J.W. Mays, Inc. Form 10-Q Summary
Reporting period: Three and nine months ended April 30, 2015, compared with the corresponding 2014 periods. The fiscal year ends July 31, 2015. Financial statements are unaudited except for the July 31, 2014 balance sheet.
Business Context
J.W. Mays, Inc. is principally a real estate company generating rental income from commercial properties in New York and Ohio. The company had 2,015,780 common shares outstanding as of June 3, 2015.
Financial Metrics
| Metric | Three Months 2015 | Three Months 2014 | Nine Months 2015 | Nine Months 2014 |
|---|---|---|---|---|
| Total revenues | $4.739 million | $4.268 million | $14.086 million | $12.626 million |
| Income from operations | $0.802 million | $0.392 million | $2.346 million | $1.143 million |
| Net income | $0.422 million | $0.218 million | $1.190 million | $0.597 million |
| Income per share | $0.21 | $0.11 | $0.59 | $0.30 |
| Cash flow from operations | Not provided | Not provided | $2.488 million | $2.324 million |
- Margins: Operating margin was approximately 16.9% for the quarter and 16.7% for the nine-month period, compared with approximately 9.2% and 9.1%, respectively, in the prior-year periods. Net margin was approximately 8.9% for the quarter and 8.4% for nine months, compared with approximately 5.1% and 4.7%.
- Liquidity: Cash and cash equivalents were $3.562 million at April 30, 2015, up from $1.893 million at July 31, 2014. Current assets were $7.463 million and current liabilities were $3.481 million.
- Debt: Mortgages payable totaled $5.974 million, including the current portion, and the company had a $1.000 million related-party note. Fixed-rate debt was reported at $6.974 million. Total liabilities were $17.020 million versus $17.067 million at July 31, 2014.
- Capital structure: Shareholders’ equity was $45.346 million, compared with $44.109 million at July 31, 2014. The company paid no dividends.
- Investing and financing: Nine-month capital expenditures were $1.398 million. Investing activities used $1.401 million of cash, while financing activities provided $0.582 million, primarily from a mortgage refinancing and additional borrowing.
Material Changes Versus the Prior Comparable Period
- Nine-month revenue increased $1.460 million, or approximately 11.6%, primarily from new and higher-rent tenants and $0.875 million of revenue related to a lease-vacation agreement.
- Nine-month net income increased $0.592 million, or approximately 99.1%. Results benefited from higher revenue, lower administrative and general expenses, and lower interest expense, partly offset by higher real estate operating costs and the absence of the prior-year marketable-securities gain.
- Real estate operating expenses increased approximately 4.2% for nine months, principally due to higher real estate taxes, maintenance, licenses and permits.
- Administrative and general expenses declined approximately 2.5% for nine months, primarily due to lower legal, professional and pension costs, partly offset by higher payroll costs.
- Interest expense less investment income was $0.219 million for nine months versus $0.092 million in the prior-year period. The prior-year period included a larger gain on the sale of marketable securities, while the current period benefited from lower mortgage interest after refinancing.
- On January 9, 2015, the company refinanced a mortgage with a $6.000 million five-year loan at a fixed 3.54% rate, including $0.652 million of additional borrowing.
Outlook, Commentary, Risks and Unusual Items
- Management stated that working capital and borrowing capacity were adequate for planned operating and capital requirements.
- The company recognized $0.292 million in quarterly and $0.875 million in nine-month revenue from a $3.500 million lease-vacation payment, which is being amortized over 36 months. A $1.250 million receivable was due June 16, 2015.
- In May 2015, the company signed a 20-year lease for 17,425 square feet at the Jowein building. Annual rent is expected to be approximately $0.550 million beginning in spring 2016; anticipated brokerage commissions and construction costs are approximately $0.500 million and $2.000 million.
- Management identified risks including tenant financial condition and lease cancellations, economic and competitive conditions, access to credit, loan-covenant compliance, regulatory changes, litigation, cost estimates and recoverability of claims.
- Various lawsuits and claims were pending, but management expected no material adverse effect. A separate contractor dispute involves a $0.376 million roof-work deposit; the outcome could not be predicted.
- The company participates in a critical-status multi-employer pension plan. Any potential withdrawal liability could not be determined, although management had no current plan to withdraw.
- Management reported effective disclosure controls and no material changes in internal control over financial reporting.
Important Facts for Investors to Verify
- Confirm the collection of the $1.250 million lease-vacation receivable and the remaining deferred-revenue amortization schedule.
- Review tenant concentration: two tenants represented approximately 17.2% and 14.0% of nine-month rental income.
- Assess lease-up execution, construction spending and expected commencement of the Jowein building leases.
- Review mortgage refinancing terms, maturity dates, amortization requirements and compliance with any loan covenants.
- Monitor the contractor litigation, other pending claims, the multi-employer pension plan exposure and the potential 25 Elm Place condominium obligation.
- Evaluate whether the substantial year-over-year earnings improvement is recurring or primarily reflects lease-vacation revenue and other tenant-related items.