J.W. Mays, Inc. Form 10-Q Summary
Business Context and Reporting Period
J.W. Mays, Inc. is a real estate company whose properties are primarily held for leasing to tenants. This quarterly report covers the three and six months ended January 31, 2019, the second quarter of fiscal 2019. The financial statements are unaudited except for the July 31, 2018 balance sheet, which was derived from audited financial statements.
Key Financial Metrics
| Metric | Three Months Ended January 31, 2019 | Three Months Ended January 31, 2018 | Six Months Ended January 31, 2019 | Six Months Ended January 31, 2018 |
|---|---|---|---|---|
| Total revenues | $5.14 million | $4.79 million | $10.14 million | $9.58 million |
| Income from operations | $425,905 | $80,243 | $401,200 | $765,287 |
| Net income | $293,960 | $2.45 million | $214,766 | $2.85 million |
| Income per share | $0.15 | $1.21 | $0.11 | $1.41 |
| Cash flow from operations | Not separately reported | Not separately reported | $1.07 million | $1.16 million |
Revenue increased 7.3% for the quarter and 5.8% for the six-month period. Operating margins were approximately 8.3% for the quarter and 4.0% for the six-month period, compared with approximately 1.7% and 8.0%, respectively, in the prior-year periods. Net margins were approximately 5.7% for the quarter and 2.1% for the six-month period, versus approximately 51.2% and 29.7% previously.
- Cash and cash equivalents were $4.47 million at January 31, 2019; cash, cash equivalents and restricted cash totaled $6.10 million.
- Marketable securities were $3.12 million, compared with $3.14 million at July 31, 2018.
- Total assets were $67.03 million and shareholders’ equity was $53.31 million at January 31, 2019.
- Mortgage debt totaled approximately $5.36 million, including $171,573 due within one year. The mortgage bears fixed interest at 3.54% and matures February 1, 2020.
- Property and equipment, net, was $51.55 million.
- No dividends were paid, and weighted-average shares outstanding remained 2,015,780.
Material Changes Versus the Prior Comparable Period
- Rental income increased primarily from higher rent from existing tenants. The quarter and six-month period also included a $45,026 recovery of real estate taxes related to the Levittown, New York property.
- Quarterly real estate operating expenses declined 3.3%, primarily because of lower maintenance and utility costs. Six-month operating expenses increased 3.1%, principally due to higher real estate taxes, maintenance and rent expense.
- Administrative and general expense increased 5.2% for the quarter and 28.6% for the six-month period. The six-month increase included a $635,000 litigation settlement and higher pension costs.
- Depreciation increased due to improvements at the Brooklyn, Jamaica and Fishkill, New York properties.
- Investment income increased, but the company recorded a $108,158 quarterly and $142,217 year-to-date reduction from changes in the fair value of marketable securities under newly adopted accounting guidance.
- Net income declined sharply because the prior-year periods included an approximately $2.4 million deferred federal tax benefit from the Tax Cuts and Jobs Act. The 2019 periods instead included income tax provisions of $109,000 for the quarter and $112,000 year to date.
- The company adopted accounting guidance for equity securities effective August 1, 2018, recognizing changes in fair value in earnings and recording a $487,136 increase to opening retained earnings. It also adopted guidance on revenue recognition, restricted cash and income-tax effects in other comprehensive income.
Cash Flow, Liquidity, Outlook and Risks
Operating cash flow for the six months was $1.07 million. Investing activities used $1.78 million, including $1.70 million of property and equipment expenditures. Financing activities used $73,245, principally for mortgage payments. Cash and cash equivalents decreased by $776,872 during the period.
Management states that working capital and borrowing capabilities are adequate for planned operating and capital requirements. Planned and committed capital projects include approximately $1.8 million for four new elevators at the Fishkill property, expected to be completed in fall 2019. Other renovation, façade, stairwell, boiler, tenant-improvement and building projects were also in progress or recently completed.
The company reported several lease extensions, including substantial retail and office leases at its Jamaica and Brooklyn properties. A medical tenant at the Nine Bond Street property was expected to begin occupancy and rent payments in fall 2019.
No formal earnings guidance was provided. Management cautions that results may be affected by economic conditions, tenant financial condition, lease cancellations, competition, access to credit, regulatory changes, labor availability, litigation, loan covenant compliance and changes in accounting estimates.
- The company paid $635,000 in November 2018 to settle litigation concerning defective workmanship and roof-related work at its Fishkill property.
- Other lawsuits and claims remain pending; management believes they will not materially affect the consolidated financial statements.
- The company participates in a union-sponsored multi-employer pension plan classified as critical and declining. Any potential withdrawal liability cannot be determined, although the company has no current decision to withdraw.
- The company has a union contract covering approximately 24% of employees that expires November 30, 2019.
- Fixed-rate debt limits exposure to changes in interest rates; the company reported $5.38 million of fixed-rate debt and no derivative instruments.
- Rental income is concentrated: three tenants represented approximately 18.27%, 14.25% and 11.69% of six-month rental income.
- Management reported effective disclosure controls and no material changes in internal control over financial reporting.
Important Facts for Investors to Verify
- Whether recurring rental growth and lease extensions offset rising administrative, maintenance and capital costs.
- The company’s ability to refinance or repay the mortgage maturing in February 2020.
- The timing and total cost of the committed Fishkill elevator project and other ongoing capital projects.
- The effect of marketable-security fair value changes on future earnings and retained earnings.
- The financial impact, if any, of the critical-and-declining multi-employer pension plan and the November 2019 union contract expiration.
- Tenant concentration, lease renewal performance and the collectability of unbilled and other receivables.
- Potential outcomes and costs of pending litigation and the unresolved condominium-unit obligation related to 25 Elm Place, Brooklyn.