding the temporary lease-vacation revenue.
- Review tenant concentration: two tenants accounted for 17.33% and 14.05% of rental income, respectively, during the quarter.
- Monitor the contractor litigation involving the $376,467 deposit and the potential condominium-unit obligation related to 25 Elm Place.
- Review the critical-status multi-employer pension plan for potential future contribution increases, surcharges, or withdrawal liability.
- Reconcile subsequent leasing activity and capital-project completion with management’s stated spring 2015 rent commencement and completed building improvements.