J.W. Mays, Inc. Form 10-Q Summary
Business Context and Reporting Period
J.W. Mays, Inc. is a real estate company that derives substantially all operating revenue from rental properties. This Form 10-Q covers the three and six months ended January 31, 2017, the second quarter and first six months of fiscal 2017. The interim financial statements are unaudited. The company reported rental income from 49 tenants; three tenants represented 18.54%, 15.00%, and 10.50% of six-month rental income.
Key Financial Metrics
| Metric | Three Months Ended Jan. 31, 2017 | Three Months Ended Jan. 31, 2016 | Six Months Ended Jan. 31, 2017 | Six Months Ended Jan. 31, 2016 |
|---|---|---|---|---|
| Total revenues | $4.825 million | $4.608 million | $9.608 million | $9.177 million |
| Income from operations | $508,777 | $370,380 | $1.266 million | $1.074 million |
| Net income | $323,562 | $222,726 | $785,587 | $624,101 |
| Net income per share | $0.16 | $0.11 | $0.39 | $0.31 |
| Operating margin | 10.5% | 8.0% | 13.2% | 11.7% |
| Net margin | 6.7% | 4.8% | 8.2% | 6.8% |
| Operating cash flow | Not separately reported | Not separately reported | $2.004 million | $1.609 million |
Cash and cash equivalents were $5.023 million at January 31, 2017, compared with $5.229 million at July 31, 2016. Current assets were $6.857 million and current liabilities were $3.174 million, implying a current ratio of approximately 2.2. Total assets were $63.395 million and shareholders’ equity was $48.770 million.
Mortgage debt, net of deferred financing costs, was $5.481 million, with $159,705 classified as current. The mortgage bears fixed interest at 3.54% and is due February 1, 2020. The company also reported fixed-rate debt of $5.710 million for market-risk purposes. The $1.0 million unsecured related-party note was repaid in full on December 15, 2016. No dividends were declared.
Capital expenditures were $1.081 million during the first six months, while financing activities used $1.073 million, principally because of the related-party note repayment and mortgage payments. Cash decreased by $206,231 during the period.
Material Changes Versus the Prior Comparable Period
- Six-month revenue increased 4.7%, primarily from higher rental income from existing tenants. Second-quarter revenue increased 4.7%.
- Six-month net income increased 25.9%, and quarterly net income increased 45.3%. The improvement reflected higher revenue, lower administrative expenses, and a substantially smaller investment loss compared with the prior year.
- Real estate operating expenses increased 4.9% for the six months, driven by higher real estate taxes, utilities, licenses and permits, and a $141,132 contractor-litigation charge.
- Administrative and general expenses declined modestly, while depreciation and amortization increased to $829,300 for the six months, partly because of improvements at the Nine Bond Street building.
- Investment income improved to $38,564 from $7,142 for the six months; the prior-year period included a $38,538 loss on sale of marketable securities.
- Operating cash flow increased 24.6% year over year, but cash declined because of capital spending, marketable securities purchases, debt payments, and repayment of the related-party note.
Guidance, Outlook, Risks, Contingencies, and Unusual Items
Management stated that current working capital and borrowing capabilities were adequate for planned operating and capital requirements. The filing does not provide formal earnings or revenue guidance.
- A tenant occupying 99,992 square feet at the Fishkill property is expected to vacate in May 2017, causing an estimated annual rental-income loss of approximately $284,000.
- Occupancy of 17,425 square feet at the Jowein building was anticipated to begin in spring 2017, with rent expected to begin three months later. Construction was completed in November 2016.
- Additional leasing activity included extensions at the Levittown and Jamaica properties and new or replacement leasing at the Jamaica and Jowein properties.
- Planned or ongoing capital projects included elevator work with an estimated total cost of approximately $635,000, façade restoration, and other building improvements.
- The company continues to pursue recovery of a $376,467 contractor deposit relating to defective roof-replacement work. After an earlier $279,213 charge in fiscal 2016, an additional $141,132 was charged to operating expenses in October 2016.
- The company is involved in various lawsuits and claims. Management believes their aggregate resolution will not materially affect the financial statements, although the company states that the cost of a potential condominium unit at 25 Elm Place cannot currently be determined.
- The company participates in a multi-employer pension plan classified as critical and declining. Any withdrawal liability cannot be determined, and the company has not decided to withdraw.
- Management identified economic conditions, tenant financial condition, lease cancellations, credit availability, regulatory changes, litigation, competition, loan-covenant compliance, and estimation changes as risks to forward-looking results.
- Management concluded that disclosure controls were effective and reported no material changes to internal control over financial reporting.
Important Facts for Investors to Verify
- Confirm the timing and financial impact of the Fishkill tenant vacancy and the company’s ability to re-lease the space.
- Monitor occupancy and rent commencement at the Jowein building and the performance of recently renewed or replaced leases.
- Assess whether planned capital projects, particularly elevator work, remain within estimated costs and available liquidity.
- Review recovery prospects for the $376,467 contractor deposit and any additional litigation-related charges.
- Evaluate tenant concentration, because three tenants generated approximately 44% of six-month rental income.
- Verify the company’s fixed-rate mortgage balance, February 2020 maturity, and compliance with applicable loan covenants.
- Consider the potential exposure associated with the critical-and-declining multi-employer pension plan.