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 properties in New York. The filing covers the three and nine months ended April 30, 2013, within the fiscal year ending July 31, 2013. The interim financial statements are unaudited.
Key Financial Metrics
| Metric | Three Months Ended April 30, 2013 | Three Months Ended April 30, 2012 | Nine Months Ended April 30, 2013 | Nine Months Ended April 30, 2012 |
|---|---|---|---|---|
| Rental revenue | $3.704 million | $4.186 million | $12.004 million | $12.277 million |
| Income from operations | $269,114 | $964,523 | $1.199 million | $2.266 million |
| Net income | $73,037 | $140,159 | $562,843 | $826,081 |
| Income per share | $0.04 | $0.07 | $0.28 | $0.41 |
| Operating margin | 7.3% | 23.0% | 10.0% | 18.5% |
| Net margin | 2.0% | 3.3% | 4.7% | 6.7% |
For the nine months, operating cash flow was $3.019 million versus $3.100 million in the prior-year period. Capital expenditures were $1.942 million, producing approximate operating cash flow less capital expenditures of $1.077 million. Cash used in investing activities was $1.872 million, and cash used in financing activities was $256,000. Cash and cash equivalents increased to $2.231 million at April 30, 2013 from $1.340 million at July 31, 2012.
Total assets were $56.622 million and shareholders’ equity was $43.335 million at April 30, 2013. Mortgage debt was $5.633 million, including the current portion, and the $1.000 million related-party note was classified as current. Total liabilities were $13.288 million. Fixed-rate debt totaled $6.633 million; management stated that the company had no interest-rate market risk from this debt and used no derivatives.
Material Changes Versus the Prior Comparable Period
- Third-quarter revenue declined 11.5%, primarily because two office tenants vacated the Jowein building.
- Nine-month revenue declined 2.2% for the same principal reason.
- Third-quarter real estate operating expenses increased 12.3%, primarily from higher payroll, real estate taxes and utilities.
- Nine-month real estate operating expenses increased 9.4%, including higher maintenance, taxes, payroll, utilities, leasing commissions and a $240,258 bad-debt expense related to a departing retail tenant.
- Third-quarter net income decreased 47.9%; nine-month net income decreased 31.9%.
- The nine-month period included a $316,021 loss on disposition of property and equipment versus $4,215 in the prior-year period.
- Interest expense net of investment income decreased to $253,990 for the nine months from $387,076, primarily due to scheduled debt repayments.
- Cash flow from financing improved materially because debt payments were $117,653 compared with $3.308 million in the prior-year period.
Guidance, Outlook, Risks and Unusual Items
Management considers working capital and borrowing capacity adequate for planned operating and capital requirements, but no formal earnings or revenue guidance was provided.
A 56,547-square-foot tenant vacated in January 2013, representing approximately $1.357 million of annual rental income. The company signed a replacement lease for 41,385 square feet; construction was completed in May 2013 and rent was expected to begin in July 2013. A second 22,000-square-foot vacancy was replaced, with occupancy and rent commencing in April 2013.
A 7,401-square-foot retail tenant is subject to eviction litigation and represents approximately $430,000 of annual rental income. The company recorded a $240,258 write-off of unbilled receivables related to this tenant. A new 10,000-square-foot office lease was signed, with occupancy expected in late 2013 and rent expected in early 2014.
Planned or ongoing leasing and property projects were expected to require substantial operating cash, including approximately $1.3 million for the new Nine Bond Street tenant, approximately $400,000 to relocate part of the general offices, and approximately $300,000 for elevator work. The company stated these projects would be funded through operating funds.
The $5.318 million mortgage balance associated with the Brooklyn and Fishkill properties was scheduled to become due on February 18, 2015. The unsecured $1.000 million related-party note bears interest at 5% and matures on December 15, 2013. Two tenants accounted for 20.02% and 15.99% of nine-month rental income, respectively.
Various lawsuits and claims were pending, but management believed they would not materially adversely affect the financial statements. If the company sells, transfers, disposes of or demolishes 25 Elm Place, it may need to create a condominium unit for a loading dock; the cost and requirement could not be determined at filing.
Management identified economic conditions, tenant financial condition, lease cancellations, access to credit, loan covenant compliance, litigation, competition, regulatory changes and estimates used in accounting as risks to forward-looking results. No changes to the risk factors in the prior Form 10-K were reported. Management concluded that disclosure controls were effective and that no material weaknesses existed.
Important Facts for Investors to Verify
- Whether replacement leases fully offset the lost rental income from the Jowein vacancies and whether expected rent commencement dates were achieved.
- The status and recoverability of the 7,401-square-foot retail tenancy, eviction litigation and related $240,258 receivable write-off.
- Available liquidity for approximately $1.7 million or more of disclosed leasing, relocation, renovation and elevator expenditures.
- Refinancing or repayment plans for the $1.000 million related-party note due December 2013 and mortgage debt due February 2015.
- Tenant concentration and the financial condition of the two tenants contributing approximately 36% of nine-month rental income.
- The outcome of pending litigation and the potential condominium-unit obligation at 25 Elm Place.
- The sustainability of earnings given declining occupancy-related revenue, rising real estate operating costs and the absence of dividends.