J.W. Mays, Inc. — Form 10-Q Summary
Business Context and Reporting Period
J.W. Mays, Inc. operates as a real estate enterprise following the discontinuance of its retail department store operations in 1989. This fiscal 2012 first-quarter report covers the three months ended October 31, 2011. The interim financial statements are unaudited; the July 31, 2011 balance sheet was audited.
Key Financial Metrics
| Metric | Q1 FY2012 | Q1 FY2011 |
|---|---|---|
| Rental revenue | $3.983 million | $3.608 million |
| Income from operations | $641,054 | $478,945 |
| Net income | $372,177 | $174,955 |
| Income per share | $0.18 | $0.09 |
| Cash provided by operating activities | $1.951 million | $1.481 million |
| Capital expenditures | $437,587 | $190,136 |
| Cash used in financing activities | $2.198 million | $105,917 |
| Cash and cash equivalents, period end | $2.005 million | $2.767 million |
- Revenue increased approximately 10.4% year over year, primarily from higher rents from existing tenants.
- Net income increased approximately 112.7%, and the net margin improved to approximately 9.3% from 4.9%.
- Operating expenses increased approximately 6.8% to $3.341 million. Real estate operating expenses rose due primarily to payroll and utilities; administrative expenses increased primarily because of payroll and legal and professional costs.
- Interest expense exceeded investment income by $148,877, compared with $154,990 in the prior-year quarter, primarily reflecting scheduled debt repayments.
- Total assets were $54.888 million at October 31, 2011, compared with $56.341 million at July 31, 2011. Shareholders’ equity increased to $41.793 million from $41.433 million.
- Debt consisted principally of mortgages and a term loan of $6.929 million, a $1.000 million related-party note, and security deposits payable. Current debt declined to $1.217 million from $3.346 million after repayment of the Jamaica property loan.
- Operating cash flow exceeded capital expenditures, but cash declined by $651,558 because of $2.167 million of mortgage and other debt payments.
Material Changes and Unusual Items
- In September 2011, the Company paid $2.090 million to retire the outstanding loan on its Jamaica, New York property.
- A 18,218-square-foot office build-out at the Nine Bond Street, Brooklyn property was completed in November 2011. The project cost approximately $2.114 million, including construction and brokerage costs, and rent was expected to commence in early 2012.
- The Company incurred $258,000 for a new heating system at 25 Elm Place, Brooklyn, and $124,878 during the quarter for the Nine Bond Street renovation.
- The Bond Street pedestrian footbridge was removed in November 2011 at a cost of $309,423. The cost had already been accrued as of July 31, 2011.
- Comprehensive income was $359,717, below net income because of a $12,460 after-tax unrealized loss on available-for-sale securities.
- Two tenants accounted for approximately 23.8% and 16.7% of rental income, respectively, creating tenant concentration exposure.
Outlook, Liquidity, Risks, and Contingencies
- Management stated that current working capital and borrowing capabilities were adequate for planned operating and capital requirements.
- A drive-in restaurant tenant at the Massapequa premises expected to obtain permits and begin operations, with rent anticipated to commence in 2012. Management expected the lease to more than offset rent lost from a prior tenant.
- A $1.067 million mortgage balance on the Jamaica property was scheduled to mature on April 1, 2012. The Company had not determined whether it would extend the loan or repay it in full.
- The Company uses fixed-rate debt and reported $7.929 million of fixed-rate debt at October 31, 2011; it does not use derivative financial instruments. Accordingly, management indicated limited exposure to changes in interest rates.
- Risks include economic conditions, access to credit, tenant financial condition, lease cancellations, regulatory changes, competition, loan covenant compliance, litigation, recoverability of claims, and changes in accounting estimates.
- Various lawsuits and claims were pending, but management believed their resolution would not materially affect the financial statements.
- 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 requirement and cost could not be determined at the reporting date.
- Management reported effective disclosure controls, no significant deficiencies or material weaknesses, and no material changes in internal control over financial reporting.
Investor Verification Checklist
- Verify the April 1, 2012 Jamaica mortgage maturity, including whether the loan was extended or repaid and the resulting liquidity impact.
- Confirm the timing and performance of rent commencement for the Massapequa restaurant and Nine Bond Street office tenant.
- Assess tenant concentration, lease renewal terms, occupancy levels, and exposure to lease cancellations.
- Reconcile reported fixed-rate debt of $7.929 million with the balance-sheet debt classifications, including the related-party note and security deposits payable.
- Review the latest Form 10-K for detailed loan covenants, litigation disclosures, property valuations, and the status of the 25 Elm Place potential condominium obligation.
- Consider that the filing cautions that quarterly results are not necessarily indicative of the full fiscal year.