J.W. Mays, Inc. Form 10-Q Summary
Business context and reporting period
J.W. Mays, Inc. is a real estate company generating rental income from commercial properties. This unaudited Form 10-Q covers the quarter and nine months ended April 30, 2014, compared with the corresponding 2013 periods. The fiscal year ends July 31, 2014. The company had 2,015,780 common shares outstanding for earnings-per-share purposes.
Financial performance and position
| Metric | Three months ended April 30, 2014 | Three months ended April 30, 2013 | Nine months ended April 30, 2014 | Nine months ended April 30, 2013 |
|---|---|---|---|---|
| Rental revenue | $4.27 million | $3.70 million | $12.63 million | $12.00 million |
| Income from operations | $391,683 | $269,114 | $1.14 million | $1.20 million |
| Net income | $218,315 | $73,037 | $597,289 | $562,843 |
| Net income per share | $0.11 | $0.04 | $0.30 | $0.28 |
| Operating margin | 9.2% | 7.3% | 9.1% | 10.0% |
| Net margin | 5.1% | 2.0% | 4.7% | 4.7% |
For the nine months, cash provided by operating activities was $2.32 million, down from $3.02 million in the prior-year period. Capital expenditures were $2.26 million, producing cash used in investing activities of $1.37 million. Financing activities used $201,493, principally for mortgage and other debt payments. Cash and cash equivalents increased to $1.42 million at April 30, 2014 from $664,718 at July 31, 2013.
At April 30, 2014, total assets were $57.80 million, total liabilities were $13.84 million, and shareholders' equity was $43.96 million. Mortgage debt totaled $5.47 million, including $240,000 due within one year, and the company had a $1.0 million unsecured related-party note payable. Management identified $6.47 million of fixed-rate debt for market-risk purposes. Marketable securities totaled $1.33 million, compared with $2.46 million including the current certificate of deposit at July 31, 2013. Working capital and borrowing capabilities were considered adequate for planned operating and capital requirements.
Material changes versus the prior comparable period
- Quarterly revenue increased 15.2%, primarily from higher rents paid by two replacement office tenants at the Jowein building in Brooklyn.
- Nine-month revenue increased 5.2%, reflecting increased Jowein rents and a $181,257 litigation settlement with a retail tenant at Nine Bond Street.
- Quarterly net income increased 199%, while nine-month net income increased 6.1%.
- Real estate operating expenses increased 13.0% for the quarter and 7.3% for the nine months, driven by higher real estate taxes, maintenance, payroll and related costs. The prior-year periods included a $240,258 bad-debt expense.
- Administrative and general expenses increased 15.6% for the quarter and 16.7% for the nine months, primarily due to higher payroll, legal, professional and pension costs.
- Nine-month investment income increased to $227,080 from $69,291, primarily because of a $182,846 gain on sales of marketable securities.
- The prior-year nine-month period included a $316,021 loss on property disposition; the current period included a $4,291 loss.
- Accumulated other comprehensive income declined to $122,895 from $183,633 at July 31, 2013, largely reflecting the sale of securities and related reclassification adjustments.
Guidance, outlook, commentary, risks and unusual items
Management did not provide quantified earnings or revenue guidance. Management stated that current working capital and borrowing capacity were adequate for planned operating and capital requirements, but cautioned that interim results are not necessarily indicative of the full fiscal year.
- A 10,000-square-foot Nine Bond Street office lease began generating rent in March 2014 after approximately $1.28 million of construction costs, $247,830 of brokerage commissions and $556,868 of office-relocation costs.
- A 99,992-square-foot Fishkill retail lease began generating rent in March 2014. Total construction costs, including roof and parking-lot work, were expected to be approximately $1.7 million.
- Fishkill roof replacement and parking-lot repaving commitments totaled approximately $1.36 million; $465,000 had been spent by April 30, 2014, with completion anticipated by June 2014.
- Two Jamaica retail tenants did not renew, but replacement leases were signed at rents expected to exceed those of the prior tenants. Rent commencement was scheduled for May and August 2014.
- The company intends to extend the $5.32 million mortgage balance scheduled to mature on February 18, 2015. The filing does not provide assurance that refinancing or extension will be completed.
- The company is involved in ordinary-course lawsuits and claims that management believes will not materially affect the financial statements. It is also pursuing recovery of a $376,467 Fishkill contractor deposit and damages; the outcome is not predictable.
- A contingent obligation related to potential withdrawal liability under a union multi-employer pension plan has not been determined. Management has no intention of withdrawing from the plan.
- Tenant concentration is material: two tenants accounted for 19.25% and 15.42% of nine-month rental income, respectively.
- Key risks include lease cancellations, tenant financial condition, access to credit, loan-covenant compliance, litigation outcomes, construction-cost estimates, competition and broader economic conditions.
Important facts for investors to verify
- Verify the status and terms of the $5.32 million mortgage maturity and any planned extension beyond February 18, 2015.
- Verify completion, final cost and funding of the Fishkill roof and parking-lot project and other tenant improvements.
- Monitor occupancy, rent commencement and collection performance for new or renewed leases, particularly the Jamaica, Fishkill, Jowein and Nine Bond Street properties.
- Assess the effect of tenant concentration and the recoverability of unbilled receivables of $2.51 million.
- Follow the litigation involving the $376,467 contractor deposit and any potential condominium-unit obligation at 25 Elm Place.
- Reconcile the decline in operating cash flow and marketable securities with continued capital spending and debt-service requirements.
- Review the company’s unchanged risk factors and the unresolved potential multi-employer pension withdrawal liability.