J.W. Mays, Inc. — Form 10-Q Summary
Business Context and Reporting Period
J.W. Mays, Inc. is a real estate company that primarily earns rental income from commercial properties. This filing covers the three months ended October 31, 2016, the first quarter of fiscal 2017. The financial statements are unaudited. The company had 2,015,780 common shares outstanding at December 8, 2016.
Key Financial Metrics
| Metric | Q1 FY2017 | Q1 FY2016 | Change |
|---|---|---|---|
| Total revenues | $4.783 million | $4.569 million | +4.7% |
| Income from operations before investment income, interest and taxes | $751,742 | $697,730 | +7.7% |
| Net income | $462,025 | $401,375 | +15.1% |
| Earnings per share | $0.23 | $0.20 | +15.0% |
| Operating margin | 15.7% | 15.3% | Improved |
| Net margin | 9.7% | 8.8% | Improved |
| Cash provided by operating activities | $1.355 million | $1.291 million | +4.9% |
| Capital expenditures | $516,320 | $821,347 | Down 37.1% |
Rental income was $4.480 million, compared with $4.277 million in the prior-year quarter. Revenue also included $291,667 from the agreement to temporarily vacate leased premises and $10,952 from recovery of prior-year real estate taxes.
Real estate operating expenses increased to $2.528 million from $2.409 million, while administrative and general expenses increased to $1.091 million from $1.056 million. Interest expense exceeded investment income by $58,717 in the current quarter, compared with $57,355 in the prior-year quarter.
Cash and cash equivalents were $6.016 million at October 31, 2016, up from $5.229 million at July 31, 2016. Total current assets were $7.537 million and current liabilities were $4.162 million, implying working capital of approximately $3.376 million. Total assets were $63.877 million, total liabilities were $15.488 million, and shareholders’ equity was $48.389 million.
Mortgage debt consisted of approximately $5.674 million, including $135,397 due within one year. The company also had a $1.000 million current note payable to the estate of a former director, with maturity on December 15, 2016. Management stated that it intended to repay this note in full at maturity. The company reported fixed-rate debt of $6.748 million and does not use derivative instruments.
Material Changes Versus the Prior Comparable Period
- Net income increased $60,650, primarily reflecting higher rental revenue and operating income.
- Rental income increased primarily from existing tenants.
- Real estate operating expenses increased partly because of higher real estate taxes and a $141,132 charge related to litigation against a roofing contractor.
- Cash flow from operations improved modestly, while capital spending declined from the prior-year quarter.
- Unrealized losses on available-for-sale securities, net of tax, were $43,990, compared with $19,404 in the prior-year quarter. Marketable securities declined to $2.003 million from $2.062 million at July 31, 2016.
- Share count and dividends per share were unchanged; no dividends were declared in either comparable quarter.
Guidance, Outlook, Risks, Contingencies, and Unusual Items
Management did not provide quantitative earnings or revenue guidance. Management stated that current working capital and borrowing capabilities were adequate for planned operating and capital requirements.
A 20-year lease for 17,425 square feet of Brooklyn office space was expected to commence occupancy in December 2016, with rent expected to begin in March 2017. Related construction was completed in November 2016. The company also completed or was completing renovations and façade work at several properties.
The company’s principal risks include tenant concentration, lease cancellations, customer financial condition, economic and regulatory changes, access to credit, loan covenant compliance, construction cost estimates, competition, and litigation outcomes. Three tenants represented approximately 18.66%, 15.10%, and 10.52% of rental income during the quarter.
The company is pursuing recovery of a $376,467 contractor deposit related to defective roofing work. Management indicated that full recovery may not occur; an additional $141,132 was charged to operating expenses through October 31, 2016. Various lawsuits and claims were pending, but management believed they would not materially adversely affect the financial statements. A potential obligation related to creating a condominium unit at 25 Elm Place cannot currently be determined.
The UFCW Local 888 multi-employer pension plan was reported as being in critical and declining status. The company’s collective bargaining contract expired November 30, 2016, and negotiations for an extension through November 30, 2019 were in process. Any potential withdrawal liability could not be determined.
Management concluded that disclosure controls and procedures were effective and reported no material changes in internal control over financial reporting. The company was evaluating the future effects of new revenue recognition and lease accounting standards.
Important Facts for Investors to Verify
- Confirm repayment or refinancing of the $1.000 million related-party note due December 15, 2016.
- Monitor lease commencement and rent commencement for the Brooklyn office tenant scheduled for December 2016 and March 2017, respectively.
- Assess tenant concentration and the effect of any vacancies, lease cancellations, or renewals on rental revenue.
- Track the roofing-contractor litigation and potential recovery of the $376,467 deposit, including any further charges.
- Review the financial condition and potential obligations associated with the critical-and-declining multi-employer pension plan.
- Evaluate capital spending, construction commitments, and the company’s ability to fund them from operating cash flow and available liquidity.