MAYS J W INC annual report, FY2017

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Business Context and Reporting Period

J.W. Mays, Inc. filed its Form 10-K for the fiscal year ended July 31, 2017. The company operates commercial real estate properties, primarily in New York, with additional properties in Fishkill, New York and Circleville, Ohio. It had approximately 30 employees, and approximately 23% were covered by a union contract expiring November 30, 2019.

The portfolio included approximately 1.45 million square feet across owned properties and leasehold interests. Properties were generally subject to long-term leases, with the longest extending to 2073.

Financial Metrics and Capital Structure

  • Debt: Fixed-rate debt totaled $5.63 million at July 31, 2017. The filing states that the company does not use derivative financial instruments and therefore has no material interest-rate market risk from variable-rate debt.
  • Real estate: Gross real estate investment was $89.02 million, including $6.07 million of land and $82.95 million of buildings and improvements. Accumulated depreciation was $39.65 million.
  • Capital expenditures: Improvements to real estate totaled $2.08 million during fiscal 2017, compared with $2.46 million in fiscal 2016.
  • Depreciation: Depreciation charged to costs and expenses was $1.64 million in fiscal 2017, compared with $1.59 million in fiscal 2016.
  • Rental portfolio: Reported occupancy varied by property. Key occupancy levels at July 31, 2017 included 75.59% at Fulton Street/Bond Street, 77.53% at the Jowein Building, 80.50% at Jamaica Avenue, 47.39% at Fishkill, 100% at Levittown, 85.01% at Massapequa, and 99.04% at Circleville.
  • Contracted annual rent: The property schedules report annual rent of approximately $7.50 million at Fulton Street/Bond Street, $3.52 million at the Jowein Building, $5.01 million at Jamaica Avenue, $389,460 at Levittown, $759,722 at Massapequa, and $457,223 at Circleville. The Fishkill schedule does not provide a comparable current annual rent amount beyond the historical lease disclosure.
  • Profit, revenue, cash flow, margins and liquidity: The filing incorporates the consolidated financial statements and management’s discussion from the 2017 Annual Report to Shareholders, but those figures are not included in the supplied filing text. The filing text therefore does not provide clear values for total revenue, net income, operating cash flow, free cash flow, margins, cash balances, or current liquidity ratios.
  • Dividends and repurchases: No dividends were declared and no shares were repurchased during fiscal 2017 or fiscal 2016.

Material Changes Versus the Prior Comparable Period

  • Real estate investment increased from $86.94 million to $89.02 million, primarily reflecting $2.08 million of improvements; accumulated depreciation increased from $38.01 million to $39.65 million.
  • Overall property occupancy improved at several locations, including the Jowein Building, which increased to 77.53%, and Circleville, which increased to 99.04%. Fishkill remained substantially underoccupied at 47.39%, with approximately 100,000 square feet available for lease.
  • A new medical facility lease covering 7,700 square feet was signed at Fulton Street/Bond Street. Renovation costs were expected to be approximately $400,000 and brokerage commissions were $216,052; rent was expected to commence in January 2018.
  • At the Jowein Building, a 17,425-square-foot office lease commenced occupancy in March 2017, with rent commencing in June 2017. Brokerage commissions and construction costs were $496,266 and $1.75 million, respectively.
  • A tenant at Fulton Street/Bond Street filed for Chapter 11 protection and vacated in July 2017. The company stated that the resulting annual loss in rental income would be approximately $442,000.
  • A Fishkill tenant that had planned to vacate agreed in May 2017 to continue occupancy.
  • The company’s common stock price declined during fiscal 2017: the reported quarterly high/low range fell from $48.50/$42.50 in the quarter ended October 31, 2016 to $41.50/$33.55 in the quarter ended July 31, 2017.

Guidance, Outlook, Risks, Contingencies and Unusual Items

  • Outlook: Management did not provide quantitative earnings, revenue, occupancy or capital-spending guidance in the supplied filing text. Management indicated an intention to negotiate lease renewals as they become due, subject to tenant financial condition, and to renovate vacant space when future leases are executed.
  • Tenant concentration: At Fulton Street/Bond Street, one department-store tenant represented 33.42% of rentable square footage and another office tenant represented 15.06%. The company also disclosed several tenants representing more than 10% of rentable space at Jamaica Avenue.
  • Legal contingency: The company is pursuing recovery of a $376,467 contractor deposit related to defective Fishkill roof and construction work. Contractors and subcontractors asserted claims of approximately $700,000. The company recorded a $279,213 operating-expense charge in fiscal 2016 and an additional $141,132 charge on October 31, 2016. A September 14, 2017 judgment ordered payment of the latter amount plus interest, while further court decisions remained pending.
  • Leasehold and related-party risks: The Jamaica property’s land is leased from an affiliated company, and the company is the prime tenant at the Massapequa property. The filing identifies potential conflicts involving a controlling shareholder group, overlapping management and related-party business relationships.
  • Operating risks: Principal risks include economic downturns, tenant defaults, financing availability, rising property fit-out costs, environmental liabilities, insurance availability, governmental regulation, climate change, cybersecurity, interest-rate movements affecting investments and real estate market conditions.
  • Deferred consideration: In connection with temporarily vacating premises at Livingston Street, the company received total consideration of $3.5 million, recorded as deferred revenue and amortized over an expected 36-month vacate period. Re-occupancy was anticipated in late 2017.
  • Controls: Management concluded that disclosure controls and internal control over financial reporting were effective as of July 31, 2017. No material weaknesses or significant deficiencies were reported. As a smaller reporting company, the company was exempt from an auditor attestation report under Section 404(b).

Important Facts for Investors to Verify

  1. Obtain the incorporated 2017 Annual Report financial statements to verify revenue, net income, earnings per share, operating cash flow, cash balances, current liabilities, margins and year-over-year changes.
  2. Assess the effect of the Fulton Street/Bond Street tenant bankruptcy and the stated $442,000 annual rental-income loss.
  3. Review the Fishkill litigation, the $141,132 judgment plus interest, the potential claims of up to approximately $700,000 and any subsequent settlement or court ruling.
  4. Evaluate occupancy, lease expirations, tenant concentration and available space, particularly at Fishkill, Jamaica Avenue and Massapequa.
  5. Confirm the terms, amortization and remaining balance of the $3.5 million Livingston Street deferred-revenue arrangement and the status of expected re-occupancy.
  6. Review fixed-rate debt maturity dates, mortgage terms and liquidity available for renovations, tenant improvements and other capital requirements.
  7. Examine related-party arrangements, including the Jamaica land lease, common management and transactions with the controlling shareholder group.