J.W. Mays, Inc. — Form 10-Q Summary
Business context and reporting period
J.W. Mays, Inc. operates as a real estate enterprise, primarily generating rental income from commercial properties. This unaudited Form 10-Q covers the quarter and six months ended January 31, 2013, within the fiscal year ending July 31, 2013. The company had 2,015,780 common shares outstanding as of March 6, 2013.
Key financial metrics
| Metric | Three months ended Jan. 31, 2013 | Six months ended Jan. 31, 2013 | Six months ended Jan. 31, 2012 |
|---|---|---|---|
| Rental revenue | $4.105 million | $8.300 million | $8.092 million |
| Income from operations | $(18,593) | $929,719 | $1.302 million |
| Net income | $(10,968) | $489,806 | $685,922 |
| Net income per share | $(0.01) | $0.24 | $0.34 |
| Operating cash flow | Not separately reported | $1.898 million | $2.106 million |
- Six-month operating margin was approximately 11.2%, compared with 16.1% in the prior-year period. Six-month net margin was approximately 5.9%, compared with 8.5%.
- Cash and cash equivalents were $2.500 million at January 31, 2013, versus $1.340 million at July 31, 2012. Total current assets were $5.308 million and current liabilities were $3.703 million, implying a current ratio of approximately 1.43.
- Total assets were $56.221 million and shareholders’ equity was $43.238 million at January 31, 2013.
- Fixed-rate debt totaled $6.674 million, consisting primarily of mortgage debt and a $1.000 million related-party note. Mortgage balances included $164,407 due within one year and $5.510 million due thereafter. The principal mortgage balance of approximately $5.318 million is scheduled to mature on February 18, 2015.
- Cash flow from investing activities used $637,544, including $528,436 of capital expenditures. Financing activities used $100,200, primarily for debt and security-deposit payments.
Material changes versus the prior comparable period
- Quarterly revenue was essentially flat, decreasing to $4.105 million from $4.109 million. Six-month revenue increased 2.6%.
- Quarterly net income declined from $313,745 to a $10,968 loss. Six-month net income declined 28.6% to $489,806.
- Real estate operating expenses increased 16.2% for the quarter and 8.0% for the six months, driven by higher maintenance costs, real estate taxes, leasing commissions, and a $240,258 bad-debt expense related to a vacating retail tenant.
- The company recorded a $316,021 loss on disposition of property and equipment in the current periods; no comparable loss was recorded in 2012.
- Interest expense net of investment income improved to $166,913 for the six months from $271,712, primarily because of scheduled debt repayments.
- Cash provided by operations decreased to $1.898 million from $2.106 million, while cash and cash equivalents increased by $1.160 million during the six months.
- Administrative and general expenses decreased for the six months, primarily because of lower legal and professional costs.
Guidance, outlook, risks, contingencies, and unusual items
- Management stated that working capital and borrowing capabilities were adequate for planned operating and capital requirements; no formal earnings guidance was provided.
- A 56,547-square-foot Jowein Building tenant vacated in January 2013, creating an estimated annual rental-income loss of approximately $1.357 million. The company is seeking a replacement tenant.
- A separate 22,000-square-foot Jowein Building tenant also vacated, but the company signed a replacement lease in January 2013. Construction and brokerage costs are expected to be approximately $1.100 million, funded from operating cash, with occupancy anticipated in May 2013.
- A 7,401-square-foot Nine Bond Street retail tenant was expected to vacate in February 2013, resulting in an estimated annual rental-income loss of approximately $430,000. The company recorded the related $240,258 unbilled-receivable write-off.
- In February 2013, the company signed a lease for 10,000 square feet at Nine Bond Street. Construction and brokerage costs are expected to be approximately $1.200 million, with rent and occupancy anticipated in early 2014.
- Additional planned expenditures included approximately $300,000 for elevator work and approximately $850,000 for renovation of the 22,000-square-foot Jowein space.
- Two tenants represented 19.29% and 15.60% of six-month rental income, creating tenant-concentration risk.
- Pending lawsuits and claims were not expected by management to have a material adverse effect. 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 potential cost is currently indeterminate.
- The company uses fixed-rate debt and does not use derivative instruments, limiting exposure to changes in interest rates. Management identified risks including vacancies, lease cancellations, tenant credit quality, refinancing and loan-covenant compliance, economic conditions, litigation, regulation, competition, and estimates used in financial reporting.
- Management reported that disclosure controls were effective and that there were no significant deficiencies or material weaknesses in internal control over financial reporting.
Important facts for investors to verify
- Whether vacant Jowein and Nine Bond Street space is re-leased on the stated timetable and at expected rental rates.
- The effect of approximately $2.3 million of planned construction, renovation, and brokerage expenditures on liquidity and future cash flow.
- The February 2015 mortgage maturity and the company’s refinancing or repayment plans.
- Tenant concentration, lease expirations, rent concessions, and the collectability of receivables and unbilled rental income.
- The resolution and potential financial exposure of pending litigation and the 25 Elm Place condominium-unit contingency.
- The sustainability of operating cash flow given higher property expenses, tenant vacancies, and scheduled capital projects.