Business Context and Reporting Period
J.W. Mays, Inc. is a real estate company that owns and operates commercial properties. This unaudited Form 10-Q covers the three and six months ended January 31, 2016, with comparisons to January 31, 2015. The company had 2,015,780 shares outstanding as of March 2, 2016.
Key Financial Metrics
| Metric | Three Months Ended January 31, 2016 | Three Months Ended January 31, 2015 | Six Months Ended January 31, 2016 | Six Months Ended January 31, 2015 |
|---|---|---|---|---|
| Total revenue | $4.608 million | $4.704 million | $9.177 million | $9.347 million |
| Income from operations | $0.365 million | $0.650 million | $1.062 million | $1.544 million |
| Net income | $0.223 million | $0.329 million | $0.624 million | $0.768 million |
| Diluted income per share | $0.11 | $0.16 | $0.31 | $0.38 |
| Net margin | 4.8% | 7.0% | 6.8% | 8.2% |
| Cash provided by operating activities | Not separately presented | $1.609 million | $1.202 million |
- Rental income was $8.593 million for the six-month period, supplemented by $0.583 million of revenue recognized from the agreement to temporarily vacate leased premises.
- Cash and cash equivalents were $4.534 million at January 31, 2016, compared with $4.086 million at July 31, 2015. Current assets were $10.860 million and current liabilities were $5.082 million, implying a current ratio of approximately 2.1.
- Property and equipment, net, was $48.634 million. Total assets were $66.499 million and shareholders’ equity was $46.955 million.
- Mortgage debt totaled approximately $5.863 million, including the current portion. A $1.000 million related-party note was classified as current and matures December 15, 2016. Management reported fixed-rate debt of $6.863 million and no derivative instruments.
- Capital expenditures were $1.257 million during the six months. Investing activities used $1.005 million, while financing activities used $0.155 million.
Material Changes Versus the Prior Comparable Period
- Six-month revenue declined 1.8%, and net income declined 18.7%. Six-month operating income decreased 31.2%.
- The primary revenue pressure was nonpayment of rent by a retail tenant at the Nine Bond Street property, who vacated in December 2015.
- Six-month real estate operating expenses increased 3.9%, mainly from higher real estate taxes, maintenance and utilities.
- Administrative and general expenses increased 9.3%, reflecting New York State and New York City capital-based franchise taxes of $121,053 and higher legal and professional costs.
- Depreciation and amortization declined 8.0%, primarily because depreciation on the Fishkill building expired.
- Net interest expense declined to $116,309 from $168,493, primarily due to the lower rate on the refinanced mortgage, partly offset by a $38,538 loss on the sale of securities.
- Operating cash flow increased 33.9%, despite lower net income, supported by working-capital changes and noncash adjustments.
Guidance, Outlook, Risks and Unusual Items
- Management stated that existing working capital and borrowing capabilities are adequate for planned operating and capital requirements. The filing provides no formal earnings or revenue guidance.
- A 17,425-square-foot Jowein building lease is expected to begin in summer 2016. Related construction costs are estimated at approximately $2.0 million and brokerage commissions at approximately $0.5 million.
- Construction and tenant-improvement projects include the Jowein project, Jamaica renovations, a new boiler, roofing and Fishkill improvements. Remaining costs and completion timing should be monitored.
- A Jamaica tenant terminated a 2,000-square-foot lease effective December 31, 2015, reducing annual rent by approximately $42,000.
- The vacant Nine Bond Street retail space represents an estimated lost rent of approximately $37,500 per month until re-leased. The company is pursuing collection and seeking a replacement tenant.
- The company recognized $3.5 million received under a 2014 lease amendment as deferred revenue over a 36-month vacate period; $0.583 million was recognized during the six months ended January 31, 2016.
- One tenant accounted for 18.73% and another for 15.50% of six-month rental income, creating tenant concentration risk.
- Pending lawsuits and claims are not expected by management to have a material adverse effect, but the company is pursuing a contractor over a $376,467 roof-replacement deposit and cannot predict the outcome.
- The company participates in a multi-employer pension plan classified as being in critical status. Any potential withdrawal liability cannot be determined, although the company has no current decision to withdraw.
- Key risks include tenant defaults or lease cancellations, property costs, access to credit, loan covenant compliance, litigation outcomes, regulatory changes, economic conditions and the recoverability of claims.
Important Facts for Investors to Verify
- Whether the Nine Bond Street retail vacancy is re-leased and whether unpaid rent or litigation produces any recovery.
- The timing, remaining cost and expected rental commencement for the Jowein tenant-improvement project.
- The December 2016 maturity and renewal or repayment plan for the $1.0 million related-party note.
- The status and potential liability associated with the contractor litigation and the multi-employer pension plan.
- Tenant concentration, lease expirations, and the sustainability of rental income after the temporary-vacate revenue is fully recognized.
- The filing’s statement that disclosure controls were effective and that there were no material changes to internal control over financial reporting.