Business Context and Reporting Period
J.W. Mays, Inc. operates as a real estate enterprise, generating substantially all revenue from rental income across 48 tenants. This Form 10-Q reports unaudited results for the three and six months ended January 31, 2012, compared with the corresponding 2011 periods. The company discontinued its retail department store operations in 1989.
Financial Results and Key Metrics
| Metric | Three Months Ended January 31, 2012 | Three Months Ended January 31, 2011 | Six Months Ended January 31, 2012 | Six Months Ended January 31, 2011 |
|---|---|---|---|---|
| Rental revenue | $4.109 million | $3.707 million | $8.092 million | $7.315 million |
| Income from operations | $0.661 million | $0.224 million | $1.302 million | $0.703 million |
| Net income from continuing operations | $0.314 million | $(0.006) million | $0.686 million | $0.169 million |
| Net income (loss) | $0.314 million | $(0.183) million | $0.686 million | $(0.008) million |
| Net income (loss) per share | $0.16 | $(0.09) | $0.34 | $(0.01) |
| Cash flow from operations | Not provided for the quarter | Not provided for the quarter | $2.106 million | $1.734 million |
- Rental revenue increased approximately 10.9% in the quarter and 10.6% for the six-month period, primarily from higher rents from existing tenants.
- Operating margin improved to approximately 16.1% in both the quarter and six-month period, compared with approximately 6.0% and 9.6%, respectively, in the prior-year periods.
- Net margin was approximately 7.6% for the quarter and 8.5% for the six-month period, compared with negative margins in the prior-year periods.
- At January 31, 2012, total assets were $55.464 million, cash and cash equivalents were $1.363 million, current assets were $3.811 million, and shareholders’ equity was $42.136 million.
- Current liabilities were $3.435 million, implying working capital of approximately $0.376 million and a current ratio of approximately 1.11.
- Fixed-rate debt totaled $7.875 million, consisting principally of mortgages, a term loan, and a $1.0 million unsecured related-party note due December 15, 2013. The filing states that fixed-rate debt does not expose the company to interest-rate market risk, and the company uses no derivatives.
- Cash flow from operations of $2.106 million was offset by $1.130 million of investing outflows and $2.269 million of financing outflows, resulting in a $1.293 million decrease in cash during the six months.
- Capital expenditures were $0.912 million for the six months, compared with $0.508 million in the prior-year period.
Material Changes Versus the Prior Comparable Period
- Quarterly net income improved by $0.497 million from a $0.183 million loss to $0.314 million of income. Six-month net income improved by $0.694 million from an $0.008 million loss to $0.686 million of income.
- The prior-year periods included a $0.177 million after-tax loss from discontinued operations; no discontinued-operations activity was recorded in 2012.
- Real estate operating expenses increased to $2.110 million for the quarter and $4.124 million for six months, primarily because of higher real estate taxes, payroll costs, and rental expense.
- Administrative and general expense declined modestly for both comparable periods, primarily because of lower payroll, medical, and bad-debt costs, partly offset by higher legal and professional costs.
- The excess of interest expense over investment income declined to $0.123 million for the quarter and $0.272 million for six months, from $0.139 million and $0.294 million, respectively, primarily because of scheduled debt repayments.
- Total debt declined from $9.096 million at July 31, 2011 to approximately $7.875 million at January 31, 2012. The reduction included repayment of a $2.090 million Jamaica, New York property loan in September 2011, partly offset by the reclassification of approximately $1.049 million of mortgage debt due within one year.
Guidance, Outlook, Risks, Contingencies, and Unusual Items
- Management states that current working capital and borrowing capabilities are adequate for planned operating and capital requirements. No formal earnings or revenue guidance is provided.
- A drive-in restaurant lease at the Massapequa premises is expected to begin generating rent in April 2012, and management expects that rent to more than offset the prior tenant’s lost rental income.
- Rent on a completed 18,218-square-foot office lease at the Nine Bond Street property is expected to commence in March 2012. The project was financed through operating funds and had total company costs described in the filing as approximately $2.160 million, including construction and brokerage commissions.
- A $1.049 million mortgage on the Jamaica property was scheduled to mature on April 1, 2012. Management stated that the company intended to pay the loan in full at maturity.
- One tenant represented 23.39% and another represented 16.44% of rental income for the six months ended January 31, 2012, creating tenant concentration risk.
- Various lawsuits and claims are pending; management believes their resolution will not materially adversely affect the financial statements. The filing does not provide a clear aggregate potential exposure.
- The company completed removal of a Bond Street pedestrian bridge in November 2011 at a cost of $309,423; the amount had already been accrued at July 31, 2011.
- If the company sells, transfers, disposes of, or demolishes 25 Elm Place, it may be required to create a condominium unit for a loading dock. The necessity and cost cannot currently be determined.
- Risks identified by management include economic conditions, tenant financial condition, lease cancellations, access to credit, regulatory changes, competition, litigation, loan-covenant compliance, cost estimates, and the recoverability of claims.
- Available-for-sale securities generated a $16,950 after-tax unrealized gain in other comprehensive income for the six months. The company also recorded a $14,232 realized loss on marketable securities in the period.
Investor Verification Items
- Verify the company’s ability to fund the April 1, 2012 mortgage repayment while maintaining adequate liquidity for operations and capital projects.
- Confirm that the Massapequa and Nine Bond Street leases commenced as scheduled and assess their contribution to subsequent rental revenue.
- Review tenant concentration, lease expirations, occupancy, and any significant rent concessions or renewals.
- Reconcile the reported fixed-rate debt of $7.875 million with current and long-term debt classifications and the related-party note terms.
- Assess the fair value and liquidity of the company’s marketable securities relative to its cash needs.
- Review pending litigation, potential loading-dock condominium obligations, and compliance with applicable loan covenants.
- Consider that interim results are unaudited and that management states six-month results are not necessarily indicative of the full fiscal year ending July 31, 2012.